JOINT TRANSPORT RESEARCH CENTRE

Discussion Paper No. 2009-2
January 2009Market Power and Vertical andHorizontal Integration in the
Maritime Shipping and Port Industry
Eddy VAN DE VOORDE and Thierry VANELSLANDER
Department of Transport and Regional Economics
University of Antwerp
BELGIUM

JOINT TRANSPORT RESEARCH CENTRE

Discussion Paper No. 2009-2

Prepared for the Round Table of 5-6 February 2009 on
Vertical Relations between Transportand Logistics Businesses

MARKET POWER AND VERTICAL AND HORIZONTAL INTEGRATION
IN THE MARITIME SHIPPING AND PORT INDUSTRY

Eddy VAN DE VOORDE and Thierry VANELSLANDER
Department of Transport and Regional Economics
University of Antwerp
BELGIUM

December 2008

The views expressed in this paper are those of the authors and do not necessarily
represent positions of the University of Antwerp, the OECDor the International Transport Forum.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 20091

TABLE OF CONTENTS

1.

INTRODUCTION ............................................................................................................................52.

THE COMPLEXITY OF THE MARITIME LOGISTICS CHAIN ................................................5

3.

FORMS OF INTEGRATION IN THE MARITIME LOGISTICS CHAIN .................................. 10

4.

IN-DEPTH ANALYSIS OF HORIZONTAL AND VERTICAL CO-OPERATIONAMONG SHIPPING COMPANIES AND TOCS ......................................................................... 13

5.

REASONS FOR INTEGRATION ................................................................................................. 166.

CASH OR GAMBLE? A LOOK AT SOME POSSIBLE FUTURE SCENARIOS ...................... 18
6.1. Shipping companies: Further reorganisation, mergers and scale increase .............................. 19
6.2. Additional capacity and scale increases at landside................................................................ 20
6.3. A relative decline in market power for the port authorities? .................................................. 22

7.

CONCLUSIONS ............................................................................................................................ 22

NOTES ................................................................................................................................................... 24
BIBLIOGRAPHY .................................................................................................................................. 27

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 20093

1. INTRODUCTION

The maritime sector is undergoing constant change, as is particularly apparent in the shift incompetition that has unfolded in recent years. Whereas in the past shipowners and ports used tocompete with one another, the competitive struggle is now increasingly unfolding at the level oflogistics chains. Today, market players are selected not so much for their stand-alone competitiveness,but on the basis of whether or not they belong to a successful maritime logistics chain. This explains
why certain market players are continuously trying to gain greater control over these chains, including
through vertical and horizontal alliances, mergers and acquisitions.
This contribution considers in greater detail these concerted efforts to increase market power
through extensive integration. First, we deal with the competitive shifts that have occurred in the port
and maritime arena. Subsequently, we look at the strategic behaviour exhibited by the main market
players (shipowners, terminal operating companies, port authorities, logistics service providers, etc)
and analyse their objectives. Finally, we assess the consequences of the strategies pursued in thecontext of the anticipated future scenarios.

2. THE COMPLEXITY OF THE MARITIME LOGISTICS CHAIN

The nature of competition in the maritime and port industry has changed in recent years from acompetitive struggle between individual shipping companies and ports to one involving maritime
logistics chains (Suykens and Van de Voorde, 1998; Meersman, Van de Voorde and Vanelslander,2008). In other words, competition is no longer unfolding at the level of individual ports or shipowners
but rather at that of logistics chains connecting origin and destination.
Successful maritime logistics chains are like well-oiled machines in which every nut and bolt isperfectly attuned. Consider the case of seaports. Modern seaports are crucially important nodes ininternational logistics chains and their associated networks. The success of the logistics chain as awhole depends on the competitive strength of the seaports belonging to that chain and vice versa. A
similar reasoning applies to the other maritime transport players, including shipowners, port
undertakings and hinterland transport providers.
Clearly, then, the competitive strength of a port or any other maritime player does not depend
exclusively on the own infrastructure and organisation; it is also affected by a variety of other market
forces.1

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 20095

Roughly speaking, a maritime logistics chain consists of three large sections: the purely maritime
activities, goods handling in the port and hinterland transport services. The formation of chainsdepends on three important elements: the maritime connections, the goods-handling operations(usually involving large volumes), and the distribution towards the hinterland. Figure 1 provides aschematic overview of such a logistics chain. Depending on the goods category concerned and thetype of chain management applied, this structure may become more complex and possibly involve
different ports of call.
Figure 1. A typology of the maritime logistics chain

Production Hinterland
unit / raw
transportmaterials site

Vesselloading

Storage

Maritime
section

Vesselunloading

Storage

Hinterlandtransport

DestineeIf we home in on the port-related activities in the above overview, we notice that one of the mostimportant roles of ports lies in the transfer of goods from ship to shore and from ship to ship. Jansson
and Shneerson (1982) distinguish the following aspects:

Figure 2. The main activities of a seaport according to Jansson and Shneerson

ST O R A G E
S H IP
L O A D IN G
S H IPA P PR O A C HAND
M O O R IN G

T R A N SP O RT
T OW A R DS
ST O R A G E

H IN T E R L A N D
M ODE
L O A D IN G
T R A N SP O RT
T OW A R DS
L O A D IN G
P L AT F OR M

H IN T E R L A N D
M ODE
D E P A R T UR E

Source: Own diagram on the basis of Jansson and Shneerson (1982).
Strikingly, the distribution function is prominent in seaports, as they usually serve an extensive
hinterland.2

6

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

In the course of the 1950s, many seaports acquired a further function, in addition to trade andthroughput. Because of certain agglomeration effects – consisting mainly in economies of scale,location effects and urbanisation benefits – ports were found to be excellent locations for certain typesof industrial activity. Consequently, in addition to their role in trade and transport chains, they also
became significant links in the industrial chain.
In more recent research, one distinguishes even more clearly between the various subactivities inseaports. Increasingly, these are so-called value-added activities, as shown in figure 3 below. Thisevolution is indicative of the increasingly complex nature of seaports.

Figure 3. Principal seaport activities according to the World Bank
Seaport services

Core service

Value added services

Marine services
General logistics services
Terminal services
Ship repair services

Value added logistics services

Real estate management
Information management

Source: Own diagram on the basis of World Bank (2001).

The implication is that the competitive strength of seaports has become dependent on a great
many variables. Vanelslander (2005) identifies 89 such variables, which may be classified as policyrelated, scope-related, chain-related and terminal-specific. Some have an undeniable impact on thecosts to the user and hence to the competitive position of the port. We summarise in Table 1 below.
Table 1. Seaports’ main distinguishing factors
FactorActivity scope
Lay-out
Location
Organization
Security
Traffic

Possible states
Complete – limited
Tidal - non-tidal; basins - no basins
Coastal – river; large - small population hinterland
Land lord – limited operating – operatingHigh – moderate – lowHigh – moderate – small; mixed – containers only – bulk only

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7

Most combinations of variables values are possible, although some combinations occur more
frequently than others. Each combination is, in principle, tied to a different cost structure.
However, that is not the end of it. Seaports are, after all, made up of a variety of links. Oftenthese are controlled or managed by different players, but some activities are also integrated acrosslinks. Each aggregated decision will therefore give rise to a chain reaction. This may in turn result inbottlenecks that are not immediately apparent.
A port encompasses more than the port authority as the governing body, the shipping companies
as its principal customer and terminal operating companies (TOCs) as the main suppliers ofthroughput services. There are numerous other, often smaller players to take into account. Yet,hitherto, there has been a lack of insight into the relative importance, the negotiating strength and themarket power of each of these players. What is required is a genuine understanding of the mutual
relationships, the financial participations, and, as the case may be, forms of managerial control.
A study by Coppens et al (2007) considers these issues in greater depth. It takes a bottom-up
approach, and consists in a sector analysis based on a regional input-output table linked tomicroeconomic data. In this manner, the principal clients and suppliers of all port players are
identified (cf. figure 4).
Figure 4. Relationships between port players

non-port players in port
perimeter

port players in
port perimeter

non-port players outside
port perimeter

port players outside port
perimeter

Source: Coppens et al., 20078

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

The empirical research by Coppens et al. (2007) focuses on the port of Antwerp. By way ofillustration, Figure 5 provides an overview of the financial flows between the various players. In thecase of Antwerp, the significance and, even more so, the sensitivity of the forwarders are very
apparent: many of the financial flows are generated through mediation of this activity. Substantialcargo flows reach Antwerp through consolidation. Shipping companies base their decisions regarding
shipping routes and schedules on the volume of cargo. Obviously, the role of a number of other port
players should not be underestimated either.3
Typical examples of such players are fuel trading and dredging. The former plays a big role inship operations, whereas the latter has its role in the construction of shipping and port facilities. The
availability of efficient fuel provision can convince a shipping company to call at a port which is at themargin, or to make it a longer stay, in both cases resulting in more cargo loading and unloading
capacity. Dredging activities are an important element of capacity creation and maintenance.

Figure 5. Interactions between port-related players and their size

Source: Coppens et al., 2007.

Taking a look at value added generated by smaller players, fuel trading, forwarding andhinterland transport take the biggest share, next to terminal operating activities, which has the largest
share. The same ranking applies to employment, where fuel trading is replaced by supporting
activities.
This kind of disaggregated analysis can help explain how the largest players (i.e. shipping
companies, terminal operating companies…) will, in the longer term, try to increase their control overlogistics chains, e.g. through acquisitions of smaller but strategically important players. There havealready been examples of agents who became takeover targets, and terminal operators, too, may be
expected to undergo or actively seek further integration with, for example, shipping companies.
However, this integration will be more flexible than it has been in the past: horizontal integration, i.e.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 20099

integration between companies belonging to the same industry, shall be achieved through alliancesrather than through mergers, while vertical integration, i.e. forms of closer cooperation between parties
across the logistics chain, shall tend to consist in joint ventures and dedicated handling.
The potential involvement of non-port groups or even non-transport groups should not be
overlooked either: they may wish to acquire control over certain activities within seaports with a viewto short-term financial gain rather than the sustainability of the activities as such. It is for this purposethat activities are selected for inclusion in the portfolios of financial groups on the basis of risk andpotential return, as well as the extent to which they generate value added that may be turned into
profit.

3. FORMS OF INTEGRATION IN THE MARITIME LOGISTICS CHAIN

Let us now consider the consequences of cooperation between the various maritime and port
players in the context of the competitive environment in which they operate. We shall take as ourstarting-point the following synthesis (based on, among others, Meersman, Van de Voorde andVanelslander, 2008).

10•

The global economy obviously continues to be the motor of the maritime sector (Meersman
and Van de Voorde, 2001; Meersman and Van de Voorde, 2006). However, that economy isalso undergoing rapid change: recent years have seen enormous growth in international tradeand consequently also in sea-bound trade, a process characterised by an international
redistribution of labour and capital and an integration and globalisation of the markets. In thesecond half of 2008, however, recession set in.

•

Shipping companies are strategically important clients of ports. On the one hand they attract
traffic and industrial activity to the port, while on the other they are attracted by suchindustrial activity. Freight passes through the ports, after which drayage may be taken care ofeither by the ocean carrier (i.e. ‘carrier haulage’) or the shipper (i.e. ‘merchant haulage’). We
have also witnessed substantial scale increases on the part of shipping companies in recent
times. This has been achieved first and foremost through horizontal cooperation and/or
mergers and takeovers. Additionally, shipping companies have set their sights on terminal
operators and inland transport services, as operations are increasingly approached from theperspective of complex logistics chains, whereby each link must contribute to the constant
optimisation of the chain as a whole. This has altered the competitive balance in the market, as
shipping companies have gained in power through their overall control of logistics chains.

•

We have also witnessed important structural evolutions within ports. Traditional stevedoringfirms have evolved towards more complex terminal operating companies (TOCs), more often
than not because a shortage of working capital necessitated mergers, takeovers and externallyfinanced expansion projects. In some cases, the external capital was provided by shipping
companies, many of which have established their own terminal operating branch. These may
operate as dedicated terminals for the shipping company itself (e.g. Cosco Pacific), or they

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

may pursue a more independent course (e.g. APM Terminals), possibly as a multi-user
terminal in order to improve the utilisation rate. Port and public authorities, for their part,
initially stood by rather passively.
Clearly, then, the port and maritime industry has undergone a dynamic evolution in recent years.
In this context, we refer explicitly to Heaver et al (2001), where the various forms of cooperation andconcentration in the industry are discussed in greater detail. The proposed configuration continues toapply today, even though some players seek partnerships more actively than others do. Table 2
provides an updated overview of the great variety that exists in types of cooperation in the port andmaritime industry. We restrict ourselves to shipping companies, TOCs, port authorities and hinterland
operators.
As table 2 shows, there is indeed great variety in forms of cooperation within and between the
different categories of players. In the next sections, we analyse a number of specific situations indetail: horizontal cooperation between TOCs, horizontal cooperation between shipping companies,
vertical cooperation between shipping companies and TOCs.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200911

Table 2. Strategic cooperation in the maritime sector (with examples)
Players

Shipping companies

Terminal operating companies

Port authorities

Hinterland operators* Vessel sharing agreements (e.g. CMA-CGM FAL4 and China Shipping AEX 3 on
North Europe - Far East from August 2008)* Jointventures (e.g. Swire Shipping, Ahrenkiel and MOL on Tasman Orient Line between Far
East and Darwin from May 2008)* Consortia(e.g. Hamburg Süd and Hapag Lloyd on Europe - Caribbean/WCSA)* Alliances (e.g. Grand Alliance: Hapag Lloyd, MISC, NYK and OOCL)* Mergers/acquistions (e.g. CSAV bought remaining 25% in Companhia Libra deNavegaçao in July 2008)*
Conferences (e.g. ESPMC-WITASS Conference: Container Cargo Lines, CMA CGM,
CSAV, Hapag-Lloyd, Hamburg Süd and “K” Line, to be liquidated October 2008)

Shipping
companies* Joint-ventures (e.g. CHKY Alliance carriers (Coscon, Hanjin, “K” Line, Yang Ming)
and ECT (Hutchison) at Rotterdam Euromax from September 2008)* Dedicated terminals (e.g. MSC at Antwerp Delwaidedok, operated by joint venture
MSC and PSA-HNN)* Share (e.g. * Mergers/acquisitions (e.g. MSC 51% from
Tangier Med Gate: 50% Eurogate Tanger (itself 20% CoMaNav, 40% Contship Italia, NYK Ceres Terminals in New Orleans
40% Eurogate) and 20% CMA CGM, 10% CMA CGM subsidiary CoMaNav, as well as Terminals)* Joint20%
MSC
from
May
2008) venture (e.g. National Container Company* Consortia (e.g. Pacific International Lines (PIL) and Container and Terminal Services (NCC, 80%) and Eurogate (20%) at Baltic(CTS) at Chittagong Container Terminal (CCT) from July 2008)
Container Terminal, open 2009)

Stevedores* Concessions (vb. Antwerp Deurganckdockby PSA and DP World since 2004) * Alliances (e.g. Port* * Joint-ventures (e.g. Ningbo Port of Rotterdam andConcessions for dedicated terminals (e.g. APM Terminals at Lazaro Cardenas from Authority and HPH in Ningbo Beilun Port Humber Trade Zone
Phase II since 2001)
since 2004)
2008).

Port
authorities* Block trains and capacity sharing (e.g. NYK between Rotterdam and Duisburg)* Acquisitions (e.g. Maersk acquired Roadways in UK)

Hinterland
operators* Joint-ventures (ECT in Duisburg Inland
Port, with own rail and inland navigation
shuttles between Rotterdam and Duisburg* Alliance (e.g. Railion (DB's freightsection) signed a cooperation agreementwith EW&S for traffic from the Benelux
countries, Germany, and Eastern Europe.)

Source: own processing of data from various shipping companies, stevedoring firms and port authorities; based on Heaver et al. (2001)
12

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

4. IN-DEPTH ANALYSIS OF HORIZONTAL AND VERTICAL CO-OPERATIONAMONG SHIPPING COMPANIES AND TOCS

This section tries to identify recent trends in the kind of horizontal and vertical agreements
among shipping companies and TOCs.
To begin with, mergers and acquisitions among TOCs are assessed. As Figure 6 shows, theconcentration drive, which was particularly strong during the late 1990s, has lost momentum. The
most recent transaction of consequence was the takeover of P&O Ports by Dubai Ports Authority, after
which the company was renamed DP World. At this very moment, Spanish operator Dragados, which
was previously part of a construction group, is involved in takeover talks with various operators,
including HPH and DP World. It would appear, then, that preference is now given to new start-ups, be
it under a joint venture or as a solo investment.
Among shipping companies, too, the takeover drive seems to have come to a relative halt too. As
shown in Figure 7, the only new moves to have been registered since 2000 are the takeover of Delmas
by CMA-CGM in 2005, the acquisition of P&O Nedlloyd by AP Moeller in 2006, the purchase of CP
Ships by Hapag Lloyd in 2007. Alliances and vessel-sharing agreements are presently the preferred
option, most probably because of the inherent flexibility offered by this type of deal.
It would appear that vertical co-operation is now applied a lot more commonly by shipping
companies as a means of gaining control over port capacity. An example that comes to mind is that ofdedicated operating contracts. Table 3 provides an overview of the dedicated terminal agreements
involving the top-5 container shipping companies. Each of these firms is involved in a number of suchagreements, most of which were reached only recently. Dedicated terminals are in many cases also
linked to financial stakes being taken by the shipping line under consideration.
It is furthermore striking that eight of the top-15 TOCs are subsidiaries of shipping companies,
with a varying degree of independence in decision-making. This again illustrates the importance thatshipping companies attach to being involved in the terminal operating business, not so much for thesake of diversification, but rather to ensure that sufficient port capacity is available. However, therelationship between such terminal subsidiaries and their parent companies is often not equivocal or
problem free, APM Terminals being a case in point. Originally a dedicated terminal subsidiary of the
AP Moeller Group, under the then name of Maersk Terminals, the business unit acquired relative
independence in 2002. To underline this autonomy, the headquarters were moved from Copenhagen to
The Hague (Scheepvaartnieuws, 2007). At the present moment, APM Terminals still has a preferredsupplier relationship with its parent company, even though it is free to – and indeed does – negotiate(dedicated) terminal handling capacity, mainly on the condition that sufficient port capacity is reserved
for the parent company. The multi-user decision also depends on the strength of any other shipping
companies, their shares in total port throughput and the stakes they might take in any joint ventures. It
should be added that AP Moeller’s interest in the overall chain is not restricted to port terminals.
Maersk is also active in road and rail and was till 2005 active in the air transport business.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200913

Figure 6. Mergers and takeovers between terminal operating companies
2001
HPH
PSA
APM Terminals

2003
HPH
PSA
APM Terminals

Maersk
Sea-LandEurokai
DPA
ICTSI
SSA
Hamburger Hafen und
Lagerhaus
Aktiengesellschaft (HHLA)
11
Pacific Ports Co.

P&O Ports
Eurogate
DPA
Evergreen
Cosco
HanjinSSA

P&O Ports
Eurogate
Cosco
Evergreen
DPA
SSA
APL/NOL

HHLA

12

Ceres Terminals Inc.

13
14

Europe Combined
Bremer Lagerhaus
Gesellschaft
NYK
APL/NOL
OOCL
HanjinMitsuiEvergreen
K Line
Cosco
CSXWT

1
2
3

1996
PSA
HPH
P&O Ports

4
5
6
7
8
9
10

15
16
17
18
19
20
21
22
23
24
25
…
…
…
…
…
…

2006

2008

HPH
PSA

HPH
PSA

APM Terminals
DP World
Cosco PacificEurogate
SSA Marine
APL/NOL
HHLA

APM Terminals
DP World
Cosco PacificEurogate
SSA Marine
APL/NOL
HHLA?
HanjinHanjin

HHLA

MSC

MSC

APL/NOL

HanjinNYK
Hyundai

MSC
NYK

NYK
OOCL

NYK
OOCL

CSXWT
Mitsui OSK Lines
OOCL
K LineDragados
TCB
MSC
ICTSI
Yang Ming Line

OOCL
CSXWT
Mitsui OSK Lines
Dragados
K LineTCB
ICTSI
P&O Nedlloyd

CSXWT
Mitsui OSK Lines
Dragados
K Line
TCB
ICTSI

CSXWT
Mitsui OSK Lines
K LineTCB
ICTSI

Terminal Contenedores deBarcelona (TCB)
Yang Ming Line
Hyundai
Hessenatie
Noord NatieContship Italia sa
Sinport Sinergie Portuali
Egis Ports

Hessenatie
Noord Natie

Egis Ports

Source: company annual reports.

14

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

Figure 7. Mergers and takeovers between shipping companies
1998
1 Maersk Line
2 Evergreen
3 P&O Nedlloyd
4 Sea-Land
5 COSCO6 Hanjin
7 MSC
8 MOL
9 NYK
10 HMM
11 Zim
12 Yangming
13 CMA-CGM
14 OOCL
15 NOL16 CP Ships
17 K Line
18 APL19 Hapag-Lloyd
20 Cho Yang

1999
Maersk Line
Evergreen
P&O Nedlloyd
MSC
HanjinSea-LandCOSCO
NOL/APL
NYK
MOL
HMM
Zim
CP Ships
CMA/CGM
Hapag-Lloyd
OOCL
K LineYangming
UASC
Safmarine

2000
2001
Maersk SealandMaersk-SeaLand
Evergreen Line/Uniglo P&O Nedlloyd
P&O Nedlloyd
Evergreen
Hanjin/DSR-Senator Hanjin/DSR-Senator
MSC
MSC
COSCO
NOL/APL
NOL/APL
COSCO
NYK
NYK
CMA/CGM/ANLCP Ships
CP Ships
CMA-CGMZim
MOL
MOL
K LineK Line
Zim
HMM
OOCL
OOCL
Hapag-Lloyd
Yangming
Yang Ming
Hapag-Lloyd
CSCL
UASC
HMM
CSAV
CSAV
Cho Yang
Hamburg-Süd

2002
Maersk SealandP&O Nedlloyd
Evergreen
Hanjin/DSR-Senator
MSC
NOL/APLCOSCO
CMA-CGMNYK
CP Ships
K Line
OOCL
MOL
HMM
CSCL
Yang Ming
Zim
Hapag Lloyd
CSAV
Hamburg-Süd

2003
Maersk LineMSC
P&O Nedlloyd
Evergreen
Hanjin/DSR-Senator
COSCO
NOL/APL
CMA-CGMMOL
CP Ships
NYK
K Line
Zim
OOCL
CSCL
Hapag Lloyd
HMM
Yang Ming
PIL
CSAV

2004
Maersk Line
MSC
Evergreen
P&O Nedlloyd
CMA-CGM
Hanjin/DSR-Senator
COSCO
NOL/APLNYKMOLCP Ships
K LineOOCL
Zim
Hapag Lloyd
Yang Ming
CSCL
Hyundai
CSAV
PIL

Uniglory
Lloyd Triestino
DSR Senator

2005
Maersk Line
MSC
Evergreen
P&O Nedlloyd
CMA-CGM
NOL/APL
Hanjin/DSR-Senator
NYK
COSCO
CSCL
OOCL
MOL
Zim
CP Ships
K LineCSAV
Hapag Lloyd
Yang Ming
HMM
Hamburg Süd
Delmas

Source: company annual reports.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

15

2006
Maersk LineMSC
P&O Nedlloyd
Evergreen
CMA-CGM
NOL/APL
CSCL
COSCO
Hanjin/DSR-Senator
NYK
OOCL
CSAV
MOL
K LineHapag Lloyd
Zim
Hamburg-Sud
Yang Ming
CP Ships
HMM

2007
Maersk LineMSC
CMA-CGM
Hapag Lloyd
COSCO
CSCL
Evergreen
NOL/APL
HanjinNYK
MOL
OOCLK LineYang Ming
Zim
Hamburg Süd
HMM
PIL
CSAV
Wan HaiTable 3. Dedicated terminals top-5 container shipping companies
Shipping company
Terminal
Date of announcement
Terminal operator
MaerskRotterdam
1998 APM Terminals
Bremerhaven1999 APM Terminals - Eurogate
Algeciras
2005 APM Terminals
Lazaro Cardenas2007 HPH
Felixstowe
2008 HPH
Tanger2008 Maersk - APM Terminals - Akwa GroupMSC
La Spezia
1971 Eurogate - MSC
Napels
2002 MSC - Cosco
Bremerhaven2004 Eurogate
Antwerp2005 PSA - MSC
Valencia
2006 MSC
Las Palmas
2007 MSC - Dragados
Le Havre2007 MSC
Kumport
Limar Port and Ship Operators SA
CMA-CGMLe Havre2006 CMA-CGM - GMP
Busan
2007 Macquarie - Bouygues - Hyundai - KMCT - BPA - KUKJE - KCTC
Hapag-Lloyd
Hamburg CTA
2001 HHLA - Hapag-Lloyd
Singapore2003 PSA
Cosco

Source: company annual reports.

5. REASONS FOR INTEGRATIONAs each form of cooperation is intended to enhance the players’ own competitive position, we
have thus far considered them as a whole. Ultimately, though, the industrial economic purpose ofrespectively horizontal cooperation (e.g. between shipping companies) and vertical cooperation (e.g.
between a shipping company and a TOC) is often quite different.
In the case of horizontal cooperation, the companies’ optimal shape depends on the benefits ofscale and scope. These are present for as long as large-scale production and service provision results ineconomies. Such scale and scope effects are instrumental to companies’ merger and diversification
strategies. They also affect pricing, entry and exit behaviour, and whether or not a long-termsustainability of the competitive advantage is feasible.
The source of economies of scale and scope are diverse (Besanko, 2007, p. 78): indivisibilities
and the spreading of fixed costs; increased productivity of variable inputs, especially in consequenceof specialisation; a reduction of joint stocks; engineering principles associated with the so-called‘cube-square rule’.4 Other sources relate to joint purchases, marketing, and R&D.
The question arises whether recent horizontal mergers in the maritime and port industry haveconfirmed the existence of economies of scale and scope. In the past decade, we have witnessed two
evolutions: on the one hand, shipping companies have become ever larger through mergers, takeovers
and organic growth, which has led to greater concentration; on the other, we have seen evidence of
closer cooperation through strategic alliances. In both cases, the purpose is clearly to benefit optimallyfrom economies of scale and scope within the boundaries set by antitrust legislation. By way of16

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

illustration, we refer to one of the major merger operations in shipping history. One of the explicit
goals of the merger between Nedlloyd and P&O in 1996 was to achieve scale benefits and thus toreduce costs (Hansen, 1997). However, the operation was not particularly successful, and the
proclaimed objective was not attained. This led in turn to the takeover of P&O Nedlloyd by Danishgroup AP Moeller in 2005. Again, the stated objective was to realise scale benefits and to acquire evengreater market power. As far as the latter goal is concerned, the merger has been successful to someextent. It has however been far less successful in achieving the envisaged scale benefits. P&O
Nedlloyd gave preference to the Danish group over a number of Asian candidates (incl. NOL andChina Shipping) because of its substantial cash stocks and in view of so-called ‘cultural similarities’(Neleman, 2005). The extent of the latter was clearly overestimated, as the integration consumed a lot
more money and effort than originally anticipated, which impacted substantially on the group’s results(USD 568 mn loss in 2006, USD 202 mn loss in 2007). Moreover, the expectations in terms of market
share were not achieved either. In fact, on routes to and from the US, the group lost market share(Leach, 2006).
Table 4 shows that in the terminal operating business, merging groups have been more successful
in increasing market share and obtaining good financial results. The top company in 2007, HPH,
obtained a market share of 14% with a worldwide throughput of more than 66 million TEU, on a total
throughput by all operators of 485 million TEU. The top 8 companies together represent 52% of theworldwide market. However, the picture is mixed depending on the company considered. It is striking
that HPH has obtained a turnover which is relatively a lot higher than that of PSA, whereas its
throughput is not that different. The difference in EBITDA is even smaller. A similar difference
between turnover and EBITDA balance kan be found between DP World and APM Terminals.

Table 4. Top 8 global terminal operators – financial results and market share
TurnoverMillion USD
4,864
3,009
2,731
2,519
1,857
361
609
51

HPH
PSA
DP World
APM Terminals*
HHLA
ICTSI
APL Terminals
Cosco PacificWorld total* TEU-figures based on capital share

EBITDA
Million USD

Throughput
Million TEU
1,649
1,462
1,100
404
597
118
113
29

Throughput
share
66.3
58.9
43.3
31.4
7.2
3
4.5
39.8
485

14
12
9
6
1
1
1
8

Source: Containerisation International.

In the case of vertical cooperation, the central question is how the vertical chain can be organised
most efficiently. Companies are commonly confronted with a choice between producing andpurchasing, in what is known as the ‘make-or-buy’ decision. The reasons for buying may include scaleand scope effects (i.e. restriction of one‘s activity to the core business) and bureaucratic considerations(i.e. the avoidance of agency and lobbying costs). The choice for ‘making’ may be inspired by the
avoidance of transaction costs, or the prevention of leaks of sensitive corporate information. In reality,
the two options are extremes on a continuum of possibilities insofar as degree of vertical integration is
Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200917

concerned. As table 2 clearly demonstrates, the maritime and port industry is characterised by avariety of forms of vertical cooperation and integration, ranging from controlled market transactions tofull vertical integration.
The impact of vertical integration on competition has been the subject of much industrial
economic research, and it presents a constant challenge to the regulating authorities. Riordan (2008, p.
145) asserts in this context that “antitrust policy in the United States recognises that a vertical merger
can create incentives for anticompetitive foreclosure or facilitate collusion, while remaining mindfulthat vertical integration can achieve efficiencies”.
As far as the maritime and port industry is concerned, insights into the objectives and outcomesof horizontal and vertical cooperation are still rather limited. There is a need for further empiricalresearch into, among other things, the existence of economies of scale and scope. And, if they do exist,
it is equally important to determine how far they reach, where their boundaries lie. If they do indeed
exist and are found to be substantial enough, then we will undoubtedly see additional mergers andtakeovers in years to come. It is also important that we should conduct empirical research into factors
affecting scale and scope effects (e.g. coordination costs, the risk of leakage of sensitive corporate
information, transaction costs…) and weigh them against each other, under various market conditions.
This could help explain differences in vertical integration, including in relation to the speed at which it
unfolds.
Insight is also required into the relationship between developments in the maritime and port
industry on the one hand and competitive relationships and market power on the other. After all,antitrust concerns revolve around the definition of markets, the measurement of market power and theidentification of that market power.5 In relation to horizontal mergers or takeovers involving directcompetitors (e.g. shipping companies), Werden and Froeb (2008, p. 43) assert that they give rise tounilateral anticompetitive effects if they cause the merged firm to charge a higher price, produce alower output, or otherwise act less intensively competitive than the merging firms, while non-merging
rivals do not alter their strategies. Unilateral effects contrast with coordinated effects arising if amerger induces rivals to alter their strategies, resulting in some form of coordination or reinforcementof ongoing coordination.6 7 More specifically, there would appear to be a need for two types ofresearch. The first type is disaggregate research into the industrial and economic behaviour of shipping
companies, TOCs and other players in the maritime and port chain. One possible approach is throughcase studies.8 Additionally, there is a need for model-based and empirical research, including into theextent that pricing and production volume decisions by a single shipping company or terminal
operating company may impact on the price-setting and output of other shipping companies.9 10

6. CASH OR GAMBLE? A LOOK AT SOME POSSIBLE FUTURE SCENARIOSThe question arises how the industry will evolve in the future. How will port and maritime
players respond to the economic downturn? How will declining economic growth translate to themaritime sector? To what extent is the slowdown tangible in industrial output rather than in services?
Will the above outlined evolution towards scale increases based on horizontal and vertical mergers
continue to manifest itself? And what are the likely consequences in terms of vessel size, especially inthe container business? What timeframe are shipping companies looking at in their quest for further
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Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

cooperation? What strategies will market players other than the shipping companies pursue11? How
will the maritime industry evolve in the near future? What position should port authorities assume?
Will players currently operating within the port perimeter, such as terminal operators, be able tosurvive independently?
These are crucially important questions to the sector and its players, yet all are shrouded in
uncertainty. Moreover, the market is not static, but extremely dynamic. One may therefore reasonably
assume that each market player will try to anticipate on likely strategic moves by other players.

6.1. Shipping companies: further reorganisation, mergers and scale increases?
Thus far, there has been a strong integration movement mainly in the container business. Yet,precisely in this dynamic subsector, we make a peculiar observation: despite the fact that shipping
companies have been complaining for some time about relatively low freight rates due toovercapacity, they continue to invest steadily in additional capacity. Table 5 provides an overview for
May 2008 of the operational fleets of and vessel orders placed by the leading shipping companies.
The underlying strategy of these shipping companies is clear to see: in response to already low
freight rates, they are attempting to deploy additional capacity at a lower operational cost per slot.
Moreover, they consider a mixed fleet as a means of spreading risks. Additional cost control can beachieved through mergers and takeovers, and the entailed capacity reduction. Strategic and financial
considerations by the holdings that control the shipping companies will keep capacity further in check,through strategic alliances, new partnerships, the rerouting of vessels. These evolutions may / will
result in shifts in terms of direct port calls, which will in turn affect the volume of freight to be carried
to and from the hinterland. On the other hand, it is perfectly conceivable that a port may compensate
largely or even wholly for a drop in direct port calls through additional (maritime) feeder services.

Table 5. Overview of fleet sizes and vessels ordered, 2008
Owner

No.
1
2
3
4
5
6
7
8
9
10

Shipping
Company
Maersk LineMSC
CMA CGM
Evergreen
Hapag-Lloyd
CosconAPL
China Shipping
NYK
HanjinOperational fleet
Ships
TEU
30/5 28/11
550
544
396
432
392
387
179
175
139
132
146
154
127
135
133
142
121
113
87
89

30/5 28/11
2.006 2,041
1.289 1,437
936
986
628
626
505
496
454
494
428
491
421
442
410
417
365
373

Orders
Ships

TEU

30/5 28/11
71
85
54
56
76
75
10
0
14
14
73
67
33
25
34
31
38
32
40
34

30/5 28/11
325
421
578
668
631
615
109
0
123
123
528
486
234
183
234
239
213
182
315
288

Source: DynaLiners.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200919

This evolution will have important consequences for the rest of the maritime logistics chain,including ports and their hinterland services. In the short to medium term, the pressure of suchreorganisations will result in a profound reshuffle of services offered. New alliances will be formed,
leading to further mergers and takeovers. On the side of the shipping companies, the market willstabilise, though there will of course be fewer players following the inevitable rationalisation andconcentration drive12.
In the very short run, the overcapacity which is observed in the sector, mainly due to fallingdemand as a consequence of the current economic and financial crisis, leads to the cancellation or
slowdown of orderings of newbuildings where contractually possible, and to modified sailingschemes. Examples of the latter are slow steaming and temporary lay-up of vessels. In the cases where
none of these are possible, for whatever contractual reason, shipping companies keep on operating
their regular sailing schemes at a loss. Only companies with so-called ‘deep pockets’ can do this for arather substantial duration of time. But for none of the companies, such situation is sustainable in thelonger run. It can however be expected that the situation may return to ‘normal’ sooner or later, oncethe counter-reaction hitting the economy and therefore also the maritime business has been undone.
The further increases in vessel sizes may also have a profound impact in the longer-run
evolution.13 The present state of science suggests that increasing vessel size will lead to a different costfunction, among other things because of the necessity of a second engine. Moreover, shipping
companies have had some unpleasant experiences with scale increases in tanker shipping, including
the imposition of higher port dues. The expectation is therefore that they will not allow themselves tobe manoeuvred into a situation where they have no alternative seaport, i.e. where port authorities are
all too aware that shipowners’ price elasticity is extremely low. Finally, benefits of scale achieved at
sea may be lost through higher terminal and hinterland transportation costs due to the greater freight
volumes involved.14

6.2. Additional capacity and scale increases at landside
The economic benefits shipping companies seek through far-reaching scale increases and thecorresponding cost reduction must not be wasted through time and cost bottlenecks on the quay, in theterminal or during connecting in-land transport. Port authorities and TOCs are aware of this, so thatthey try to maintain sufficient available capacity.
Many Northern European ports intend to further expand in the short to medium term, albeit
almost entirely in terms of container throughput capacity. Table 6 provides an overview of these
expansion plans. The result is again quite predictable: any substantial growth in capacity will further
aggravate overcapacity in the global market and at certain European terminals, where operational
quays are already lying idle.15
Besides these plans for additional capacity, there is also the issue of the organisation of freight
handling at terminals. Here, too, we notice a concentration movement, inspired in part by the growing
need for investment capital, which the original owners are often no longer able to supply themselves.
This concentration movement has also created a buffer against any attempt at vertical integration on
the initiative of the shipping companies.

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Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

Obviously, the prospect of even further concentration among terminal operators poses an
economic threat to shipping companies, as reduced competition may lead to lower productivity
growth, longer vessel-handling times and, perhaps most importantly of all, higher handling rates. The
latter evolution is primarily a consequence of the fact that shipping companies no longer have a choice
between any number of rival terminal operators, but are increasingly dependent upon large players
who operate in different locations and are therefore able to negotiate longer-term package deals forservices in those different ports. This way, the focus of port competition is gradually shifting from thelevel of individual port authorities to that of terminal operators, i.e. large groups that are able to offer
regional networks of services.
We may assume with a high degree of certainty that shipping companies will not be prepared to(continue to) undergo this evolution. As their relative market power is at stake, it seems logical thatthey should put greater effort into acquiring so-called dedicated terminals, be it under joint ventureswith locally active terminal operators or otherwise. This needs not be detrimental to the port
authorities’ cause, as it will at least make shipping companies less footloose, in the sense that a longterm relationship is forged that makes them less likely to relocate (Heaver et al., 2001). In the shortterm, such dedicated terminals may however lead to lower utilisation rates of available capacity.

Table 6. Recent and planned expansion of container capacity
in the Hamburg–Le Havre range
Haven
Amsterdam

Terminal
Unused capacity / Planned increases
no structurally idle capacity, no concrete plans

Antwerpen

Deurganckdok terminals
Saeftinghedok terminals?
CT 4Eurogate Container Terminal Hamburg
CTH
HHLA Container Terminal Burchardkai
CTB
HHLA Container Terminal Altenwerder
CTA
HHLA Container Terminal Tollerort
GmbH CTTPort 2000

BremenHamburg

Le Havre

Rotterdam
Vlissingen
Wilhelmshaven
Zeebrugge

2008: 4,000,000 TEU idle
2014? 7,000,000 TEU additional
2008: 1,900,000 TEU idle
2010: 1,900,000 TEU additional
2010: 2,400,000 TEU additional
2010: 600,000 TEU additional
2010: 1,050,000 TEU additional

Phase 2: 2 quay walls in a tidal
terminal (2008-2009), 500,000 TEU
increase
Phase 3: 6 quay walls in a tidal
terminal (?),500,000 TEU increase
EUROMAX terminal
2009: 2,300,000 TEU
Maasvlakte 2
2013: 17,000,000 TEU
Westerschelde Container Terminal
2,000,000 TEU, no specified date
Jadeweserport
2009: 2,900,000 TEU additionalno structurally idle capacity, no concrete plans

Source: own table based on data from various port authorities.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200921

6.3. A relative decline in market power for the port authorities?
The involvement of port authorities in commercial activities within the logistics chain is
declining. Consequently, the market power of those port authorities and, as the case may be, the publicauthorities that control them is also decreasing16. In other words, managerial control over the maritime
logistics chain now lies only partly with the ports and the undertakings located in those ports
In the current negotiation game between shipping companies and terminal operators, those same
port authorities do however hold a strong trump card: they have the power to grant concessions and to
determine their duration. Once a long-term concession has been awarded, they lose much of theirmarket power, though. It has, for example, hitherto proven very hard to penalise concession holders
who fail to achieve the objectives of their business plan. Consequently, there is an economic incentive
for port authorities to award long-term concessions (e.g. 30 years), but in conjunction with mandatoryinterim objectives agreed upon beforehand with the concession holder17.

7. CONCLUSIONS

However, the previously outlined trends point at certain elements that can help us reduce thisuncertainty to some extent. Let us briefly summarise.
We may reasonably assume that the economy and international trade will continue to growsubstantially in the future, despite the current economic and financial slowdown. This trend will also
manifest itself in maritime trade. There are no indications of increasing profit margins in maritime
transport. This is in itself rather surprising, as ocean carriage involves a risk for which investors may
reasonably expect a premium. Moreover, demand for vessel capacity is expected to rise further.
Consequently, at the level of individual shipping companies, shareholders will exert constant pressure
on management to improve business results. Management will in turn continue to pressurise otherlinks in the logistics chain, including the port, the terminal operating companies and the hinterland
modes, which will give rise to further verticalisation.
Some shipping companies have, in recent years, taken a number of important long-term
decisions, including in relation to fleet expansion. At aggregate level, this holds a real danger ofovercapacity, which would inevitably lead to further rationalisation and cost reduction throughpartnerships, takeovers and mergers. Such movements may, or will, result in changes in terms ofshipping companies’ ports of call, loops and frequency of service.
In the short to medium term, overcapacity will result in lower freight rates and lower ROI, putting
additional pressure on market players elsewhere along the logistics chain. Over a slightly longer time
horizon, a lack of working capital may give rise to cooperation agreements that go beyond the level ofdedicated terminals.
Shipping companies will no doubt retain a degree of dominance. In the case where a shipping
company, through vertical integration, has gained control of the container terminal where its vessels
are loaded and unloaded, that company will of course find it relatively easy to determine in whichlinks of the chain the greatest cost savings may be achieved by distributing resources differently so
22

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009that the productivity level of the different links is modified. What is then required is for the various
links to be geared to one another in such a way that productivity gains are maximised in links where
the greatest cost reduction is achieved. This way, the shipping company is able to increase theproductivity of the chain as a whole. In the case where a shipping company has not achieved verticalcontrol, the impact of each action depends on the prevailing relationship between shipping lines andterminal operators. Shipping companies will, in any case, try to keep the tightest possible control overthe generalised cost of a given port call. And if this should prove difficult, they will no doubt look out
for the most appropriate solutions, i.e. an alternative port that is able to contribute to the lowest
generalised cost.
The most likely scenarios, which therefore deserve to be studied in depth, are more or less
known. However, the speed at which the various market players within the maritime logistics chain
will take specific initiatives shall depend on a battery of exogenous and endogenous variables. As isthe case with pricing in the maritime sector, and with successfully covering oneself against pricefluctuations and other risks, timing is what ultimately determines who will emerge a winner.
All parties belonging to a given maritime logistics chain have one interest in common: to ensurethat their chain is the most attractive, i.e. that it is the most efficient and the cheapest. The user, who
depending on the contract is the forwarder or the destinee of the cargo, will after all consider the total
cost of the chain. In order to gain insight into this aspect, additional model-based and empiricalresearch is absolutely indispensable.

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200923

NOTES

1.

Take the example of seaports. As ports are an integral part of a logistics chain, it does notnecessarily make sense to consider the productivity of a terminal or port as an isolated entity.
Resolving a bottleneck in one link may, after all, simply transfer the problem to another link, sothat this in turn will not function optimally. In other words, an increase in productivity in one link
may impose higher costs on another (Valleri and Van de Voorde, 1996, p. 127). An increase in
the capacity of ships , for example, will spread the fixed cost of sailing over more containers, but
it also requires a greater handling capacity, or else the bottleneck on the maritime route may betransferred to the port or hinterland services.

2.

Consider the example of the Port of Hamburg. Its hinterland extends from Lisbon in thesouthwest to Glasgow in the northwest, St. Petersburg in the northeast and Istanbul in thesoutheast. There are direct departures to thirty nine destinations outside Germany (Port ofHamburg, 2008).

3.

This holds even more so for other ports, as Antwerp is typically a forwarder-driven ports.
Coppens et al. (2007) compares the situation in Antwerp with that in a number of other ports,
resulting in a typology which distinguishes between forwarder-driven, agent-driven andtranshipment-driven ports.

4.

According to Besanko (2007, p. 85), this rule “states that as we increase the volume of the vesselby a given proportion, the surface area increases by less than this proportion”.

5.

Baker and Bresnahan (2008, p. 15) define market power as the ability of firms to raise prices
above the competitive level for a sustained period. Market power may be identified in different
ways, incl. on the basis of rotation in demand, variation in observable cost components, acomparison with the conduct of competitive firms, and unusual movements in price (Baker andBresnahan, 2008, p. 19).

6.

The term ‘unilateral’ is used because the merged firm and its rivals both pursue their unilateral
self-interest (Werden and Froeb, 2008, p. 43).

7.

Container shipping companies continue to complain about relatively low profit margins. For
example, on 2 October 2008, the going rate for a 20-foot container on the Asia-Europe route was
USD 350, compared to USD 1,400 just a year before (RZD partner). This may be indicative of avery competitive market. Moreover, the EU is no longer tolerating the conference system which
has existed since 1875. From this perspective, the current wave of mergers and alliances may beseen as an attempt to achieve lower average cost through scale increases, which will yield ahigher return if prices remain stable.

24

Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 2009

8.

An option that comes to mind is a detailed analysis of whether or not port players have, in thepast, applied so-called entry-deterring strategies (e.g. limit pricing, predatory pricing, capacity
expansion).

9.

A joint doctoral research programme is underway at the Universities of Ghent and Antwerp into
the strategies of container shipping companies. One of the aspects studied is the relationshipbetween market concentration and profitability (Sys, 2007 and 2008).

10. In this context we may also refer to the fact that, at the present moment, the antitrust authorities
are focusing mostly on the coordinated effect of mergers: they have to be interpreted as theimpact of a merger on the incentives to collude (explicitly or explicitly) (Kühn, 2008, p. 105).
11. In recent years, most port and higher public authorities have concentrated mainly on the container
business. The question arises whether this is or has been a wise strategy. After all, not all cargo
can be containerised. Moreover, the added value and profits realised in, say, project cargo areusually significantly higher than in containerised cargo.
Consider the following two (related) examples:
1) The petrochemical industry is extremely important to the ports of Rotterdam and Antwerp: it
provides significant employment and represents substantial added value. It is, moreover, anon-footloose industry that also fulfils an important supply function to other companies andsectors. At the same time, however, it is sensitive to changes in environmental legislation andindustrial policy.
2) The revenue realised by the major ports usually consists in a cyclical and a non-cyclicalcomponent. Revenue from concessions (to both industrial concerns and TOCs) are relatively
stable in the short to medium term, i.e. they are less sensitive to cyclical fluctuations.
12. As far as the forming of alliances is concerned, there is a certain parallel to be drawn with the airtransport industry. The main difference lies in the fact that, in the airline business, all major
carriers belong to alliances and only the smaller companies have stayed on the sidelines, while inthe maritime sector, some of the large companies have not joined an alliance (see for example
MSC and CMA-CGM).
13. Will we see a further evolution towards 10,000 to 12,000 TEU, or even up to Malaccamax-sized
vessels of 18,000 TEU? The answer no doubt depends on the context, but certainly there is no
denying that the new generation of Maersk vessels, with a capacity of over 13,500 TEU,
represent another step in that direction.
14. The question arises how far one can / should go in order to achieve economies of scale and scope.
For example, in the deployment of 8,000-plus TEU vessels, the number of calls is restricted toports handling large volumes (in the order of 1,000 to 2,000 movements). However, the systemstill relies on ‘hubs’, implying additional handling costs. One may reasonably assume that it willthen become interesting for non-mainports to attract smaller ships (e.g. in the order of 1,500 to
2,000 TEU) offering direct origin-to-destination services, without hubbing and associatedadditional handling and storage costs.
15. Typical examples are Amsterdam, Cagliari, Zeebrugge and Sines.
16. The question of where market power actually resides cannot be answered unequivocally, as thesituation varies from port to port. In the case of such mainports as Rotterdam and Antwerp, it isalready the case that terminals are given in concession, albeit mostly under a joint venture
Van de Voorde/Vaneslander — Discussion Paper 2009-2 — © OECD/ITF, 200925

between a shipping company and a terminal operator. From this, we draw the following
conclusions:1) The shipping companies and terminal operators involved appear to adhere to the saying ‘If
you can’t beat them, join them’. Rather than engaging in an all-consuming competitive
struggle, they prefer to collaborate. The immediate effect is, however, a new decline in therelative power of port and public authorities;
2) Revenues from a dedicated terminal may be higher, but now they need to be divided. In thecase of a 50/50 terminal, the operator must, unlike in the past, give up 50% of profits to theshipping company. On the other hand, terminal operators thus acquire greater certainty thatfreight flows will be retained or may even increase in the future.
17. The proposed strategy is in any case purer than that previously applied by some port authorities inan effort to enhance their competitive position. A case in point was the move by the port authorityof Rotterdam in 1999 to acquire a 35% stake in terminal operator ECT. Such action, be it
temporary or on a more permanent basis, raises the spectre of conflict of interest, not in the least
because the port authority continues to hold power of decision when it comes to the granting ofconcessions.

26

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