Liner Shipping Markets,
Networks and Strategies
The implications for port developmenton the West coast of South America

22

Discussion Paper 2013 • 22
Gordon Wilmsmeier

Economic Commission for Latin America
and the Caribbean (ECLAC)

Liner Shipping Markets, Networks andStrategies
The implications for port developmenton the West Coast of South America
The case of Chile

Discussion Paper No. 2013-22

Prepared for the Roundtable on
Port Investment and Container Shipping Markets(7-8 November 2013, Santiago, Chile)

Gordon WILMSMEIER
Economic Commission for Latin America and the Caribbean (ECLAC)

revisedMay 2014

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIESTABLE OF CONTENTS

1. SETTING THE SCENE .................................................................................. 5
2. PORT THROUGHPUT DEVELOPMENT .............................................................. 6
3. LINER SHIPPING ........................................................................................ 9Technological change ................................................................................... 9
Structural change – reefer trade.................................................................. 13
Market structure........................................................................................ 15
4. CONCLUSIONS AND OUTLOOK ................................................................... 18
5. REFERENCES ........................................................................................... 19

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIES

1. SETTING THE SCENE

This paper, predominantly on the challenges for port development, in some importantsense cannot help but also be about the deeper phenomena of structural change in themaritime industry and geographical shift. The main objective is to analyse the evolutionof symptoms of change in the liner shipping industry within South America and moreparticularly on the West Coast, as these changes are direct drivers of port infrastructure
and port system development, which is both economically interesting and a matter ofserious policy significance in its own right.
Port infrastructure and the quality of shipping services in a region or country areimportant determinants of countries’ integration in the global market and theircompetitiveness. Given the sustained growth in emerging economies, despite the recent
crisis, port infrastructure development has emerged as a crucial issue for future
economic growth. The West Coast of South America (WCSA) and particularly Chile haveexperienced significant economic expansion over the last two decades. However, the roleof infrastructure and its contribution to continued economic and social development has
only recently returned to political agendas.
Growth in demand for port infrastructure, structural changes in the maritime industry
and the changing geography of trade have clearly revealed the limits of the current
transport infrastructure in the region and the country. Infrastructure development
decisions, particularly as concerns port infrastructure expansion, are politicised, full ofhistoricism and case-specific empiricism. Thus this work tries to stimulate a more
systemic view to support more contextual, integrated and long-term policy decisions.
Wilmsmeier et al. (2013) identified critical moments in port development in Latin
American and the Caribbean (LAC). Their work focused on the evolution of the portsystem in the region and its sub-regions. Their findings are the starting point for thepresent paper, which moves beyond the port to analyse the evolution of and changes in
the maritime industry and, more particularly, liner shipping services on the WCSA.
Beyond the critical moments identified in the previous work, this paper particularly
focuses on the elements of technological change (related to ships), network strategies
and liner shipping market structures.

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIES

Figure 1 - Critical Moments in LAC port development, 1990-2013
Economic
growthcontainer
volumeschanging
geography oftradechange in the
structure ofcargoesPort
devolution

port reform

influx ofinternational
private operatorsinterterminal
competition

Port function

gateway ports

hybrid ports

transhipment
ports

Port system

one main port

new terminal
development interterminal
competition

diversification emergence of
secondary ports

Technologicalchangeship size

automatisationofsuperstructureslogistics
information
systems

Network
strategy

direct services

transhipment
strategies

liner specifictranshipment
hub

Liner shipping
marketstructures

establishingmarket presence(competition)

mergers andacquisitions

co-opetition andcollusive
behaviour

renegotiation ofconcession
contracts

geographicalshift- emergenceof new ports

Source: Based on Wilmsmeier et al. (2013).

2. PORT THROUGHPUT DEVELOPMENTPort throughput in Latin America and the Caribbean has grown from 10.4 million TEU(1997) to almost 43 million TEU (2012). At a compound annual growth rate of 9.9%, thisdevelopment has put enormous pressure on port infrastructure in the region. However, ina global context LAC ports are only responsible for 7.2% of throughput, with all WCSA
ports combined moving only about 1/6 of the TEU of the port of Shanghai.
The analysis of the WCSA port system by Wilmsmeier et al. (2013) hints that ports(represented by their actors, either public or private) were able to make use of critical
moments more or less successfully. The port reform processes in the 1990s, notably inChile, made it possible to advance port infrastructure development, particularly in termsof port productivity, and to initiate significant container terminal development throughthe involvement of the private sector. However, the sustained growth has brought theprevalent lack of port and transport and logistics infrastructure in the hinterland to light.

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Thus far the focus has been almost exclusively on the development of main container
ports, with only residual attention paid to secondary port development in the region.
Similarly, port expansion planning is still usually port focused, not developed
systemically. Hinterland transport infrastructure and logistical development are also not
fully taken into account.
Path dependency and contingency are important elements in the evolution of a portsystem and its subsystems. Port devolution, competition and hinterland integration
strategies, as well as public planning approval, are determinants in this context.
Path dependency is often created by historicism and institutional sclerosis. In Latin
America the devolution process in many countries has left port development in the handsof the private sector. Wilmsmeier et al. (2013) refer to Swyngedouw (1992, p. 424e),
who argues that “the production of locational effects as a result of capital investment inspace” , left to private investors, ignores important aspects when creating new ports.
Fleming and Hayuth (1994) have also noted how the virtues of centrality andintermediacy that create strategic locations can be manufactured. The question is how
this affects future private investment and institutional capacities of current development,
particularly in a region where government investment in ports is almost absent. Thereseems to be clear evidence from the above analysis that the manufacturing of strategic
locations can be successful and may have initiated the emergence of secondary ports in
LAC.
Ports and port systems undergo lifecycles (Cullinane and Wilmsmeier, 2011) and on the
WCSA the traditional main ports have reached maturity. Thus the current discussion on
port development needs to be whether it is possible to extend the lifecycle of current
locations and what solutions are available, or whether the development of a completely
new site in terms of a locational shift is the best option to cater for future development
and expansion of the existing port system.
Studies and political discussion on port development in the region have typically focusedon the development of a single port, usually a country’s main port, thus failing torecognise changes in the overall port system. Wilmsmeier et al. (2013) analyse theevolution of the LAC port system as a whole. Particularly, for the subregion WCSA and its
East Coast counterpart (ECSA), the authors find clear indications of decentralisation
processes. Over the last decade secondary ports have evolved much faster than the longestablished main gateway ports in both subregions. Thus there is a diversification ofports serving the demand for containerised trade, which is also accompanied by ageographical dispersion of ports.
In the case of Chile, the ports of San Antonio and Valparaiso handled more than twothirds of the total containers moved within the country in 1997. By 2012, these two ports
had more than tripled their throughput to over 1.8 million TEU. However, the overall
share in container throughput of these two ports has fallen to just above 50%.

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIES

TEU

2

2,0

1,8

1,8

1,6

1,6

1,4

1,4

1,2

1,2

1

1,0

0,8

0,8

0,6

0,6

0,4

0,4

0,2

0,2

0

Millions

Millions

Figure 2 – Evolution of container throughput in Chile, by port, 1997-2011

0,0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Antofagasta

Arica

Chacabuco

Coquimbo

CoronelIquique

LirquenPuerto Angamos

Puerto Montt

San Vicente (SVTI)

Talcahuano

Ventanas

Punta Arenas

San Antonio

Valparaiso

Source: Wilmsmeier et al. (2013).

The ports of Talcahuano, San Vicente Terminal Internacional (SVTI) and Lirquén, alllocated in very close proximity, have evolved much faster than the traditional ports of
San Antonio and Valparaíso. In 1997, SVTI did not even exist, and the others only played
a minor role in the port system. In 2012, these three ports moved over one-third of all
Chilean container trade.
Such diversification and geographical shift in the port system has occurred in parallel in
Brazil and Mexico (Wilmsmeier et al. 2013). This diversification is being driven by thechanges in the export structures and thus the emergence of new production centres in
the South (especially for perishable products). Additionally, secondary ports are starting
to engage in more integrated development strategies, which include consideration oflogistics development connected to the port (e.g. Manaus, Brazil; Puerto Angamos,
Chile).
The changes in the port system are relevant for Chile’s future port development strategy
for two reasons: a) expansion of production centres especially in the South but also inother parts of the country leads to a significant increase in hinterland traffic, not only toregional ports but also to the traditional main gateway ports, and b) the shift of economic
activity can be expected to result in population increase in the affected regions, creatinga new pattern of demand.
Strategies to deal with both factors include infrastructure development to cope withemerging and expanding markets and production centres. This can be achieved by

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expanding road infrastructure, significantly reinforcing the rail network or facilitating
coastal shipping.
The available data suggest some evidence for a deconcentration of container traffic
within the LAC port system, related to shifts both in gateway regions and from a gatewayrole to a transhipment role, thus supporting the movement of cargo through secondary
LAC ports.
More research is required, but the shifts already identified have potential benefit forsecondary ports, many of which are pursuing significant expansion to take advantage ofthe expected trends. These ports seek to reposition themselves within an emerging
feeder market that could reduce the peripherality they experienced in the traditional LAC
port and infrastructure system. The paper thus raises questions about port policy andboth public and private sector responses to a changing LAC port geography.

3. LINER SHIPPING

Analysis of port throughput and weekly capacity supply on the WCSA between 2000 and2012 reveals a high correlation (0.9) over the whole period. However, the growth rates
varied significantly and capacity supply grew faster than port throughput, particularly
after the crisis. This section analyses the technological change, capacity development andmarket structure in liner shipping on the WCSA since 2000.
Technological change
Technological change in container shipping has unequivocally been a driver of port
development. As shipping lines are seeking economies of scale, capacity adjustment has
been reached mainly by deploying bigger vessels (Cullinane and Khanna, 1999). The
following analyses technological change in terms of ship dimensions (capacity, draught,
length and breadth) and its repercussions on port development in the WCSA.
The vessel sizes deployed on the WCSA and in South America in general have
conventionally lagged behind the development in the principal trade routes (Perrotti and
Sánchez, 2012). However, the evolution of vessel sizes and their TEU capacity
dramatically accelerated from the second half of 2008. On the WCSA a significant
difference exists between the routes crossing the Panama Canal (WCSA-Europe) and theother main routes (WCSA-Asia and WCSA-North America). In the case of the former, thePanama Canal is the limiting factor; since 2009 Panamax vessels have held an increasing
share on this route. On the routes to Asia and North America (WCUS), where this limiting
factor is absent, the biggest vessels now deployed can carry over 9 000 TEU; in 2008 themaximum vessel capacity was half that. At the same time the average vessel size (TEU
capacity) is now above Panamax ship capacity. Figures 3 and 4 clearly depict theacceleration in growth of vessels’ TEU capacity since 2008, and with that the cascading
effect moving overcapacity from other main routes into secondary markets and thus
replacing tonnage.

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIES

Figure 3 - Evolution of vessel capacity on West Coast South America main traderoutes, 2000-12

Note: The main trade routes are transpacific, transatlantic and Europe-Asia.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

Figure 4 - Evolution of vessel capacity on South American and other main traderoutes, 2000-12

Note: EC = east coast; WC = west coast; NC = north coast; the main trade routes are transpacific,transatlantic and Europe-Asia.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

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While there is much talk about the evolution of ship size and related future requirements
for infrastructure, an analysis of the evolution of container ships since 2000 on the WCSA
reveals that ships with a draught of 15m are already a reality. Further, even averagedraught of deployed vessels has increased by over 2m in the past 13 years. Thus, any
new port development will have to consider vessel draught of at least 15m.
Figure 5 – Evolution of vessel draught on South American and other main traderoutes, 2000-12

Note: The main trade routes are transpacific, transatlantic and Europe-Asia. The draught considered is thedesign draught of vessels fully laden.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

Vessel draught is only one aspect of the technological changes to ships that affect port
infrastructure requirements. Additional aspects are ship length and breadth. The former
determines the quay length and berth layout required to accommodate ships. The latter
is a key indicator for superstructure requirements in ports, especially the reach of shipto-shore cranes.
The average vessel length on the WCSA was above 250m in 2012, and the maximum
vessel length reached 340m. In 2000 the maximum vessel length was just above 200m.
Beyond actual length, variation in the length of ships serving a port is of high relevanceto port productivity and to planning. Additionally, the breadth of vessels serving thesubregion increased from 32.5m (2000) to over 45m (2012).

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Figure 6 – Evolution of vessel length on South American and other main traderoutes, 2000-12

Note: The main trade routes are transpacific, transatlantic and Europe-Asia.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

Figure 7 – Vessel breadth on South American and other main trade routes, 200012

Note: The main trade routes are transpacific, transatlantic and Europe-Asia.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

The observed changes on the WCSA clearly show an acceleration of technological change,
particularly since the beginning of the crisis in 2008. At the same time they illustrate themultidimensionality of technological change affecting port development and future port

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plans. The observations indicate increasing pressure to adjust port infrastructure topresent requirements, as well as emerging pressure for new port development. A recent
study expects 13 000-TEU ships to start calling regularly on the coasts of South America
between 2016 and 2020 (Sánchez and Perrotti, 2012). This would have direct
implications for the liner shipping networks and port infrastructure in the region. If somesecondary ports have insufficient handling capacity to accommodate bigger ships, thiswould support the growth of regional second-tier hubs, which would be able to serve thesmaller ports either by smaller feeders or even land transport (thus raising issues
relating to the quality and capacity of hinterland infrastructure links).
Ports on the WCSA urgently need to adjust their available draught capacity to 15m andabove. In addition, any investment in port superstructure will have to consider a reachfor ship-to-shore cranes beyond 50m, as current ships already require more than 45m.
The latter factor has special relevance, as crane reach requirements will always have to
be met; there is no flexibility as in the case of draught, where a less laden vessel will not
require the maximum draught.
The introduction of ever-larger vessels on mainline routes may be attractive for shippinglines but will strain ports severely. Ports invest large sums in upgrading their facilities
and competing to receive vessel calls, but handling demand spikes is difficult. Large
container drops can result in inefficient crane utilisation as the numerous large cranes
required to service large ships are not all required between calls; furthermore, large
numbers of containers cannot always be moved in and out of port smoothly. Moreover,shipping lines already have trouble meeting their own schedules; current averagereliability across the industry is below 70%. The larger the vessel and the greater thevolume of transferred containers at each call, the larger the knock-on effect of poor
reliability on the rest of the container system.
A further dimension of technological change driven by the emergence of reefer cargo isdiscussed below.
Structural change – reefer trade
The global demand for perishable products, especially fruit, has grown substantially,
increasing the need for refrigerated seaborne transport capacity. The associated tradeflows mainly originate in the southern hemisphere and are directed towards theindustrialised countries in the northern hemisphere. In 2010, total seaborne reefer trade
was 86.1 million tons, and is expected to reach 112.0 million tonnes by 2016 (Drewry,2011). WCSA countries exported 14.2 million tonnes of perishable products valued at
almost USD 15 billion in 2010, which amounted to 6% of overall export volume (tonnes)
and 9% of the subregion’s total export value (Vagle, 2012, based on BADECEL, 2012).
After Ecuador, Chile is the region’s largest exporter of perishables in terms of volume, at
4.8 million tonnes. In 2010, the country’s export value of perishables was equivalent to
55% of the whole subregion’s export value, reaching almost USD 7.6 billion, making
Chile the largest exporter of perishables in terms of value. The average annual growthrate between 1995 and 2010 was 8% in terms of export value, or twice the rate forexport volume (4%).

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Figure 8 - West Coast South America reefer export evolution, 1995-2011

Source: Vagle (2012), based on BADECEL (2012).

The expansion of reefer trade has had important repercussions on the type of vessels
deployed in the region, particularly as the transport of reefer cargo has been shifting
away from conventional reefer ships to being containerised. For example, between Chileand Northern Europe the share of containerised reefer transport increased from less than
10% in 2000 to over 65% in 2011.
The deployed weekly capacity of TEU and reefer plugs on the WCSA more than trebled on
the subregion’s main routes. The WCSA-Europe route showed the highest share of reeferslots in relation to TEU capacity, 20% in 2012. On the WCSA-North America and WCSAAsia routes the share of reefer slots was around 12%. The average number of reefer
plugs per string in June 2011 was 364. .
This shift is also reflected in the number of reefer slots in the ships deployed in thesubregion – up to 1 400 per vessel. The WCSA and the ECSA are the regions where ships
with the highest number of reefer plugs are being deployed.

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Figure 9 – Reefer capacity of vessels deployed on WCSA main routes, 2000-12

Note: The main trade routes are transpacific, transatlantic and Europe-Asia.
Source: Based on ComPairData, Lloyds List and Marine Traffic, various years.

This structural change in trade also has significant repercussions on ports, as thehandling of reefer cargo requires additional installations for cooling and specific services
to manage the units. Chile handled around half a million TEU reefer containers in 2012.
Market structure
From the liner shipping perspective, the region and Chile face the challenges of market
concentration and the further evolution of liner shipping networks towards hierarchicalnetworks driven by hub-and-spoke strategies, and they are already affected by therepercussions of the cascading effect in ship deployment, which has led to exponential
and accelerated growth of ship sizes deployed in the region.
Nominal capacity in 2012 on the WCSA main routes was 54 000 TEU, an increase of
70% from 2009. The WCSA-North America route experienced the greatest increase(130%) over the period, while capacity on the WCSA-Asia route expanded by over 75%.

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LINER SHIPPING MARKETS, NETWORKS AND STRATEGIES

Figure 10 – Evolution of weekly capacity supply on WCSA main routes, 2009-12

Source: Based on ComPairData, various years.

Nominal capacity increased significantly faster than weekly capacity. The strongest
increase in nominal capacity can be observed on the WCSA-Asia services, where it morethan doubled between 2008 and 2012. Between 2000 and 2012, nominal deployedcapacity on the three main routes (WCSA-Asia, WCSA-Europe and WCSA-North America)
quintupled. The differences in nominal capacity are an indicator for the use of slow
steaming on the routes, particularly those to Asia and North America.
Beyond capacity, market structure is of high importance to understand potential
strategies. In line with Wilmsmeier and Notteboom (2011), a phase of penetration,
consolidation and concentration can be observed between 2000 and 2012. At the
beginning of the millennium, new operators appeared on the WCSA liner shipping routes(e.g. MSC on the WCSA-Europe route in 2004). Additionally, mergers and acquisitions in
the maritime industry had repercussions on the presence of operators in the subregion(notably the takeover of PONL by Maersk). As a result of the crisis, the pattern changed
and co-operation between shipping lines, in terms of slot share agreements and jointly
operated services, increased. This led to significant movements in the market, as
Figure 11 shows for the case of the WCSA-Asia routes. It can be seen that the changes in
co-operation and entering and exiting actors particularly increased between April 2010
and January 2012, leading to a period of apparent instability. A result of this period wasa significant increase in active operators on the route. However, this was accompanied bya decreasing number of actual services offered.

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Figure 11 – WCSA-Asia changes in market structure, 2000-12

Source: Wilmsmeier and Parushev (2013).

This new form of co-operation also raises questions on the level of competition in themarket. Emerging markets such as the WCSA offer a unique opportunity to investigate
the behaviour and effectiveness of potential collusive behaviour and pricing. The lattermight reduce the competiveness of a country in external trade.
Figure 12, for example, depicts the challenges for the WCSA-Asia route. As the figure
shows, five groups compete in this market, despite the fact that more 20 shipping lines
are active in the market. Further collaboration between shipping lines carries a risk ofquasi-monopolistic markets with potential for collusive behaviour, as is already the caseon the WCSA-Europe route.
Figure 12 – Market share in nominal TEU capacity by service, WCSA- Asia, 2000-12

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Developments in the liner shipping market have high relevance for future port
development, as vertical integration in the market is advancing and thus future port
concessions and terminals can result in changes in the competitive environment of theshipping market if a new terminal/port is controlled by a particular group.

4. CONCLUSIONS AND OUTLOOKPort infrastructure in its own right as well as the regional and national port system inChile are at a crossroads, driven by changes in the maritime liner shipping industry,
structural transformation and geographical shifts in trade. Traditional port-focused
infrastructure development needs to be extended to include the hinterland, and future
port system development will have to reach beyond the established centralist vision.
Further, current and future changes in the maritime industry will have to be taken into
consideration in long term development strategies.
These shifts entail changes beyond physical development, including at main ports, which
require solutions that allow future flexibility. Successful port adaptation to infrastructuredevelopment in an increasingly competitive environment can only be achieved if
institutions and private sector actors are able to act jointly in critical moments and basetheir action on integrated visions.

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5. REFERENCES

Wilmsmeier, G., J. Monios and G. Perez, 2013, “Port System evolution: the case of Latin
America and the Caribbean”, paper presented at IAME Annual Conference, Marseille, July
3-5.
Cullinane, K.P.B. and G. Wilmsmeier, 2011, “The contribution of the dry port concept tothe extension of port life cycles”, in Böse, J.W. (ed), Handbook of Terminal Planning,
Springer, New York.
Wilmsmeier, G. and T. Notteboom, 2011 “Determinants of Liner Shipping Network
Configuration: A Two Region Comparison, GeoJournal, 76 (3), pp 213-228.
Sánchez, R.J. and D. Perrotti, 2012, “Looking into the future: big full containerships andtheir arrival to South American ports”, Maritime policy and Management, Vol. 39, No. 6,
pp. 571-88.
Swyngedouw, E. 1992. Territorial organization and the space/technology nexus.
Transactions of the Institute of British Geographers, 17: 417–433.
Vagle, R. 2012, Maritime Reefer Trade in West Coast South America: The case of fruits.
Maritime Bulletin (50), October, <http://www.cepal.org/id.asp?id=48153>
Fleming, D. K., Hayuth, Y., 1994, Spatial characteristics of transportation hubs: centrality
and intermediacy. Journal of Transport Geography, 2, 3–18.
Wilmsmeier, G. and Parushev, T. 2013 Liner shipping industry – evolution, stability andconcentration in South American markets. ECLAC. Working paper.
BADECEL 2012, Base de Datos Estadísticos de Comercio Exterior, Economic Commission
for Latin America and the Caribbean (ECLAC) [March, 2012],<http://websie.eclac.cl/badecel/badecel_new/basededatos.asp>.

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