In late 2014, Indonesian President Joko Widodo presented a plan to transform the country into a maritime power and develop 24 ports around the archipelago, generating much excitement in the shipping and port industries. It has been a recurring theme of many recent port conferences in South East Asia.

While this plan is to be applauded, it is not the first or only port infrastructure initiative in Asia. The Thailand government has announced aggressive development plans for its sea and river ports, including new ports. In the Philippines, the government is, likewise, investing in infrastructure and the Philippines Port Authority is actively rejuvenating its assets, partly through PPP arrangements. Simultaneously, Singapore and Malaysia are steadily investing in port upgrades and expansions. These are just a few of the plans that are in motion.

The Asian region, as a whole, has suffered from long years of under-investment in infrastructure. With nearly 90% of international trade being seaborne, it is still not too late to pursue an intensive course of infrastructure development so as to maintain economic growth, productivity and competitiveness. In fact, trade and economic growth here has strained existing port infrastructure in many countries to the point where they simply cannot accommodate further expansion without serious investments. In short, it is now ‘boom or bust’.

Based on discussions with port owners and operators, government bodies, shipping and logistics companies, the general consensus is less about whether developments will go forward but more on the ‘how’. Whether they are engineers, operators, CFOs or Business Developers, their concerns revolve around the worrying question of sustainability - “if we build, will they come? And stay?” Given that, let us examine what it takes to make a port successful in the following terms:

• Location
• Efficiency
• Finance

Let us look at each in turn.

Location

Upon a moment’s reflection, the realtor's mantra – location, location, location - applies to ports too, though not many would have regarded them as pieces of real estate in the traditional sense. The importance of location cannot be understated; in fact, for a port to be successful, it will need: 

• Sufficient economic hinterland: Be it natural resources like oil, coal or minerals or industrial parks, there must be a business case for the port’s existence
• Sufficient land and sea-space for the initial development and future expansion: Certainly the last thing anyone wants is for the ports and warehouses to be fighting for space with commercial and residential operators
• Access to efficient transport modes of sufficient capacity (road, rail, river, etc.): Can the goods get to and away from the port quickly, without sitting unproductively on congested roads
• Sufficient (natural) water depth and shelter to accommodate vessel arrivals/departures and for safe and efficient loading/unloading

Finding a place that ticks the above four boxes is not easy. Existing ports may be located in places with an economic hinterland but are increasingly finding expansion constrained by other land uses, insufficiently deep water or congested transport corridors. Just think of the current location of the ports of Manila and Jakarta. Congestion and land opportunity costs are primary reasons why Singapore is moving its port operations away from Tanjong Pagar. 

Conversely, a greenfield development may initially not have the right connectivity, as vocal local landowners pose a significant hurdle in acquiring land for the port itself or for the access routes. Natural harbours of sufficient size to accommodate a modern port are few and far between and so the pressure on new developments is clear.

New investors also face the risk that the existing facilities, which they are sometimes meant to replace outright, are often not actually decommissioned as these issues gets tangled with vested interests. So a prime location is not always a hedge against failure.

Efficiency

There are considerable differences in the efficiency of ports, both at individual and country levels. These differences can partly be attributed to scale and level of development but also on labour issues and ‘red tape’. 

Ports have always been a large direct employer, as well as generating significant indirect work. But the former has been changing. Where oil used to be loaded and unloaded in individual barrels, we now have customised oil tankers with specialised storage terminals that require limited numbers of staff to operate. Break-bulk cargo has also been going down this route since the introduction of the container, but crane operators, truckers and other personnel are still required. Many modern terminals have been automated to such a degree that they are largely the domain of computer algorithms and autonomous vehicles. So while skill-sets and individual pay have gone up, headcount numbers have gone down.

All of that automation makes modern terminals extremely efficient, lowering the cost of transport for all concerned. But the loss of jobs does not always go down well or easily; and port operators are often faced with having to choose between an ‘acceptable’ level of automation and efficiency, rather than ‘possible’.

No matter the vested interests involved, the overall economic gains of efficient and effective transport infrastructure for a region or country are significant (Figure 1). This is not to say that the impact of large-scale, automated terminals on local labour are inconsequential but that they will need to be addressed for the greater benefit of the economy.

Figure 1: Quality of port infrastructure

Sources: World Bank 2012 Indicators & World Economic Forum’s The Global Competitiveness Report 2013 – 2014

Finance

Finally, the question that is on everyone’s lips: “Where is all the money coming from?” Governments and other relevant authorities freely admit they cannot fund all the required developments themselves.

Port infrastructure is expensive, particularly if significant amounts of dredging and reclamation are necessary; and/or breakwaters are required apart from which the quays, jetties, storage facilities, and the like need to be considered on top of the connecting roads and rail infrastructure. Though the port generates a return itself, the cost associated with common port requirements such as the channel has been traditionally financed by government, semi-government related port authorities or development companies.

Specialist commercial terminal operators often take up the investment in the bespoke infrastructure needed for their operations, ranging from the tanks and cranes to the quays and jetties. Long-term returns of the port assets have however been stable and in today’s market. This means there is an increasing interest from institutional investors, private infrastructure funds and others in investing in these terminal operations and individual ports. 

Together with increasing interest in PPP investment arrangements, it would seem that capital for development is the lesser problem, and in some cases, it is. But a word of caution: many port developments are taking place in countries with limited experience and legal frameworks for this type of investment, so there are still a number of practical hurdles.

Will they come?

The coming years will be exciting times for infrastructure development, including port infrastructure, in Asia, driving overall economic growth and bringing benefits to the local communities involved. 

What is clear is that these developments require much more from the developer than technical acumen, especially at the early stages. Developments need to be embedded in larger master plans, looking at their economic, social and environmental impact as well as their effectiveness and efficiency of operations and long-term viability. In this way, we can be assured that if we build, they certainly will come and stay.

Jeroen Overbeek is Aurecon’s Port and Marine leader in Asia. He has over 20 years of professional engineering experience in the design of ports and other marine infrastructure projects, spanning Asia, Europe and the Americas.