The Competitiveness ofPorts in Emerging Markets
The case of Durban, South Africa
Country-Specific Policy Analysis

The Competitiveness ofPorts in Emerging Markets
The case of Durban, South Africa
Country-Specific Policy Analysis

THE INTERNATIONAL TRANSPORT FORUM
The International Transport Forum at the OECD is an intergovernmental organisation with 54 member
countries. It acts as a strategic think-tank, with the objective of helping shape the transport policy agenda
on a global level and ensuring that it contributes to economic growth, environmental protection, social
inclusion and the preservation of human life and well-being. The International Transport Forumorganises an annual summit of Ministers along with leading representatives from industry, civil society
and academia.
The International Transport Forum was created under a Declaration issued by the Council of Ministers of
the ECMT (European Conference of Ministers of Transport) at its Ministerial Session in May 2006 under
the legal authority of the Protocol of the ECMT, signed in Brussels on 17 October 1953, and legal
instruments of the OECD. The Members of the Forum are: Albania, Armenia, Australia, Austria,
Azerbaijan, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Canada, Chile, China, Croatia, the Czech
Republic, Denmark, Estonia, Finland, France, FYROM, Georgia, Germany, Greece, Hungary, Iceland,
India, Ireland, Italy, Japan, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico,
Moldova, Montenegro, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russia,
Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, the United Kingdom and theUnited States.
The International Transport Forum’s Research Centre gathers statistics and conducts co-operative
research programmes addressing all modes of transport. Its findings are widely disseminated and support
policymaking in Member countries as well as contributing to the annual summit.
The International Transport Forum’s website is at: www.internationaltransportforum.org

DISCLAIMER
Any findings, interpretations and conclusions expressed herein are those of the authors and do notnecessarily reflect the views of the International Transport Forum or the OECD. Neither the OECD, ITF
nor the authors guarantee the accuracy of any data or other information contained in this publication andaccept no responsibility whatsoever for any consequence of their use.
This document and any map included herein are without prejudice to the status of or sovereignty overany territory, to the delimitation of international frontiers and boundaries and to the name of any
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Acknowledgements

This report was directed by Olaf Merk, and written by Prof. Jean-Paul Rodrigue (Hofstra University
New York), Jasper Cooper (Columbia University and Sciences Po, Paris) and Olaf Merk (ITF/OECD).
The report was made possible by a voluntary contribution of Transnet (South Africa). The report has
benefitted from discussions with relevant local actors and stakeholders during various study missions toSouth Africa in 2013. Valuable comments during the drafting of the report were provided by Noel
Cronje, Andrew Mather, Nimi Ramchand, Desmond Simpson, Kiran Parthab, Ajiv Maharaj, Selvan
Pillay and Debra Roberts. A special thanks to David Stromberg for his patient efforts in getting the
project off the ground.
The report was prepared under the auspices of the OECD Territorial Development Policy
Committee (TDPC) and approved in the OECD Working Group on Territorial Policies in Urban Areas(WGTPUA) that took place in June 2013 in Paris, France.
Please address further enquiries about this work to Olaf Merk (olaf.merk@oecd.org)

TABLE OF CONTENTS – 5

Table of Contents

TABLE OF CONTENTS .............................................................................................................. 5
EXECUTIVE SUMMARY ........................................................................................................... 9
RECOMMENDATIONS ............................................................................................................ 11
CHAPTER 1. PORT PERFORMANCE .................................................................................... 13
The South African Port Context .............................................................................................. 13
Maritime connectivity .............................................................................................................. 19
Durban in the national port system .......................................................................................... 28
Port efficiency .......................................................................................................................... 37
Hinterland connectivity............................................................................................................ 51
CHAPTER 2. PORT IMPACTS ................................................................................................ 57
Port-related employment .......................................................................................................... 57
Port-related value added .......................................................................................................... 58
Environmental and social impacts ........................................................................................... 68
CHAPTER 3. POLICIES AND GOVERNANCE ..................................................................... 73
Governance of the port-city interface ...................................................................................... 73
Broader port sector regulatory framework ............................................................................... 83
Corridor development .............................................................................................................. 87
Port digout project ................................................................................................................... 91
ANNEX 1: TIME EFFICIENCY OF PORTS........................................................................... 103
ANNEX 2: EFFICIENCY OF OIL PORTS .............................................................................. 104
ANNEX 3: MULTISITE PORT EVOLUTION IN LARGE PORT CITIES............................ 107
BIBLIOGRAPHY ..................................................................................................................... 113

Figures

1.1
1.2
1.3
1.4
1.5

Hinterland access issues for Sub-Saharan African Ports...................................................... 15
The African container ports system (without Med-ports) .................................................... 16
Cost to import a 20 foot container, 2012.............................................................................. 18
Liner shipping connectivity index of African countries (2012) ........................................... 20
Main routes servicing South African transhipment hubs ..................................................... 22

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6 – TABLE OF CONTENTS

1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
1.21
1.22
1.23
1.24
1.25
1.26
1.27
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13

Maritime foreland diversity of main African and selected world ports (2011) .................... 25
Maritime forelands of the port of Durban (2004)................................................................. 26
Maritime forelands of the port of Durban (2011)................................................................. 27
Structure of Transnet ............................................................................................................ 29
The South African Ports System .......................................................................................... 32
Traffic handled by South African Container Ports, 2000-2012 (in TEUs) .......................... 33
Share of traffic handled by South African Container Ports, 2000-2011 .............................. 34
The Port of Durban............................................................................................................... 35
Monthly traffic, Port of Durban, 2000-2013 ........................................................................ 37
Total port pricing per TEU (USD), selected ports, 2012 ..................................................... 39
Average ship waiting hours at Durban Container Terminals ............................................... 42
Anchorage and Turnaround Time of Containerships calling the port of Durban
between February 2012 and April 2013 ............................................................................... 43
Monthly anchorage and turnaround time of containerships calling thePort of Durban (March 2012-April 2013) ............................................................................ 44
Average turn around time per call, May 2011 ..................................................................... 45
Average turnaround time (in days) of ports in the world, May 2011 ................................... 45
Average container handling time (days/1000 TEU), May 2011 .......................................... 46
Efficiency scores for a sub-sample of crude oil ports/terminals .......................................... 47
Cargo dwell time frequency at the Port of Durban .............................................................. 49
Container haulage system, Port of Durban (TEUs).............................................................. 50
South African main rail systems and corridors .................................................................... 52
Rail flows by direction Durban/Gauteng (2012) .................................................................. 54
Modal splits of port hinterland traffic .................................................................................. 54
Contribution of the eThekwini municipal area to the national andregional gross value added ................................................................................................... 59
The spatial concentration of the EMA maritime cluster by sector ....................................... 61
Port-related economic clusters in the eThekwini metropolitan area (2007)......................... 62
Port-related economic clusters in (clockwise) North-West Durban, the CBD,
Isipingo industrial area, and the back of port (South Durban Basin) 2007 .......................... 63
Empirical analysis of non-residential land-use in Clairwood, 2009..................................... 70
Transnet direct and indirect GHG emissions 2011/12 ......................................................... 72
Actors involved in the Durban Port Liaison Committee ...................................................... 77
The price imposed by port authorities for a standardized vessel call in US$ for containers
of all types as of 01/04/2012 ................................................................................................ 85
Amendment to tariffs on loaded transhipment containers proposed by
TNPA for the financial year 2013/14 ................................................................................... 86
Main Nodes of the Durban- Free State– Gauteng Logistics and Industrial Corridor ...............
(N3 highway in blue and main rail line in red)..................................................................... 88
Major Rail Freight Nodes and Development Projects in South Africa ................................ 90
Projected demand vs. projected capacity for TEU throughput in theport of Durban 2011-2040 .................................................................................................... 92
Proposed Layout for the Durban Digout Port ...................................................................... 93
Impacts of the digout port development on the KZN economy ........................................... 94
Capital expenditure for phase 1 of DIADP in Rand millions............................................... 95
Cumulative capital expenditure estimates for DIADP in Rand millions 2011-2036 ........... 96
Current zoning framework for the back of port interface .................................................... 99
Traffic developments in multi-site ports ............................................................................ 101
Traffic developments in new ports neighbouring urban ports ........................................... 102

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TABLE OF CONTENTS – 7

Tables

1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3

Port centrality indexes .......................................................................................................... 24
Forms of port privatization................................................................................................... 31
Main South African ports ..................................................................................................... 33
Durban Port Facilities .......................................................................................................... 36
Link between port efficiency and trade/freight costs ........................................................... 38
Maritime operations targets for the Port of Durban ............................................................. 41
Terminal operation targets for the Port of Durban ............................................................... 48
Sectoral breakdown of GVA in South Africa and eThekwini municipal areain 2011 (R ‘000) ................................................................................................................... 59
Firms in the eThekwini maritime cluster by sector and sub-sector, 2007 ............................ 60
Expenditure per vessel call in Durban (2005-2006)............................................................. 65
Direct and indirect spending in the Durban port cluster ...................................................... 66
The main uses of container transloading .............................................................................. 67
The composition of Port Consultative Committees (PCCs) in South Africa ....................... 76
The composition of National Port Consultative Committee (NPCC) in South Africa ......... 76
Descriptive statistics of input/output variables of the crude oil port sample ..................... 106

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EXECUTIVE SUMMARY – 9

Executive Summary

Durban is the main gateway port of Africa. It is the largest port in Africa, which concentrates
more than two thirds of the total container traffic to and from South Africa. It has strong maritime
connections with the rest of the world: it has both a central position in port networks and a large diversityof connections with other ports. Durban, also called eThekwini, serves as the main gateway for theGauteng metropolitan area (which includes Johannesburg), other regions in South Africa as well as other
sub-Saharan countries, in addition to serving its own metropolitan area (the eThekwini/Mzunduzi area),
the largest metropolitan economy on the South African coastline. It handled 2.6 million containers1 in
2012, twice as much as in 2000.
Despite its dominant position in Africa, the performance of the port of Durban is sub-optimal.
The port of Durban is one of the most expensive in the world, basically due to high cargo dues. Althoughport efficiency might be in line with African ports on average, it is far below scores found in main ports
around the world. As of 2012-13, the average anchorage time for containerships was 39.2 hours, while
the average turnaround time was 60.4 hours, accounting to close to 100 hours of total port time. Morethan half of the imported and exported containers are going to or come from the Durban metropolitanarea, transported by truck, creating urban congestion. Only 15% of the containers related to the port of
Durban are transported by train. In addition, significant constraints on land availability for container
stacking, congestion at the port gate and terminal inefficiencies have led to increased ship waiting times.
This increases the costs of imports and exports and thus undermines the competitiveness of the South
African economy.
Durban has substantial economic benefits from its port. Existing studies find estimations ofport-related jobs up to 100,000 jobs (approximately 10% of metropolitan employment) and 8%-14% of
metropolitan value added. This value added includes the automotive industry and a diverse maritime
cluster, consisting of logistics, warehousing and transportation services. Every port call does not only
lead to direct spending, but is multiplied via the indirect spending, for example by suppliers related to theport. This output multiplier has in various studies on Durban been estimated in the range of 1.7-2.4.
However, the city also suffers from port-related congestion and other negative impacts.
Approximately 690 million tonnes of goods are transported on the major roads of the metropolitan areaof Durban, according to the eThekwini Transport Authority, associated with congestion, pollution,
delays, road damage and accidents (7,379 in 2011). Port-related activities have transformed residential
areas, such as Clairwood, into de facto port-centric logistics areas. Port-related activities, including
shipping, terminal operations and hinterland transport, account for a considerable share of the air
emissions in Durban, even if the exact amount of these emissions is not known.
Durban Bay is one of three estuarine bays in the country, and considered to be critical interms of biodiversity goals. Port activities have reportedly led to considerable transformation, greatly
reducing the coverage of the rare habitats within this system. According to the 2012 Bay of Natal Estuary
1.

Measured here as twenty foot equivalent units (TEUs).

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10 – EXECUTIVE SUMMARYManagement Plan Situation Report, the Bay is at a tipping point where relatively minor degradations
could have disproportionate negative impacts.
In order to solve these bottlenecks, the institutional cooperation between port and city could
be expanded, building upon recent collaboration efforts. Relations between port and city have
improved over the last decade, leading to joint projects related to new port development and corridor
development. These new projects include the development of a new port site in Durban (also called digout port at the former airport site) and strengthening of the transport corridor between Durban andGauteng. Thanks to the cooperation between Transnet and eThekwini, and their common planning as
conducted through the TEMPI initiative, these projects have become a presidential priority. Increasing
net positive impacts and mitigating negative impacts related to the port of Durban, such as roadcongestion, land use development for logistics and economic value creation would require sustaining,
expanding and streamlining this cooperation. In order to increase this cooperation, the institutional
fragmentation at both sides would need to be resolved.
The sub-optimal port performance of Durban might be related to its institutional framework,
characterised by limited competition and cross-subsidisation at the cost of Durban. Privatisation ofterminal operations is foreseen in the National Ports Act, but not implemented yet. Main terminal
operations in containers and roll on-roll off-traffic have remained so far in the hands of the state-owned
company Transnet, along with port authority functions, railway operations and pipelines. This has madeDurban a quasi-monopolist, whose financial benefits are used to support railway operations and otherports in South Africa, with high cargo dues for the port of Durban as a consequence. An independent
Ports Regulator is active in South Africa to ensure fair competition. This whole institutional setting is
unique: no other OECD country combines regulation and port operations in one national organisation,
alongside railways and pipelines.
The new port planned for Durban will require a reconsideration of the institutionalframework, including the introduction of private operators. In order to accommodate foreseen
maritime traffic demand, a new port has been planned for Durban (the digout port), estimated to be
operational from 2020. This port project will most likely take the form of a public-private partnership,
which would have important ramifications for the sustainability of the current institutional framework of
the port of Durban. Transnet is investigating an option for public-private partnership. The projectprovides a window of opportunity to consider competition within the eastern ports system of South
Africa and tackle some of the current distortions including the combination of operational and regulatory
roles and the limited autonomy of Transnet National Port Authority (TNPA). It might also ease some of
the current pressure on the port-city interface: examples of other city-ports creating new sites have shown
shifts of port cargo to the non-urban port.

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RECOMMENDATIONS – 11

Recommendations

Create an inter-departmental freight unit within the city of Durban that can bundle expertise and act
as a one-stop shop for freight-related issues in the city. This unit could act as a vehicle to improvecoordination on freight transport and engage in joint planning, aligning various actors including
Transnet, SANRAL, the national and provincial departments of Transportation and the various
departments within the city of Durban.
Increase the autonomy of TNPA and streamline decision-making procedures within Transnet. This
includes more financial autonomy, e.g. by creating a separate fund at the disposal for TNPA for port
infrastructure and maintenance.
Focus performance indicators on the performance of the whole supply chain. Currently much focus
seems to be on part of the picture (e.g. crane productivity) without much consideration for (andsometimes even at the detriment of) other indicators.
Undertake a comprehensive environmental port impact study and implement green-port mitigation
policies if necessary

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1- PORT PERFORMANCE – 13

Chapter 1

Port Performance

The South African Port Context
The sub-Saharan African container port system
The Sub-Saharan African container port system in general remains underdeveloped in comparison
to other port systems around the world. The main factors linked with this situation are:2.



Limited draft at many port sites. The growth of containerized traffic in sub-Saharan Africa
remains highly constrained by port capacity issues, particularly in terms of draft. Sub-Saharanports, with the exception of South African ports, rarely exceed a draft of more than 13 meters.
This implies that many Sub-Saharan African ports (excluding South Africa) cannot
accommodate ships of more than 3,000 TEU and must thus require services to transhipment
hub using smaller ships to access the global freight market.

Lack of equipment. Only a few ports in the Sub-Saharan countries besides South Africa areequipped with container cranes (Dakar, Mombasa, Lagos, Abidjan are among the few that haveportainers2) and yard equipment, implying that most of the operations are either done by lower
capacity (mobile cranes) or ship-based equipment (geared ships).



Low levels of port performance. In part because of the previous point, Sub-Saharan African
ports usually range between 7 and 20 moves per hour per crane while the global standard isusually around 25. This increases ship turnaround times and does not incite the use of large
ships.



Limited capital investment. Ports are usually in a situation of under capacity with expansion
and improvement projects prone to delays, including ancillary infrastructure such as roadaccess. Many ports are thus ill-prepared to play an inducing role in regional economic
development.



Political instability and uncertainty. Many sub-Saharan African countries have been prone topolitical instability, or have neighbouring countries facing political instability. Countries such
as Zimbabwe, Chad or the Democratic Republic of Congo rank amount the most politically

A large gantry crane for loading and unloading intermodal containers from container ships.

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14 – 1. PORT PERFORMANCE

unstable countries in the world3. The climate of uncertainty substantially increases the risk ofcapital investment in port terminals.
Regulatory impediments. They particularly concern trade and customs procedures (e.g.
inspection requirements and delays), which irrespective of infrastructure and managerial
constraints increase transaction costs. On many occasions, the issue is not necessarily theregulatory rules, but that their enforcement is either discretionary (e.g. corruption) or subject toadditional costs and delays. According to the World Bank, in 2012 Sub-Saharan Africa had an
average time to import of 36 days while the global average was 24 days4.

In large part because of the above sub-Saharan Africa only accounted for 2.3% of global container
volumes in spite of accounting for 12.8% of the global population5. A fundamental factor behind this gap
remains the more limited economic development prospects that the continent has experienced in recent
decades, particularly when comparing with the growth of port traffic in the Middle East, South Asia,
Southeast Asia and China. Further, accessibility to the hinterland remains challenging, which impairs
port development prospects.
In this setting, South African ports are faring much better. With respect to the depth alongside theberth, there are two South-African ports in excess of 13 metres, namely Ngqura and Cape Town. In thecase of the port of Durban, vessels up to 4500 TEU can be safely accommodated, whereas larger vessel
sizes can be brought in on high tide and partially laden. South African ports are equipped with modern
container cranes. Durban recently acquired tandem-lift cranes, so uses modern ship to shore (STS)cranes, coupled with straddle carriers and rubber tyre gantries. South African ports handle about 23% of
the Sub-Saharan Africa container volume. A great share of this volume is hinterland traffic linked withthe dynamism of the national economy that in 2011 accounted for 31.7% of the regional GDP. Still,containerized traffic has a high level of concentration with Durban accounting for 69% of the national
throughput. This high level of traffic concentration is mainly attributed to the easy accessibility of goods
to the Gauteng (Johannesburg) region, which is the country’s main economic hub.
Box 1.1 Sub-Saharan port hinterlands
The “boxed-in” effect concerns a port that could in theory have access to a larger hinterland simply from a
distance-based consideration (accessibility), but this hinterland access is constrained by the dual impacts of limited
corridor development and the additional friction imposed by borders (Figure 1.2). This creates accessibility andmarket distortions, particularly at border crossings, further challenging port development [cite a few studies].
Geopolitical considerations that are mostly the outcome of the colonial era have incited the setting of national
hinterlands in Sub-Saharan Africa that are not necessarily natural hinterlands, implying that several ports are “boxedin”. Additionally, few river systems offering a comprehensive long distance access to the hinterland are present in
Sub-Saharan Africa, imposing a reliance on road and rail transportation. Since rail transportation in many SubSaharan African countries is not present, operational or able to provide adequate hinterland services, the load isusually dominantly assumed by road transportation.

3.

The Economist, Political Instability Index.

4.

World Bank, Doing Business project.

5.

2010 figures.

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1- PORT PERFORMANCE – 15

Figure 1.1 Hinterland access issues for Sub-Saharan African Ports

Source: OECD/ITF

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16 – 1. PORT PERFORMANCE

Figure 1.2 The African container ports system (without Med-ports)

Source: Data compiled from Containerization International and port authorities.

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1- PORT PERFORMANCE – 17

Port trade cost structure
Issues of hinterland accessibility in Africa are clearly reflected in the import costs On average, subSaharan African countries have import costs per TEU 47% higher than the global average ($2567 versus$1,742 per TEU in 2012). Substantial regional variations are observed which is in part be explained bygeographical factors impacting hinterland accessibility, but also by policy, trade facilitation and supply
chain management issues. These figures are reflective of several challenges:


Geography. Landlocked African countries are at a particular disadvantage with average importcosts of containerized cargo 129% higher than the global average, while the global average forlandlocked countries is 85% higher. This underlines that maritime access issues that landlocked
countries are generally facing are even more acute in the sub-Saharan African context.

Hinterland connectivity. It remains an enduring issue since African countries have yet todevelop comprehensive national highway systems, leaving crossborder connectivity a recurringissue. There are limited if any rail services, undermining the setting of economies of scale overthe hinterland. Traffic which under normal circumstance should be circulating on rail is forced
to use long distance trucking, adding costs and delays. Still, corridors are being developed(some examples; Maputo, Walvis Bay).

Regulatory and trade facilitation. While a lack of capacity and maintenance of the road systemhinders road circulation, various regulatory measures are also playing a substantial role. For
instance road check points are the major sources of delays as public authorities adopt a rent
seeking behavior.

Supply chain management. The issue of hinterland access compounds difficulties in supply
chain management as deliveries are unreliable, forbidding standard inventory management
methods. Container assets are also an issue since delays in accessing the hinterland impose
additional demurrage charges since the owners of the containers (shipping or leasing
companies) get lower asset utilization levels when servicing African ports. These issues impose
additional costs.

The cost structure of servicing African ports is thus usually different than at other ports around theworld (CPCS Transcom, 2010). A share of the logistics costs are standard transport and terminal charges
such as sea shipping rates and port handling charges. The shipping lines charges are more controversial
since they include fees such as delivery order fee, bill of lading fee and piracy risk surcharge (the freight
forwarding community often call these "junk fees"). All these charges put together can be almost
equivalent to the sea shipping rate.
The inland routing costs are the contracted rate of a local trucking company. More than 40% of thetotal logistics costs are indirect costs due to delays that include additional and inventory demurrage costs,
but also bribe costs paid at a wide variety of police checkpoints and weighting stations, which can alone
add more than $1,000 for an import container, depending on the value of the cargo. For instance, due tolow profit margins trucking companies have a tendency to overload and pay a bribe at the weight stations
to be allowed to go through. Therefore, such a system hinders economic development because supply
chains tend to be unreliable while consumers and manufacturers pay higher prices for goods and inputs.
In such a setting, various public authorities are using freight transportation to generate income in a rent
seeking (predatory) fashion.

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18 – 1. PORT PERFORMANCE

Figure 1.3 Cost to import a 20 foot container, 2012

Source: World Bank, Doing Business project. Note: Cost measures the fees levied on an imported 20-foot container in U.S.
dollars (USD). These include costs for documents, administrative fees for customs clearance and technical control, customs
broker fees, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes.

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1- PORT PERFORMANCE – 19South African Port Hinterlands
In contradiction with some sub-Saharan containerized imports, South Africa is facing comparatively
higher import costs. This is in part due to the hinterland effect since South Africa has an active hinterland
as opposed to the coastal concentration of economic activities in other parts of the continent. However,there are regulatory issues at play. As such, a particular emphasis must be placed over the following
issues (Fraser and Notteboom, 2012):


Existing and potential gateway and corridor strategies within South Africa, but also through its
neighbours (Namibia and Mozambique).
The emerging role of South African intermediate hubs (transhipment), within the region (eastand west coasts of sub-Saharan Africa), but also within the emerging south-south maritime
routes (e.g. between Asia and Latin America).
Regulatory and governance issues concerning the South African port system that dictate the cost
structure and investment priorities.

Maritime connectivity
A multi-gateway port system
South Africa has the highest level of maritime connectivity of Sub-Saharan Africa, a status in part
explained by its development level (generator and attractor of cargo) and in part by its intermediarylocation at the convergence of Atlantic and Indian oceans maritime routes. This intermediacy is a factor
behind the development of transhipment activities in South Africa. Since 2004, the maritime connectivityof South Africa has almost doubled (from 23.13 to 43.02), reflective of a greater number of destinations
available from South African ports as well as larger ships servicing them.

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20 – 1. PORT PERFORMANCE

Figure 1.4 Liner shipping connectivity index of African countries (2012)

Source: UNCTAD. The Liner Shipping Connectivity Index (LSCI) aims at capturing a country's level of integration into theexisting liner shipping network by measuring liner shipping connectivity.

THE COMPETITIVENESS OF PORTS IN EMERGING MARKETS: THE CASE OF DURBAN, SOUTH AFRICA © OECD/ITF 2014

1- PORT PERFORMANCE – 21South Africa is a multi-gateway port system, with Durban the main gateway and the secondary
gateways of Cape Town and Port Elizabeth (Notteboom, 2011). South Africa is geographically extensive
and has a level of economic development substantive enough to support several gateways and theircontinuous growth. In 2009, a new port was opened at Ngqura, in proximity to Port Elizabeth, with the
purpose of becoming a transhipment hub. Although transhipment is not an activity which is new to South
African ports, changes in the global maritime shipping industry is placing the transhipment activity in a
new context and with new imperatives.
The setting of transhipment hubs
Transhipment usually concerns gateways that are able to combine feeder services and hinterland
access or "pure" transhipment hubs that are almost entirely focusing on feeder (linking deep-sea andshort sea services) or relay (linking different deep-sea services) functions. Irrespective of the function oftranshipment hubs they exist to meet three interrelated imperatives:

Shipping operations imperatives. Container shipping lines are trying to optimize the utilizationof their assets and well as their revenue. The usual outcome of such a process is the use of large
ships (economies of scale) making a relatively limited number of port calls over long haul
services covering two or more maritime ranges and to use smaller ships over feeder services(the "last maritime mile"). Also, maritime shipping has a low tolerance for detours, implying
the transhipment activities tend to be in proximity to main long distance shipping lanes.

Terminal operations imperatives. Intermediate hubs must also meet operational requirements,
namely greater depth to accommodate modern containership drafts, placing them at a technicaladvantage over many older port sites, many of which becoming feeders. Transhipment also
requires large yard areas since few containers are leaving the terminal and may be stored forseveral days while waiting to be transhipped. They should include land for future expansion,
which is a positive factor to help securing existing and future traffic. Another important factor
in transhipment remains terminal costs and efficiency (e.g. high crane throughput), with ports
located in developing countries usually having lower labour costs.



Cargo imperatives. Optimally, shippers prefer direct point-to-point services, a preference thatcan obviously not be met. Under such circumstances, transhipment is a balancing act between
the constraints behind operating maritime shipping services and the requirements of shippers(importers and exporters) preferring an array of service options with timely and reliable
services. Transhipment may add additional delays in supply chains, imposing mitigation
strategies when the inventory is in transit. Further, the growth in the reefer trade is placing
additional pressures on transhipment hubs as refrigerated cargo is shifting from conventional
reefer ships to container shipping services. Last, the hinterland usually has an anchoring effecton transhipment since hubs that are able to combine hinterland traffic with transhipment tend to
be more stable than pure transhipment hubs with little hinterland traffic. Durban is a good
example of a port that combines substantial hinterland traffic with transhipment activities.

The South African transhipment system
Transhipment is an activity that is not only servicing the South African market, but the whole
region. Since many Sub-Saharan ports have low capacity and limited draft, the development of the portsystems requires transhipment hubs able to connect the regional system to deep-sea lines. Transhipment
thus offers a higher level of connectivity to international trade. The development of transhipment
activities in South Africa will have a substantial impact on the structure of the port system and hinterland

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22 – 1. PORT PERFORMANCE

developments. These developments are contingent to the increase in containerships sizes, which isinciting shipping lines to rely on less port calls for their long haul services. Also, the increase in Suez
Canal tolls is inciting shipping lines to look at alternatives, an issue that was compounded in recent years
by piracy on lanes leading to the Red Sea.
Figure 1.5 Main routes servicing South African transhipment hubs

Source: Containerization International, Drewry Shipping Consultants & Port Authorities.
Note: Transhipment volumes are the average of the volumes available during the 2008 – 2011 period. This data is rarely
systematically collected and available on a port basis.

Transhipment by South African ports service three systems of maritime circulation:National feeders where cargo is bound to a smaller South African port such as Port Elizabeth.
For Durban, this accounts for about 36% of the transhipment volume.



Regional feeders where South African hubs are used for feeder services towards ports along theeast and west coasts of sub-Saharan Africa. East and West Africa account respectively for 14%
and 35% of the transhipment activity at Durban.



Global relay between long distance deep-sea services using large ships. This involves services
to the east coast of South America, northern Europe, the Middle East and Southeast Asia,
which account for 13% of the transhipment activity at Durban.

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It is unclear which transhipment function and balance will emerge. Two scenarios can be identified.
The first is where the maritime imperative prevails and involves a pure transhipment hub accommodating
the latest generation of large containerships (Ngqura). The second is where the cargo imperative prevails.
Maritime shipping companies find advantageous to use transhipment hubs also giving the opportunity toaccess hinterland cargo, which confers a level of stability by anchoring traffic. Within this scenario theuse of a gateway (Durban) for transhipment would be preferred. Considering the size of South Africa,
there is likely room for both scenarios so that transhipment can continue to be an important activity at theport of Durban, which is supported by a pure transhipment hub (Ngqura).
Regional gateway functions
Durban is the main gateway and hub-port for Africa. The hub-and gateway-functions of ports can bequantified with three different measures: degree centrality, betweenness centrality and clustering
coefficients. These three different port hub measures were calculated for a set of 2177 world ports andtheir connections in 2011, assessing both absolute values and ranking amongst world ports. Results formain African ports are summarized in Table 1.1. The overall picture that emerges from this assessment isa clear dominance of the port of Durban on centrality indexes, having considerably higher scores on the
rankings than almost all other ports in Africa. Only the port of Alexandria has scores and ranks that are
to some extent comparable to Durban on the centrality scores, with both ports among the top 60 ports
with regards to degree centrality (DC) and betweenness centrality (BC).6 Its ranking with respect to theclustering coefficient (CC) is even higher, indicating considerable hub functions. The port of Durban
serves as a regional gateway and a global hub-port for Africa. Competitor ports in South Africa, such as
Ngqura, Cape Town and Port Elizabeth, as well as other competitors in southern Africa, such as Maputo,
all have much lower scores on the centrality indexes, hence they do not possess the same gateway- andhub-functions. As the data relate to 2011, the scores of Ngqura might in the meantime have improved
due to increased traffic there.

6.

Degree centrality expresses the number of adjacent neighbours of a node; it is the simplest and mostcommonly accepted measure of centrality. It often correlates with total traffic (more connections imply
more traffic). Betweenness centrality expresses the number of shortest paths going through each node.
The clustering coefficient estimates whether the adjacent neighbors of a node are connected to each other(i.e. "my friends are also friends"), thus forming triangles (triplets); the coefficient is the ratio between
the number of observed triplets and the maximum possible number of triplets connecting a given node.
The ratio goes from 0 (no triplets observed) to 1 (all neighbors connected). When it comes to hubfunctions in a transport system, in theory the "pure hub" will have a clustering coefficient near zero
because it serves as a pivotal platform redistributing flows to/from satellite platforms (spokes) which are
only connected to the hub (star-shaped network). Conversely, values close to 1 depict a denser patternwith more many transversal (and thus less hierarchical) links. In a maritime network, transshipment hubs
should have low clustering coefficients as opposed to other configurations where links are more evenly
distributed among ports (e.g. absence of hubs such as in the Baltic Sea or in the USA). The different port
hub-measures are related, but also complementary to each other. Very central nodes (high betweenness
centrality) often act as hubs (low clustering coefficient) and it is common to observe a high correlation
between degree centrality and betweenness centrality due to the physical constraint of coastlines forcirculation. In some cases such as relay and remote hubs, some nodes can have higher betweenness
centrality than degree centrality, i.e. they are very central globally but have only a few links locally. Thisis because they act as "bridge" between sub-components of the network, such as Anchorage in the global
network of air freight being a bridge between Asia and North America.

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Table 1.1 Port centrality indexes
CC score
DurbanAlexandria
Tangier-Med
Cape Town
MaputoApapa-Lagos
Port Elizabeth
Walvis Bay
Mombasa
Port Said
Ngqura0.19630.26270.29900.30900.3106
0.35810.37370.42150.45730.47630.5161CC rank
30
141
232
266
270
431
483
651
782
858
1004

BC score
37833
25231
12209
5754
1173
5637
2085
3185
791
5761
367

BC rank
37
61
148
272
640
280
515
428
725
271
894

DC score
176
171
140
87
33
58
47
26
43
100
31

DC rank
51
59
101
253
727
439
549
849
588
193
775

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU)
Note: CC: cluster coefficient; BC: betweenness centrality; DC: degree centrality

Durban’s has a large variety of maritime connections. The can be concluded from its score on a
maritime foreland connectivity index that we constructed for this study, which makes it possible tocompare the diversity of maritime of connections of world ports. This index is applied to ports’worldwide traffic distribution at country level, and defined as the inverse of the sum of differences inshares compared with world average, applying a methodology developed in Ducruet et al. (2011). Our
calculations of this index over 2011 show that Singapore has the most diverse set of maritime
connections (score 100). The score of Durban was 72, with a ranking of 37 th most diverse port of theworld. This is a good score. In Africa, only Port Said has more diverse maritime connections, whereas
other African ports, including competitor ports in South Africa and Maputo, have much less diverse
maritime connections (Figure 1.6). Although some large world ports have more diverse maritime
forelands, the port of Durban scores better than most of these, including large and important ports such as
Rotterdam, Los Angeles and New York. The large variety of maritime foreland connections of Durban
can be visually illustrated by mapping the ports connected to Durban via the vessels that move between
these ports (Figures 1.7 and 1.8). These figures show many important connections with ports in allcontinents, although connections with ports of the US West Coast and with ports in the west of Latin
America are rarer.

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1- PORT PERFORMANCE – 25

Figure 1.6 Maritime foreland diversity of main African and selected world ports (2011)

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU)

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26 – 1. PORT PERFORMANCE

Figure 1.7 Maritime forelands of the port of Durban (2004)

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU)

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1- PORT PERFORMANCE – 27

Figure 1.8 Maritime forelands of the port of Durban (2011)

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU)

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28 – 1. PORT PERFORMANCE

Durban in the national port system
Transnet and South African ports
Transnet is a state-owned enterprise reporting to the Department of Public Enterprises. As such thestrategic objectives of Transnet are multiple and beyond what is usually expected from a private
enterprise :Reduce the total cost of logistics as a percentage of transportable GDP.



Effect and accelerate modal shift by maximising the role of rail in the national transport system.

Leverage the private sector in the provision of both infrastructure and operations whererequired.

Integrate South Africa with the region and the rest of the continent.

Maximize the social and economic impact of all interventions.

Transnet has five operating divisions: Freight Rail, National Ports Authority, Terminal Operations,
Engineering and Pipelines, and specialist units related to real estate and project development. It
essentially manages, through the National Ports Authority, the national port system as established by thePorts Act of 2005. The governance structure was in 2000 when the port division of Transnet (Portnet)
was divided into a landlord port authority (Transnet National Ports Authority; TNPA) and a port
operations division (Transnet Port Terminals; TPT). The fundamental issue is that the landlord and the
public operator are part of the same state agency. Although this is not a unique situation (a country with asingle port where the port authority is also the terminal operator), it is rarely seen at the national level ofa multiport nation. For instance, in the United States there are state owned ports and operators (e.g.
Georgia Ports), but not at the national level. Another important aspect of the national transport system
concerns the ownership and operations of the rail system by Transnet Freight Rail, which is dividing inoperating and infrastructure branches.

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Figure 1.9 Structure of Transnet

Source: Transnet

TNPA has several functions comparable to those of standard landlord port authorities elsewhere in
the world. The main responsibility, set out in Section 11 of the National Ports Act 12 of 2005, is to own,
manage, control and administer ports to ensure their efficient and economic functioning. In doing so,
TNPA as the landlord port authority must plan, provide, maintain and improve port infrastructure,control land use within the ports, make and apply rules to control navigation within port limits andapproaches to ensure protection of the environment and ensure safety and security within port limits,
ensure that port services and facilities are provided and enter into agreements or licence other parties toprovide, ensure that adequate, affordable and efficient port services and facilities are provided for port
users, ensure non-discriminatory, fair, transparent access to port services and facilities, advancement ofpreviously disadvantaged people and promotion of representativeness and participation in terminal
operations. As the landlord, TNPA is further responsible for the financial sustainability of the portsystem, as Transnet receives no financial support from the National Government, unlike various ports
internationally. The first is the ownership and management of the land under its jurisdiction. The second
is to provide, often through contracted parties, maritime services which include tugs, pilots, dredging,berthing, radar, lighthouses, dry-dock facilities, etc. as well as harbour master functions such as port
control, vessel access and traffic and port security.
Since the dominant terminal operator (TPT) is a national public entity, there is limited competition
between most terminals at the national, regional and more importantly at the port level, such as in
Durban. No container terminal concessions have yet been issued at any South African port, which
explains the absence of global terminal operators within South Africa, unlike several African countries
where terminal operators such as APM, HPH and DPW were able to establish concessions. Still,
shipping lines are able to route their traffic through the ports (and the terminals) that suit the best theirstrategies and their customers. Ports in South Africa are managed as part of a complementary ports
system, with Transnet determining the role that the different ports and port terminals play vis-à-vis eachother.

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30 – 1. PORT PERFORMANCE

There are various perspectives to the South African institutional framework for port governance.
According to some Transnet is a monopolistic entity preventing a competitive framework, according toothers it has the capabilities to promote coordination among ports and to access the hinterland by rail.
Each argument has its own merit, particularly in light of the social infrastructure perspective that
Transnet conveys. Infrastructures tend to be more considered from their contribution to regional
development. Still, there are a growing number of options that are available to service the South African
hinterland. For instance, extensive hinterland of Johannesburg can also be serviced through Maputo in
Mozambique. On the West Coast of Africa, Walvis Bay in Namibia has also engaged in an active
corridor development strategy to access Botswana and South Africa.

Box 1.2 Port ownership and operational models
To better understand the unique port governance situation of South Africa, it is worth reviewing what the main port
ownership and operation models are. The ownership and operation of ports usually fall into three categories, thefirst being a pure public port, the second is the landlord model where the port authority concessions operations to
the private sector and the third is the pure private port. The governance model that is prevalent around the world
thus involves a public port authority that is concessioning terminal operations to private operators. In various
countries the public port authority is part of a municipal administration, or otherwise controlled by the municipal
government. There are however nuances (options) that can be added to these forms of port privatization (Table 1.2):
Pure public. The public sector owns and operates the port. Although this model used to be prevalent, it has seen adecline with the concession of terminal operations to private firms. There are still a large number of ports in thissituation (public port authority and public terminal operator), but the landlord model is becoming more prevalent.
Some services such as pilotage, moorage and dredging can be contracted to private firms.
Landlord. The public sector retains ownership of the real estate and several assets while private terminal operators,
through concession agreements (port terminal privatization), lease a terminal facility and usually own the terminal
equipment. Through a concession agreement, the port authority receive income with the concession is agreed andthrough an annual rent. In the case of large ports, several private terminal operators can be competing.
Greenfield concession. A form of port terminal privatization that concerns a new port project or a large terminal
facility within an existing port where a terminal operator will finance, design, build and operate a new terminal forthe duration of the concession. The landlord is usually the public port authority and at the end of the concession theterminal will revert back its control.
Brownfield concession. A form of port terminal privatization that involves existing facilities that areconcessiocnned to a private operator. At the end of the concession, the terminal will revert back to the control of theport authority.
Pure private. The port is owned, operated and maintained by the private sector, with the public role limited to oneof regulator. This is often the outcome of a privatization process.
Publicization. This process is the opposite of privatization where the public sector takes a stake (in whole or more
often as a public-private partnership) in a port project that was entirely private. At the upmost, publicization could
involve nationalization, but this is rarely the case

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Table 1.2 Forms of port privatization
Form

Public sector role

Private sector role

Pure public

Owns and operate port

None (some services)

Landlord / Regulator

Owns port and regulate private sector

Operations

Greenfield concession (Buildoperate-transfer)

Negotiation with private companies,
regulation

Operations

Brownfield concession (Longterm lease of existing
facilities)
Pure private

Negotiation with private companies,
regulation

Operations

None (regulation)

Operations

Publicization

Owns and operates port

Operation and maintenanceSource: Adapted from Pagano, A.M, G.W.Y. Wang, O.S. Sanchez and R. Ungos (2013) “Impact of privatization on port
efficiency and effectiveness: results from Panama and US ports”, Maritime Policy & Management, Vol. 40, No. 2, pp. 100-115.
Note: in a landlord model, port operations need not exclusively be a private sector role, as it could also allow public sector
operators.

The South African port system
The South African port system is reflective of the economic changes where policy shifted fromimport substitution strategies that were pursued up to the 1990s towards integration to global trade. Still,
for a developing economy national economic security and infrastructure development usually precedes
commercial goals of full cost recovery (Lee et al, 2012). The competitiveness of South Africa ininternational markets has been dependent upon the costs and efficiency of its port system, mostly for theexports of commodities and raw materials. Therefore, South Africa mainly perceives its port system as atool for national economic development with a regional specialization in both port function andhinterland servicing. From such a perspective, the South African port system is composed of three main
facades

Western Ports. Atlantic range ports including Saldanha Bay, Cape Town, Mossel Bay and Port
Nolloth. This hinterland is mostly linked with iron ore exports from the Northern Cape
Province and the commercial hinterland of Cape Town.

Central Ports. Ports mostly servicing the local hinterland with the expectation of the growth oftranshipment activities at Ngqura as a new function.

Eastern Ports. Pacific range ports mostly serving KwaZulu Natal and Gauteng, which are themost economically active provinces of the country.

The older South African ports are hinterland servicing harbours (Durban, East London, Port
Elizabeth and Cape Town), implying that their dynamics is directly related to the level of commercial
activity of their hinterland. The more recent ports are specialized (dominantly single purpose) facilities tohandle bulk export cargo such as Saldanha exporting iron ore and Richards Bay (both opened in 1976)
exporting coal. Ngqura, completed in 2009, is designed to handle both dry and liquid bulk cargo as well

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32 – 1. PORT PERFORMANCE

as handling containers, with the primary focus being that of a container transhipment hub. Port Nolloth isleased to De Beers Group Services (Pty) Ltd and used as an offshore supply base for conducting diamondprospecting activity in Namibia.
Figure 1.10 The South African Ports System

Source: OECD/ITF

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1- PORT PERFORMANCE – 33

Table 1.3 Main South African ports
Range
Western

Port Depth
Saldanha Bay (20.5 m)
Cape Town (14.0 m)
Mossel Bay (6.5 m)
Port Elizabeth (12.2 m)
Ngqura (16.5 m)
East London (10.4 m)
Durban (12.8 m)
Richards Bay (17.5 m)

CentralEastern

Function
Bulk export (ore)Regional hinterland
Local hinterland
Local hinterland
Bulk export and transhipment
Local hinterland
Regional hinterland and transhipment
Bulk export (coal)

Source: OECD/ITF

The port system reflects a level of specialization and complementarity by function and byhinterland. Each façade is serviced by a port pair with one port focusing on bulk cargo and the other on
containerized cargo. Each port involves different logistics and hinterland accessibility; the bulk port
dominantly serviced by rail and the commercial port serviced by road. Considering the economic
development objectives of South Africa up to the 1990s, economies of scale of bulk shipping incited theconstruction of specialized export facilities that could accommodate deeper drafts (20.5 meters for
Saldanha Bay and 17.5 meters for Richards Bay). Economies of scale in containerized shipping camemuch later with the first post-panamax ships emerging in the 1990s. Also, limited volumes in subSaharan Africa did not incite maritime shipping companies to allocate large ships in the region. It is onlyin the 2000s that with growing volumes handled by South African container ports, that pressures werefelt to reassess existing terminals in terms of their capacity and operations, and particularly theirhinterland connectivity. In smaller ports, containers are handled through multipurpose facilities, with noplans to convert these facilities into full-fledged container terminals without significant volume growth.
Figure 1.11 Traffic handled by South African Container Ports, 2000-2012 (in TEUs)

Source: OECD/ITF

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34 – 1. PORT PERFORMANCE

The port of Durban has experienced a substantial growth during the 2000s, doubling its throughput(from 1.3 million TEUS in 2000 to 2.6 million TEUs in 2012). This growth appears to be leveling off
since 2008, related to the financial crisis, capacity issues and a partial shift of transhipment to Cape
Town and then to Ngqura. This trend is also reflected in the share of traffic handled by respective South
African ports.
Figure 1.12 Share of traffic handled by South African Container Ports, 2000-2011

Source: OECD/ITF

The share of Durban has remained relatively unchanged, accounting for around 60% of the national
containerized cargo. Over 4500 commercial vessels call at the port each year. However, in recent years ashift appears to be in the making with the growing share of Ngqura and a declining share of Cape Town
and Port Elizabeth. It is too early to indicate if there is a shift in the relative importance of South African
ports since the new capacity being made available at Ngqura will find more than a corresponding matchin the expansion plans of the port of Durban. The fact remains that both the port and hinterland accessefficiency of South African ports need to be improved to handle future traffic growth expectations.
Durban’s position in this respect is pretty exceptional in the South African context, being both agateway to the largest metropolitan area (Johannesburg) and being one of the largest South African
metropolitan areas on its own. The Ethekwini-Mzunduzi (Durban-Pietermaritzburg) economy is indeed
the largest on the South African coastline; this large consumption and production base distinguishes
Durban from various other Southern African ports, such as Ngqura and Maputo. At the same time, itsconnections to the largest economic concentration (the Gauteng economic agglomeration which includes
Johannesburg) make that the port and its urban economy are part of a larger logistics chain, with all thechallenges connected to this.

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Durban Port Setting and Facilities
The port of Durban is set within a protected bay (Bay of Natal), which is almost entirely occupied
with terminals and other port-related facilities. This accounts for 1,850 hectares with a shoreline of 21
kilometres. This leaves limited options for future expansion outside substantially modifying the physicaland environmental setting of the harbour. The entrance channel has been widened to 222 meters in 2010
with a depth of 19 meters at its entrance that goes down to 16.5 meters in the harbour. The port has 58
berths which are operated by more than 20 terminal operators and 300 km of rail tracks enabling toaccess the national rail network operated by Transnet (Figure 1.13). The land around the port is ownedby the NPA and large sections of it are leased to independent operators for cargo terminals, ship repairs
and other activities. There are also a number of private sector lessees who operate terminals such as forbulk (coal) and liquids (petroleum).
Figure 1.13 The Port of Durban

Source: Transnet

The port has five main terminal facilities:








Point. A multipurpose break-bulk terminal as well as a Ro-Ro facility that handles most of the
port’s vehicle trade. There is also a cruise terminal with plans to build a dedicated cruise
facility.
Maydon Wharf. Multipurpose break-bulk, dry bulk and liquid bulk-terminals adjacent towarehousing facilities owned (long term lease) by several private freight forwarding
companies. It is extensively used and account for a throughput of more than 6 million tons per
year.
Durban container terminals (Piers 1 and 2). The main lessee is TPT, which operates the twomain container terminals; Pier 2 Container Terminal (capacity of 2.7 million TEUs) and Pier 1
Container Terminal (capacity of 700,000 TEUs). The bulk of the container handling takes placeat these facilities.
Island View. Liquid bulk terminals mostly handling petroleum products.
The Bluff. Dry bulk terminal mostly handling export coal and manganese.

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36 – 1. PORT PERFORMANCE

Table 1.4 Durban Port Facilities
Type
Containers
Containers
Cars
Dry bulk
Dry bulk
Dry bulk
Dry bulk
Dry bulk
Break bulk
Break bulk
Break bulk
Dry bulk
Dry bulk
Liquid bulk
Break bulk
Liquid bulk
Liquid bulk
Liquid bulk
Liquid bulk
Source: Transnet

Terminal
Pier 2 (DCT)
Pier 1
Cato Creek
Bluff
Maydon Wharf
Island View
Maydon Wharf
Maydon Wharf
Maydon Wharf
Point
Maydon Wharf
Maydon Wharf
Maydon Wharf
Island View
Maydon Wharf
Island View
Island View
Island View
Maydon Wharf

Berths
6 (108, 200, 202 to 205)
2 (105, 107)
3 (F, G, M/R)
3 (2 to 4)
1 (MW 1/2)
1 (IV3)1 (MW 5)1 (MW 8)3 (MW 9 to 12)
4 (B,C,D,E)
2 (MW 6 &15)
1 (MW 7)1 (MW 14)
1 (IV 6)1 (MW 13)
3 (IV7 to 9)
3 (IV2, 4, 5)
1 (IV1)1 (MW 3 & 4)

Capacity
2,300,000 TEUs
720,000 TEUs
330,000 FBUs
2 mt
1 mt
1 mt
1 mt
1 mt
1.6 mt
0.8 mt
0.8 mt1 mt
1 mt
1.65 mt
0.4 mt5 mt
2.91 mt
0.4 mt
0.4 mtLength (m)
2,077
686
1,048
743
305
168
200
192
790
979
456
273
140.5
185
140.5
705
556
213
300

Depth (m)12.8
8.2 to 12.1
10.1 to 10.6
8.6 to 10.3
9.1 to 9.6
10.8
9.6
9.2
9.9 to 10.6
10.5 to 12.8
9.9
9.9
9.9
12.8
9.9
12.8
10.6 to 12.8
12.8
9.9

The evolution of the traffic at the port of Durban over the last decade is indicative of a functional
shift at the port concerning its gateway versus transhipment function. The transhipment function is inrelative decline while the port is increasingly acting as a commercial gateway for the South African
economy. While the transhipment incidence was 22.8% in 2000, this figure dropped to 13.4% in 2012.
The port also shows a shift in the balance between import (landed) and export (shipped) cargo,
particularly since 2003 when the balance between import and export cargo shifted to the advantage ofimports. Maritime shipping companies are thus finding Durban less attractive since it imposes a lower
utilization level of their containerized assets and an increasing repositioning of empty containers. Since
2011, the amount of empty containers exported from Durban has for the first time exceeded the amountof containers being transhipped.

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1- PORT PERFORMANCE – 37

Figure 1.14 Monthly traffic, Port of Durban, 2000-2013

Source: own evaluation based on Transnet data

Port efficiency
Maritime transport costs form a substantial share of the value of traded goods. On average, 5.1% of
the imported value of manufactures can be attributed to shipping, compared with 10.9% for agricultural
goods and 24.1% for industrial raw materials (Korinek, 2008). However, transport costs vary widely
between various products and countries of origin and destination. Higher maritime transport costs are
related to lower external trade volumes. Doubling of maritime transport costs between a given country
pair is associated with a decline of 66-80% in the value of imports and a decrease in trade volume of 2628% (Korinek and Sourdin, 2009). Large trade-transport cost elasticities (2.3-2.5) have repeatedly beenfound in different studies (Limao and Venables, 2001; Martinez-Zarzoso et al. 2003; Martinez-Zarzoso
and Suarez-Burguet, 2005).
Port efficiency is one of the main determinants of international transport costs. It was found to be
most important among six different port characteristics, including port infrastructure, private sector
participation and inter-port connectivity (Wilmsmeier et al. 2006). Various studies have quantified therelation between increased port efficiency on the one hand, and decreased transport costs and increased
trade volumes on the other hand, with substantial effects varying with the extent of port efficiency
improvement (see Table 1.5). The important role of port efficiency for reducing costs of trade isconfirmed by other studies (Sanchez et al. 2003; Nordas and Piermartini, 2004).

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Table 1.5 Link between port efficiency and trade/freight costs
Port efficiency measure

Impact on trade

Characteristics

SourceDouble port efficiency

32% increase of tradevolumeTop 100 non-US and top 50
US ports; 1991-2003

Blonigen & Wilson
2008

From 75th to 25th percentile

25% increase of tradevolume59 countries, 1996-2000

Clark et al. 2004

From lowest score to highest

Decrease of freight costby 25.9%

Wilmsmeier et al. 2006

One point rise on WEF-index

4.3% reduction in advalorem transport costs

Abe and Wilson 2009

All ports as most efficient port

82.5% increase in export
volumes

14 Brazilian ports

Haddad et al. 2010

Source: Own compilation of the sources indicated in the table
Note: The WEF-index refers to the port quality index of the World Economic Forum, ranging from 1 to 7.

The impact of port infrastructure and efficiency differs depending on industry and the stage of
economic development. Marinez-Zarzoso et al. (2008) find that a 1% improvement of infrastructure in
the destination country lowers transport costs by 0.20% on average, but that infrastructure variable are
not significant for high value added sectors, such as household appliances and vehicle parts, generally
sold to the most developed countries that already have the highest levels of infrastructure quality. In
addition, infrastructure benefits middle-income countries more than lower income countries. A one-unit
improvement in port infrastructure (on the World Economic Forum’s Global Competitiveness Report
index for port infrastructure ranging from 1 to 7) for a lower-middle income country is associated with anestimated increase in trade of 139%; this is 236% for upper-middle income countries and 171% for highincome countries. This may be due to their ability to reap the gains of trade that trade facilitating
investments offer which lower income countries may be less able to do (Korinek and Sourdin, 2011).
Higher external trade can translate into higher economic growth. An overview of existing studies on theimpacts of trade on economic output and growth indicates that the macroeconomic evidence provides
dominant support for the positive and significant effects of trade on output and growth, although
microeconomic evidence lends larger support to the exogenous effects of productivity on trade, ascompared to the effects of trade on productivity (Singh, 2010). In any case, high trade costs inhibit acountry from taking advantage of potential gains form specialisation and trade in order to promoteeconomic development (Markusen and Venables, 2007).
A basic measure of port efficiency is related to the costs it implies to its users. These costs comeinto three categories:

Terminal handling charges (THC). The fee collected by terminal operators from shipping lines,
who in turn recover from the shippers the container terminals costs for the loading or unloadingof the containers and other related costs borne by the shipping lines at the port of shipment ordestination. The shippers at the origin port of shipment are responsible for paying the THC to
the terminal operator at the port of loading. The consignees, or buyers of the cargo areresponsible for paying the freight rate and the THC (or equivalent) to the terminal operator at
the port of destination. Terminal handling charges for exports are usually collected by shippinglines while releasing the Bill of Lading after completion of export customs clearance
procedures. The import terminal handling charges is collected by shipping lines at the time ofissuing the delivery order to the consignee to take delivery of goods.

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





Cargo Dues (also known as Wharfage): Fee levied by the port authority to the users (exporters,
importers or shipping lines) for the provision and maintenance of dry infrastructure whichfacilitates cargo movement, i.e. quay walls, roads, railway lines, lighting and bulk services(outside terminal boundaries). This fee is generally fixed and published as an official tariff.
Port Dues: This is a charge levied by the port to all entering ships. It is generally calculated on
the gross registered tonnage of the ship as per the tonnage certificate issued and reflects theprovision and maintenance of wet infrastructure, i.e. entrance channels, breakwaters, turningbasins and maintenance dredging and navigational aids inside port limits.
In addition to these, there are the costs of marine services, i.e. pilotage, berthing and tug
assistance, paid for by shipping lines for compulsory marine services when entering or leaving
the port, based on the size of the vessel.
Figure 1.15 Total port pricing per TEU (USD), selected ports, 2012

Source: Ports Regulator of South Africa Container Port Tariff Comparator Study (2012).

Cost wise, the port of Durban is one of the most expensive in the world. Although the terminal
handling charges are high, they are not substantially higher than ports such as Valencia, Colombo or Port
Klang. Port dues are also within the global average. This implies that maritime container shipping
companies calling South Africa pay a rate per TEU that is not much higher than the rates they are facing
elsewhere. It is over the cargo dues (wharfage) that are levied by the port authority where South African
ports, including Durban, stand as outliers, according to Transnet officials due to the complete cost
recovery necessary because of lacking national government funding for port infrastructure andmaintenance. Through the cargo dues, Transnet is able to impose a uniform port cost across South
Africa, essentially subsidizing less profitable ports and using surpluses to finance other activities andprojects (e.g. rail infrastructure). Since Transnet is in a monopolistic situation, both as a port authority(TNPA) and as a terminal operator (TPT), it can charge high port fees without facing significant
competitive feedbacks. However, its room to set port tariffs is controlled an determined by the Ports
Regulator, responsible for economic regulation of South African ports, to which the TNPA has to submit
its tariff application for approval. During this process port users can submit comments on the tariff
application to the Ports Regulator, which could be considered a regulatory feedback to high port tariffs.

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Box 1.3 The Port Performance Continuum
The efficiency of a port is part of a continuum that includes maritime, terminal and hinterland operations.
These dimensions are interrelated since inefficiencies in one dimension are likely to impact the others. For instance,
issues in terminal operations are most likely negatively impact maritime and hinterland operations with delays.

Maritime operations. The efficiency of the maritime access is a component of port performance, which includes

anchorage where ships are waiting for an available berthing slot. Long waiting time at anchorage can be theoutcome of a lack of berthing slots able to accommodate specific ship classes (e.g. draft and cargo type) as well as
terminal productivity issues. Ports, depending on their site and configuration, can have complex in port navigation
requiring pilotage and tugs through access channels and turn basins.
Terminal operations. Represent the most common performance indicator that is used to assess port efficiency. For
container terminal operations this commonly involve several key operations. Crane performance (T1) is a common
bottleneck in terms of the number of movements per crane per hour and the number of cranes available to service a
containership. For maritime shipping companies, this is a crucial factor since it is related to the amount of time theirships is going to spend at the port. The manner which cargo (containers) is brought back and forth to the storageyard (T2) is also a component of port performance. Many container terminals use holsters or straddle carriers forsuch operations. Container storage yard operations involve the organization of stacking and its related stacking
density, an important variable determining terminal capacity. When trucks enter the terminal to pick up or drop off
cargo (T3) space and equipment is required to insure that this transloading operation (yard to truck or truck to yard)
performs well. This is often a critical bottleneck for trucking companies since it dictates the amount of time they
will spend at the terminal. Gate performance (T4) concerns the efficiency of tasks related to document procession
and security inspections so that a truck is admitted and cleared to pick up or drop cargo at the facility. Gates used
above their capacity are characterized by long truck lines waiting to be processed and enter the terminal for cargo
they are already chartered to handle. For terminals having on-dock rail facilities, the performance of the rail loading/ unloading equipment (T5) is an important component of the terminal’s performance.
Hinterland operations. Can involve all the transport and distribution activities involved in servicing the port’s
customers, such as an inland port. However, for practical purposes, it generally focuses on inland operations
adjacent to the port area (often labelled as back of port). The key factor in hinterland operations is the capacity of
the local road network in areas adjacent to the port. Congestion and bottlenecks at street intersections impair the
port’s performance in many of the supply chain management strategies of the port’s customers. Some ports havenear-dock rail yards that must be serviced through the terminals’ gates. In many gateway ports transloading

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1- PORT PERFORMANCE – 41

activities that are transferring the contents of maritime containers into domestic truckloads (or domestic containers),
or vice-versa, are an element of the performance of hinterland operations.
Port authorities have an oversight, either directly or indirectly, of the port efficiency. While terminal operations areusually concessioned to private operators, port authorities tend to have a direct oversight of maritime operations andseveral elements of hinterland operations, such as local roads directly connected to the port terminals, some ofwhich on land owned by the port. Although cities are not directly involved in port operations and commonly have
limited, if any, jurisdiction on port land, they commonly provide and maintain crucial road infrastructure
connecting the port with its hinterland. They also bear many of the externalities of port operations, namely local
congestion. Therefore, the port authority and the city are important stakeholders in the port performance continuum.

Maritime Operations
Significant constraints on land availability for container stacking, congestion at the port gate, andterminal inefficiencies have led to increased ship-waiting times as volumes handled by port of Durban
have increased. Transnet National Port Authority has set operational targets for maritime operations that
simply correspond to the observed anchorage and turnaround times. Figure 1.16 plots the average ship
waiting hours for berths at DCT1 and DCT2 and underlines the growth of average wait times forcontainer vessels in the port of Durban over the past years.
Table 1.6 Maritime operations targets for the Port of Durban
Activity

Target (2013/14)

Anchorage

46 hours

Ship Turnaround time

59 hours (Containers)

Berth Occupancy

85% (Containers)

Berth Utilisation

80% (Containers)

Source: Transnet National Port Authority

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Figure 1.16 Average ship waiting hours at Durban Container Terminals

Source: Transnet Port Terminals, in Lee et al (2012), pp. 237

Higher wait times increase the costs of both imports and exports through the South African ports
system and decrease its attractiveness in the global economy. These trends give rise to concerns in
Durban, since they indicate that the port is operating inefficiently even though utilization levels are still
nominally below capacity. Given recent trends in freight growth, this situation is not likely to improve
without significant investments into Durban’s throughput capacity and efficiency. There are now
containerships classes calling the port that are at the maximum draft allowance (12.5 meters).
The average time to unload and clear cargo from ships is usually stated as 24-28 hours, but evidence
underlines that the turnaround time for a large vessel in the port can be as high as 100 hours and for asmall vessel 60 hours. As of 2012-13 the average anchorage time for containerships was 39.2 hours
while the average turnaround time was 60.4 hours, accounting to close to 100 hours of total port calltime. There are substantial variations in the distribution of anchorage and turnaround times. While mostof the containership calls involve less than 20 yours of anchorage time, turnaround figures are much
more distributed with a median value around 56 hours (standard deviation of 30 hours) with many ships
having a turnaround time above 70 hours. No significant associations were found between anchorage
time, turnaround time and the gross registered tonnage of the containerships calling.

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Figure 1.17 Anchorage and Turnaround Time of Containerships calling the port of Durban between
February 2012 and April 2013

Source: Data provided by TNPA. It includes all the containerships that have called the port during the January 2012 to April
2013 time period (1096 ship calls). Ships that called more than one berth within the port (a ‘switch’) were removed. Anchorage
time was calculated from the difference between the time a ship reaches the port’s limits and the time the same ship reaches
breakwater (port channel entrance). It also includes ships that transited from the port’s limits to the breakwater withoutanchoring. Turnaround time was calculated from the time difference between a ship entered the port at breakwater and when itleft the port at breakwater

Analyses of monthly maritime performance figures reveal that anchorage and turnaround timeincrease substantially between the months of July and December, which represents the port’s peak periodof activity. This does not appear to be linked with any variations in crane productivity and is thus
reflective of a port operating close to capacity and being challenged to handle standard seasonality incontainer volumes linked with trade cycles.

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Figure 1.18 Monthly anchorage and turnaround time of containerships calling the Port of Durban (March
2012-April 2013)

Source: OECD/ITF

Maritime operations at Durban have a performance that is somewhat degrading, which is reflectiveof a port running close to capacity constraints. When traffic is peaking due to seasonality, the impacts are
immediately felt by surges in anchorage and turnaround times that are not reflected in terminal
operations. The figures presented above are based upon total waiting time, and do not take into accountthat some vessels might have arrived ahead of their expected time of arrival. TNPA officials indicate that
there are minimal waiting times for marine services, such as pilotage and tug assistance, but we have notbeen able to verify these claims with the datasets that were made available to the research team.
When compared to ports elsewhere in the world, Durban appears less time efficient than its directcompetitors, let alone the large world ports in other continents. This can be concluded from anassessment of turnaround times of world ports, based on detailed vessel movement data, as collected by
Lloyd’s Marine Intelligence Unit (LMIU), using a methodology described in annex 1. The average
turnaround time for container ships in Durban in May 2011 was approximately two days per call. This isconsiderably higher than the average turnaround time for other South African ports, such as Ngqura,
Cape Town and Port Elizabeth, as well as other African hub and gateway ports, such as Tangier-Med,Port Said and Alexandria. At the same time, Durban’s score is more favourable than other African ports
including Apapa-Lagos and Mombasa (Figure 1.19). The score of Durban reflects the relatively poor
score of African ports overall in comparison with ports on other continents, which generally have morefavourable average turnaround times (Figure 1.20). Durban also does not score very well with regards tothe average turnaround time per TEU handled in the port: on average 1.7 days per 1000 TEUs, morefavourable than other South African ports, but approximately three times as high as large world ports
such as Long Beach, Hong Kong, New York and Antwerp (Figure 1.21). Explanations for this lagging

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1- PORT PERFORMANCE – 45

efficiency relative to ports worldwide, e.g. quantity and quality of port equipment, would require more in
depth study.
Figure 1.19 Average turnaround time per call, May 2011

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU)

Figure 1.20 Average turnaround time (in days) of ports in the world, May 2011

Source: Ducruet and Merk (2013)

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Figure 1.21 Average container handling time (days/1000 TEU), May 2011

Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU), Eurostat
and port authorities.

With respect to bulk terminals, Durban is not among the most efficient world ports either. This canbe concluded from an analysis that we carried out on port efficiency with regards to bulk goods, using
DEA methodology and a unique database set up for this purpose (both dataset and methodology aredescribed in Annex 2). Our findings indicate that the most efficient crude oil ports are very large
specialised oil ports in the Middle East, as well as some of the very large ports, including Rotterdam andsome of the Chinese ports. Durban scores in the lower middle range of our selection of port (Figure1.22).

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1- PORT PERFORMANCE – 47

Figure 1.22 Efficiency scores for a sub-sample of crude oil ports/terminals

Source: Merk and Dang (2012).
Note: (dhat) refers to efficiency scores derived using the standard DEA methodology; (dhat.bc) indicates scores derived using
the bootstrapping method and (conf.int) indicates the upper/lower bound values of the interval of confidence; (crs) is theabbreviation of constant returns to scale, assumptions used in both methodologies.

Terminal Operations
Terminal operations in the port of Durban are facing challenges, particularly when compared withinternational performance benchmarks. The main factors behind lower performance levels can be
attributed to ship call patterns, ship type (larger ships) as well as the shape of the container terminal
facilities, which is irregular compared with the standard rectangular structure. This is associated with lessstorage space available per hectares and longer intra-terminal movements (e.g. between pier and stakingyard). Terminal expansion plans will mitigate these constraints by providing more terminal space as well
as a more rectangular organization of terminal storage. Like maritime operations, TPT has set terminal
operation targets that are reflective of current performance levels (Table 1.6).

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Table 1.7 Terminal operation targets for the Port of Durban
Activity

Target (2014/15)

Dwell Time

3 days (imports), 5 days (exports), 10 days (transhipment)

Moves per gross crane hour

28 (DCT1) 30 (DCT2)

Train turnaround

6 hours

Truck turnaround35 minutes

The observed crane performance has remained relatively constant around 20 moves per hour per
crane, with figures slightly higher for full container moves than for empties. In the sub-Saharan African
context these figures compare positively, but remain well below international standards around 35 to 40
moves per crane per hour. The truck turnaround time is targeted to be around 35 minutes while evidence
underlines that it is usually above 60 minutes at the DCT terminal.
The performance of terminal operations is further impaired by labour issues where in the case of
Durban performance incentives can have perverse effects, particularly when there are productivity
premiums. For instance, rising wind velocities tend to lower the number of crane container movements.
At some wind levels that do not compromise safe operation, crane operators will stop operations, because
the productivity level would drop to a level where productivity bonuses could be compromised, insteadof accepting lower productivity, according to representatives of the industry.
The dual role of Durban both as a gateway and a transhipment hub involves variations in theterminal dwell time depending on the type of flow. The average dwell time for all container flows isabout 3.9 days, which it the most efficient in sub-Saharan Africa where most ports have easily twice asmuch dwell time. This is also related to the fact that free dwell time for transhipment is set at seven days
instead of three days for imports and five days for exports. This is reflective of transhipment operations
that require containers to wait at the transhipment hub for a longer time period while waiting to be loaded
on a connecting ship. About 80% of the containers stay at the port’s terminals for 3 days or less.

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Figure 1.23 Cargo dwell time frequency at the Port of Durban

Source: Raballand, G., S. Refas, M. Beuran, and G. Isik (2012) Why Does Cargo Spend Weeks in Sub-Saharan African Ports?
Lessons from Six Countries, Washington, DC: The World Bank.

The evaluation of terminal operations efficiency underlines that ship turnaround time should be themain consideration in terminal performance, even if fundamentally this measure is related to maritime
operations. Measures such as moves per gross crane hours are usually good indicators of terminal
performance, but tend to be skewed by performance incentives.
Hinterland Operations
The substantial growth of containerized cargo at the port of Durban has led to a growth of hinterland
traffic where the “first hinterland mile” within the metropolitan area is related to a number of activities
related to haulage, transloading, stuffing and empty container depots. About 1.8 million TEUs weretransported in and out of the container terminals in 2012. Hinterland operations concerns activities thattake place outside the port terminals and are thus related to the capacity and efficiency of regional roadand rail systems. While rail used to dominate long haul hinterland access, this share has substantiallydeclined over the last decade. A breakdown of the container haulage system reveals a specific activity
system within Durban’s hinterland:Containers being trucked to nearby warehouses to be transloaded into domestic load units (37%of containerized imports). The containers can then be brought back to an empty container depot
to be stuffed and brought back to the port for exports (or brought back to the port empty). This
creates a variety of local truck movements contributing to congestion.

Direct long distance haul truck drayage to bring containers directly to customers in thehinterland (26% of containerized imports). This hinterland comprises mostly of Witwatersrand,a broad area in Gauteng that comprises the Greater Johannesburg Metropolitan Area.

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50 – 1. PORT PERFORMANCE

Direct rail long distance haul rail movement from the Bayhead intermodal terminal to the City
Deep terminal near Johannesburg (16% of containerized imports). The City Deep Transport
Logistics Hub is South Africa’s largest container depot. From this terminal, containers will be
brought to customers in the hinterland.



Direct short distance haulage to customers within the Durban metropolitan area (20%). Similar
to transloading, the containers are brought back to an empty depot after been emptied.



Truck haulage from empty container depots in the Durban metropolitan area to the port for the
purpose of being repositioned as empties (39% of containerized exports). These depots are also
receiving short (from import-based transloading warehouses) and long hauls (from hinterland
empty depots) of empty containers.



Truck haulage from stuffing warehouses within the Durban metropolitan area (44% ofcontainerized exports). Each container being stuffed required to be picked up at an empty
depot.

Direct long distance haul rail from the City Deep inland port to the Bayhead intermodal yard
(14% of containerized exports). These containers were either brought from hinterland stuffing
warehouses or empty depots.



Direct long distance haul from a hinterland stuffing facility to the port for export (7% of
containerized exports).
Figure 1.24 Container haulage system, Port of Durban (TEUs)

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Source: Adapted from Strategic Transport Planning Department - ETA (2013) Development of an Integrated Freight andLogistics Strategic Framework and Action Plan.

Access to the container port terminal, either for pickups or drops, can be subject of delays becauseof local congestion and gate access. While the target of about 60 minutes of pre gate time and 45 minutes
in the terminal is regularly being met, the time that trucks queue on nearby roads to access the terminal is
not being measured and thus not part of performance indicators. Another concern involves the lag effectbetween the availability of rail services and the time such a service was ordered. For instance, it can takethree to four days to order a train to pull cargo out by rail from Maydon Wharf. Such as factor plays in
the prominence of road transportation for hinterland access since a lagging effect impairs the timelinessof supply chain management.
Hinterland operations is facing a situation where there is a large amount of freight entering andexiting Durban through national routes in addition to the freight circulating within the city to support avariety of port-related operations such as transloading. Because of the array of activities involved incontainerized operations, there is a double or a triple handling of containers, which results in about 3
million container moves of the local roads per year. This underlines a multiplier effect of container
moves in hinterland operations, ranging between 1.2 and 1.5 times the number of containers handled by
the port. This multiplier is dictated by the importance of transloading activities as opposed to directcontainer hauls. The distance between the ports, transloading facilities and empty container depots havean important impact on local circulation and thus on hinterland operations. At this point port related road
haulage is facing a lack of planning such as a shortage of truck parking and rest areas within the port
area. Since transloading is likely to remain an important logistical activity supporting the role of Durban
as a gateway to the South African economy the location of transloading activities is an importantcomponent of a port-centric logistics strategy.

Hinterland connectivity
Rail Corridors
Considering the nature and the geography of South Africa’s hinterland, all the main ports are thehead of rail corridors with different functions. These functions are particularly reflected in the nature of
the rail terminals which can be categorized as freight (handling general bulk and break bulk cargo,
including containers), intermodal (solely designed to handle containers) and mineral (main loading
stations for ores and coal). The rail infrastructure is owned and operated by Transnet Freight Rail (TFR),
including lines and terminals within the ports. The core business model of rail operations in South Africa
is based on hauling heavy products (ores and coals) along clearly defined corridors. TFR usually does notcarry orders of less than 10 wagons, which either requires a shipper able to generate large enoughvolumes on its own or a form of consolidation of loads among shippers with lower volumes.

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Figure 1.25 South African main rail systems and corridors

Source: Transnet.

Because of the nature of the hinterland and the distribution of markets and resources rail network is
structured as rail corridors handling the majority of the traffic and connectors. The most significant rail
corridors are:The Sishen-Saldanha heavy haul line, which mostly supplies the port of Saldanha Bay with ironore (Export ore system).



The Cape Town-Gauteng corridor, which carries a range of general and containerized cargo. It
interfaces over some segments with the export ore rail system.



The Port Elizabeth/Ngqura-Gauteng corridor, also carrying general and containerized cargo.
This corridor also branches to the port of East London.



The Natal Corridor (Natcor) connects Durban (Bayhead) to Gauteng (City Deep) and is themain commercial artery of South Africa.



The Waterberg-Richards Bay corridor, which is a heavy, haul line for coal exports (Coalsystem).

Most of the national corridors thus converge at Gauteng. There are also cross-border rail corridors
servicing Namibia, Botswana, Zimbabwe and Mozambique, giving opportunities for South African ports

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to service international hinterland markets, but also foreign ports, such as Maputo and Walvis Bay toservice the South African hinterland. Parallel to most rail corridors, the national road system connects themain urban centres. The issue remains to have a more concerted approach in the planning of rail, port androad infrastructures since each is under different responsibilities and jurisdictions. This is particularly
relevant for the Durban – Gauteng corridor that has a length of about 742 km, which places it within thecompetitive range of road transportation. As of 2013, there were about 7 daily container train services
between Bayhead (Durban) and City Deep (Johannesburg). This is down from 11 to 14 trains per day in2010, implying an erosion of the rail’s market share mainly attributed to reliability and level of service
issues. Unlike the rail services related to transporting heavy bulk commodities (e.g. ores and coal), there
is a range of commodities for which roads has been able to capture a dominant market share along thecorridor. As a strategy to cope with a declining market share of rail Transnet is trying to develop
consistent rail services with a time frame of 96 hours to the City Deep terminal.
There are only three dedicated intermodal rail terminals that handle container traffic in South
Africa, each with supporting sub-facilities for cargoes such as break-bulk or cars. For the Durban –Gauteng rail corridor, the inland port of City Deep represents the only consolidation and deconsolidation
terminal for intermodal rail services calling from Durban. It was established in 1977 as a bonded inland
container depot for containers that have transited through Durban could clear customs in Johannesburg.
The terminal has a capacity of 280,000 TEUs per year with plans to expand this capacity to 400,000
TEUs per year by 2016 and 700,000 TEUs per year by 2019.
Modal Split
Until the 1960’s South Africa’s underdeveloped road network and inflexible regulatory framework
made rail the sole option for inland freight transport. The Road Transport Act required road haulers to
obtain permits for any transportation of goods that went beyond a locally specified limit (50km in
Durban), which effectively isolated the state-owned rail company from any form of modal competition.
However, the increasingly dysfunctional permitting system was finally scrapped through the repeal of the
Act in 1988, and the development of road infrastructure led to a major shift towards road as the dominantmode for inland distribution. While rail accounted for almost 100% of the modal split of traffic leaving
the Durban Container Terminal in the 1970s, its share declined drastically throughout the 1980’s and1990’s falling to an average 16% over the period spanning 2007 to 2012 (ETA 2013: 91). Still, during
the 1980s, Durban was handling less than half a million TEUs, so the volumes handled by rail wererelatively small. Although the share of rail experienced occasional peaks of around 20-25% during thisperiod, by 2010 it was back to the 15 to 18% range. Thus, 75% to 85% of the containers leaving
Durban’s main terminals are transported by road. Such elevated shares of trucks in the modal share are
not uncommon among other ports, although various European ports have managed to reach much lower
truck shares (Figure 1.27), which might be related to availability of railway capacity.

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54 – 1. PORT PERFORMANCE

Figure 1.26 Rail flows by direction Durban/Gauteng (2012)

Source: Information provided by Transnet Group Planning

Figure 1.27 Modal splits of port hinterland traffic

Source: Merk 2013

Rail flows account for 18.5% of the tonnage between Durban and Gauteng and reveal imbalanced
traffic dominantly attributed to coal flows to the port or to the metropolitan area for industrial

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1- PORT PERFORMANCE – 55

consumption (e.g. steel and power generation). Outside this trade, container flows dominate, particularly
for exports. It underlines the role of the City Deep terminal as a logistics platform where containerized
consumer goods are imported and where heavier contents, such as commodities, are exported after acargo rotation. ETA and SANRAL statistics show that container heavy vehicle traffic on the N3 at Cato
Ridge and Marian Hill comprises 20.7% and 20.6% of the total heavy vehicle traffic on these routes.
Most containers are broken down in the eThekwini Municipal Area (predominantly the South Durban
Basin) and the content of the container is then moved in another trucking configuration and format to thehinterland.

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Chapter 2.

Port Impacts

The port of Durban is one of the key determinants of the economic, environmental and social
development of the city. It contributes significantly to the metropolitan labour market and value-added inways that can be directly and indirectly measured. Furthermore, it acts as a magnet for a host of maritimeand port-related firms, which locate their businesses within the metropolitan area in order to benefit from
economies of scale generated through spatial clustering. This chapter analyses some of the port’s economic
and spatial impacts of the city, before describing some of the less desirable social and environmental
impacts that are also part and parcel of many major ports situated within dense urban cores.

Port-related employment
Direct employment
The port of Durban contributes significantly to the metropolitan labour market. This impact can bemeasured in two ways: using estimates of direct employment within the port (shipping, cargo handling,ship repair, customs clearing, services within the port such as security, etc.) and using those for the indirect
employment in sectors that are linked to the presence of the port (such as manufacturing, inland freighttransport, petrochemicals, agriculture, etc.).
Transnet is a significant employer in the port of Durban. In 2003, for example, some 1,020 full time
workers were employed at the Durban Container Terminal alone (CPCS Transcom 2003: 7). As of 2012,
direct employment by Transnet within the port of Durban stands at 4,000 FTEs. Looking more broadly at
all of the port-ancillary firms employing workers within the port, Jones (1997) estimated that at very least,
some 31,000 people were employed in directly port-related activities in 1995. On the basis of Jones’ earlier
work, and in addition to interviews with private actors, Coller et al. (2007) have estimated that this sector
had grown to around 600 firms employing roughly 50,000 people in 2007. More recently, Maharaj (2013:4) has calculated a further increase to some 53,000 people employed in activities directly serving the port
in 2011.
Indirect employment
In terms of indirect employment impacts, Maharaj (2013) also estimates that at least 50,000 jobs inother port-dependent sectors are located in the eThekwini metropolitan area (EMA) purely to benefit fromproximity to the port. Given that the EMA was host to some 150,000 jobs in the manufacturing sector,

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66,000 jobs in the transport, storage and communication sectors, and 18,000 jobs in the agricultural sector
in 2011,7 and that these sectors are significant freight generators, this is a relatively conservative estimate.
Combining the two kinds of estimate yields at least 103,000 jobs in the EMA in 2011. Consideringthat the EMA labour market comprised around 1 million jobs in 2011, one could roughly estimate that, atvery least, some 10% of Durban’s total employment is most likely dependent on the presence of the port,
directly or indirectly.
Employment generated by expansion
It has been suggested that expansions to Durban’s capacity are significant generators of employment,
both in the capital expenditure and operational phases. In 2008, for example, Conningarth Economists andthe Economic Development Unit of the eThekwini municipality used the eThekwini Social Accounting
Matrix to estimate employment impacts of new terminal expansions into the Bayhead area. Although plans
for these expansions were eventually ruled out due to the severity of anticipated environmental impacts,
the hypothetical exercise does provide some perspective on the potential role that the port can play in theeThekwini labour market. The model predicted that construction of new terminals in the Bayhead area
would create an extra 9,000 annual direct employment opportunities, in addition to 3,000 indirect andinduced jobs created in the construction industry. In addition to this temporary employment derived from
capital expenditure, the model also predicts increases in direct and induced employment as a result of
expanded operations, estimated at 19,000 and 18,000 respectively. Similar predictions have been madewith regard to the construction of a new port at the site of the former Durban International Airport. One
can conclude from these various estimates that the port is a significant contributor to the metropolitan
labour market.

Port-related value added
As South Africa’s busiest port, Durban contributes not only to the economy of the metropolitan region
but also to that of the country as a whole, facilitating a considerable portion of its trade activity. Recent
studies have illustrated that investments and cost reductions in the South African ports significantly
increase import and export activities, contributing to the national value added. Moreover, the eThekwini
Metropolitan Area (EMA) benefits from increases in demand for port cluster services, and from the port’srole as magnet for high value-added industries.
National impacts
Investments into the South African ports sector have been estimated to produce significant increases
in national value-added. Lee et al. (2012) have used a Computed General Equilibrium (GCE) model toanalyse the economy-wide impacts of port development in South Africa. According to their analysis,
which employs base data from 2002 integrated into the Global Trade Analysis Project, investments into theport industry significantly increase the output of at least five port-related branches of the economy. A fourbillion rand investment is found to generate additional value-added by a factor of 0.91% in the maritime
transport sector, 0.65% for firms selling transport equipment, 0.58% for the construction sector, and 0.22%
for both transport service and trade (Lee et al. 2012: 241).
Improvements to the South African ports’ KPIs are also found to contribute significantly to thenational value-added. Basing their calculations on the ports of Durban and Cape Town, Lee et al. (2012)
have further estimated that, by inducing significant reductions in freight costs, a 10-hour reduction in the7.

Estimates are derived from the Quantec database figures quoted in in ETA (2013), and include figures forboth formal and informal employment.

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wait time per ship in the South African ports system would increase real GDP by 0.20%, and value-addedby 0.10%. Their model further predicts an increase in the total value of trade by 0.32%, the majority ofwhich is felt in South Africa’s export-related sectors. The eThekwini Municipal Area is one of the key
contributors to the regional and national economy. While it was home to only 6.6% of the national
population in 2011, since at least the mid-1990s the EMA has contributed around 10% of South Africa’s
total GVA, and around 65% of the KwaZulu-Natal regional GVA.
Figure 2.1 Contribution of the eThekwini municipal area to the national and regional gross value added

Source: KZN treasury reported in ETA (2013)

Table 2.1 Sectoral breakdown of GVA in South Africa and eThekwini municipal area in 2011 (R ‘000)
Constant 2005 prices

SA

%

EMA

%

Agriculture

41,552,990

2.5

2,048,139

1.1

Mining99,415,001

5.9

255,257

0.1

Manufacturing289,015,002

17.1

39,471,812

21.7

Electricity

34,749,000

2.1

4,078,338

2.2

Construction

58,241,000

3.4

5,921,786

3.2

Trade

234,630,001

13.9

30,006,334

16.5

Transport

172,733,001

10.2

28,742,462

15.8

Finance

400,382,002

23.7

40,683,730

22.3

Community services

362,006,002

21.4

31,016,888

17

Total

1,692,723,999

182,224,746

Source: KZN treasury reported in ETA (2013)

Metropolitan Impacts of the Durban Maritime Cluster
Much of this value-added contribution is derived from economic activities linked to the port. By
virtue of its large manufacturing sector, whose 21.7% share in the metropolitan GVA was 4.6 percentage
points greater than the national average in 2011, the eThekwini economy has developed a number ofbackwards linkages with the port. The automotive and petro-chemical sub-sectors in particular constitutemajor freight generating clusters within the EMA manufacturing park. The area of Prospection, to thesouth of the former Durban International Airport, is host to the Toyota South Africa manufacturing facility,
South Africa’s largest automobile assembly plant. At 79-hectares, the plant alone employs some 8,500
workers directly, and is the main client of over fifty automobile component suppliers in the KZN region(KZN 2012). This strong manufacturing base, combined with high freight-generation from firms in the
agriculture, forestry, and mining sectors, has given rise to a diversified and thriving maritime cluster,

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which comprised around 2000 firms in 2007 (Van Coller et al. 2007). Table 2.2 represents the number offirms in the eThekwini maritime cluster by sector and sub-sector.
Table 2.2 Firms in the eThekwini maritime cluster by sector and sub-sector, 2007
BUSINESS CATEGORY
1. CARGO / LOGISTICS- Transport- Cargo Handling Equipment- Cargo Logistics- Cargo Services- Cargo Trade- Warehousing & Distribution

454
106
86
248
276
228

23%
5%
4%
13%
14%
12%

Sub-Total

1398

71%

2. MIXED CARGO/SHIPPING- Harbours, Ports & Railways- Marine Services & Supplies

8
85

0%
4%

Sub-Total

93

5%

3. SHIPPING- Shipping Companies & Operators- Boating & Fishing- Ship Engineering & Repairs- Shipping Services

116
110
120
126

6%
6%
6%
6%

472

24%

1963

100%

Sub-Total
GRAND TOTAL

TOTAL

%

Source: Van Coller et al. 2007. Estimates are based on the Brabys database of South African enterprises, which is thought to cover
75-80% of firms.

The majority of firms in the EMA maritime cluster are involved in transport and various aspects ofcargo distribution, including warehousing. The study cited above further describes spread of activities forsome of the more important sub-sectors of the maritime cluster. The transport and logistics sub-sector, forexample, is occupied primarily with logistics services, cartage contracting and clearing / forwarding
activities (21.7%, 21.7% and 20.0% respectively), with a significant number of firms working in long
distance carrying (16.7%) and as cargo agents (16.%). The spatial distribution of the eThekwini maritime
cluster is as follows (Figure 2.2).

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Figure 2.2 The spatial concentration of the EMA maritime cluster by sector

Source: Brabys data reported in Van Coller et al. 2007.

As illustrated on Figure 2.3, with the exception of the transport firms, the majority of the EMA
maritime cluster is concentrated in the city-centre and port areas, in which almost half of all EMA
warehouse and distribution companies are located. The centripetal pressures of the port thus appear toconcentrate significant port-related value-added activity within the central areas of the EMA. Further, it isalso worth noting that the South Durban Basin is a major manufacturing zone and well-connected to theport due to its location directly behind the main container terminals, and that this potential for backward
and forward linking appears to have resulted in significant clustering of maritime firms in this area. The
following spatial analysis (Figure 2.4) provides a more fine-grained picture of clustering effects amongport-related firms in the Durban metropolitan economy.

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Figure 2.3 Port-related economic clusters in the eThekwini metropolitan area (2007)

Source: Brabys 2007 and Google 2013. N: 1588.

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Figure 2.4 Port-related economic clusters in (clockwise) North-West Durban, the CBD, Isipingo industrial area,
and the back of port (South Durban Basin) 2007

Source: Brabys 2007 and Google 2013. N: 1588

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64 - 2 - PORT IMPACTS
As illustrated, a co-dependent spatial economy of port-related firms thrives within the eThekwini
metropolitan area. The back of port area concentrates mainly transloading and road haulage firms,
probably with the highest concentrations in all of Durban. As a general rule, warehouse and road haulage
firms tend to cluster together, which is reflective of the economies of scale generated through spatial
proximity. However, this analysis also illustrates the decentralisation of the eThekwini hinterland freighttransport system: many road haulage firms are dispersed along the arterial corridors, often where land is inlower demand. The point and CBD areas are home to the majority of customs and clearing services, while
also exhibiting significant concentrations of freight services, shippers and import and export firms. It isalso worth noting that significant clusters of port-related manufacturing (cranes, forklifts, etc.) are locatedin the in the New Germany and Pinetown areas, which also seem to have attracted ex-urban warehouse androad haulage firms, constituting a small decentralised distribution hub at the limits of the metropolitan area.
Finally, the Umgeni business park seems to host a mix of port services, including a number of importexport agents.
The impact of the port on local spending
The presence of the port provides for significant injections of capital into the local economy. By
providing an approximate measure of annual direct expenditure within the port, the spending profiles
presented below help to further understand its contribution to the metropolitan economy. They describe
average expenditure for three kinds of port call: an average container vessel that moves 900-1000 TEUs; amulti-purpose cargo ship that handles 12-15,000 tons of break bulk; and an average bunker call.
Expenditure is calculated on the base of 2006 rates for container and bulk, 2005 estimates for bunker calls,
and interviews conducted by Transnet and eThekwini municipality with actors in port-ancillary services.8
These estimates of expenditure are not exhaustive: because they are restricted to port-ancillary services andare conservatively estimated, they most probably underestimate the average expenditure per vessel in theport. They do not include multiplier effects, or the spending of Ro-Ro and liquid bulk vessels.

8.

All estimates calculated herein are based on data presented in GMA 2009: 48-50 and Van Coller et al.
2007: 14.

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Source: Jones 2005 Transnet & eThekwini municipality (TEMPI) quoted in GMA 2009: 48-50. * South African Port Operations, renamed Transnet Port Terminals (TPT) in 2009.
2- PORT IMPACKS – 65

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Table 2.3 Expenditure per vessel call in Durban (2005-2006)

65

66 - 2 - PORT IMPACTS
Multiplying these three spending by the number of calls made in a given year by their respective typeprovides a rough estimate of direct first round spending in the port cluster. This can be further expanded bya ‘local economy multiplier’, which attempts to calculate the indirect and induced spending in the EMA
economy by wage earners in the port cluster. This type of multiplier should not be confused with a regional
output multiplier, which describes the ratio of extra output that is required from producers across all sectorsof an economy if demand increases in one specific sector.9
Jones (1997; 2005) provided some of the most broadly cited multipliers that calculate the indirectspending generated by direct spending in the port of Durban. His calculations do not rely on the typical useof input-output tables, but are instead calculated by constructing a local-economy multiplier whose
contribution is increased by the marginal propensity to consume (MPC) of wage-earners in the port and by
the estimated proportion of re-spending that is contained within the Durban area; it is decreased by thetaxation rate.10 On the basis of Jones’ calculations, a conservative estimate for the Durban port’s local
economy multiplier would be equivalent to 1.7. More recently (2005) he has claimed that the local
economy multiplier could in fact be as high as 2.4. Table 2.4 provides a measure for first round andindirect spending in the EMA produced by vessel calls into the port of Durban. With an estimated total
direct and indirect spending proportional to 8.2%-13.7% of the EMA total gross value added for 2005, it issafe to conclude that the port is a significant contributor to the EMA economy.
Table 2.4 Direct and indirect spending in the Durban port cluster
Number ofcalls (A)

Average
expenditure percall (B)First round port
cluster
expenditure (A x
B = C)

Low-Range (Jones
1997): 1.7 (D)High-Range (Jones
2005): 2.4 (E)General Cargo &Bulk* (2005)

1,850

1,806,315

3,341,682,750

5,680,860,675

8,020,038,600

Container (2005)

1,214

2,490,300

3,023,224,200

5,139,481,140

7,255,738,080

Bunker caller(2004)

601

1,279,313

768,867,113

1,307,074,092.1

1,845,281,071.2

Total

4,551

5,575,928

7,133,774,063

12,127,415,907.1

17,121,057,751.2

Vessel typeMultiplied expenditure (C x D, C x E)

Transloading
Transloading – not to be confused with transhipment – describes the act of transferring a shipmentfrom one mode of transport to another, and is commonly referred to as ‘stuffing/destuffing’ and ‘stripping’when describing the handling of goods transported in containers. As a gateway to the South African
economy, the Durban metropolitan area plays host to a diverse and active range of transloading activities
clustered around the port. Their presence within the city constitutes an important mechanism for capturing
the port-generated value-added and retaining it within the eThekwini metropolitan area. Table 2.5
illustrates some of the key transloading activities taking place in the eThekwini metropolitan area.

9.

Applied to ports, this kind of multiplier thus estimates the extra output that is required from sectors of theeconomy linked to the port through backward linkages. If the multiplier of a given port is 1.5, for example,
this means that every rand of extra demand in the port will generate .5 rand supply in sectors linked to the
port

10.

Local-economy multiplier =1
1−𝑐(1−𝑡)𝑟

Jones assumes a relatively high MPC of 0.85 (85% of the port-

related wage-earner’s income is used for consumption), and an average tax rate of 17% (which is relativelylow), and estimates that some 60-70% of spending takes place within the EMA.
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Table 2.5 The main uses of container transloading
Cause

OutcomeConsolidation

Transferring the contents of containers into domestic load units.

Weight complianceTransferring the contents of heavy containers into loads meeting national or regional road weight
limits.
Remove the weight of the container (2.4 tons for a 20 TEU box and 4.3 tons for a 40 TEU box) andshift to a lighter load unit.

Palletizing

Placing loose (floor loaded) containerized cargo unto pallets. Adapting to local palletized load units.

Demurrage

Handing back containers to owner (maritime shipping or leasing company) by transferring its
contents into another load unit.

Equipment
availability

Making maritime containers available for exports and domestic containers available for imports.

Supply chain
management

Terminal and transloading facility as a consolidation buffer. Delay decision to route freight to better
fulfil regional demands. Perform some added value activities (packaging, labelling, final assembly,etc.)

A total of 2,698,656 TEUs were handled in the port of Durban in 2012, of which 497,285 weretranshipped. This means that the majority of the remaining 2,201,371 TEUs were transported to and fromthe port’s container terminals and between various depots and distribution centres in the hinterland.
Because the current share of rail in the modal split of containers leaving the port of Durban is very low, ataround 16% (averaging for the period 2007-12), and 30% for long-haul inland movements, it is likely thataround 1,850,000 TEUs were moved through the immediate hinterland by truck in 2012. However, due toDurban’s extensive cluster of transloading services, the number of hinterland moves should in fact besignificantly multiplied.
The majority of goods landed in the port of Durban are de-stuffed through transloading activities
located within the EMA, and the goods are then usually transported inland to customers in Johannesburg.
This allows for the return of the containers to the shipping lines’ empty container depots. Equipment
availability is thereby enhanced, in that the empty maritime containers are ready to be filled for export orshipped out again as empties. There are around 36 empty container stacking sites in Durban, most of which
are tightly clustered into the mainly industrial areas located directly behind the port between Maydon
Wharf and Jacobs (ETA 2013). Most shipping lines pay a preferential rate for the timely demurrage of
empties, which constitutes an incentive to repatriate containers as soon as possible and further helps toretain transloading activities within the eThekwini municipal area (as opposed to sending them to inland
depots to customers or for transloading).
As indicated above, many incoming maritime containers are sent to depots both within Durban andinland, before being delivered to customers. This intermediary step helps to cut down on costly wait times
in the stacks located within the port. It is also noteworthy that, instead of waiting for the containers to be
restuffed, many distributors are now sending a significant number of empty maritime containers back to
Durban from inland destinations. This is a relatively novel trend (ETA 2013), and is reflective of thegrowing demand for empty containers in Durban, driven by the concentration of transloading activities
there.
Durban’s high concentration of transloading activities, coupled with the weak share of rail in themodal split, has thus born a significant influence on container flows through the hinterland. Most maritime
containers leaving the port are not directly delivered to customers, but repacked within the Durban
metropolitan area. This is a significant source of value-added employment in the area. Furthermore, when
one takes into account the increasing volume of empties sent from the inland to be handed in at Durban’s

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depots for transloading, it becomes apparent that non-transhipment maritime containers landed at the port
are double or triple-handled within the Durban metropolitan area. As a result, the back of port area might
indeed be handling as many as 1.2-1.5 times the volume of containers handled within the port itself (ETA
2013).
While this constitutes an important means for the city to recuperate some of the value-added activities
linked to the flow of containers through the city, it is also important to note that the road infrastructure is
not entirely equipped to deal with such pressures, and is frequently degraded. The intensifying logisticalactivity within Durban is also a significant source of congestion. Port impacts in the form of transloading
activities are thus double-edged: while they undeniably constitute an important source of revenue andemployment, it is important that the city effectively coordinates and plans for this intensified activity inorder that the negative impacts do not outweigh the economic benefits.

Environmental and social impacts
Durban’s port operations and port-related industries are generative of many of the environmental
externalities typically associated with major ports around the world: transformation of local eco-systems;
pollution and risk from heavy industries; emission of greenhouse gases; traffic congestion. South Africafeatures relatively stringent policy frameworks and instruments to mitigate such impacts. In addition totypical environmental externalities, however, Durban’s truck-dependent modal split creates social andenvironmental problems that appear particularly elevated compared to port-cities with a greater share ofrail.
Impacts Resulting from Road-Dependent Modal Split
The declining share of rail in the modal split of inland transport has not been mitigated by theinstitutional context. Freight logistics in Durban have historically been planned and coordinated by actors
at different levels of government (national, regional and local), who work independently from one anotherand whose interests sometimes diverge. As the port has expanded, a lack of coordinated planning has
arguably hindered development of a flexible and modern hinterland rail network, leaving the expanding
use of heavy vehicles to distribute freight to continue unchecked.
By extrapolating data from 33 days of observation to a 330-day year, the eThekwini Transport
Authority has estimated that some 692 million tons of goods are transported on the major road freightroutes of the metropolitan area (ETA 2013: 126). It is thus unsurprising that the heavy vehicle industry is asignificant source of employment and activity in the regional economy, whose growth has been spurred by
the availability of low-cost trucks that have lowered barriers to entry. By providing an easy-entry,
entrepreneurial form of employment, this industry can be seen to contribute positively to the lives of thoseliving in the eThekwini metropolitan area.
However, the over reliance on the trucking industry has produced several negative impacts. The
eThekwini Transport Authority has claimed, for example, that “the effects of this very extensive roadfreight activity on the roads of eThekwini are visible in the form of congestion, pollution, delays tocommuter traffic and road damage due to lack of control of overloading” (ETA 2013: 153). Furthermore,by enabling a polycentric localization of distribution activities in various locations around the port, thetrucking industry has contributed to the fragmentation of Durban’s logistics cluster, to be dealt with inpolicies (see Chapter 3).
Coupled with Durban’s ‘T’ shaped corridor structure, this fragmentation has led to serious congestion.
Durban’s metropolitan spatial development was characterized by the clustering of economic activity
around the North-West corridor running parallel to the coast, and the East-West corridor that connects the

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industrial basin and the port to Durban’s main hinterland areas in Gauteng. On the one hand, heavy
centripetal pressures from the port have centralized high-employment areas in the CBD and South Durban
Basin. On the other hand, however, the legacy of apartheid planning and uneven spatial development in thenorth and south of the city have located cheap housing for mid- to low-skilled workers far from their placesof employment in the city centre. As a result of these trends, Durban exhibits a radial transport structurethat is heavily centralized, with commuter and industrial traffic competing for scarce space on the arterial
corridors.
The competing sets of flows generated by such mismatches lead to significant stress on the key
intersections and corridors that facilitate movement from north to south and from east to west. The mix ofcommuting and freight circulation creates extensive negative multiplying effects on road congestion inwhich each section impedes the efficiency of the others. According to analyses of Durban’s back of port
area conducted in 2009, significant portions of the southern coastal corridor frequently operate beyond
their capacity, and consequently require expensive upkeep investments (GMA 2011a). Road damage isfurther exacerbated by non-compliance with heavy vehicle regulations. The eThekwini Transport
Authority reported in 2013 that, due to the non-strategic location of Durban’s four weighbridges (including
the closure of the Durban Metro Bayhead Road weighbridge in 2010), overloading is a phenomenon thatcarries on with little surveillance and even less enforcement. In addition to the operation of heavy vehicles
in residential areas whose roads have not been designed to support the weight of even a normally loaded
truck, damage to roads and underground infrastructure is extensive.
Competing and Incompatible Land Use Patterns
Freight distributors in Durban compete for and obtain land that was originally intended forcommercial and residential purposes. In residential areas into which trucking activities have infiltrated,
accidents have become common. The eThekwini Transport Authority reported that heavy vehicles caused
some 7,379 accidents in 2011, of which 72 resulted in fatalities and 210 in serious injuries. This presents a
substantial cost on the economy, in terms of loss of skills, loss of income, medical expenses, and lost time
due to resulting congestion. Perhaps the most poignant example of this issue is the residential Clairwood
district, which is a residentially-zoned area located directly behind the port and surrounded on all sides by
areas zoned for industrial activity. The Clairwood neighbourhood was originally founded by onceindentured Indian labourers, and was a thriving community, featuring around 60,000 residents in the
1960’s (Scott & Sutherland 2009). Already in the 1950’s, however, pressure from the port-relatedindustries informally setting up activities in the area began to drive people away, and the population had
already slipped to 6,000 in the 1970’s, and to just over 5,000 according to the 2001 census. In response tothese pressures, the Durban council had already attempted to rezone the area as an industrial zone in the
1940’s, which lead to the creation of the Clairwood Ratepayer’s Association in 1946. The group, whichstill meets on a weekly basis, successfully challenged the rezoning efforts made back then, and continues
to block interface projects to this day. Just in 2007 the association successfully blocked a proposed linkroad from the Durban port to the DIADP site (Scott & Sutherland 2009: 52). A closer look at the zoning
framework reveals the issue quite clearly. De jure, Clairwood is a residential area comprising some 3,500
inhabitants, but which in fact has been partially transformed into a port-centric logistics area.

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Figure 2. 5 Empirical analysis of non-residential land-use in Clairwood, 2009

Source: GMA 2009: 31. Land use compiled by Graham Muller Associates through site-by-site visits in the area.

The areas in yellow represent properties that, whilst technically zoned for residential purposes, havesince been transformed into sites for various logistics and industrial activities. Although (at the date of
publication) the Clairwood district is still zoned for residential land-use purposes, its proximity to the port
has made of it a prime target informal transloading, logistics and storage activities facilitated andencouraged by the road-dependent modal split. As volumes continue to grow at the port of Durban,pressures to further expand and formalize land use for logistics in Clairwood will increase. A complete orpartial rezoning decision will eventually need to be reached, particularly since the function of theneighbourhood has substantially changed and the quality of life degraded.
Transformation of eco-systems
Over the past thirty years, the port of Durban has undergone several phases of development, requiring
infilling, the widening and deepening of entrance channels into the port to allow for post-panamax vessels,
the expansion of container terminals, and various berth upgrades. This process has left little of the
Durban’s Bay of Natal original geological or ecological structure intact: around 70% of the approximately
264km2 catchment area in the Bay of Natal is industrialized. According to recent studies conducted by themunicipality, port expansions have led to dramatic declines in the local biodiversity, most notably withregard to the water birds that depend on the particular habitat located in estuarine bays, but several mass
fish kills have also taken place due to water pollution and the hydraulic dynamics induced by the harbour
infrastructure11, most recently in 2007 (Forbes & Demetriades 2009).This study has classified the natural
habitat in Durban Bay as “severely degraded”.

11.

“Unfortunately the development of harbour infrastructure in Durban Bay has produced a configuration
which results in poor circulation and limited water exchange along the length of the silt canal. Thus, any
polluted or contaminated water brought into the bay via the aManzimnyama and uMhlatuzana canals
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Nevertheless, as one of South Africa’s few estuarine bays, the Bay of Durban is continues to play hostto one of the only sheltered, permanently tidal sandbanks in South Africa, which is home to a diverse arrayof flora and fauna. The sandbar, which separates the container from the bulk cargo terminals, houses amajor fish nursery that plays an important role in replenishing the stocks of local fisheries. Furthermore,some 20 hectares of mangrove forest and coastal grassland, wedged tightly between the container terminalsof the port, compose the Bayhead Natural Heritage Site, which is protected under Transnet’s sustainability
policies.
Durban Bay is one of only three South African estuaries that into the “Estuarine Bay” category, twoof which contain ports. The strong marine influence, diversity of habitats, and relatively stable abiotic
conditions result in this system supporting more species than almost any other estuary in South Africa.
Given the strong degree of connectivity that occurs in the aquatic environment, a change to one of theseareas can have far reaching regional consequences. Allan et al. (1999) have shown that relative to pristineconditions 57% of Durban bay has been in-filled. In terms of available habitat, a mere 4% of the natural
shoreline area, 14% of the tidal flat area, and 3% of the mangrove areas remain. This attrition is reportedly
almost entirely a consequence of port development. These factors ultimately lead the Bay of Natal: EstuaryManagement Plan Situation Report (ERM/MER, 2012) to conclude that the “Bay is at a tipping point andcould be thrown off balance by a relatively minor ‘push’ in which, significantly, the loss to the ecosystem’sfunctioning would be disproportionate to the negative impact (ERM/MER, 2012).
Environmental impacts are a considerable source of tension in the port, constituting a major
operational constraint for Transnet and generating opposition to expansions amongst certain civil society
groups that represent the residents of the city. Even relatively minor infrastructural expansions that are
strategically necessary from a safety point of view are intensely constrained by potential impacts on these
eco-systems and subject to contest. For example, the TNPA plans to undertake dredging projects at piertwo in order to expand several of its berths (203-205). This is not only seen as advantageous from an
economic point of view (increase in capacity and efficiency), but is necessary to the safety of workers in
the port, due to present structural weaknesses in the quay wall that pose a risk of collapse (Nemai 2012).
However, because the expansion of berth 205 would encroach onto the central sandbank area, which iszoned for preservation, South African regulation requires that subsequent expansions are offset by net
gains in the size of the sandbank. Environmental impacts associated with the expansion of the port were in
the past dealt with in a comprehensive Integrated Environmental Management process that culminated in
the 1999 Record of Decision. This Record of Decision, issued by the national Department ofEnvironmental Affairs, acknowledges the regional ecological importance of the remaining sandbanks, andrequires that successful habitat recreation should be demonstrated prior to the consideration of any further
development in this area. Reportedly there is little evidence to date of attempts to comply with this Recordof Decision, which constrains further port development.
Greenhouse Gas Emissions
Estimating the GHG inventory of a given port is a complicated task: it requires taking into accountboth stationary emissions (fuel and energy consumption for cargo handling) and mobile emissions (shiparrivals and departures, hotelling and manoeuvring), in addition to the establishment of an adequate spatial
scale for analysis that accounts for the various land- and sea-based in- and out-flows, including port
approaches in vessel traffic service zones (Vilalba & Gemechu 2010). Such figures are not presently
available for the port of Durban, and it is thus difficult to gain a clear picture of its specific contribution toaccumulates in this area and is only dissipated gradually over a number of tidal cycles.” (Forbes &Demetriades 2009: 80)

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greenhouse gas emissions. However, seen in a national context, it is possible to form a general idea as tothe likely impact of port operations in the city of Durban.
South Africa is a major contributor to greenhouse gases, ranking 10th in the world behind South Korea
in 2009 according to data compiled by the CDIAC of the US Department of Energy. In early 2012,
following the publication of the National Climate Change Response White Paper by the South African
Government some months earlier, the Department of Public Enterprises required the various state-owned
enterprises to develop strategies for ‘green growth’, focusing on low-carbon trajectories. As part of suchstrategies, Transnet undertook carbon footprint studies in 2011 and 2012. These studies revealed that
Transnet is the tenth largest emitter of greenhouse gases in South Africa, contributing 4.3 million tons of
CO2 equivalent gases in 2011/12 (roughly equivalent to the total emissions of countries such as Kenya or
Sri Lanka in 2009).
Figure 2.6 Transnet direct and indirect GHG emissions 2011/12

Source: Transnet Sustainability Report 2012. Note: Direct GHG emissions are mostly diesel-related, while indirect GHG
emissions derive from grid electricity consumption, air travel and car hire.

As illustrated by figure 2.6 above, a major portion of Transnet’s emissions derive from its rail
operations (3.2 million tons), while some 7% (338 thousand tons) result from activities taking place within
South Africa’s ports. Given the importance of Durban within the South African port system (69% of allcontainer traffic), it is reasonable to believe that its climate emissions account for a significant portion of
TNPA and TPT’s total. Furthermore, it is important to note that these figures do not include the mobile
emissions of shipping flows, nor the emissions generated by privately-owned terminal operators (in theliquid and break-bulk sectors).

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Chapter 3

Policies and Governance

The Port of Durban is at the core of the urban spatial structure and generates both positive andnegative impacts for the city. In this respect, Durban is much like many other port-cities around the world
facing simultaneous growth in freight traffic and in population, coupled with strong constraints on landavailability around the port. In such contexts, local decision makers must seek to provide an institutional
environment that is conducive to tradeoffs between port and city. Strong institutions and comprehensive
policies ensure that both port and city may grow and develop in a complementary manner, optimizing thepositive impacts while mitigating the negative.
The main stakeholders in Durban have initiated a process aimed at overcoming some of the port-city
interface conflicts that inhibited port-city synergies in the past (centred mainly on land use andcongestion), and have supported policies fostering a more cohesive governance of the port-city interface.
However, certain issues stemming from the internal organization of the city (eThekwini municipality) andthe port authority (Transnet National Port Authority – TNPA) impede further progress on some fronts. Thisis generally not helped by the broader regulatory context, in spite of the creation of new multi-stakeholder
fora for port governance. Within this setting, future plans for expansion in the port of Durban, including
the creation of an entirely new port at the site of the former Durban International Airport, might provide awindow of opportunity for improving the institutional parameters of a port-city interface that remains attimes dysfunctional.

Governance of the port-city interface
The historical absence of coordinated attempts by Transnet and the eThekwini municipality tostrategically plan the provision of infrastructure has helped create a sub-optimal spatial allocation of thevarious links in Durban’s logistical chain. The Ro-Ro facility, for example, is in the far north of the port,
while the main manufacturing basin that contains the Toyota plant is in the far South of the city, requiring
intensive usage of the North-South arterial by shippers in the automotive sector.
Concerning freight issues, the interactions between TNPA (formerly Portnet) and the municipality ofeThekwini can be traced back about 20 years. Such relations were initially strained. While the port tended
to have a perspective relying on specific infrastructure improvements, the city elected a strategy (zoning,
corridor development, waterfront redevelopment) that was on more than one occasion at odds with theobjectives of port. Conflicting interests would most often become apparent when the port or the city
attempted to implement projects that crossed one another’s jurisdictions. For instance, the municipality
would use statutory mechanisms such as urban zoning regulations to constrict Transnet’s plans for truck
movements around the port, thereby using such regulations to force certain concessions regarding land-

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uses adjacent to the port. Some port-city interface issues have proved intractable. For example, the roadrunning the length of the port perimeter from the Ro-Ro terminal to the Maydon Wharf terminals isseverely degraded through intensive truck use. Currently owned by the city, Transnet would like to acquire
the specified road reserve in Maydon Wharf, however, due to the road being in poor condition, Transnet
claims that heavy repairs will be necessary in order to make the sale viable, and that these are theresponsibility of the city as the lawful owner of the roads. The eThekwini municipality, however, considers
road damage to be the fault of Transnet’s activities and refuses to undertake the necessary investments onsuch grounds. In the meantime, the service quality for those using the port perimeter road continues todegrade.

Towards a Coordinated Port-City Interface
Such tensions provided growing momentum for a new approach to port-city relations. Coupled with achange in leadership, this impetus was institutionalized through the signature of a Memorandum ofUnderstanding (MOU) between Transnet and eThekwini municipality in 2003, which gave rise to what is
now known as the Transnet and eThekwini Municipality Planning Initiative (TEMPI). The MOU12establishes a ‘Port-City Forum’, whose purpose is to “develop a sustainable and pro-active planning andco-operative framework between the National Ports Authority (Port of Durban) and the eThekwini
Municipality.” The MOU intends for the forum to foster constructive engagement concerning matters thatcollectively affect the port and the city, and attempts to overcome previous information asymmetries bystressing the need to “identify and disclose planning initiatives and development projects of mutual interest
between the Port and the City”.
The Port Forum comprises three sub-committees that fulfil separate joint-steering functions. The
Strategic Leadership Committee, chaired by the eThekwini Mayor, meets once a year with national andprovincial stakeholders to deliberate on a host of priority matters, including the sharing of strategic
information, the creation and review of joint investment plans, the identification of key projects, and thescheduling of the annual programme. The Management Committee is chaired jointly by the City Manager
and the Port Manager, and meets on a quarterly basis to deliberate on resource allocation for projects andthe implementation of programmes and plans drawn up by the Strategic Leadership Committee. Finally,
the projects Committee, chaired jointly by the Manager of the TNPA Planning and Development divisionand the Head of the eThekwini Economic Development and Facilitation division meets on a monthly basis.
Its purpose is to manage projects, set up work teams, and generally implement any other task assigned by
the Management Committee.
A further stage of cooperation started when, in 2005, the Transnet National Ports Authority shared its
Port Development Framework with the city as a preliminary basis for discussions. Many points wereraised, including discussion of congestion, city planning requirements, and the possibility of waterfront
redevelopment in the Point precinct. This laid the groundwork for the first phase of the TEMPI project,later in 2005. Throughout the first decade of the 2000’s, as Durban increasingly faced throughput
inefficiencies related to congestion inside and outside of the port perimeter, it became increasingly clear toTransnet that massive increases in capacity would be necessary to keep the port competitive. This of course
meant that land would have to be provided from somewhere within the eThekwini metropolitan area, andthat an appropriate spatial framework for the hinterland would have to be planned. Furthermore, as the
Department of Transport began to seriously discuss the attribution of investment capital for expansion
projects in Richards Bay over Durban, the reality that Durban might one day lose its status as South
Africa’s central container port, and with it, a significant portion of the economic activity concentrated in

12.

Signed by the Durban City Manager, Michael Sutcliffe, and Basil Ndlovu, a Transnet National Ports
Authority representative.

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the EMA, gradually became clearer to the city (e.g. the Ngqura transhipment port project). These processes
helped to heighten the awareness of the port and city’s interdependence.
The first phase of the TEMPI thus gave rise to some of the first joint positions adopted by both thePort and the City. Among these positions were the assertions that: the port should expand sustainably insuch a way as to harmonize national and local interests; expansion was a necessary corollary of keeping theport of Durban South Africa’s premier port; expansion should run ahead of demand; containers will be thekey commodity to be fostered, although diversity of port activities should be retained; and Environmental
Impact Assessment (EIA) was to be used to plan future port layouts, and should include economic, socialand environmental dimensions. A final point of accord to arise from this phase of the TEMPI negotiations
concerned the Durban International Airport, where operations were to be discontinued in 2010 in favour of
the new King Shaka International Airport to coincide with the FIFA World Cup. This constituted a major
window of opportunity for the Port and the City, as it freed up a substantial amount of land in an area thatwas prime for brownfield development. Pressure from speculative developers constituted a catalyst for
more joint action under the TEMPI framework, and in 2010 eThekwini and Transnet published theirambitious 2050 Vision for a long-term development of the Durban to Gauteng Freight Corridor. In
acknowledgement of the looming 2019 deadline for peak capacity in the port of Durban, the 2050 Vision
sets out an integrated framework for the development of a new digout port at the former Durban
International Airport site, and the provision of an extensive road and rail corridor between Durban and theGauteng area (these projects are described in detail below). As such, these projects form in a certain way
the expression to factor in economic priorities of key metropolitan areas as fundamental to the national
economic agenda, as ways to increase global connectivity and production.

Multiple Stakeholder Port Governance Instruments
In addition to the partnership mechanisms put into place by the port (TNPA) and the city (eThekwini),several multi-actor governance mechanisms have been set up by various actors to ensure that the interestsof different stakeholders in the port of Durban are properly represented in decisions and plans affecting theentire port community. Some of these are statutory, others are ad hoc or project-based. Initiatives for better
governing the port of Durban have cropped up at local and national levels of government, and originate
from both the private and public sectors.
The National Ports Act of 2005 establishes two main mechanisms for stakeholder representation
related to port planning and development: the port consultative committees (PCCs) and the national port
consultative committee (NPCC). Each port in South Africa has its own PCC, whose outlines were set out
in section 81 of the act, and further substantiated two years later by the Minister of Transport. The twomain purposes of the port-level PCCs are “to provide a forum for the exchange of views between the
Authority and other interested parties”, on the one hand, and to “advise the Minister” of Transport onimportant matters related to the given port, on the other (NPA 2005). Over and above these two founding
principles, the port-level PCCs play several roles as key fora for coordinating interests at the local level.
They have come to play such a role mainly due to their organizational rules. For example, the port
authority (TNPA) must consult any major development plans through the PCC before proceeding to
implementation. This is inevitably a complicated process, as the ministerial regulations set out in 2007
require that comments to the minister and any major decisions be approved through plenary consensus. All
members of the PCC (Table 3.1) thus constitute veto players in port development decisions.

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Table 3.1 The composition of Port Consultative Committees (PCCs) in South Africa# of votes
TNPA (representative+ harbour master)

Port
Users

Provincial
Government(KZN)

Local Government(eThekwini)

Organized
LabourMaritime
safetyauthority

2005 Ports
Act

3

3

2

2

2

1

2007 DoT
reform

2

2

1

1

1

1

Before any major development in the port of Durban can take place, TNPA must consult with themembers of the local PCC, a quorum composed of government bodies from local and regional levels,
labour, and the private port-user community (all of whom are appointed by the Minister of Transport). The
role and function of the PCC is defined by the National Port Act (2005), which is “to provide a forum forthe exchange of views between the Port Authority and any other interested parties and to advise the
Minister of Transport or duly appointed representative”. In cases of deadlock on views to the Port
Authority, any other interested party and advising the Minister of Transport, the deciding vote resides withthe chairperson of the PCC. According to the stakeholders interviewed for this study, the PCCs are often
used as a forum for airing disputes between actors. The advantage of this process is that disputes between
major stakeholders can be resolved within the institutional forum of the PCC, thus avoiding the need for
litigation or drawn-out industrial disputes (PR 2012: 40). However, the functioning of certain PCCs
appears sometimes to be jeopardized by this informal role as dispute resolution mechanism. This is less thecase for PCCs such as Ngqura, which works relatively smoothly due to the low constraints on landavailability and the broad coalition of interests around the attraction of container flows. In Durban,
however, it would appear that the PCC is an expression of the more adversarial relations. The National Port
Consultative Committee (NPCC) plays a similar role to the PCCs, in that it acts both as a relay between theminister and key port stakeholders. As its composition indicates, however its role is to coordinate interests
at a higher, national level (Table 14).
Table 3.2 The composition of National Port Consultative Committee (NPCC) in South Africa
Representatives of
PCCs2005 Ports Act

9

Representatives ofnational
government
departments
4

National Port
Users Forum

1

Organized labour

1

TNPA

2

Because the NPCC represents interests at a national level, it is a key mechanism for oversight overmajor issues in the ports sector such as tariffs. When the TNPA applied for an increase of its tariffs by afactor of 18.06% in 2012, for example, the NPCC functioned as a forum for the stakeholder engagement
process that was taken into account by the Ports Regulator in its process of tariff approval. As a result of
this process, the TNPA was awarded only 2.76% by the Ports Regulator, and only on the condition of arebate to manufacturing exporters in the port. This stakeholder engagement process included input not only
from those who operate from within the ports sector, but also from representatives of the national
departments likewise affected by Transnet’s tariff decisions (PR 2012; Transnet 2012b).
Generally the NPCC / PCC structure of consultation appears to work well as a mechanism forincorporating stakeholder interests into major decisions, for sharing information amongst ports, and as afirst venue for non-legal dispute resolution between stakeholders. Complaints brought against it usuallycentre on the procedures in place for informing the Minister of a given issue that arises in the PCC. The
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PCC constitutes the only avenue for direct representation of public interests at the ministerial level, but it is
one that requires consensus amongst actors that are often at odds with one another. As a result, not allcomplaints reach higher levels of authority. In the eyes of certain local stakeholders in the port of Durban,
the PCC thus does not function well as a tool for representing the interests of those who do not have direct
ministerial access.
Private led port governance mechanisms
In addition to these statutory mechanisms for improving stakeholder engagement in the South African
ports sector, various local level forms of representation and consultation exist in Durban. In 2005, theDurban Chamber of Commerce created the Durban Port Liaison Committee (DPLC). The DPLC brings
together top-level representatives from the main industry groups involved in the South African ports sector,
including public and private actors. Unlike the PCC, it does not hold any executive functions. This,
however, allows it to represent a much broader spectrum of interests in the local port community(Figure 3.1)
Figure 3.1 .Actors involved in the Durban Port Liaison Committee

Source: OECD/ITF

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The three main functions of the DPLC involve the resolution of operational issues within the port,
liaison with the port authorities, and acting as interface between local commerce and industry (DCC 2005).
Furthermore, the DPLC is reputed to have played a significant role in providing input into the TEMPI
framework during the formulation of proposals and plans for the Gauteng corridor and 2050 vision. Whilethe committee was very active in its early phases, having succeeded in addressing a number of port issues
through regular monthly meetings (van Coller et al. 2007), current committee members report that it has
lost some of its initial momentum. Of particular concern is the repeated absence of Transnet
representatives, according to private stakeholders interviewed for this study.
More generally, private port users in the city of Durban have highlighted several recurring concerns.
These include frequent delays with incoming shipments, serious spatial constraints, a lack of investment
into basic infrastructure in privately-owned terminals, serious issues with cranes and wind, inaccurately
operated weighbridges, the presence of corruption, slow turnaround times by container trucks, and various
other issues (reported in this study and ETA 2013). In areas of the port where privately-held leases are
more prevalent, the DPLC and PCC structures have not been sufficient to resolve many of these issues. As
a way of better resolving some of them, the private leaseholders of the Maydon Wharf terminals haveproposed a form of private-led port management. The key idea is to set up a form of tenant-driven
governance structure within the confines of the terminal complex as a way of improving security,
infrastructure and operational efficiency. The proposed governance structure would involve a jointcompany created by Maydon wharf operators, composed of a board of directors (one per tenant), an elected
CEO and independent chairperson, and a TNPA representative with veto powers concerning certain
matters. Votes would be allotted in proportion to occupied land areas, and special levies would be
exercised as a way of funding capital expenditure projects. While such private-led governance projects
may provide a temporary solution to some of the direct operational issues confronting the port community
in Durban, it would appear that ad hoc and private-led initiatives will not be sufficient to resolve some of
the underlying issues that structure interactions between the various stakeholders in the South African ports
sector.
Through the TEMPI framework and the institutional mechanisms set in place by the MOU signed in
2003, the eThekwini municipality and Transnet have been able to make lasting and significant steps
towards a more harmonious and coordinated approach to governance of the port-city interface. Moreover,
several statutory and ad hoc fora exist within the port of Durban institutional context in order to ensure thatinterests are represented and policies aligned. Nevertheless, numerous issues linger. Most of these can betraced to the two main actors in the Durban port-city system: the port authority and the city. Box 4
illustrates, for example, how the conflicting visions for land use in waterfront areas held by these two
actors continue to impede a potential source of tradeoffs.
Box 3.1 The Potential for Waterfront Trade-offs to Resolve Land Use Conflicts
Although its port is set squarely within the urban fabric, Durban presently has no real portside waterfront tospeak of, in the sense of an accessible area of the harbor used for recreational, residential or retail activities, which isfunctionally integrated with the rest of the city. Many cities faced with impacts induced by proximity to a working
port similar to the impacts presently faced by Durban have been able to reach trade-offs with their respective portauthorities: in exchange for expansion or relocation of the port activities to more amenable areas, often madeavailable by the city, active or formerly active sections of the port are converted into mixed-use urban areas(examples range from Baltimore, to Kobe, Auckland and Barcelona. See: Breen & Rigby 1994; Bruttomesso 2001;
Hoyle 1997). While the eThekwini municipality has expressed the desire to pursue the development of a portside
waterfront (in addition to present seaside developments), available evidence casts doubt on the mechanism ofwaterfront tradeoff as a way of improving interface synergies in the city of Durban.
In Durban, the key area that is perceived to hold potential for waterfront revitalization by the eThekwini
municipality is in the Point area. In the city’s view, three factors should make the berths surrounding the cruise

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terminal ripe for private or municipal developments that are open to the public. First of all, the areas to the northwest
feature several degraded and abandoned heritage buildings that are prime candidates for high value-added
revitalization. Already some R1.8 billion has been committed to mixed-use developments in the Point area by
Lauresco Developments, a private development company affiliated with the eThekwini municipality through the
public-private partnerships set up by the Durban Investment and promotion Agency. Secondly, the point area featuresa cruise terminal: the role of cruise terminals in driving urban development, particularly through public private
partnerships, has been illustrated in many port cities around the world since the 1990’s (Mcarthy & Romein 2012).
The number of cruise passengers has noticeably increased in Durban in recent years. Thirdly and finally, the phasingof the digout port project includes the relocation of the RORO terminal from its present location in the point area tothe new location in the digout port (see figure below). The city sees this as an opportunity to obtain the landpreviously used for the automobile terminal from the port, which would help to provide the urban access to the harborthat is presently lacking.

Note: Number of calls plotted on right, number of passengers on left. Source: TNPA 2013
A municipally piloted redevelopment project integrating harbor-side land might arguably bring certain benefits:
increased revenues to the local retail and hospitality sectors from cruise passengers and local harbor-goers; increase inproperty values in the Point area, with the revenues for Transnet that would follow from the asset sales; improved
access to the harbor increasing Durbanites’ inclusion in and support for the activities of the port, etc. Suchdevelopments might thus contribute to ameliorating what is presently a relatively disjointed port-city interface.
Durban, however, presently lacks at least three factors that have driven waterfront tradeoffs in other port-citiesof the world: port / city interest alignment; low-value areas owned by the port; areas of high-value to the port ownedby the city. First of all, given that the port authorities are not municipally owned to any extent, TNPA considers
economic and social benefits that accrue to the city as external. Secondly, Transnet has recently invested into theberth infrastructure and terminal superstructure of the Point area, raising the issue of recent sunken costs. Estimatesby Transnet staff interviewed for the present report put the likely replacement costs of the Point area berths
somewhere in the vicinity of R25,000 per square meter, which would situate the cost of any potential acquisition bymunicipal or private developers into a prohibitively expensive range. Lastly, the city does own a fairly limited amountof non-port land that it could trade for waterfront areas: most of the strategically located land is already owned by
TNPA or by another subsidiary of Transnet. Transnet owns a controlling stake in Point Waterfront Realty Ltd., forexample, a major real estate owner in the Point area (Transnet 2012b). On the other hand, the city owns land of the
Clairwood Bulk Market, which might be of interest to Transnet, and has also leverage on urban land use via its backof-port-plan. All in all however, the financial interests of the city are not completely aligned with those of the port
authority in matters concerning the port-city interface.

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Another fundamental element preventing reconversion if the site constraint of the port itself. Durban is a
protected bay which is almost entirely occupied by port activities. Until the digout port is built, there are no othernearby suitable sites for the expansion port activities. This is different from many ports around the world thatabandoned old terminal sites less suitable for port activities towards new peripheral sites providing more real estateand better road infrastructure. With the expectations of ongoing growth in port traffic and the uncertainties of the
digout project, it is reasonable to expect that the port authority wishes to keep all the available real estate under its
control. This gives the option of further intensification of terminal activities or their redevelopment to other port uses.
Any transfer of port land to urban uses can thus be considered as a risk in the expansion of port trade in Durban andthis represents a national strategic commercial issue.

Notes: Green areas owned by Transnet, pink by other state-owned companies, and orange by eThekwini municipality.
Transnet owns most land within the port perimeter. Source: GMA & Lyer 2011a: 83.
Waterfront tradeoffs have usually taken place in port-cities where either: the Port Authority exhibits a degree ofmunicipal ownership, meaning that waterfront development gains accrue to both sets of stakeholders; the port areas inquestion have lost their productive value due to inactivity or lack of upkeep; or, the city owns land that is coveted by
the port, which it can ‘exchange’. In such contexts, waterfront tradeoffs are much easier to negotiate, whereas in
Durban, port-land gained by the city is viewed exclusively as a net loss for the PA. Durban’s institutional, geographic
and economic specificities mean that port-city synergies are unlikely to be achieved through waterfront tradeoffs, atleast in the short to medium term. On the long term, the opening of the digout port and the further expansion of cruise
activities are two salient factors that may play in favor of such a reconversion. The city’s interest in stimulating publicaccess to the waterfront is not restricted to the Point areas, described above, but could also include the Victoria
Embankment (Margaret Mncadi) area, at the interface of the port and the central business district. In the view of the

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city, this area could possibly be dedicated to publicly accessible waterfront developments once the digout port would
have been developed and the current automotive terminal would have moved there.

At a deeper level, many of the issues that make for suboptimal governance of the port-city interface in
Durban can be linked to deficiencies internal to both the port and city’s organizational structures, as will beillustrated in the sections below.
Improving internal alignment within the municipality
At present, several different branches of the municipal organizational structure are involved in
discussions with the relevant Transnet stakeholders. Informal discussions with both parties indicate thatworking relationships operate more smoothly between certain departments of the municipality than withothers. The nature of such relationships does not appear to be purely determined by whether or not
negative externalities exist for the department concerned. Thus, despite the clear problems of infrastructure
and road damage caused by congestion and overloading of port-bound trucks, eThekwini-Transnet
relationships reportedly work best between the transport and engineering departments of the city (whichfall within the Human Settlements and Infrastructure cluster). Both parties report that the most tenuous
relationships reside with the Development Planning, Environmental and Management Unit, in the
Economic Development and Planning cluster of the municipal administration.
Such tensions usually revolve around the co-operative governance of port development frameworkplans formulated by Transnet. Before circulation among the broader stakeholder network (which takes
place through the PCCs as described above), the TNPA must put its development plans for the port througha lengthy internal approval process, which often includes many different entities from within the broader
Transnet structure. Although such review processes are seen by some as unnecessarily lengthy andcomplex, they do have the merit of producing alignment within Transnet with regard to its external policy
positions, and thus transmit clear priorities to project partners. Such review processes do not appear to be
active or effective within the municipality: it might happen that a given aspect of Transnet’s plan is given
approval upstream by one department of the municipality, only to be later rejected by a different
department further downstream. Further, given the strong statutory mechanisms at their disposal, thePlanning and Environmental departments of the municipality have a certain oversight over certain aspectsof Transnet’s activities within the harbour and outside of the port perimeter, along with other stakeholders,
including estuarine experts, in Integrated Environmental Management processes.
The net effect of these divergences regarding Transnet’s plans within the administrative structure of
the eThekwini municipality is to create an incoherent and unstable environment for strategic decisionmaking around the port-city interface. Municipal actors also complain of a lack of ‘freight expertise’ on
their side: much of South Africa’s human capital expertise in freight and logistics is ‘locked’ within theTransnet structure. In recognition of these two problems in their dealings with the port (internal
misalignment and knowledge asymmetry), eThekwini has recently undertaken to create a dedicated branchof its organizational structure that is devoted to relations with the port. However, it has chosen to create
this structure under the aegis of the eThekwini Transport Authority (ETA). Thus, policy positions adopted
by this structure would not necessarily represent those of the Environmental and Planning departments,
who, as mentioned, are often engaged in the most contentious interactions with the port authorities. In
order to truly resolve the issue of internal misalignment, it would thus appear necessary to create a portspecific body within the municipal administrative structure that encompasses all of the relevant
departments within the municipality, and whose decisions will be binding in this regard, taking into
consideration the statutory requirements and legislated processes related to other spheres of government.

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Improving internal alignment within Transnet
Port / city relations are also impeded by the functional structure of the Transnet organization, which isa large state-owned agency that is composed of several branches. Transnet is subject to frequentorganizational reshuffles of lower- and middle-level management, implying changes in administrators andcompetencies, and the need for the city, private operators and other stakeholders to rebuild frequently
working relationships with local-level interlocutors. It has a commercial logic related to its operational
functions. However, as a publicly owned and mandated company, it must also respond to politicalimperatives in assuming its role of providing economic development opportunities for South Africa. This
double role is sometimes conceived by municipal actors as ambiguous.
Various stakeholders are dependent on the decisions that a Port Authority makes with regard toinvestment and planning within the port. For this reason, it is important that the PA is able to act efficiently
and quickly to make binding decisions that send clear messages to stakeholders. The current internalorganisation of TNPA within the broader Transnet structure appears to act as a hindrance to thisrequirement: decisions that would be made without too much delay by institutionally autonomous port
authorities in other contexts are slowed down by lengthy procedures of approval that range through several
different levels and departments of the Transnet structure.
To the difference of many other port authorities around the world, which usually operate according to
the principles of a board-directed company with regard to investment decisions, the Transnet National Port
Authority is not able to raise its own capital, neither through bond issuance nor off its own balance sheet.
Rather, TNPA’s turnover is recorded as part of Transnet’s turnover and Transnet is subject to payment on
profits; any remaining profits are transferred to its single shareholder, the Department of PublicEnterprises. Transnet’s and TNPA’s infrastructure investments are aligned to national government policy
objectives, such as those contained in the National Development Plan 2030. Funding for capital
expenditure must then be approved by the shareholder and redistributed to the TNPA through phased frontend loading project planning. This means, for example, that the port authority cannot directly purchaseproperty. Instead, plans for property acquisition must be submitted to Transnet’s property acquisition unit,
who will purchase the property on behalf of the TNPA. Furthermore, for investment projects in excess of
1.8 billion rand, TNPA must seek approval from the shareholder.
Stakeholders both within and without Transnet see both positive and negative aspects to this situationin which the port authority’s decision-making procedures are embedded within and determined by a muchbroader and multi-sectoral structure. On the positive side, this ensures a relatively strong degree of policyalignment and information sharing with other policy sectors incorporated into the Transnet structure suchas rail, allowing for the coordination of these two key sectors (this is less true for the road network, whichis planned and developed by SANRAL, an agency exterior to Transnet). As described above, it also meansthat a port authority in South Africa can go above and beyond the role that a port authority would usuallyplay, in order to align port policies with regional social and economic development policies. Finally, thelengthy processes of internal review have the added benefit of producing clear and non-contradictory
external policy positions. As described above, this is decidedly not the case for the municipality, whose
decision-making outcomes emanate from several independent divisions within the organisational structure,sometimes producing discordant positions.
On the other hand, stakeholders point to negative aspects of the TNPA’s placement within a broader
national structure. Private operators in Durban claim that the lack of delegation of decision-making tolocal-level actors means that they are ‘afraid to stick their head out’ with regard to large decisions. Instead,local-level TNPA officials are said to delay decision-making in order to avoid responsibility; because mostconsequential decisions require approval from the highest levels, considerable delays ensue. Furthermore,as one of the most profitable divisions of Transnet, TNPA helps to finance capital expenditure in less-

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profitable divisions. While this is undoubtedly an important source of subsidy for certain strategic sectorsof the South African economy, it also means that the TNPA (and TPT, for that matter) does not directly
benefit from improvements in its performance. It is likely that this constitutes a disincentive to improve
efficiency and invest in infrastructure. This issue of cross-subsidy has often been a strong rationale forderegulation and privatization in ports around the world.
Finally, Transnet’s omnipresence within the various aspects of South African port governancearguably engenders tensions relating to its discrepant role as both operator and authority. On the one hand,
Transnet is the parent company for the TNPA, whose roles include acting as landlord (port development,
land lease and use management), navigation controller (regulation of rules for navigation and of security
and environmental standards), and service provider of last resort (ensuring provision of all necessary
facilities and services, licensing out of said services to third parties) (TNPA 2013). On the other hand,
however, Transnet is also the parent company of Transnet Port Terminals, a separate operating divisionthat is a client of the TNPA for the handling of containers, mineral bulk, automobiles, and various kinds ofbreak bulk within South Africa’s main ports. TPT is a major operator in South Africa. In the port of
Durban, for example, the TPT handles 100% of the Ro-Ro moves and some 92% of container moves in theport. Thus, in South Africa, the regulatory role played by the ports authority (TNPA) is ostensibly separate
from the operational role of the main ports operator (TPT), despite the fact that both their balance sheet andmajor decision-making processes are united within the same parent structure (Transnet). To better
understand this situation, it is necessary to broaden the analytical lens to take into account the institutional
environment of the South African ports system as a whole.

Broader port sector regulatory framework
Regulator and operator; two sides of the same coin
The atypical situation in which Transnet is both operator and regulator took its current form in theyear 2000. Until that point, regulatory functions of the authority and freight handling functions of theterminal operator had been carried out conjointly by Portnet, which was subsequently separated into SAPO
and National Port Authority (TPT and TNPA respectively). Citing concerns that Portnet, the mostprofitable division of Transnet, was “underspending on capital owing to its need to cross-subsidise” lessprofitable divisions, the Department of Public Enterprises hailed the division of the company as a movethat would “improve service levels […] separate the landlord function from the operation of the ports” andcreate a situation in which “private operators of different port services will be better able to focus on theneeds of the customers and offer them a more efficient and effective service” (DPE 2000: 138, 140). The
12th National Ports Act, introduced in 2005, was seen as a crucial way of institutionalizing progress
towards this goal of a more competitive and high-performing ports sector. A closer look at the present
situation, however, shows that progress towards this new state of affairs has been varied.
The National Ports Act of 2005 cements the division between operator and authority, and allows forthe concessioning and privatization of various services that fall within the authority’s remit as ‘operator oflast resort’ (§11(4)). Concessions take place through two main avenues. Either, in respect of section 56, theTNPA enters into an ‘agreement’ with a third party operator, or, in respect of section 57, TNPA ‘licenses’
a third party operator (SA 2005). These two modes of concession apply to different kinds of services andfacilities and involve slightly different contractual regimes.
The main difference between them resides in the issue of leasing out land and infrastructure. Section
56 agreements include temporary land and infrastructure leases with operating rights for a given facility or
terminal (referred to as ‘incorporated leases’). Further, under the terms of subsection 56(4), agreements canallow for the full outsourcing of any service provided by the port. The Ports Act does not stipulate exactly

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which services should be subject to such agreements: it simply states the authority’s responsibilities andthe mechanisms that can be used by the authority in the performance of said responsibilities.
TNPA applies §56(1) concession agreements for the operation of terminals, including cargo handlingand storage, ship repair, the construction of off-shore facilities for cargo-handling, and the building andoperation of dedicated passenger terminals, whereas §56(4) outsourcing agreements are only to be used for
security, waste disposal, and ad hoc dredging (TNPA 2008: 13-4). In this manner, the authority’s current
compliance with the Ports Act stops short of allowing for the full privatization of terminal operations,instead limiting this option to a select number of services auxiliary to the port’s central functions. Section
57 licenses, on the other hand, do not allow for full outsourcing, and do not constitute leases; so-called‘complementary leases’ must be negotiated separately to the license. Licensing, as per the terms set out in§57 of the Ports Act, is used by TNPA to cover stevedoring, waste disposal, cargo storage and private
floating crane services (TNPA 2008: 14).
When the TPT responds to calls for expressions of interest alongside private operators, it is essentiallycompeting in a process that its own parent structure has set up. The National Ports Act attempted to ensure
the competitiveness of this process by requiring the TNPA to follow “a procedure that is fair, equitable,transparent, competitive and cost-effective”, but it left the substantive definition of what would constitutesuch a procedure to the TNPA. It is also worth noting that §79 of the NPA allows for such public
application processes to bypassed entirely, if the Minister of Transport deems it necessary for Transnet toperform a given service in order “to safeguard the national security of the Republic, to promote thenational, strategic or economic interests of the Republic, or to discharge an international obligation of the
Republic”.
The port governance structure in South Africa could be considered an international exception. Thisinstitutional setting is characterised by combining regulation and port operations within one organisation at
the national level that is also responsible for railway operations, with operating divisions with a different
focus in place for each of these different responsibilities. A similar situation existed in Turkey where theTurkish railway corporation was also responsible for ports and their operations, but this has changed overthe last decade, in which railway and port functions were separated and most of the public ports privatised.
In most developed countries in which the national government is in charge of the ports sector, port
operations are privatised. If this is not the case, such as for the state-owned ports in Chile that sometimes
have publicly operated terminals next to private terminals, this can be considered a temporary situation as
the state does not have the legal right to invest in terminal infrastructure. The institutional port governancemodel in developed countries that comes closest to the South African model is the one in Slovenia; here
the national government has the majority of shares of Luka Koper, a company that is both port authority,
port operator and railway operator. In contrast to South Africa, Slovenia has only one port (Koper), so does
not practice cross-subsidisation among ports.
It is easy to understand that private investors might feel at risk of unfair treatment in competing withTransnet subsidiaries for licensing accorded by Transnet. One mechanism for countering this potential
disincentive to private sector participation in the South African ports sector is contained in §47 of the NPA,
according to which any party can lodge a complaint with the Ports Regulator on the grounds that “a) accessto ports and port facilities are not provided in a non-discriminatory, fair and transparent manner” or, if they
feel that “c) Transnet is treated more favourably and that it derives an unfair advantage over other transportcompanies.” Such complaints are heard through the Ports Regulator Tribunal. Having failed to obtain aterminal operating license in 2010, for example, Siyakhuphuka Investment brought a complaint against the
NPA focusing on “the status of the NPA in decision making with respect to operators other than Transnet.”
At the date of publication, this matter has yet to be settled, but complaints of this nature appear relatively
frequent.

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Finally, private operators maintain that the current regulatory framework for leases in the port of
Durban acts as a disincentive for investment. As stated above, the lack of substantive direction in the
National Ports Act regarding procedures for leasing meant that licenses to operate accorded under theterms of section 57 could essentially be ‘decoupled’ from leases. Cargo handlers claim that this fact,
combined with numerous changes to the rules governing leases and sub-leasing in the port, has led tosignificant uncertainty among lessees. Many of the warehouses on Maiden Wharf date back to the 1940’s
and are in bad need of rehabilitation; certain design features (low roof, etc.) make them suboptimal tocontemporary freight distribution. However, lessees do not subsequently make the investments that would
be necessary in order to increase productivity. TPT, on the other hand, benefits from tenure leases, and is
subsequently one of the largest investors in Durban port.
Tariffs and Cross-Subsidization
Because Transnet holds a quasi-monopoly over the South African ports system, it is able to propose to
the Ports Regulator uniform tariffs across the board, meaning that, if approved, less-performing ports arecross-subsidized by high-performing ports. Essentially, its unique geographical position has enabled
Durban to play this role. Durban’s geographical monopoly power is reflected in its atypically high tariffs.
Although the prices imposed by TNPA are in fact 26% lower than the global average if cargo dues are notconsidered, Durban was found to charge nearly nine times (874%) the global average price in cargo dues tothose using the port (Figure 35).
Figure 3.2 The price imposed by port authorities for a standardized vessel call in US$ for containers of all types
as of 01/04/2012

Source: Ports Regulator of South Africa, GPPCS 2013.
Note: *Ports included in average price: Melbourne; Klang Northport Terminal; Houston; Valencia; Valparaiso; Jawaharlal Nehru;
Port Louis; New York/New Jersey; London; Karachi; Laem Chabang; Constantza; Rotterdam; Chennai; Vladivostok; Nagoya;
Antwerp; Kaohsiung; Colombo; Johor; Singapore. **Durban prices do not take into account the 2012/2013 rebates.

Unlike privately-operated and –owned port systems, in which fierce inter-port competition is the ruleof the game, state-ownership of ports in South Africa means that the port system is thought of as afunctioning whole, which should be coordinated strategically, and which should also reinforce politicalmandates related to economic and social development that are not necessarily high on other ports’ agendas(such as the socio-economic development of large, poorly-connected hinterland areas).
The issue of cross-subsidization through non-competitive pricing by Transnet frequently raises
tensions. In 2010, for example, a stainless steel company, Columbus Ltd., appealed against the cargo dues
applied by the TNPA for the breakbulk export of carbon steel (a low value-added iron commodity) versus
those applied to stainless steel (a high value-added iron commodity). In effect, TNPA had been charging
four times the rate in cargo dues for breakbulk stainless steel as for breakbulk carbon steel, although the

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two kinds of goods use the infrastructure in exactly the same manner (PR 2011). In this way, the higher job
creation industry (stainless steel) was subsidizing the lower job creation industry, much as happens on aninter-port level. Thus, practices of cross-subsidization seem prevalent both between and within South
African ports. In response to such trends, the regulator has pushed for an activity-based approach to pricing
of cargo dues, that would be more reflective of the TNPA’s actual cost structure, and has rejected tariffincreases proposed by Transnet in early 2013 on these grounds (amongst others).
Increasingly, Transnet’s monopoly over the South African port system is not only used to crosssubsidize investment in underperforming ports or to support low-value added industries; it also serves toimpose patterns of usage on shipping lines. In late 2012, for example, it had become apparent that shippers
were not using the Ngqura port as the transhipment hub that it was intended to be, with Durban controlling
62% of the transhipment market share compared to Ngqura’s 11% or Cape Town’s 18% (TNPA 2012a).
Indeed, despite significant congestion in the port of Durban (around 60 hour delays per vessel in 2012),
shippers increasingly chose the port over Ngqura due to its superior hinterland connections and theeconomies of scale associated with using the port both as a gateway and as hub for major feeder lines.
MSC, for example, suspended its East and West Africa services to Ngqura at the beginning of the financial
year, before fully reinstating the East Africa link and partially reviving the West Africa service with apendulum structure. In order to recapture these transhipment flows while avoiding congestion in Durbanthat would come at the expense of more valuable inland flows, the TNPA proposed to finance relatively
strong discounts in Port Elizabeth and Ngqura by doubling the tariffs on full transhipment containers in theport of Durban (Figure 36). This is a significant break with the usual practice of cross-subsidising throughthe application of uniform tariffs.
Figure 3.3 Amendment to tariffs on loaded transhipment containers proposed by TNPA for the financial year
2013/14

Source: TNPA 2012b

It is worth noting that this inter-port pricing discrepancy for the same good is yet larger with empties
destined for transhipment: it is proposed that Ngqura and Port Elizabeth have their tariffs halved in order to

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incentivize the transport of empty transhipment containers to these ports.13 This is seen as a way ofensuring that inland container flows, which foster the South African GDP through facilitation of import /export activities, are not jeopardized at Durban by empty transhipment flows whose contribution from anational perspective is relatively marginal. It is thus reflective, once again, of the national economic
development priorities that factor into the port authority’s decision making in South Africa.
The port governance system in South Africa is difficult to change, considering the vested interests in
it. Powerful unions are strongly against privatisation of TPT, or heaving off parts of it. Government actors
are interested in keeping TNPA and not separating it from Transnet because it serves as a cash cow thathelps financing the generally unprofitable rail operations. And finally, the other ports within the Transnet
structure benefit from the cross-subsidisation from Durban’s profits, so would not be happy with letting
this go. So there are many institutional interests aligned against the convergence of South African ports
towards the nowadays common landlord model, in which port authority functions are separated from port
operations, which are performed by private terminal operator having contracts with the public port
authority.
Corridor development
Modal shift
An overview of the existing hinterland access modal distribution has underlined that rail covers about
18.5% of the tonnage along the Durban and Gauteng corridor. The unreliability of intermodal rail andsupply chain management consideration have incited a substantial shift of the corridor traffic towards roadservices. This shift and the externalities it creates (e.g. congestion) have come to the attention of
government authorities with modal shift strategies towards rail being put at the forefront. Coupled with
future capacity concerns, a national strategy of infrastructure and corridor development aiming at
improving the capacity and performance of key national infrastructure has been developed. Among the 17
Strategic Integrated Projects (SIPs) that have been identified, SIP 2 (Durban- Free State-Gauteng Logistics
and Industrial Corridor) is a top priority (Figure 37). Among its goals is the reinforcement of theinfrastructure and logistics capabilities between the main commercial hubs of South Africa. It also includes
regional development goals through a better integration level of adjacent transport and logistics activities
as well as rural production (for national consumption and exports).

13.

Furthermore, while the increased tariff on full transhipment containers in Durban should provide an extra
77.53 rand per unit, the subsidy to both Ngqura and Port Elizabeth only comes at a combined cost of 38.76
rand per container. It is unclear where the remaining 38.77 rand generated by the Durban markup will be
used or the purpose it serves (if not only to disincentivize transhipment activities in the port as much as
possible).

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Figure 3.4 Main Nodes of the Durban- Free State– Gauteng Logistics and Industrial Corridor(N3 highway in blue and main rail line in red)

The corridor project underlines that there is a level of alignment within government agencies in regard
to the role of the corridor in national economic development, its infrastructure components and theinvestment timeframe. However, there is the potential for divergence due to the multiplicity of the involved
actors as well as the vertical (between jurisdiction levels) and horizontal (between modes) complexity ofthe project.
An issue concerns the divergence of the road and rail corridors along separate paths, which leads notjust to a functional separation of cargoes according to rail or road, but also to a geographical separation
since they will be circulating along different locations for the most part. This may require different
strategies (road versus rail-based) and potential misalignments between the Free State and Kwazulu-Natalprovinces in which separate components of the corridor go through. As each province would like to capture
as much economic development opportunities as possible from the SIP 2, this may lead to a duplication of
infrastructure. On the positive side, Transnet as the rail infrastructure and operator is in a good position tocoordinate the setting of rail related investment projects, such as inland ports. However, the rail yards
along the corridor (e.g. Lady Smith, Grencoe and Newcastle) are standard freight yards that do not show aclear potential to be transformed into intermodal facilities.
Inland ports
Governance of port cities is increasingly influenced by the process of developing trade corridors. The
goal is to integrate the port system in a multimodal transportation network in order to improve market
access, fluidity of trade and the integration in an industrial network. In this context, a port must haveinterfaces between major oceanic maritime trade and economic activities of ports and inland terminals thatprovide intermodal structures and connections between the forelands and hinterlands (Notteboom andRodrigue, 2005). Obviously, business transactions require an adaptation to hinterland means. Conversely,
the amplification capacity of transport modes may allow the expansion of trade. These bonds of mutual

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causality are now present in the traffic of port cities. The quality and capacity of hinterland modalities,
roads and relays are essential to any expansion of trade.
In addition to these measures, regional approaches towards freight transport, e.g. distribution centres
and extended gates, might be needed to create enough critical mass for non-truck transportation. Trucks
generally have a competitive advantage for shorter distance transport; only as distances are longer does
freight transport by train generally become a competitive transport mode. Large economies of scale can bereaped, but a certain logistical organisation is required for this in the form of distribution centres in whichlarge amounts of containers and cargo can be grouped before being dispatched to individual destinations.
Such a system of selective dry ports or distribution centres has made it possible for relatively small
container ports such as Gothenburg to achieve high railway shares in total hinterland traffic. A related
approach is that of extended gates, which basically re-located part of the port closer to the hinterland, by
displacing cargo handling, customs and other procedures towards an inland port, allowing for a decongestion of the port. Such a concept is well-developed by the port of Antwerp that has engaged in a large
set of partnerships creating a network of inland extended gates. Ports have generally become more awareof the need to be better linked to hinterlands, with various ports taking stakes in inland terminals anddistribution centres, creating dry ports, merging with inland ports and facilitating part of the hinterlandtransportation.
The development of inland ports in South Africa is facing several challenges, the main being of the
distances concerned and the density of the hinterland. Durban and Johannesburg are separated by about
550 km of road distance, usually considered the threshold distance where rail becomes overly competitive
over road transport. An inland port located at a location which is halfway would thus be facing evensteeper competition. Additionally, the density of the commercial hinterland between Durban andJohannesburg is rather limited since economic activities are either concentrated in the Durban metropolitan
area or around Gauteng. In this context, the propensity is to set any new inland port development as
additional facilities complementing and expanding the existing City Deep inland port. With a capacity tohandle around 300,000 TEUs per year, the inland port of City Deep is reaching capacity and projected to
be expanded 400,000 TEUs by 2016. Reflecting this commercial reality of the South African hinterland,
most of the infrastructure projects along the corridor are either focusing around Gauteng or Durban (Figure
3.5).

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Figure 3.5 Major Rail Freight Nodes and Development Projects in South Africa

Source: Transnet, SIP 2 Planning & Infrastructure Workshop

Some key projects include:Cato Ridge. This is a satellite terminal project next to the N3 highway and located 50 kilometeraway from the port of Durban. With container and bulk cargo brought by rail to and from the port
through a dedicated shuttle service the goal is to reinforce the logistics cluster in the area andavoid congestion on urban streets near the port. As a satellite terminal, Cato Ridge would havethe same customs clearing jurisdiction than the port. This would necessitate the development of
new transloading facilities.



Tambo Springs Inland Port and Logistics Gateway. The inland port project is being planned by
the Gauteng Department of Roads and Transport in collaboration with Tambo Springs
Development Company on a greenfield site along the N3, 25 km southeast of Johannesburg. The
1,000 hectares project would represent the largest inland port on the African continent and is
expected to handle more than half a million TEUs. The goal of the project is to double the railcentric logistical capacity of Gauteng.

Harrismith Logistical Hub. This road-centric inland port project is being spearheaded by the Free
State Development Corporation (FDC), and agency of the Free State provincial government. It is
located at the intersection of the N3 (Johannesburg / Durban) and the N5 (Durban / Cape Town)
highways. The goal is to establish a multimodal facility, even combining air cargo services, but at
this point the cluster acts as an intermediary location for road traffic between Durban andGauteng. Because of its location halfway between Durban and Gauteng, the usage of rail isproblematic and the hub is thus most likely to be a catalyst for the development of regional
manufacturing, mostly in the agribusiness sector. Still, limited private investments have yet been
secured.

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Port digout project
Expanding Durban port
Recent congestion in the Durban port coupled with freight growth forecasts indicate the need to
drastically increase capacity in order to meet demand and to keep South African trade competitive in the
global economy. A number of port development projects are thus being planned to increase Durban’s
capacity, the most consequential of which is the construction of an entirely new port at the site of theformer Durban International Airport (DIA). By dredging out some 75 million cubic meters of earth andbuilding a 1.2 km breakwater out into the Indian Ocean, the Durban International Airport Digout Port
(DIADP) should, if it is completed as planned in 2040, eventually play host to three vehicle berths, four
liquid-bulk berths, and 16 container berths, which will add a total per annum capacity of 9.6 million TEU
to the South African port system. While the project faces numerous risks related to planning, funding andenvironmental review, its alignment with the interests of key stakeholders in the South African ports sector
appears to have generated a level of consensus that is uncommon for an infrastructural project of suchmagnitude.
Transnet’s current Market Demand Strategy, which plans capital expenditure in the port system as awhole based on growth forecasts, has projected a 76% growth in container volumes over the 2011-2018
period, from 4.3 million to 7.6 million TEUs across all ports. To meet this demand, Transnet plans toprovide capacity ahead of expected demand from the current 5.2 MTEUs nationally to 8.9 MTEUs in 2019,
which it plans to operate at 86% utilization. As South Africa’s main port, Durban is projected to experiencesignificant growth in volumes over this period, especially in containers, and will therefore play a majorpart in Transnet’s capacity increase strategies.
Over the past decade, the capacity for TEUs in the port of Durban has increased by 77%, expanding
from approximately 1.3 MTEUs in 2000 to the present-day capacity of 3 MTEU. However, container
volumes through Durban are expected to grow from 2.7 MTEU in 2012 to 4 MTEU by 2019, thus
exceeding present capacity. In line with the Market Demand Strategy, the deepening of quays at Pier 2 andexpansion of Pier 1 (including the proposed lease of the Salisbury Island area from the Department of
Public Works and its conversion into a container terminal) should provide an additional 4 million TEU
capacity and significantly increase operational efficiencies in the port, providing an alternative to growthconstraints on the short- to medium-term. Past the 2019 mark, however, environmental and landavailability constraints are expected to foreclose any possibility for further significant capacity increases
within the port of Durban, though demand is forecasted by Transnet to grow substantially over this period(Figure 3.6).

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Figure 3.6 .Projected demand vs. projected capacity for TEU throughput in the port of Durban 2011-2040

Source: Durban capacity estimates from TEMPI 2010; DIADP capacity increase estimates and ‘Transnet Container Strategy’
demand growth estimates from Port Development Framework for DIADP (Transnet 2011); Low growth TEU demand curve fromTransnet Freight (2013).

In response to the challenges that operating beyond capacity would pose to South African trade andthe eThekwini municipality’s most significant economic asset, Transnet and the municipality havedeveloped a shared vision for expansions to the port of Durban that stretches to 2050. This vision includes
the creation of an entirely new port in the south Durban basin, at the former site of the Durban
International Airport. The port’s primary function will be that of a gateway for container traffic flowing
into and out of the Greater Durban area and the Gauteng Industrial Complex, with transhipment functions
increasing gradually as a secondary role.
Transnet successfully acquired the land necessary for the construction of the DIADP through a 1.8
billion Rand deal with the Airports Company South Africa, in April of 2012, with the official propertytransfer taking place in December of the same year. Adjoining land parcels still need to be acquired for fullbuilt out of the port. The construction of the port is expected to generate significant positive impacts for thesurrounding region, including an estimated 64,000 construction jobs and 28,000 operational jobs once theport is completed (Transnet 2011a). The layout for the port, selected from a range of at least six scenarios
according to technical, economic, environmental and legal criteria (Figure 40).

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Figure 3.7 Proposed Layout for the Durban Digout Port

Source: TNPA 2013

At a conceptual planning level, sixteen container berths can be accommodated at the proposed Durban
Digout Port and this could add a total capacity of 9.6 MTEU per annum by the completion of the project,assuming that growth in throughput can be facilitated well into 2040. The new automobile terminal should
replace the terminal in the north of Durban at the present port, providing a much more convenient access toautomobile manufacturers and suppliers located in the industrial zones of the South Durban Basin (SDB).
Its liquid bulk berths should facilitate 2% growth over the next thirty years, which will be shared between
the DIADP terminals, the Reunion Single Buoy Mooring, and the current liquid-bulk terminals within theport.
In addition to the job creation potential cited above, input-output analysis conducted by Transnet(2011a) suggests that the DIADP should generate significant direct and indirect economic impacts.
Multiplier effects calculated for South Africa as a whole and for the KwaZulu-Natal region suggest thatinvestment in the new port should yield positive effects for the regional economy.

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Figure 3.8 Impacts of the digout port development on the KZN economy

Source: Transnet 2011a

Capital expenditure will positively impact the South African construction industry and its suppliers, as
demand for various inputs is increased by construction in the port, contributing an estimated 117.7 billion
rand to the economy in extra sales over the thirty-year period under analysis. Furthermore, the model
suggests that construction should significantly impact economic output, increasing direct gross valueadded by a total of 47.6 billion rand. Finally, Transnet’s model indicates that onsite employment should
directly increase the KZN region’s wage bill by 10.3 billion rand, in addition to an extra 13.5 billion rand
generated through induced effects. Transnet has also calculated the on-going benefits of the DIADP
deriving from operational expenditure: it has estimated that, once constructed, each terminal will produce
significant ongoing positive direct and induced impacts as a result of higher container flows through theport. The model predicts, for example, that at full utilization of the 9.2 million TEU capacity in 2040, theport should contribute some 62.4 billion Rand annually to the South African economy.
Even considering that economic impact analysis usually overestimate the consequences of a project,
due to its size the potential economic impacts of DIADP project are therefore considerable and complex toassess. Moreover, it has the potential to significantly transform the spatial dynamics of the Durban
metropolitan area, but it might also bear significant institutional consequences for the South African ports
sector as a whole. This section will describe the present project planning and attempt to highlight its
potential consequences for Durban and for the South African ports sector.
Funding model
The DIADP will be built in four phases funded by the Port Authority. Investigations to determine themost appropriate funding model are currently in process. External sources of capital, possibly provided bya terminal operator in a build-operate-transfer (BOT) style concession, are being investigated by Transnet.
The first phase will last nine years (2011-2020), and subsequent phases will last seven years each (20192026, 2024-2031 and 2029-2036). In 2011, Transnet estimated that the costs of investments for the project
would total 75 billion rand by completion, with a total of 47 billion incumbent on the Port Authority and28.4 billion on the terminal operator (most likely a private Global Terminal Operator, due to publicfunding constraints discussed below). These estimates were based on quantities derived from concept plans
for the new port, multiplied by market rates as of February 2011 (estimated through comparison withsimilar project prices, prices obtained from specialist suppliers, etc.). Constant foreign exchange rates forthe same period were used, and various allowances were made (preliminary and general costs, importduties and taxes, design risks, professional services, EIA, EMP, etc.). Seen in this light, the main capital
expenditure burden at first appears placed on the Port Authority (and thus, on Transnet).

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Figure 3.9 Capital expenditure for phase 1 of DIADP in Rand millions

Source: Transnet 2011a

However, when costs are escalated to account for projected trends in the commodities markets, theburden sharing of investments appears somewhat different. Using the BER MFA Building Cost Index,
Transnet has calculated CAPEX for DIADP to take into account increases in the commodity prices thatcomprise construction costs. The escalation is based on market forecasts made in 2010, and does notinclude any allowance for foreign exchange fluctuations. Figure 43 presents the difference that such
escalation makes for the calculation of the total and distributed CAPEX. If such trends hold true, the total
capital expenditure on the DIADP project could in fact reach somewhere in the vicinity of 200 billion rand,
instead of 75 billion. Moreover, this would drastically increase costs for the terminal operator, particularlyin the final phases of the project. In addition to these costs, there are the costs related to hinterlandtransport, including expanding the railway and road capacity between Durban and Johannesburg thatwould need to be tackled.

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96
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Source: Transnet 2011a96 -3 – POLICIES AND GOVERNANCE

Figure 3.10 Cumulative capital expenditure estimates for DIADP in Rand millions 2011-2036

3 – POLICIES AND GOVERNANCE– 97

According to interviews conducted for this study, constraints on Transnet’s budget and the potential
for capital-raising elsewhere render unlikely any scenario in which the entire project is publicly funded.
The current market demand strategy for all South African ports has programmed some 300 billion Rand fordevelopment, none of which is attributed to the new port. Significant capital expenditure burdens placed on
the Authority in early phases of the project suggest the need for some degree of concessioning and subcontracting in order to provide basic infrastructure, and the burdens placed on the terminal operator inlatter phases of development suggest that the participation of private operators will be necessary. Bearing
in mind that each phase of development will involve the creation of a new container terminal, several
scenarios are possible. These shall be addressed in a final section, however, it is useful to firstly consider
the metropolitan impacts of the DIADP.
Metropolitan Strategies in light of the DIADP
If the new digout port at the former Durban International Airport (DIA) site is completed as per theplans presented above, it will entail significant ramifications for Durban’s residential, economic andlogistical systems. The location of the new port, along with the likely port-to-port flows that it is liable togenerate, and the present corridor plans, suggest that the most severe impacts are likely to be felt in theareas to the south of the present port, in what is known as the South Durban Basin.
The South Durban Basin comprises a large zone running roughly 20km from the port down the coastto the town of Umbogintwini. It includes the districts of Congella, Umbilo, Rossburgh, Clairwood, Jacobs
and Mobeni, which are mentioned here as those most likely to be affected by future expansions to the port.
These districts currently play host to a wide range of land uses, ranging from heavy and light industry toresidential and commercial. The area is one of Durban’s main employment zones, providing both low- andhigh-skilled employment in sectors related directly and indirectly to the port. Of the 247 firms located in
the areas directly adjacent to the port (Maydon Wharf, Bayhead, Island View), some 119 (48%) arelogistics firms. These logistics clusters, to be found in most commercial ports around the world, are locatedright next to a large and diversified economic basin. No less than 37% of the 1031 firms located in Mobeni,
Clairwood and Jacobs alone are in the manufacturing sector, while some 178 industrial and 112 wholesale
firms are located in these same areas (GMA & Iyer 2011a: 77-80). Furthermore, the area of prospection, tothe south of the DIA, is host to the Toyota South Africa manufacturing facility, South Africa’s largest
automobile assembly plant. At 79-hectares, the plant alone employs some 8,500 workers directly, and is
the main client of over fifty automobile component suppliers in the KZN region (KZN 2012).
This intense concentration of value-added activities in the manufacturing, logistics, and otherindustrial sectors make of the South Durban Basin a strategic zone that is key to the economic wellbeing of
the eThekwini and KZN region. In spite of its immense importance, several inefficiencies currently imperil
the South Durban Basin’s function as an urban zone dependent on the port and upon which the port itself
depends. In recognition of these inefficiencies the city has recently undertaken new initiatives to rethink
and rationalize land-use planning in this area. This should serve to better anticipate future developments inthe port(s) of Durban and ensure their coherence with the development of the city going forward.

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The current land-use framework in the back of port area is broadly dichotomized into two zones: thoseused for residential purposes, and those used for heavy and noxious industrial purposes. It is worth noting
the absence of buffer zones composed of ‘light industrial’ uses or green spaces: with the exception ofprospection to the south of the former International Airport, many of the general and noxious industrial
land-use is zoned in the direct vicinity of residential living areas. This is attributable to a lack of strategic
vision in early land-use frameworks, which have had to play ‘catch-up’ with empirical trends: industrial
areas were zoned in the once-peripheral areas of the city, which at the time were not built-up, but which
now find themselves crowded-in by subsequent sprawl from townships such as Umlazi, or fromneighbourhoods that have grown significantly since 1994, such as Montclair.

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Source: GMA & Iyer 2011a: 72 Notes: Durban International Airport and SAPREF are located in site for new digout port.

3 – POLICIES AND GOVERNANCE – 99

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Figure 3.11 Current zoning framework for the back of port interface

100 – 3- POLICIES AND GOVERNANCE
It is also to be noted that logistics and other port-dependent activities are not specifically planned
for in the city’s current land-use framework. A given industrial area might feature any mix of land-use
rules for: transport and freight firms; storage facilities and wholesaling; chemical refinery; retail
distribution; manufacturing, etc. This is problematic for the port-city interface, in that a zoning
framework that is not attentive to the specific needs of the industries located therein can inadvertently
generate inefficiencies. For example, container trucks typically require large bays for turning and forloading dock access. Thus, warehouses set up for container trucks usually have to compromise on
floor space, in order to provide the room necessary for trucks to unload without impairing local traffic.
In industrial areas of Durban that are increasingly being used for logistics activities such astransloading, however, the local construction rules do not require provisions for turning bays or for
diagonally oriented loading docks which are more easily accessible for trucks. This means that insome areas where buildings were previously used for manufacturing or storage of non-containerized
goods, trucks are frequently stretched across several lanes in order to gain perpendicular access to theloading docks, blocking certain streets of Durban’s high-traffic industrial areas. The discussion of the
Clairwood neighbourhood in previous sections illustrates some of the negative social impacts that suchactivities engender.
The city’s new back of port strategy, driven in response to plans for the new DIADP, thus does
not only represent an opportunity to steer land use patterns and planning of infrastructural provision in
a way that is coherent with the new traffic flows to be generated by future port developments. It also
provides an opportunity to remedy some of the earlier inefficiencies in this interface area.
The consequences of the dig out port for the Durban and South African Ports System
The way in which the DIA digout port is financed, built and operated will have significant
impacts on the Durban port system. Inevitably it will entail some degree of private sector involvement,
which will increase inter-port competition and force public operations to become more efficient. This
will most likely entail difficult negotiations with labour. Depending on the share of TEU capacity thatis eventually put into private hands, these dynamics will differ considerably. This entails not only
significant differences in economic competition, but also in the governance of the Durban port systemand the port-city interface.
In all of its plans for the DIA digout port, Transnet has reaffirmed the possibility that one or
many different operators could operate each of the four container terminals publicly or privately. As
illustrated above, present funding models virtually guarantee some degree of private sector
involvement, most likely through a Build-Operate-Transfer style concession. This scenario sets thestage for a host of governance arrangements that would be unprecedented in the South African ports
sector. For as long as South African ports have handled containers, Transnet’s public terminal
operating companies have been sheltered from serious domestic competition by a virtual monopoly
over the South African container sector. This situation might be greatly altered by the completion of
the digout port, if not in the first phase, then most likely in subsequent phases. This raises a variety ofchallenges, related to port traffic development, level playing field and pricing, and port-city relations,which will all discussed below.
It is possible that there will be a shift from the current port to the new dig out port. The new port
will have a favourable lay out, state-of-the art equipment and well connected to main rail and roadcorridors, without being spatially constrained in the same way as the current port of Durban is. There
are many examples of urban ports with new non-urban port sites where the share of the urban port site
has lost ground to the new port site, also if the new site forms part of the same port authority (Figure45). Along the same lines, urban ports have lost traffic shares to new ports that do not fall under thesame port authority (Figure 46). In many cases, the old urban ports undergo a change in character with

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a larger port-city interface, more public access to port sites and an increased focus on port activities
that align to tourism, recreation and other activities. A similar decline of traffic shares of the urban
port, specified in more detail in Annex 3, could take place in Durban.
Figure 3.12 Traffic developments in multi-site ports

Source: calculations and elaborations of OECD secretariat based on data of port authorities

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Figure 3.13 Traffic developments in new ports neighbouring urban ports
100

Share of urban port in total container port traffic (% TEUs)

90

80

70

60

Karachi-Port Qasim
Auckland-Tauranga

50

Valparaiso-San
Antonio

40

30

20

10

Fortaleza-Pecem
Bangkok-Laem
Chabang
Recife-Suape
Tangier-TangierMed
Mumbai-JNP

01978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: calculations and elaborations of OECD secretariat based on data of Lloyd’s Marine Intelligence Unit (LMIU).

With the dig out port will also emerge the challenge of organising a level playing field. A private
operator would not want to be obliged to charge tariffs that are used to cross-subsidise ports in which
it is not involved. As this would make it more competitive in comparison with the publicly operated
terminals, the government might be obliged to reduce or abandon cross-subsidisation, or offer toprivatise the port authority functions of the dig out port. Concerns about the combination of theregulatory and operational roles of Transnet will come to the forefront in all prominence, especially if
the idea would come up that the position of TPT would need to be protected if one or more private
operators would dispose of terminals that are considered to have more favourable characteristics. Portcity interfaces might also drastically change within a new institutional setting provoked by the dig out
port. Private terminal operators have the primary goals of making profits, so they might need
incentives to generate net positive socio-economic impacts. These incentives could consist of
integrating socio-economic indicators in the concession criteria, e.g. along the lines of the concession
process for the Maasvlakte 2 for the Rotterdam port. In the assessment criteria for the concession bids,
20 points of the maximum 100 points were reserved for sustainability criteria, including environmental
criteria (EMS, air quality and CO2 emissions), use of hinterland modes and security. With respect tothe hinterland modal split, targets were formulated that would reduce the share of road transport from
57% in 2010 to 35% in 2035. Transnet, in its investigations for a future funding model, should take theabove considerations in to account.

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ANNEXES – 103

Annex 1: Time efficiency of ports

Time efficiency of ports is here defined as the average time that a vessel stays in a port before
departing to another port. Port time can be known through detailed vessel movement data. Port time
can be considered a proxy for time efficiency, as the large majority of port calls will be connected toloading or unloading. Very brief port stays could be connected to re-fuelling, whereas very long port
stays could be connected to repairs or other reasons. Both very brief (less than an hour) and very longport stays (more than 10 days) will be excluded in order to increase the probability that the data reflect
time efficiency and not something else.
The data used are vessel movements, as collected by Lloyd’s Maritime Intelligence Unit (LMIU)
for 2011. The data are limited to the month of May; this month is considered to be a representative
month by Lloyd’s Maritime Intelligence Unit. The dataset contains for most vessels precise arrival anddeparture times (in hours and minutes). From the port calls of fully cellular container vessels (larger
than 100 gt), the observations were excluded where arrival, or departure data, or both were missing,and some observations were excluded because they were considered to be extreme values that would
skew the results; these are the vessel calls with a stay in one port of less than one hour or more than 10
days. Canals and strategic passages, as well as "non-port" locations (e.g. countries, straits, continents,
seas, etc.) were excluded from the dataset and some paired terminals/ports were aggregated (e.g. Port
Botany and Sydney).
In order to derive the total time that vessels stayed in a specific port, some less precise
measurements (in days, not in hours and minutes) were incorporated for ports with missing values inthe dataset. This is necessary, because for some ports only a very limited set of precise timeobservations was available, so taking exclusively these and extrapolate these would risk to beinaccurate. For these missing values, it is assumed that the port time for vessels arriving and leaving
the same day is 12 hours, leaving the next day is equivalent to 36 hours, with a port stay of 2 days
equivalent to 50 hours etc.
The main output indicator that is used is the average difference between "arrival date" and"sailing date" by port and all vessels (in number of days). The average is calculated here by dividing
the total time that vessels spent in one port by the TEU throughput volume in that port in May 2011, as
reported by the respective port authorities.

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Annex 2: Efficiency of oil ports

In this report the efficiency of oil ports is analysed using the data envelopment analysis (DEA)
technique. This empirical methodology derives efficiency scores for each decision-making unit
(DMU) involved in a homogeneous production process such as firms or seaports. An efficient port isdefined as one maximising output level for the same level of inputs across all observed ports (efficient
output-oriented DMU) or minimising quantity of inputs for a given level of output (efficient inputoriented DMU). The efficient production frontier is delineated by a set of efficient DMUs referred toas the benchmark of most performing seaports. The potential gains for less efficient ports (e.g. locatedbelow the efficient production frontier) are measured by their distance, both from an output- or inputoriented approach, relative to the efficiency frontier. This methodology has been widely used in themost recent mainstream literature 14.15(Cheon, et al., 2010; Wu and Goh, 2010; Martinez-Budria, et al.,
1999; Wang and Cullinane, 2006; Al-Eraqui, et al., 2007; Tongzon, 2001).
The DEA approach has advantages as well as limitations. Among its positive characteristics,
DEA does not impose any functional form to the production function or on the shape of returns toscale (i.e. non-parametric), such as when adopting a Cobb Douglas production function. For seaports,
in particular, it is very difficult to guess or impose whether returns to scale should be increasing or
decreasing. Dealing with multiple output processes is another useful property of DEA, especiallywhen addressing port multi-activities and when a certain degree of homogeneity in the production
process is observable across ports. DEA also has some negative characteristics, including its
deterministic property, which does not allow random noises or measurement errors to be isolated fromthe measure of pure inefficiency16. However, use of the Bonilla (2000) and Barros (2007)
bootstrapping17 technique can help limit this effect.
This sampling technique enables generation of a stochastic distribution and intervals ofconfidence around the estimators (Simar and Wildon, 2000). The efficiency estimates derived fromusing this technique are often lower compared to DEA estimates derived from a standard sample. In
addition, atypical efficient ports (characterised by low density of observations in the region of thefrontier) are characterised by higher degrees of uncertainty. However, because efficiency is a relative
measure, depending on observable seaports and inputs considered, any omission may affect the results.
A sample excluding potentially efficient seaports or including outliers would respectively shiftdownward/upward on the efficient production frontier and affect (upward/downward) the relative
efficiency scores. To the same extent, omitting input factors or including them with non-documented
values (zero or not available [n.a.]) may yield higher efficiency scores for ports that are using highquantities of the omitted input factor or those producing output with “no” input.

14.

However, according to the review by Trujillo and Gonzales (2008) there are about an equal number ofstudies exploring efficiency via estimating a stochastic frontier production with a predefined
functional form, suggesting the absence of consensus vis-à-vis the best approach to be used.

15.

Cheon, et al., 2010; Wu and Goh, 2010; Martinez-Budria, et al., 2009; Wang and Cullinane, 2006;
Al-Eraqui, et al., 2007; Tongzon, 2001

16.

This mainly legitimates stochastic frontiers and econometrics approaches though they impose afunctional form to the production.

17.

This mainly legitimates stochastic frontiers and econometrics approaches though they impose afunctional form to the production.

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ANNEXES – 105

There are three different types of efficiency that can be distinguished: i) overall efficiency, ii)
technical efficiency, and iii) scale efficiency.
i) Overall efficiency. This general indicator, derived from a model assuming constant returns toscale (CRS), provides a measure of overall port efficiency. This DEA-CCR indicator, developed byCharnes, Coopers and Rhodes (1978), assumes that all observed production combinations could bescaled up and down proportionally. Varying production sizes or scales are considered to have no effecton efficiency scoring, which means that small or large ports can equally operate in an efficient way.
Efficient ports are both technically and scale efficient. Conversely, inefficiencies (efficiency gap
measured in per cent of most efficient port scores) reflect both technical and scale inefficiencies.
ii) Technical efficiency. Pure technical efficiency is estimated by relaxing the constraint on scaleefficiency, allowing output to vary unproportionally more or less with a marginal increase in inputs.
This DEA-BCC indicator, developed by Banker, Charnes and Cooper (1984), is derived from a model
assuming varying returns to scale (VRS), and recognises that smaller ports may face disadvantages
caused by production scale effects (Cheon, 2008). By taking into account and neutralising scaleinefficiencies, relative gaps in efficiency between ports would thus only reflect differences inoperational inefficiency, so-called pure technical inefficiency.
iii) Scale inefficiencies. Scale inefficiencies arise when the scale of production is inappropriate,
being above or below optimal levels and generating production wastes. Formally, they are identified
when a difference appears between efficiency achieved at technical and overall levels, as measured by
the following ratio (Cooper, et al., 2000; see also Fare, et al., 1994).1
SE=CRS/VRS and where SE<1
In the equation, CRS and VRS are the efficiency estimates derived from respectively assuming
constant and varying returns to scale. When SE<1, ports face scale inefficiency, driving higher overall
inefficiency compared to pure technical inefficiency. By contrast, when SE=1, ports are operating at
efficient scales, producing at the optimal level for which they were designed. However, theappropriate direction in scale adjustments can be identified only with the nature of returns to scale,that is, increasing (IRS) or decreasing (DRS). For ports operating at IRS (output rises proportionallymore than the increase in inputs), production level should be expanded. This is usually the case forports operating below optimal levels as long as current business traffic, while building up gradually,remains below the optimal capacity of port infrastructure. By contrast, when ports operate at DRS(output rises proportionally less than the increase in inputs) they should scale down their production
toward lower optimal levels to limit inefficiencies lead, for example, by bottlenecks.
In a long-run perspective, however, the alternative of raising the optimal level of production throughinvesting in higher port infrastructure capacity should also be considered.
Defining and identifying appropriate output and input variables for port production function is
crucial. The input/output variables must reflect the main objectives of a port, which in this study isabout maximising cargo throughput and productivity while efficiently using infrastructure andequipment. Along the economic theory, output as measured by handling cargo throughput(loaded/unloaded) depends to the same extent on labour and capital inputs. In port literature, labour
input is known as the most challenging issue due to lack of data reliability and comparability. One of
the main reasons is that port labour organisation is particularly complex, consisting of different types
of full- and part-time contracts and contracts partly managed by private, public and port authorities,
which make it difficult to collect complete and consistent data. Proxies are often used along theargument that labour is usually closely and negatively correlated to handling equipment: equipment is

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thus considered to be a proxy for labour. As such, for this study the number of loading/unloading
equipment from ship-to-quay and quay-to-shore is collected per port for crude oil terminals. Capital
inputs, on the other hand, are more readily available as long as they concern land and infrastructure.
Such inputs mainly include terminal surface, quay length or storage capacity.
This study uses a new output dataset, based on a volume output measure: aggregated ship volume
in deadweight tonnes (dwt) calling each port. These data can be derived from existing comprehensive
databases of vessel movements, which include detailed information on ship types (including volume),
as well as arrival and departure times at the different ports. This approach assumes that the volume ofa ship calling a port is correlated with the number of metric tonnes loaded or unloaded from that ship.
This assumption will hold especially for cargo categories with point-to-point deliveries, such as crude
oil. The availability of information on different ship types in the database, including crude oil tankers,
makes it possible to estimate the aggregated ship volume per port for crude oil. While “total dwt
calling the port” (output measure) is not perfectly correlated with actual throughput, it is no moreimperfect than throughput as reported in metric tonnes.
For the purpose of this study, a database was built to analyse port efficiency across worldwide
ports at aggregated and disaggregated activity levels, gathering data for the most recent available year
(2011). Most of the input data are drawn from Lloyd’s Port of the World 2011 Yearbook, whereas the
Lloyd’s Marine Intelligence Unit’s (for May 2011) comprehensive database of vessel movements wasused to derive output data. Given limitations in the data and the DEA methodology, a number ofaggregations/approximations were performed in order to ensure estimate reliability.
The sample includes 71 major worldwide ports. The regional pattern reflects a noticeable
imbalance in the distribution of terminals across the world. About two-thirds of the sample oil ports
are concentrated in Asia (with 34% in the East/Southeast and 24% in the western/southern), while theremaining ports are located in Europe and North America (respectively accounting for 24% and 10%of the total sample). Table x shows the input variables specific to the sample oil ports. Capital inputs
are proxied by the capacity of terminal reception of oil tankers, such as quay/jetty lengths, maximum
vessel capacity, canal draught/depth and tank storage capacity. Labour input is proxied by the loading
capacity of equipment as measured by their discharge rates (tonne/hour) and pipeline/loading arm
capacity (diameter in mm).
Table 3.3. Descriptive statistics of input/output variables of the crude oil port sample

Oil terminal sample

Output May Quay length Max vesselMax
2011capacity draught/dept(dwt)hAverage
Max
Min
Normalised standard deviation
N (non missing)

2,665,512
33,557,799
2,247
1.98
71

1,833
16,222100
1.40
52

250,346
750,000
2,000
0.66
47

19
50
5
0.44
66

Tank
storage
capacity(m3)
2,300,030
7,092,000
123,2111.04
9Discharge Pipeline/loa
rate (t/h)
ding arm
capacity(mm)
32,016
9,623
112,000
382
1.13
11

25,245
2,040
0.85
12

Source: OECD database.

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ANNEXES – 107

Annex 3: Multisite port evolution in large port cities

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BIBLIOGRAPHY – 113

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The Competitiveness of Ports in Emerging Markets
The case of Durban, South Africa

International Transport Forum
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How competitive is the port of Durban? What are its main impacts, in terms of economy,
environment and traffic? And how well do policies manage to increase local benefitsof the port, and mitigate the negative impacts? These are the questions that this publication
aims to answer. Its three chapters provide an evaluation of port performance, an analysisof port impacts and an assessment of policies.