[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 18.10.2007

SEC(2007) 1339

COMMISSION STAFF WORKING DOCUMENT

Accompanying document to Communication on a European Ports Policy Full Impact Assessment {COM(2007) 616 final}{SEC(2007) 1340}

Lead DG : TREN

Other involved services : SG, SJ, ENV, ENTR, MARKT, COMP, SANCO, TAXUD, FISH, TRADE

Agenda planning or WP reference : 2007/TREN/004

Executive summary

Following the withdrawal of the proposal for a Directive on Market Access to Port Services COM (2004) 654, the Commission launched a wide-ranging stakeholder consultation and organised six workshops.

The challenges facing European ports are many and varied. Maritime traffic growth induces demand for port facilities. Container shipping is the fastest growing maritime sector. These factors create congestion in European ports. Expansion of container terminals has not kept pace with capacity needs. Diverse approaches to port financing in Member States call for a level-playing-field for competition. Technological development has changed port activities: cargo-handling is less labour-intensive and more capital-intensive. Labour issues include: improvement of health and safety conditions, provision of high level of training, more flexible employment patterns and social dialogue. Environmental legislation ensures the sustainability of ports. Progress has been made in environmental management in ports. Many ports are actively implementing environmental Directives. Environmental constraints on port projects have led to lengthy procedures.

Key objectives of the actions proposed for the EU Ports Policy are: to ensure that there is sufficient port capacity available to handle the growth in EU trade; to promote greater freedom of access for new port service providers; to promote more flexible employment patterns and social dialogue; to promote fair competition within and between ports; to raise environmental management standards in ports and to achieve a better balance between environmental protection and economic growth objectives.

Experiences with past proposals and the views expressed by stakeholders during the consultation suggest opposition to legislation on concessions. Many of its benefits can be achieved through soft law. A Directive on work in ports is unlikely to meet the approval of stakeholders. Social dialogue among stakeholders allows a better balance between social partners. Experience with past proposals suggests that approval for any legislation on technical nautical services will be difficult. The “soft law option” could obtain similar benefits. Compliance with environmental legislation may represent a significant part of the port budget. A soft law solution is the best choice to achieve progress in terms of environmental standards and to offer guidance to port authorities on the interpretation of environmental legislation. Transparency in public financial flows and in the pricing system in the Community port sector is essential to ensure a level playing field within and between ports. Transparency is considered a key element for the application of State Aid provisions. Transparency in the accounting system means transparency of port charges.

A "one-size-fits-all" approach to address all these issues is not possible. Links between many of the issues suggest a package of measures. The Commission has a role to identify and promote these measures. The Communication on a European Ports Policy outlines the actions the Commission will take regarding the different port-related policy fields.

SECTION 1: PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

1.1. Organisation and timing

The Communication on a European Ports Policy is part of the Commission Legislative and Work Programme 2007 adopted on 24 October 2007, SEC (2006) 629 final, and is a priority initiative in the work programme of DG TREN identified under number 2007/TREN/004.

The Commission is committed to ensuring the quality of its proposals. Impact assessment is carried out on initiatives with the potential for significant economic, social ad environmental impacts. Therefore, all items identified as priority initiatives are subject to impact assessment.

In the context of the Framework Contract for Impact Assessments and Evaluations signed in February 2006 between PricewaterhouseCoopers Advisory (PwC) and the Directorate-General for Energy and Transport (reference TREN/A1/46-2005), DG TREN has requested PwC to carry out an impact assessment study on the Communication on a European Ports policy. A draft final report of the impact assessment study is scheduled for 31 July 2007. The present impact assessment is based on that study.

An inter-service steering group has been established. The following DGs have been invited to participate: SG, SJ, COMP, ENTR, ENV, FISH, MARKT, SANCO, TAXUD, TRADE. A first meeting took place on 19 June 2007 explaining the objective of the Communication on a European Ports policy and the consultation process. A second meeting took place on 13 July 2007 to report on progress on the impact assessment.

The different issues for a European ports policy, and which lead to the Communication on a European Ports policy, have been subject of wide public consultation to ensure that all interested parties are involved in the decision-making process.

1.2. Consultation and expertise

Following the withdrawal of the proposal for a Directive on market access to port services COM (2004) 654, of 13 November 2004, on 8 March 2006, Vice-President and Commissioner for Transport Jacques Barrot decided to launch a wide consultation of stakeholders in order to better understand the port sector and to better assess how the principles of the Treaty can effectively be applied to it. The consultation process was launched on the occasion of the Annual Conference of the European Sea Ports Organisation – ESPO held in Stockholm, Sweden, on 1 and 2 June 2006. In order to achieve this objective, DG TREN organised six workshops with stakeholders on the main port-related topics.

The workshops were conceived with the idea of having an open and concrete discussion with stakeholders. For this reason the number of participants was fairly limited (between 60 and 120 people in each workshop depending on the subject matter). The representatives of the different categories of stakeholders attending the workshops were selected by the relevant European associations who were given a variable number of seats for each workshop depending on the subject matter and the interest of a particular federation in that subject (cfr. Annex I).

Ahead of each workshop DG TREN elaborated a 5-10 page discussion document distributed among participants and intended as a trigger for discussion. No official minutes were laid down. Apart from the statements expressed during the workshops, written contributions to the consultation process have been received from a number of stakeholder associations.

The table of workshops is attached in Annex II. A few weeks after each workshop, Member States' port experts met in Brussels in order to be debriefed by the Commission's services and to discuss the subjects at stake.

An overview of the contributions of stakeholders expressed in the consultation workshops is publicly available in the form of a table as Annex III

The consultation process was officially closed by Vice-President and Commissioner for Transport Jacques Barrot on the occasion of the Annual Conference of the European Sea Ports Organisation – ESPO held in Algeciras, Spain, on 31 May and 1 June 2007.

1.3. Preliminary findings from the consultation

The preliminary findings are the following:

- Organisational structure of ports: there is a vast mosaic of port management models across Europe. Under EC public procurement rules there are several factors that have an impact on whether an entity is regarded as a public service entity acting in the general public interest or as a commercial entity governed by the rules of the market place. There is no role for the Commission to play by establishing a unique port management model.

- Port financing: the wide variety of approaches to port financing in Member States, deriving from the variety of port management models, and differences in accounting procedures demonstrate the need to create a level-playing-field for cross-border competition. Guidelines on State Aid to ports and more transparency of port accounts are needed.

- Capacity shortages: these arise due to rapid and unpredictable growth of cargo volumes, increase of ship size, concentration of the shipping industry, difficulty to upgrade existing terminals, sub-optimal location of port capacity, environmental constraints, and inability of new port service providers to access the market. Concerning access to port land and port services, fixing a level-playing field among port authorities is necessary.

- External impacts: port operations can have a significant impact on the environment by causing water, air and ground pollution. Port construction projects must comply with national and European environmental legislation. There is a need for enhancing environmental management in ports, but there is also a general feeling in the port sector that a rebalancing of the relationship between economic growth and environmental protection through interpretative guidance by the Commission on environmental legislation is necessary.

- Social issues: technological development, e.g. containerisation and automatisation, has resulted in changes in port labour requirements. Higher level of skills and more flexible employment patterns are required, in particular, improvement of health and safety conditions, high levels of training, freedom to select port workers and negotiate conditions of employment.

- Public image of ports: ports are not fully appreciated by the neighbouring communities. There is an awareness of the "hard" (monetary) benefits they produce; their "soft" (cultural, historical, tourism-related) benefits are just starting to be recognised.

These preliminary findings have been taken into account for the drafting of the policy options to be assessed by PwC for the impact assessment study, for the present impact assessment, as well as for the drafting of the Communication on a European Ports policy.

1.4. Impact Assessment Board

On 13 August 2007, the Impact Assessment Board received a preliminary draft of this Impact Assessment Report. The Board met on 5 September to review the draft and adopted its Opinion on 7 September. The main recommendations are:

1. As a general recommendation, more clarity and a partial reorganisation was asked for regarding the presentation of the options and their impacts. More clarity was asked for regarding subsidiarity, spatial planning, granting of terminal concessions, port labour and the image of ports.

2. The way the impact assessment report sets out the need for Community level action needs to be substantially strengthened.

3. The effects of the presented policy options on workers in ports should be better analysed and presented.

4. The presentation of the options and their impacts should be clarified.

5. The relation between the proposal and other current or future EU and national policy initiatives should be better explained.

This revised Impact Assessment Report takes account of the Impact Assessment Board's opinion throughout, in particular on the following points:

1. A regrouping of policy options, their impacts, their comparison and a conclusion ordered by policy areas with the aim of providing more clarity to the reader.

2. A new paragraph underlining the EU added-value and strengthening the subsidiarity issue.

3. The different views of consulted stakeholders have been described more in detail through the addition of a table summarizing the positions of the stakeholders.

4. A table summarizing objectives and impacts analysed by options.

5. More clarity on the intentions regarding environmental issues.

6. More clarity on spatial planning, notably a qualitative analysis of the infrastructure necessary for the materialization of the proposed alternative scenario.

7. References to port work related training and health and safety issues.

SECTION 2: PROBLEM DEFINITION

2.1. Introduction

The fall of international barriers to trade and technological progress have enlarged perspectives and driven the globalization process. Reductions in the cost of transport and the development of communication systems have created a complex and highly competitive economy. China and other emerging economies have started a process of accelerated trade-based catching up development thanks to a cheap and relatively well-trained and equipped workforce. At the same time, and to face these challenges, companies have established in the Far East, moving their operations to new emerging markets. This has added to the booming growth of countries such as China.

Taking a look at the volumes handled by worldwide maritime transportation it is evident that they reflect this economic trend: in 2005 worldwide transportation increased by 3.8% to a total volume of 7.11 billion tons, of which 4.69 billion tons of dry cargo and 2.42 billion tons of liquid cargo. The EU is the leading merchandise trading bloc and number one world exporter. Between 1999 and 2004 trade in goods by sea between the EU-25 and the world has increased by 25% in terms of volume (4% p.a. average) and 50% in terms of value (9% p.a. average). Gross weight of seaborne goods handled in all EU-27 ports in 2005 has been 3.717 billion tonnes, an increase of 19% since 1997. Traffic growth in tons, a trend which is there to stay,[1] has been accompanied by an increase in average transport distance. Longer distances between cargo origin and destination reflect the tendency of companies to relocate their industries to the Far East, the fact that industrial growth occurs in regions which are distant from the regions of supply of natural resources, and the growth in international trade in all commodities between traditional and new economies.

2.2. The demand side: dynamic growth

These volume increases induce demand for port facilities. The cargo market can be divided into several different markets: container, Ro-Ro, conventional general cargo (break-bulk), dry bulk, liquid bulk.

Container shipping has been the fastest growing sector of the maritime industry during the last two decades with an average growth rate of 11.5% in the last five years. This trend has its roots in the above mentioned economic developments: increasing economic activity, trade liberalisation, reduced import tariffs, globalisation, outsourcing, increasing containerisation of dry bulk and break-bulk cargoes. The number of containers shipped worldwide has nearly doubled in the past six years from 60.5 million twenty-foot equivalent units (TEU) in 2000 to 112 million TEU in 2006. In Europe the largest part of container traffic is concentrated in North Western Europe (the "Hamburg-Le Havre range") whose ports registered in 2005 a throughput of 41.7 million TEU, representing a share of 56% of the total European container traffic. In particular, the three largest European ports Rotterdam, Hamburg and Antwerp handled 23.86 million TEU.

The Ro-Ro market encompasses the following sub-markets:

the deep sea segment, divided into car carrying trades, a market which is characterized by growing demand; and ConRo, which means a combination of container and Ro-Ro cargo on one single ship, this market has nowadays nearly disappeared;

and the short sea segment, divided into ferry transport for passengers with cars and rolling freight on lorries, a market characterised by a progressive shift from passenger traffic to freight traffic; and freight only unaccompanied Ro-Ro, a well-established market in the North Sea, but less so in the Mediterranean.

Conventional general cargo (break-bulk) is generally used to transport a variety of goods packed in different ways (e.g. heavy machinery, power generators, industrial equipment, timber, steel, bags, drums, etc.). Although break-bulk cargo is continuing to increase, in present years break-bulk cargo has been surpassed by container cargo, as the latter presents advantages in terms of ease of loading / unloading and transfer of the goods.

Worldwide dry bulk cargo represented a total volume of 4.69 billion tonnes in 2005 and is continuing to grow. The five major dry bulk cargoes are iron ore, coal, grains, bauxite/alumina and rock phosphate.

Worldwide seaborne liquid bulk cargo amounted to 2.42 billion tonnes in 2005, of which 1.86 billion tonnes was crude oil and 0.57 billion tonnes oil products.

The total throughput of cargo in European ports in 2005 was 77.23 million TEU of containers, 156.45 million vehicles in short sea shipping ferries, 1.395 billion ferry passengers, 1.58 billion tonnes of liquid bulk cargo, 977 million tonnes of dry bulk cargo, and 1.5 million tonnes of conventional general cargo (break-bulk).

In line with the above increase in container traffic, container vessel size is also increasing. The high level of competition and the necessity to save costs through economies of scale pushed shipping lines to invest in containerships with a capacity in excess of 5000 TEU. The main growth is concentrated in the larger size range, between 5000 and 7500 TEU and in excess of 7500 TEU. In the last ten years capacity has increased twelve-fold, with an annual growth of approximately 30% and a tendency towards big size vessels: in 2000 10% of the total fleet was represented by vessels with a capacity in excess of 5000 TEU, by 2010 the share of this vessel size is expected to represent 40% of the total fleet. On the Far East – Europe route the average vessel size in 2000 was 4500 – 5500 TEU; in 2010 it is expected to be 8000 – 9000 TEU, with a further increase by 70% by 2015. The largest operational container vessels have a capacity in excess of 12000 TEU. A similar trend is visible in the Ro-Ro sub-markets of car carrying, ferry market and unaccompanied freight.

2.3. The supply side: practices can be improved

As outlined above, cargo transport is characterized by a progressive growth in vessel size. This, together with the large expansion in cargo volumes, has created serious problems of congestion in many European ports. Frequent delays impact on the entire supply chain. Reliability has become a key factor in the choice of a port, as well as its geographic position and cost. The expansion of container terminals has not kept pace with capacity needs.

In recent years many European port authorities have undergone an organisational restructuring, which features decentralisation of authority from the State to independent local entities, increased financial autonomy and the wider use of commercial management principles, as well as the separation of responsibility for the provision of infrastructure from the supply of port services, and increased private sector involvement in the provision of port services. An overview of the different organisational structures is given in Annex III.

The wide variety of approaches to port financing in Member States, deriving from the variety of port management models, and differences in accounting procedures demonstrate the need to create a level-playing-field for cross-border competition. The main problems concerning port financing are differing levels of financial autonomy, variations in the provision of public financing, and lack of transparency in tariff setting.

Differing levels of financial autonomy are explained through the fact that some ports are wholly independent and self-financing, while some ports are entities under the control of the State, regions or municipalities, operating independently but with varying financial autonomy and support, and other ports operate as departments of their parent organisations without separate accounts and a political rather than commercial basis for decision-making.

Member States have historically adopted different approaches to the provision of public financing to ports, depending on whether they regard port installations as public service infrastructure similar to roads or commercial investments similar to those made in the manufacturing industry. Some States make contributions to port investments free of charge, others provide loan financing. The items qualifying for financial support, and the level of support granted, vary substantially among Member States. In addition, smaller ports in peripheral areas may receive State funding to operating costs as well as capital costs if port operations are considered as public service obligations. As a result, there are considerable differences between ports in the proportions of costs which have to be recovered from port user via tariffs, rents, concession fees and other payments.

There are three main complaints of users in respect to port tariffs. Firstly, in some ports the responsibility for charging for port infrastructure and services is fragmented between several organisations not all of which publish their chargers; comparability of charges between ports is further complicated by the use of different charging units (Gross Tonnage, length, cargo tonnage, number and duration of operations, labour and equipment requirements, etc.); as a result, it is difficult to ascertain in advance what the total cost will be. Secondly, ports do not make it clear how they set their tariff in terms of the total costs to be recovered from users, the allocation of these costs to different categories of users and the methodologies employed for converting these costs into charges; some port users suspect cross-subsidies in favour of the more powerful and mobile customers at the expense of captive local businesses. Thirdly, shipping lines pass on to customers their own port costs via terminal handling charges without providing any evidence of what they actually pay.

Unfair competition from non-EU ports, mainly hubs serving the same EU hinterlands, results from lower environmental and health and safety standards, less stringent enforcement of regulations, and the use of low cost labour. These advantages significantly reduce the costs of non-EU ports, enabling them to charge lower tariffs.

A process of consolidation has taken place in the container terminal industry in the recent past. In 2001 the top-ten terminal operators handled 42% of total container throughput, in 2005 their share increased to 55%. Some important mergers and acquisition of stakes contributed to this consolidation. Today the top-four terminal operators have a market share of 39%, compared to 29% in 2001.

Technological development through increasing containerization has brought significant changes in port activities: cargo-handling, which was once a labour intensive activity, has become more capital-intensive. This has resulted in a reduction in the work force required to move a given volume of cargo. Moreover, in order to improve efficiency, berthing times of vessels in ports are shorter, the use of up-to-date cargo-handling equipment has been introduced and new working schemes have been adopted. This evolution has brought about reduction in port employment. There are three issues to be resolved: improvement of health and safety conditions in ports, provision of high level of training, and granting port employers more freedom to select their workforce.

Labour accidents in ports are unacceptably high and action is needed to reduce them. A safety culture must become part of port work and the enforcement of health and safety rules, as well as proper investigation of all accidents is needed.

It is in the ports' own interest to ensure that all workers are properly trained for their jobs, in view of the technical complexity of the equipment they operate. However, there is considerable variation in the levels of training provided by different enterprises and there are no common European-wide standards.

Many ports operate labour pools to protect workers against market instability and fluctuations in demand, whilst ensuring that employers always have access to sufficient labour to meet peak workload requirements. Labour pools and strong trade unions have been instrumental in ensuring that port workers receive reasonably good wage rates (relative to the industrial average in each country). However, they are seen by some stakeholders as a source of restrictive practices undermining port efficiency and productivity. Some employers argue that mandatory use of labour pools might be incompatible with the EC Treaty. If European ports are to operate efficiently, an appropriate balance needs to be found between employers' freedom to select and negotiate with their own workforce, and the protection of workers' rights. This is likely to involve either redefining the role of labour pools, or seeking a gradual reduction in their importance and powers. The issue of port work is extremely sensitive and there is general consensus among stakeholders that it can only be addressed through a social dialogue between the various partners involved. Failing to address the labour issues might be failure to get the best possible performance out of Europe's ports. Overmanning is likely to be absorbed by traffic growth, but low training and safety levels will depress productivity and lead to avoidable accidents. Failure to introduce more flexible working practices might lead to higher unit costs.

European ports are increasingly competing not as individual places that handle ships, but as crucial links within the supply chain. Competition has two aspects: intra-port competition and inter-port competition.

Intra-port competition is regarded as beneficial for the competitiveness of ports, for local and national economies and for customers and industries, because it limits the market power of port service providers and it leads to specialisation, flexible adaptation and innovation. Intra-port competition creates the conditions for organisational structures based on economies of scale. Intra-port competition issues relate to technical-nautical services (pilotage, towage and mooring), all cargo handling operations and passenger services.

As for inter-port competition, the networks of shipping lines and increasing vessel sizes bring about competition among ports, sometimes located far away, but which are in the same market segment. Port infrastructure development is an important factor not only to avoid saturation, but also for the handling of larger, longer, higher and deeper vessels in view of larger economies of scale. Therefore, terminal area and capacity, quay length, maximum draft and efficient intermodal hinterland links are key elements for shipping lines' decisions for the choice of a port of call. In particular, further to increasing containerization, port infrastructure has significantly changed requiring integrated systems, sophisticated shore side terminals, intermodal connections by rail, road and inland waterways, and automated information systems to track shipments during their voyage. Hub and spoke configurations have developed among ports where feeder lines add to SSS traffic and to port congestion. The aspect of competition is particularly important in the case of container transhipment, because shipping lines can easily move their operations from one port to another, especially in areas with many ports at a short distance from one another.

Adequate links between the various transport networks is an important measure to facilitate the development of freight transport logistics in Europe. In order to promote intermodality it is crucial to focus on the development of efficient transport corridors where both the development of rail, road and port facilities is planned into an integrated manner. Intermodal terminals are an important interface to develop intermodal transport across the European transport network. The quality of services at terminals and the efficiency of terminal operations have a considerable influence on the quality and costs of the whole transport chain. Transport users are confronted with traffic congestion in the major container ports and road connections. There is a need to increase capacity of port infrastructure in order to absorb increasing volumes of traffic.

The mid-term review of the 2001 Transport White Paper – "Keep Europe moving – Sustainable mobility for our continent" COM(2006) 314[2] addresses the issue of connecting the different transport modes indicating that increased investment within ports and towards the hinterland is necessary in order to improve and extend services so that ports become poles for growth instead of potential transhipment bottlenecks. The mid-term review supports the implementation of the priority projects within the trans-European transport networks (TEN-T), most of which are railway projects. Hinterland connections by railway to and from ports are receiving and will receive even more special attention for improving connections between the maritime façade and the hinterland. In this context, the promotion of a rail freight oriented network and the proposed logistics action plan will play an important role, strictly connected to the ports policy.[3] Hinterland connections by inland waterways are equally receiving more special attention. There is a high potential for the development of efficient and high volume connections to and from ports, as outlined in the Communication on the Promotion of Inland Waterway Transport "Naiades", COM(2006) 6. Moreover, the ports policy is complementary to the EU Maritime Policy as announced in the Green Paper " Towards a future Maritime Policy for the Union: A European vision for the oceans and seas", COM(2006) 275 with its integrated and holistic vision.[4]

Shortages of port capacity have adverse effects throughout the economy. Firstly, they lead to less efficient port operations, slower cargo handling rates and higher unit costs due to port congestion, which are translated in higher port charges. This effect is likely to be even more pronounced if the access to the supply of infrastructure remains limited to the existing providers of port services and new market entrants are excluded. Secondly, shipping schedules become less predictable, resulting in the imposition of port congestion surcharges by the shipping lines, and the need to increase transit times or use more vessels on the route in order to offset the additional time spent waiting for a berth. Thirdly, uncertainty about cargo delivery times undermines just-in-time manufacturing processes, and increases costs throughout the supply chain. Finally, considering present and forecast growth rates in maritime transport, creation of overcapacity is not an issue.

Fulfilment of European and national environmental legislation is a fundamental aspect in ensuring the sustainability of port development. Considerable progress has been made in environmental management systems in ports. Many ports are actively implementing key Directives related to habitat protection, waste disposal, hazardous cargo, water quality, air quality, noise, environmental impact assessment and monitoring. Environmental constraints on new port developments have, on occasions, restricted the supply of land for new port construction, led to lengthy and complex planning procedures, and significantly increased the costs of new capacity through requirements for mitigation measures.

The value of ports is often not fully appreciated by the communities within which they are embedded. Although there is awareness of "hard" (monetary) benefits in terms of local added value, job creation, attraction of industry, links to other activities, their "soft" benefits as international gateways for the exchange of ideas and cultures, archives of local history, centres of naval power, visual landmarks, recreational centres and sources of civic pride, are only just beginning to be recognised. However, these positive impacts are usually offset in the public perception by unease about their environmental impacts (noise, pollution, traffic congestion, visual intrusion), divisiveness (physical and social), and the ability to disrupt everyday life (strikes and demonstrations, organised crime, shipping accidents, emergencies). As a consequence, ports do not always get from their local communities the support which they deserve. This adds to the difficulty to acquire land for the expansion of port activities, and to integrate their development plans with those of the surrounding urban area. This negative public image encourages local politicians to press for the relocation of port activities outside the city.

The challenges facing European ports are many and varied. Past experience has indicated that it is no longer possible to use a "one-size-fits-all" approach to resolving them. Since the last proposal for a Port Services Directive there has been a shift away from reliance on competition and market forces as the main source of improvements, in favour of a more co-operative approach to problem solving. This means that the policy options in Section 4 are more numerous than those considered previously, and at the same time more flexible so that they can be adapted to fit local circumstances. Their implementation may proceed at different speeds in different countries, and more stakeholders are likely to be involved in working out the details.

Nevertheless, the close links between many of the issues outlined above suggest that it should be possible to put together a consistent and coherent package of measures to rectify the shortcomings undermining the performance of European ports in a way which carefully balances the interests of the different stakeholders. The Commission has a role to play in identifying and promoting these measures.

2.4. EU's right to act

To develop an Impact Assessment of the EU Communication Ports policy it is important to assess whether it is proper to intervene at the EU level and if regulatory intervention is needed in the field of ports policy.

The EU’s right to act in the ports policy field has been examined from two points of view:

Legal basis for the EU’s right to act: documents and acts providing the founding principles of a EU “Common Transport Policy” are examined to establish the legal basis for the EU’s right to act in the Ports Policy field;

Fundamental principles of EU action: principles of subsidiarity, proportionality and conferral govern the limits and use of the Union competences. The respect of such principles has been verified to give further strength to the EU’s right to act in the Ports Policy field.

2.4.1. Legal basis

Art. 211 of the EC Treaty empowers the Commission, as the Guardian of the Treaty, to ensure that its provisions and the measures taken by the institutions pursuant thereto are applied, and to formulate recommendations or deliver opinions on matters dealt with in the Treaty if the Commission considers it necessary.

Concerning ports policy, the Commission bases its right to act on the following Titles of the EC Treaty:

Title III of the EC Treaty, arts. 39 et seqq ., which provides for free movement of persons, services and capital. In this context, art. 43 provides for the right of establishment and art. 49 provides for freedom to provide services.

Title V of the EC Treaty, arts 70 et seqq ., which provides for a common transport policy. On the basis of the provisions contained in this Title, a large set of measures have been adopted in the field of transport, including maritime transport. Equally on the basis of this Title several documents setting out the main objectives of the common transport policy have been issued. Those objectives are linked with more general objectives of EU policy.

Title VI of the EC Treaty, arts. 81 et seqq., which provides, inter alia, for common rules on competition. In this context should be recalled that under Article 86(2) of the Treaty, undertakings entrusted with tasks of general economic interest are subject to the Treaty rules on competition and on internal market as long as the application of such rules does not prevent them from effectively fulfilling their tasks. In this context, according to the principle of proportionality, the means used to accomplish the general interest mission have to respect the freedoms of the internal market without exceeding what is necessary to guarantee the fulfilment of the mission[5].

In accordance with the principle of subsidiarity, art. 5 EC Treaty, the following policy areas have been left to Member States, social partners and stakeholders:

- Spatial planning;

- Social dialogue;

- Image of ports.

Analyses have verified the compliance of an EU ports policy to the main objectives that the Commission considers to be important at the EU level: competitiveness, growth and jobs, economic and social cohesion and a healthy environment. Against this background, in COM(2005) 12 “The Commission’s Strategic Objectives 2005-2009”, the Commission states that “competitiveness, growth and jobs, as well as economic and social cohesion and a healthy environment (…) are essential components (…) on which we must deliver”.

Some of the key objectives of the actions proposed for an EU ports policy are:

1. To ensure that there is always sufficient port capacity available to handle the growth in EU trade, and that this capacity is provided at the most suitable locations taking into account trade-offs between logistics requirements, construction costs and protection of the environment.

2. To promote greater freedom of access for new port service providers where this is consistent with safety and security requirements,

3. To promote more flexible employment patterns and social dialogue.

4. To promote fair competition within and between ports, whilst taking into account the wider external costs associated with port operations at different locations.

5. To raise environmental management standards in ports.

6. To achieve a better balance between environmental protection requirements and the economic growth objectives set out in the Lisbon Agenda.

7. To increase the use of more sustainable modes of transport for the movement of goods to and from ports, and within the European Community

Such objectives are also key messages of the second proposal for a Directive on Market Access to Port Services COM(2004) 654, in which the identified areas of action are:

- Intra port competition (between service providers in the same ports)

- Inter port competition (between ports)

- Safety, security, environmental

- Framework for access to the provision of port service (duration of authorization, limitation of number of service provider)

- Mandatory authorization

- Financial transparency Directive

The 2001 White Paper on Transport had proposed measures to develop a transport system capable of: shifting the balance between modes of transport, revitalising railways, promoting transport by sea and inland waterway and controlling the growth of air transport.

In this way, the White Paper fits in with the sustainable development strategy adopted by the European Council in Gothenburg in June 2001.

Environment, efficiency and competitiveness as well as growth are key issues of COM(2006) 314 “Keep Europe Moving – Sustainable mobility for our continent – Mid-Term Review of the 2001 Transport White Paper”. In the 2006 Mid-Term Review the Commission expressed its main priorities for ports policy as follows:

- Develop a European ports policy;

- Reduce pollutant emissions from waterborne transport

- Continue to promote Short Sea Shipping and Motorways of the Sea

The Lisbon Strategy on growth and jobs underlines the importance of competitiveness in connection with the sustainable use of resources and transport connections.

The idea of “sustainable development” was also one of the EU objectives in the Amsterdam Treaty. The concept of environmental protection has been reinforced in other Community policies, in particular those related to the internal market, transport and energy. The inclusion of environmental issues in the definition and implementation of other policies is essential for achieving the objective of sustainable development.

The Treaty of Maastricht and the Cardiff Summit in 1998 had included environmental issues in the definition and implementation of other policies, as an essential tool for achieving the objective of sustainable development.

The general objectives of the EU actions on ports policy are linked to general objectives and specific actions of the EU Policy.

2.4.2. Fundamental principles of the EU action

To verify if the EU has the right to act on a given field, the following conditions have to be met.

Firstly, the Union can only act within the limits of the powers given to it by the Treaties and the objectives assigned to it (the principle of conferral ).

Secondly, if the problem falls under a competence shared by the Union and the Member States, the Commission needs to show that the problem cannot be properly solved by the Member States acting alone (this is the first condition set by the subsidiarity principle , also called the “necessity” test ).

Thirdly, action at Union level should not go beyond what is strictly necessary to meet its objectives ( proportionality principle ).

The respect of such principles has been verified to give strength to the EU’s right to act in the field of ports policy.

It is the Commission's role to apply the Treaty and to ensure the well functioning of the internal market. Regarding some of the areas object of the impact assessment, only action at EU level can provide the necessary clarification or level-playing-field among the actors of the European port industry as Member States would either not act spontaneously or would propose solutions which are mere national solutions and diverse among Member States.

Given that no sector-specific legislation exists, due to the fact that it could not be adopted by the European legislator in the past, simplification is not an issue.

SECTION 3: OBJECTIVES

The overall policy objective is to make ports a competitive nodal point in the transport and logistic chain in order to be able to handle the increasing maritime traffic generally expected thus facilitating international extra-EU trade and contributing to an efficient and sustainable mobility within the Union.

Following on directly from the analysis of the problems facing European ports it is possible to identify the following general policy objectives for a European ports policy:

- to ensure that there is sufficient port capacity available to handle the growth in EU trade, and that this capacity is provided at the most suitable location taking into account trade-offs between logistics requirements, construction costs and the protection of the environment;

- to make better use of existing port capacities by providing the right incentives to port managers, operators, workers and users within a level playing field;

- to promote greater freedom of access for new port service providers where this is consistent with safety and security requirements, and can be achieved in a way which improves port efficiency;

- to give port employers greater freedom to select their workforce and negotiate their own conditions of employment, whilst protecting the interests of port workers;

- to improve the public image of ports;

- to increase the transparency of port accounts by encouraging the use of common accounting conventions and formats for financial statements, and the publication of more information about tariffs;

- to set out clear guidelines for the provision of public funding (State Aid guidelines);

- to promote fair competition within and between ports, whilst taking into account the wider external costs associated with port operations at different locations;

- to raise environmental management standards in ports;

- to achieve a better balance between environmental protection requirements (i.e., compliance with existing environmental legislation) and the economic growth objectives set out in the Lisbon Agenda (i.e., port development in view of increasing maritime traffic);

- to increase the use of more sustainable modes of transport for the movement of goods to and from ports within the European Union;

- to increase the competitiveness of SSS within the transport system, particularly in respect of road transport.

These objectives, which do not follow a hierarchical order, have been used to identify the policy options described in Section 4.

The more specific and operational objectives can be summarized in the following table:

Specific and operational objectives

Topic | Specific / operational objectives | Consistency with EU policies |

Concessions for terminals in ports | Promote competitive allocation of land to port service providers at new port facilities or existing installations. | Commission interpretative Communication on concessions under Community Law (2000/C 121/02) A forthcoming proposal for a Directive on concessions |

Work in ports | Promote more flexible employment patterns and social dialogue |

Technical – nautical services (towage, pilotage and mooring) | Promote freedom of access for new service providers | Green Paper on Sea Ports and Maritime Infrastructure COM (97) 678 Communication from the Commission to the European Parliament and the Council: “Reinforcing Quality Service in Sea Ports: A Key for European Transport!” COM(2001) 35 Proposal for a Directive of the European Parliament and the Council on Market Access to Port Services COM(2004) 654 |

Spatial planning | Ensure sufficient port capacity is provided in a timely manner at appropriate locations Use of more sustainable mode of transport to/from ports and within the EU | White paper “European transport policy 2010: time to decide” |

Environmental issues | Achieve better balance between environmental protection and economic growth Raise environmental management standards in ports Use of more sustainable mode of transport to/from ports and within the EU | Lisbon agenda Green Paper on Sea Ports and Maritime Infrastructure COM (97) 678 Sustainable development strategy |

Financial autonomy, transparency & tariffs | Increase transparency of port finances Establish clearer guidelines for the provision of State Aid | White paper “European transport policy 2010: time to decide” Green Paper on Sea Ports and Maritime Infrastructure COM (97) 678 Commission Staff Working Document on Public Financing and Charging Practices SEC(2001)234 |

SECTION 4: POLICY OPTIONS, ASSESSMENT OF OPTIONS, COMPARISON OF OPTIONS, CHOICE OF OPTION, CONCLUSION

The purpose of this section is to consider the individual options to reach the specific objectives listed in the table above.

Some of these options are alternative, some are additive (i.e. they could be combined into a single package of policy measures), and some are sequential (the initial option could be replaced by stronger options over a period of time as attitudes change or more information becomes available).

Some of the options will be relatively easy to introduce because they fall within the Commission's competences, are not costly, and relate mainly to technical issues on which there is already a high degree of consensus. Other options are more controversial and are likely to face political opposition from groups of stakeholders and/or some Member States.

Some of the options have already been developed in detail during the preparation of the two previous Directives on market access to port services, or as part of other Commission initiatives relating to transport or environment. Other options need more research or fine-tuning.

Finally, some of the options are likely to make a very significant contribution towards the achievement of EU long-term policy goals, while others will generate only small-scale improvements in the working of the port system.

For the sake of clarity, this paragraph presents, analyses, compares and chooses the options ordered by policy area.

4.1. Concessions for Terminals in Ports

4.1.1. Introduction

When the entity in charge of the development of the port (today the port authority in most cases) decides that a new terminal should be build, it can opt for the direct operation of the terminal (no longer a very common choice), or may decide to entrust the operation to a third party. In many continental countries this is done by granting a "concession" on port-land for a given time (e.g. 30 years). In case the port authority is a contracting entity under the EC procurement rules, it should select the concessionaire with full respect of the EC Treaty principles of transparency and non-discrimination. Ideally the concessionaire should be chosen through a tendering procedure. If a tender procedure is carried out, the selection criterion can be the highest lease that the concessionaire is ready to pay or a more complex criterion. In this context, it should be noticed that 'build and operate' concessions are excluded by the scope of application of the Community directives on public procurement provided that the concessions are awarded by the port authorities for carrying out the port activity. On the contrary, the entity in charge of the construction of the new terminal may be bound to apply the Community rules on procurement while selecting the building company , which is a matter falling outside the scope of the future communication on ports policy.

4.1.2. Policy options

4.1.2.1. No action . This option implies that nothing is done at a legislative level. In other words, the status quo would be granted.

It should be emphasised that in some Member States there is an obligation under national law to carry out a formal tender procedure for the selection of the operator in charge of building and operating a new terminal. In those Member States tendering procedures would continue to be performed even if this option is chosen. Should this be the case, port authorities which are allowed to do so under national law, would continue to choose terminal operators on a discretionary basis, in most cases entrusting the new facilities to operators already active in the port in question.

4.1.2.2. Legislative option . In this case the Commission would take a legislative initiative. As far the issue of terminals is concerned, the Commission would propose that concessions for land in ports should be subject to mandatory tender procedures to be carried out at a European level. The legislative proposal would also provide a maximum duration for contracts, even though it would take into consideration the view put forward by most stakeholders during the consultation, according to which it should be left to terminal operators enough time to amortise the huge infrastructure investments necessary to operate the port facilities. 25 to 30 years would probably be the maximum duration provided for in such a proposal.

4.1.2.3. Soft law option . The Commission could adopt a Communication providing its interpretation on how Articles 43 et seqq. of the Treaty should be applied to the port sector. In this case the Commission would recall the main principles regarding public procurement and concessions (such as the Telaustria judgement[6]and the communication on concessions of 2000[7]). The Commission would state that the choice of concessionaires for port land without any competition is against Community law and that some form of transparency – if not a tender procedure – would be needed for that purpose. However, transparency alone would not be enough: some form of competition among all interested undertakings across the Community should also take place. The use of tender procedures would appear the best way to ensure effective open access to the market to all European undertakings.

4.1.3. Assessing the options

Experiences with the past proposals for a port services Directive, and the views expressed by stakeholders during the consultation process, suggest that there would be considerable opposition to the legislative option. However, many of its benefits could be achieved through the soft law option, which would also be less costly. The costs and benefits of the soft option are more difficult to quantify, as it is not clear how much discretion will be given to port authorities in designing their own procedures for choosing terminal operators. As a result, the legislative option has been mainly assessed.

The primary objective of this policy option is to allow new cargo handling companies’ access to the land and infrastructure they need in order to be able to offer services to port customers, primarily shipping lines but also – in the case of non-stevedoring services such as warehousing and logistics – shippers. The arrival of new market entrants is expected to increase the level of intra-port competition amongst service providers, increasing efficiency and reducing prices.

4.1.3.1. Scale of problem. The Impact Assessment assumes that competitive assignment of land and the right to supply services would be restricted to:

- Public sector port authorities. It therefore excludes privately owned ports such as those in the UK.

- Cargo handling activities which include stevedoring. This eliminates many ancillary port services – such as ship repairing, container cleaning, contracted out maintenance, cargo inspection, shipping and Customs agencies, long-term storage, cargo distribution and logistics, and support services such as canteens, shops and general business services – where the impact of increased competition is likely to be small but difficult to evaluate. Technical-nautical services are dealt with separately under a different policy option.

- All the type of cargo handling apart from oil terminals.

Four specific situations cause land to become available for new port service providers:

- Traffic growth: construction of new port facilities to accommodate future traffic growth, both by the public authorities and by private operators where the “right to build” on either a freehold or build-operated-transfer concession basis is granted by a public authority;

- Privatisation: the transfer of land from public sector to private sector control as a result of port reforms and/or the withdrawal of public port authorities from cargo handling operations;

- Contract roll-overs: the expiry or termination of existing contracts where these do not include an option for automatic renewal;

- Other reasons[8], for example shipping lines wishing to operate dedicated terminals for their own ships, Asian terminal operators seeking to enter the European market through the construction of new facilities, or transhipment activities.

4.1.3.2. Scope for change. Many ports have already adopted competitive selection procedures for the award of new leases or concessions, even though these procedures may not be fully compliant with EU procurement rules. A steady improvement in market access for new service providers is therefore likely to occur even in the “do nothing” situation.

A detailed survey of how ports award contracts at present could not be carried out within the time and budget constraints of the study carried out by the consultant and on which the present impact assessment is based. However, to better understand the impact of the “legislative scenario”, an assessment has been carried out for a selection of 92 European ports (representing almost 80% of the European port industry in terms of total throughput) to make an estimate of the future cargo tonnage which would be available for new concessions. The amounts of cargo which could potentially be assigned to new operators via competitive selection has been added for three main sources – new terminal construction, privatisations, and the roll over of existing contracts – to provide an estimate of the total potential market for new cargo handling companies and existing cargo handling companies competing for new contracts. With the legislative option in place, it is assumed that 100% of all new contracts will be awarded competitively, even if this does not necessarily mean through competitive international tendering on the basis of price alone.

4.1.3.3. Costs. The costs of providing more open access to cargo handling companies are amongst the criticisms of the 2004 proposal for a Directive on Market Access to Port Services. They include:

- Tendering costs

- Contract administration and regulation costs

- Increased litigation

- Sub-optimal use of port capacity (duplication of functions, need to provide additional capacity to accommodate traffic peaks, reductions in private investment in equipment, asset deterioration due to reduced maintenance towards the end of the contract etc)

- Increase in costs due to shorter amortisation periods for investment

One important factor is the one-off cost for setting-up the new regime, consultation and transparency by the port authority, and for transitional arrangements. In particular these costs are associated with the periodic tender process (i.e. preparation, advertising, managing, etc) and with ongoing monitoring of licensee performance. Total bidder costs are expected to be between € 100 k and € 140 k per bidder per transaction. Thus, depending on the number of potential bidders total costs for bidding procedures are estimated to be in the range of € 20 m to € 30 m in the period under consideration (2007 – 2026).

4.1.3.4. Benefits. The benefits of competitive selection of terminal operators include, amongst others:

- Faster cargo handling, resulting in shorter ship turn-round times and reduced dwell times for cargo.

- Lower operating costs arising from investment in new equipment, more effective deployment of labour, and better procurement procedures.

- Lower cargo handling charges as a result of increased competition.

- More investment as a result of being able to draw on new sources of funds.

- Capture of a higher proportion of the economic rent (profits) of private port operations by the public sector in situations where the award of contract is based on the size of the payments made to the port authority (rents and other forms of lease payment, cargo royalties and other concession fees).

As a result, a subjective value per ton/TEU has been assigned to each port/traffic type based on knowledge of the market in each Member State and the types of selection procedure likely to be used there or required by the EU policy option. This is not entirely satisfactory, but is probably the best that can be done within the time and budget constraints of the study carried out by the consultant and on which the present impact assessment is based. The following table shows the unit benefits assumed for different types of cargo.

Table 0-1 Unit benefits in relation to average tariffs

Dry bulk | Container | General cargo* |

Benefit (€ / ton or €/ TEU) | 0,22 | 3,68 | 0,88 |

Average tariff (€ / ton or €/ TEU) | 4,4 | 73,5 | 17,6 |

*Value applied both to Ro-Ro and Break-Bulk

Source: PwC estimation

Thus, competitive allocation of land to cargo handling companies should produce an overall positive impact that can be estimated at less than € 1 billion in the period of 20 years considered in the analysis (2007-2026).

4.1.4. Comparing the options

A Directive is likely to be targeted on those ports which will benefit most from increased competition, so the overall impact should be a net benefit in excess of € 100-200 million.

The "soft law option" could obtain similar benefits whilst reducing the additional costs of the Directive, namely tendering cost. Any measure should not impose a particular form of port ownership or organization, nor define new safety standards, but it would establish principles aiming at opening up the market to potential new entrants and enhance competition.

The primary objective is to allow new cargo handling companies to access the land and infrastructure they need in order to be able to offer services to port customers, primarily shipping lines but also shippers.

Even though many ports have already adopted competitive selection procedures for the award of new leases or concessions, these procedures may not be fully compliant with EU principles. There are ports that have no experience of awarding cargo handling rights to any operators other than themselves or have no known position on the assignment of contracts. So it is clear that the “do nothing scenario” is quite unsatisfactory in term of opening up the market and increasing competition.

The table below shows the principal costs and benefits of providing more open access to cargo handling service and more competitive selection of terminal operators:

Cost and benefit of policy option

Cost | Benefit |

Tendering costs Contract administration and regulation costs. Increased litigation. Sub-optimal use of port capacity (duplication of functions, need to provide additional capacity to accommodate traffic peaks, reductions in private investment in equipment, asset deterioration due to reduced maintenance towards the end of the contract etc) Increase in prices due to shorter amortisation periods for investment | Faster cargo handling ( shorter ship turn-round times, reduced dwell times for cargo) Lower operating costs arising from investment in new equipment, more effective deployment of labour, and better procurement procedures. Lower cargo handling charges as a result of increased competition. More investment as a result of being able to draw on new sources of funds. Capture of a higher proportion of the economic rent (profits) of private port operations by the public sector in situations where the award of contract is based on the size of the payments made to the port authority (rents and other forms of lease payment, cargo royalties and other concession fees). |

4.1.5. Choice of option

Experiences with the past proposals for a port services Directive, and the views expressed by stakeholders during the consultation process, suggest that there would be considerable opposition to the legislative option. However, many of its benefits could be achieved through the soft law option, which would also be less costly. Therefore, the soft law option has been chosen.

4.1.6. Conclusion

In the light of existing legislation, ECJ jurisprudence and Commission Communications, the Communication on a European Ports Policy clarifies in paragraph 4.3., how the principles set out therein apply to port concessions.

4.2. Work in Ports

4.2.1. Introduction

The current practice for stevedoring is extremely diversified across the Community, in many cases also within a same Member State. The issue at stake for this specific aspect is mainly the one of 'pooling'. Port 'pools' are entities providing staff to terminal operators. Pools may provide whole or part of the staff needed, at all times or only on the occasion of peaks in demand for stevedoring. Where pools are very powerful, not only terminal operators are obliged to use pool staff, but the pool also decides the number of workers to be employed for a given job. This decision may be based on criteria other than the objective need for manpower, with obvious consequences on cost. In other ports pools are less powerful. They only provide less skilled personnel, and/or staff temporarily needed for facing traffic peaks. In the container business most staff is therefore permanent, which is also in line with their advanced training (e.g., for cranes).

4.2.2. Policy options

4.2.2.1. Do nothing option . Without any intervention the described scenario would probably continue to gradually evolve towards the overcoming of the pool system, as it is slowly happening in many ports. It should be recalled, however, that in some parts of the Community this evolution could be slower, due to the opposition by unions. The described trend could also affect the attractiveness of the port system as a whole, and therefore, the development of ports and the progress of modal shift. Any legislation in force in the Member State imposing the use of pools could be challenged by means of infringement procedures. However, it should be noticed that in some cases pools are used because of pressure by unions, rather than on the basis of legal provisions.

4.2.2.2. Legislative option . A legislative proposal could establish that any independent provider (individual or agency) should be able to be hired by terminal operators. The market for work in port would be liberalised.

4.2.2.3. Soft law option . In an interpretative Communication the Commission might come to the conclusion that any legislation imposing the use of staff originating from the pools is in conflict with the Treaty principles. In practice, any terminal operator needing new staff should be entitled to hire properly trained independent staff or staff from temporary work agencies. It should be noticed that the practice of pooling appears to be less in conflict with the Treaty principle of free movement of workers, since the pools make no discriminations based on nationality.

4.2.2.4. Voluntary-mixed option. In the course of the consultation it has appeared that both workers and employers (terminal operators) are willing to engage in a dialogue, in particular concerning contractual issues ("social dialogue"). Furthermore, as it has been mentioned above, all the progress on flexibility that has been achieved in some countries has been made possible by years-long negotiations by social partners. Encouraging social dialogue should also be taken into consideration and separately assessed. Should this option be chosen, social partners would be invited to set up a dialogue process, if necessary in the form of a structured "social dialogue" such as it exists for maritime transport, aimed at overcoming the least fruitful constraints that still exist in some ports. This option has been named as "mixed-voluntary", because the voluntary approach would not be entirely independent from the "soft law option". In fact, social partners would be invited to negotiate once the Community law framework has been clarified by the Communication.

4.2.3. Assessing the options

Experiences with the past proposals for a port services Directive, and the views expressed by stakeholders during the consultation process suggest that there would be considerable opposition to the legislative option. However, many of its benefits could be achieved through the soft law option, which would also be less costly. The costs and benefits of the soft option are more difficult to quantify. As a result, the legislative option has been object of assessment.

The primary objective of the options for work in ports is to increase labour flexibility at ports where employers are obliged to use labour pools for the supply of regular and casual workers, rather than being able to select their own staff and negotiate their own terms and conditions of employment.

4.2.3.1. Scale of problem. The first task of the analysis is to define the dock labour regime for different European countries and to identify the Member States/ports where the use of labour pools is still mandatory[9]

Port labour practices have been gradually liberalised in several Member States over the last 10-20 years but there is no common and clear European labour scheme.

Annex IV summarises the current labour schemes in several European countries. It shows that many aspects must be considered to define how work in ports is organised, for instance:

- Presence of labour pool and how the entry of workers into the pool is controlled.

- How workers are assigned to employers (shift patterns, minimum hours of work, ability to employ pool workers on a semi-permanent basis)

- How workers are paid (attendance allowances, minimum guaranteed income or hours of employment, payment per hour worked, overtime provisions, social security provisions and other benefits).

- How employers pay for the labour they use.

- Negotiating procedures for terms and conditions of employment.

- Training arrangements.

- How the pool recovers any financial deficits (revenues received from employers less payments made to workers).

All these aspects have a direct influence on ports’ productivity and competition among ports and must be considered in order to improve the efficiency of the port industry.

Container traffic development has also influenced port labour productivity in the last 20 years. Container terminals are a capital intensive business characterised by higher labour productivity with respect to conventional cargo. The common aspect that has characterised the development of workers’ performances has been negotiating procedures for terms and conditions of employment among employers, unions, employees and other public bodies. This seems to indicate that labour schemes have a limited impact on labour productivity. Social dialogue among stakeholders therefore looks to be the most important driver to improve productivity in European ports.

4.2.3.2. Costs. The main “one-off” costs of abolishing or substantially modifying compulsory labour pools will be compensation payments and/or loss of earnings for redundant workers, and the costs of transferring labour to individual employers. If the EU proposal is strongly opposed, there could also be a significant loss of earnings caused by strike action. Worse perhaps, if this is not done properly, these measures could also lead to bad social relations and to a negative appeal of ports.

Labour costs may increase if employers have to hire more labour on a permanent basis in order to cover traffic peaks, and if they provide better terms and conditions of employment. However these additional costs are likely to be offset by higher productivity rates, and slower increases in the size of the workforce over time as a result of more flexible manning arrangements.

There could also be significant costs in terms of use of less skilled labour, and the reduced power of the unions to intervene when employers do not meet agreed standards.

4.2.3.3. Benefits. The main benefits associated with more flexible employment patterns include:

- Higher labour productivity due to selective employment of the best workers/widening of the search area for new employees, and regularity of employment (increased familiarity of the labour force with the employer’s business).

- Greater flexibility in the use of labour, with a closer correlation between hours paid and hours worked, less idle time spent waiting for work or waiting (unemployed) for the end of the shift, more use of multi-skill to enable the same worker to do several different jobs, and more cost-effective use of overtime working.

4.2.4. Comparing the options

The primary objective of the policy options for the “work in ports” regulation is to increase labour flexibility. The port situation is very heterogeneous, so the implementation of a Directive is unlikely to meet the approval of all stakeholders. In summary, the lack of any clear relationship between port labour schemes and work force productivity, the heterogeneous characteristics of each port, and the total estimated costs of the transition programmed do not support a Directive.

The common aspect that has characterised the improvement of workers’ performance has been the use of negotiating procedures for terms and conditions of employment, involving employers, unions, employees and other public bodies. Social dialogue among stakeholders looks to be the most important driver to improve productivity in European ports, reducing negative effects such as labour redundancy. Negotiation and social dialogue allow a better balance to be maintained between the needs, characteristics, and particular history of each port.

The issue of social dialogue emerged from the consultation. There are examples of ports with labour-related difficulties that have overcome these through social dialogue (e.g. Rotterdam, Dunkirk). Therefore, a formal social dialogue at Commission level will be proposed. This can indeed help to achieve the long-term objective of improving productivity and, ultimately, make ports more attractive for customers, and contribute, in this way, to the development of maritime transport, leading in turn to more and better jobs. The idea of setting up a formal social dialogue has been discussed with the competent Commission services.

Moreover, there are currently no specific Community rules on training for port workers. Training of port workers has become of primary importance for the safe and efficient operation of ports. Port equipments have become technologically advanced and often complex tools. Work in ports has consequently evolved and, as the consultation has shown, a set of common requirements for training of port workers could be established at Community level.

One of the most important actions that could mitigate these health and safety costs is the planning and development of periodic training programme. Different solutions are developed in European port, for instance in Hamburg and Bremen port enterprises and unions have established a joint Dockworker Training School. The following objectives should be pursued in order to mitigate negative impacts:

- Upgraded quality standards

- professional skills and

- increase “safety culture”.

The implementation of action on these aspects could generate, among others, the following benefits:

- professional efficiency

- reduction in overall work fatalities.

The implementation of a training system implies initial and operational costs. The initial costs are related to the development of a training scheme (e.g. ILO Dockworker training programme). The operational costs include training costs for port workers. The training costs can be divided into three main components:

1. costs of training scheme design;

2. operational cost (costs of the training itself);

3. costs of evaluation (monitoring system).

The initial cost of a training scheme design depends on the type of courses to be provided according to the needs of port workers that change port by port.

The training operational cost depends on the number of port workers that need to be trained to carry out a new labour. Dockworker training is mainly organised by the private port companies for their employees. Nevertheless, port workers are not all permanently allocated to individual port employers (e.g. casual workers). A training system is particularly important for casual workers to avoid lowering safety standards due to higher labour turnover rates and less skilled labour. The number of casual workers depends on work organization in each European port or in each European country and cannot be easily estimated at European level (macro level).

An estimation of the costs and the net outcome of this approach is thus not possible at this stage of the analysis and in the time frame given.

Furthermore, it should be noticed that a significant number of occupational accidents including fatal ones [10] still occur in ports. A close monitoring of the implementation in ports of Community rules on health and safety at work would be desirable.

Finally, the issue of flexicurity should be further assessed, also in the light of the Commission Communication on Flexicurity. [11]

The following table summarizes the main costs and benefits that could be generated by a Directive which focuses on greater freedom and flexibility of employment.

Cost and benefit of policy option

Cost | Benefit |

The main “one-off” costs are for abolishing or substantially modifying compulsory labour pools (compensation payments and/or loss of earnings for redundant workers, costs of transferring labour to individual employers). If the EU proposal is strongly opposed, there could also be a significant loss of earnings caused by strike action. Labour costs: may increase if employers have to hire more labour on a permanent basis in order to cover traffic peaks, and if they provide better terms and conditions of employment. (these costs could be offset by higher productivity rates). | Higher labour productivity: due to selective employment of the best workers/widening of the search area for new employees, and regularity of employment. Labour training programmes: enlarged and better targeted. Greater flexibility in the use of labour: closer correlation between hours paid and hours worked, less idle time spent waiting for work or waiting (unemployed) for the end of the shift, more use of multi-skill to enable the same worker to do several different jobs, and more cost-effective use of overtime working. |

4.2.5. Choice of option

Experiences with the past proposals for a port services Directive, and the views expressed by stakeholders during the consultation process suggest that there would be considerable opposition to the legislative option concerning labour arrangements in ports. However, many of its benefits could be achieved through the soft law option, which would also be less costly. Therefore, the soft law option has been chosen.

There are currently no specific Community rules on training for port workers. The Commission recognizes that training of port workers has become of primary importance for the safe and efficient operation of ports. Therefore, the legislative option has been chosen.

At the European Union level, the general rules for the protection of health and safety of workers at work are laid down in the Directive 89/391/EEC [12] (the "Framework" Directive), which lays down rules on health and safety related training of workers which fully apply to work in ports. Full respect and enforcement of these rules is crucial for improving working conditions.

4.2.6. Conclusion

The Commission will encourage the establishment of a European sectoral social dialogue committee in ports within the meaning of Commission Decision 98/500/EC. If such a committee is established, the Commission will promote an active contribution of the social partners to management of change, modernisation and more and better jobs.

The Commission will propose a mutually recognizable framework on training of port workers in different fields of port activities.

The Commission will closely monitor the implementation in ports of Community rules on health and safety of workers at work. The Commission will also closely follow the proper collection of statistics relating to accidents.

4.3. Technical-Nautical Services

4.3.1. Introduction

Technical-nautical services are towage, pilotage and mooring. The consultation has revealed that, as a matter of principle, there are no real problems with towage, except that the market needs to be monitored from an anti-trust point of view, like any other. As for pilotage, shipowners insist on the need for extending the practice of exemption from the obligation to use a pilot (Pilot Exemption Certificates) for "frequent users" of a given port. This is something that can be recommended but certainly not imposed. As for mooring, customers would like to be able to use their land-based staff.

4.3.2. Policy Options

4.3.2.1. Do nothing option . Towage would continue to be provided as it is currently, i.e., with competition among different operators in several big ports, but within the framework of a legal or de facto monopoly in all other cases. The same would apply to pilotage, with competition in fewer cases. The same applies, finally, to mooring, for which the cases of competition are limited, indeed.

4.3.2.2. Legislative option . Technical nautical services would be liberalised by means of a Directive or by means of specific provisions to be introduced in a Directive on port services. Those provisions would impose the opening of the market for those services to any Community provider.

4.3.2.3. Soft law option . Also in this case the policy option would consist in detailing how the Treaty principles apply to technical-nautical services.

4.3.3. Assessing the options

The legislative option has been object of assessment.

The primary objective of this policy option is to allow the opening of the market to any Community provider, to promote competition and to stimulate and enhance the efficiency of port services. Opportunities for opening up the market for technical-nautical services are most likely to occur in the area of towage at large ports, and mooring services at dedicated terminals operated by shipping lines and large common user terminals.

Pilotage is still considered a public service in most ports, where concerns about ship safety have led to widespread rejection of the concept of competitive selection. For towage, there are additional concerns about the commercial viability of multiple operators given the capital intensive nature of the business. And for mooring services the volume of work at many ports may be insufficient to support more than one operator unless staff can be deployed on other activities in between mooring operations. In highly unionised ports this is often prevented by rigid job demarcation lines.

4.3.3.1. Pilotage. The impact of any EU measure on pilotage operations will be too small to justify assessment, for three main reasons:

- There are very few commercial companies offering pilotage services at present - the main alternative to a port authority monopoly is a pilot's cooperative based on work-sharing, price-fixing and revenue-pooling.

- Even if there is some opening-up of market entry, pilotage is likely to remain strictly regulated, with prices fixed to avoid any cost-cutting that might endanger safety.

Most ports will use safety as a justification for not changing their existing arrangements. Experience with the proposals for a Directive on Market Access to Port Services suggests that it will be difficult to get approval for any legislation which does not allow port authorities to continue with a closed market for safety reasons.

4.3.3.2. Towage. An analysis of towage provision in 55 European ports has been carried out (based on European Tugowners' Association data), showing for each of them the relationship between the number of towage service providers and the port cargo throughput (m tons) in 2006. It is important to note that cargo throughput is not a sufficient indicator for assessing the amount of towage work available in a port, since a combination of local navigation condition and the number and type of ships should also be considered. However cargo throughput was used as a “proxy” for ship movements. Analysis shows that 25 out of 55 ports have more than one towage provider. These are generally but not exclusively the largest ports. However, it is interesting to note that some of the largest ports – which appear to have sufficient traffic to justify more than one operator – are served by only one operator. However, there is no clear direct correlation between the number of towage companies and cargo throughput.

4.3.3.2.1. Costs. The development of the policy option results in three different types of cost: one-off transaction costs, operational costs, social costs.

a) One-off Transaction Cost

One important factor is the one-off cost for setting-up the new regime (procedure for ensuring quality of service and public benefits, consultation and transparency by port authority) and for the transition. In particular these costs are associated with the periodic tender process (i.e. preparation, advertising, managing…) and with ongoing monitoring of licensee performance. An estimate of the cost of carrying out tender shows that these could range from € 150 k to € 200 k for port authority conducing the tender, and from € 120 k to € 140 k for each bidder participating in the tender process. Thus, depending on the number of potential bidders total costs for bidding procedures are estimated to be in the range of € 600 m to € 1 billion.

A Directive opening the market for towage services will produce costs that are passed on by the port authority, may be charged on by potential towage service providers too (as fees).

b) Operational Cost

Most costs of a towage company are fixed (investments in tugboats, licence and labour costs are together approximately 60% of the total cost). So, the profitability of a towage service depends on use of tug fleets and crews, and on economies of scale. The number of tug jobs per day or per ship is a common indicator for performance monitoring. The entry of an additional operator would result in significant loss of economies of scale. Unit costs rise when the tug utilization rate per tug company falls. As shown before, economies of scale for the tug fleet of one operator could be exhausted at a specific number of tug jobs per year, whilst the minimum total number of tug jobs per year required in the port will grow with an increase of number of operators.

Moreover, without a competitive market, it is possible that the increase in unit cost will be charged by operators directly as part of the final price. The evidence of this assumption is that usually the price of tugs per job rises as the number of tug jobs per tug is reduced.

c) Social Cost

A Directive is likely to affect the market structure by reducing the number of firms or influencing the size of firms. Because of their scale, larger tug operators could potentially take advantage of the Directive and expand the scope of their activities. This will result in the increased dominance of these firms at the expenses of smaller-scale operators. This could be beneficial in term of efficiency gains and cost savings but represents a social cost.

4.3.3.2.2. Benefits . Benefit could be generated in terms of price reductions and innovation and service quality improvements. The main benefit of increased competition is likely to be reduced charges. In a situation where harbour towage is carried out by private companies, if the number of towage operators rises, competition increases and charges could fall. The new entrant may be required to offer lower rates in order to build market share. However, too many operators in the market will result in significant loss of economies of scale. Another important benefit is that with the opening of the market, firms have appropriate incentives to invest, innovate, improve the range/quality of the service, and increase productivity. On the other hand, by removing the discipline of potential entry on towage providers and competitive pressures, it is possible that a static situation may have deleterious effects on dynamic efficiency.

4.3.3.3. Mooring

4.3.3.3.1 Scale of problem . The idea is to reconcile the need to allow effective access of competent mooring service providers by enhancing competition and promoting an efficient pricing system, with the need to ensure a satisfactory level of safety and professional qualifications.

4.3.3.3.2 Market and competition. Mooring services are provided in some Member States exclusively by the port authority, in other Member States there is a mixed system: in some ports the port authority operates the service, in other ports private companies do it. In most ports private companies carry out mooring services under the port authority’s supervision and a licence or concession is often required to operate. Lack of homogeneous correlation between throughput and number of mooring operators is explained by the fact that demand for mooring services does not depend solely on the throughput of a port, but it depends on a larger number of variables. These are the number and the size of ships requiring the service, availability required by the port authority, safety regulations, geographical features of the port, and the condition of the port’s infrastructure and weather conditions. This suggests that when towage services are liberalised or regulated by competitive rules, the market naturally evolves to a higher number of operators for a specific level of “work required”. It is possible to define a throughput range over which having more than one operator can be not only be feasible but also profitable.

Annex V gives an overview of the European situation regarding the condition under which mooring activities are carried out in various Member States.

The first step of the analysis consisted in an extensive overview of the organization of mooring services in European ports, in terms of the number of operators, the concession regimes, and suppliers of the service. Moreover, discussions have been held with the European Boatmen’s Association in order to deepen the knowledge of the market. Data about the number of mooring operators and throughput have been collected for 53 ports, in order to identify possible connections between traffic magnitude and the degree of competitiveness of the market. The analysis shows that in the majority of European ports there is just one operator. Of the 53 ports examined, 44 had only one operator; this is equivalent to 83% of ports. The scenario is quite different: while in Northern Europe there are several ports (8 out of a total of 21 ports) with more than one mooring operator, in the Mediterranean the “one operator situation” is the most common (31 ports out of 32).

A survey has been carried out to collect information about the current situation in the mooring service market in European ports, to monitor the existing level of competition. The results of this study point out that usually mooring service capacity is sufficient to supply the total demand in the port. In general, a direct correlation between total throughput and number of operators in European ports cannot be inferred. In most ports the mooring service, in consideration of its safety implications and universal nature, is under the supervision of the port authority acting as a regulator and supervisor of this service and ensuring that it is provided in conditions of safety, continuity, universal coverage and high quality. This is often done by means of concessions or licenses or authorizations to provide the service (sometimes a tendering procedure is applied). Often the port authority also controls prices in accordance with the estimated operating cost of the service or establishes a price cap. Furthermore, in many cases the port authority itself provides the mooring service.

To find out what is the most suitable option to adopt, it is useful to consider the particular characteristics of mooring services. Two aspects can be underlined. Firstly, economies of scale are likely to be less important for mooring services than in the case of towage. In fact, mooring is a labour intensive business, which could potentially be carried out by small operating units. While towage is a “capital intensive” service, mooring is a primarily a “human intensive” service. Secondly, safety represents a crucial aspect in mooring services. The safeguarding of high levels of safety is a must for all European countries, even if they currently have different standards. In this context, mooring operators play a crucial role. Currently, training and qualification standards in most European countries result in high standards of service. The crucial need is to develop an effective pricing system, taking into consideration the peculiar characteristics and needs of the port and ensuring a high level of safety. To achieve this goal, it is not necessary to set limits to the minimum number of operators or to identify a specific organizational form; instead, it is important to open the market to potential providers. The threat of entry of new providers would be sufficient by itself to create a competitive market. Moreover, the supervision of the port authority remains essential in respect of safety standards and high quality of services.

4.3.3.3.3 Costs. The implementation of a Directive aimed at opening the market for mooring services and enhancing competition, would entail the following costs. Economies of scale are likely to be less important for mooring services than for towage, so the entrance of additional operators would not result in significant loss of economies of scale. An increase in the number of mooring service operators will impact on the labour intensity of employees. The main consequence will be an increase in idle time, which will in turn impact on costs. The magnitude of this impact will depend on the propensity of operators to integrate mooring activity with further services like the supply of workboats for inspection and repair work, or launches for crew transfers to ships at anchor. Safety standards vary in MS: new entrants could generate a fall in quality and safety of service. High turnover and efforts to reduce price could generate a loss of experience and professional skills and could be to the detriment of the qualification levels of mooring operators and of safety in general. Transaction costs associated with the licensing of new service providers are likely to be relatively small, as permission to provide services is likely to be granted to all providers who are “fit, willing and able” to provide the services. On-going administration costs could be higher, however, if port users have to contact several organisations in order to find one which is able to provide mooring services at the time they are needed. The limited economic size of companies currently operating mooring service makes it highly probable that the new entrants in the market would be large firms already present in the transport chain, expanding their operations. Therefore, competitive pressure would derive from self-handlers rather than from real newcomers. This will result an increase in the dominant position of these firms to the detriment of smaller operators. This would lead to a benefit in terms of efficiency but would entail a social cost.

4.3.3.3.4. Benefit. The primary and most evident benefit of increased competition are expected to be lower prices. Currently there are many situations of monopoly enabling mooring operators to take advantage of their privileged position to apply high prices. In a liberalized market competition deriving from new entrants or even from the threat of potential new entrants will push prices downward.

4.3.3.4. Comparing the options. The “do nothing option” (ports continue to be free to establish their own rules and requirements) is an uneconomic solution in terms of competition opportunities, buyer choice and improvements in efficiency. Based on these arguments, a legislative solution, a Directive, is likely to have a potential impact on competition and towage charges, but may burden existing and new entrants with additional (set-up and on-going) costs which may hamper the overall efficiency of the industry. However, the “soft law option” permits similar benefits to be achieved whilst reducing the additional cost.

The “soft law option” could obtain similar benefits whilst reducing the additional costs of the Directive.

The primary objective is to allow the opening of the market for technical-nautical services (Pilotage, Towage and Mooring) to any Community provider, to promote competition and to stimulate and enhance the efficiency of all port services.

4.3.4.1. Pilotage. The impact of any EU measure on pilotage operations will be too small to justify assessment, for three main reasons:

- There are very few commercial companies offering pilotage services at present - the main alternative to a port authority monopoly is a pilots’ cooperative based on work-sharing, price-fixing and revenue-pooling.

- Even if there is some opening-up of market entry, pilotage is likely to remain strictly regulated, with prices fixed to avoid any cost-cutting that might endanger safety.

- Most ports will use safety as the justification for not changing their existing arrangements. Experience with the proposals for a Directive on Market Access to Port Services suggests that it will be difficult to get approval for any legislation which does not allow port authorities to continue with a closed market for safety reasons.

4.3.4.2. Towage. Analysis results show that 25 out of 55 major ports have more than one towage provider. When a restricted area with the same characteristics and the same service management is considered (i.e. a specific country), it can be observed that there is a correlation between cargo throughput and the number of operators.

When towage services are liberalised the market can naturally evolve to a higher number of operators once a specific level of “work required” has been achieved. Thus it is possible to define a throughput for each port range over which having more than one operator can be not only feasible but also profitable.

The following table focuses on main cost and benefit in a “legislative option scenario”:

Cost and benefit of policy option

Cost | Benefit |

One-off Transaction Costs: one-off cost for setting-up the new regime (procedure for ensuring public service quality and benefit, consultation and transparency by port authority) and for the transition arrangements. These costs are associated with the periodic tender process and with ongoing monitoring of licensee performance. Thus, depending on the number of potential bidders, total costs for bidding procedures are estimated to be in the range of 600 to1000 k€ . Operation Costs: Entry of an additional operator would result in significant loss of economies of scale and could raise the overall cost of providing towage service to more than in the previous situation. Social Costs: a structured Directive is likely to affect the market structure reducing the number of firms or influencing the size of firms. Larger tug operators, because of their scale, could potentially take advantage of the Directive and expand the scope of their activities. This could represent a social cost if it forces existing companies out of business. | Price reductions: The main benefit of increased competition is likely to be reduced charges. Generally tug operators are using their monopoly position to raise prices. The opening of the market would promote competition and produce price reductions. Innovation and service quality improvements: Another important benefit is that with the opening of the market, firms have the appropriate incentives to invest, innovate, improve range/quality of the service and increase productivity. |

4.3.4.3. Mooring. The idea is to allow effective access for competent mooring service providers, enhancing competition and promoting an efficient price allocation whilst ensuring a satisfactory level of safety and professional qualifications. A direct correlation between total throughput and number of mooring operators in European ports cannot be inferred.

The following table focuses on main cost and benefit in a “legislative option scenario”.

Cost and benefit of policy option

Cost | Benefit |

Economies of scale: the entrance of additional operators would not result in significant additional costs would result in significant loss of economies of scale (these are likely to be less important for mooring services than for towage). Labour intensity of employment. Main consequence will be an increase in idle time, which will in turn impact on costs. Safety standards: new entrants could generate a fall in quality and safety of service. High turnover and efforts to reduce price could generate a loss of experience and professional skills; Transactions costs: licensing of new service providers (relatively small), on-going administration costs Social Cost: competitive pressure would derive from self-handlers rather than from independent newcomers. This would lead to a benefit in terms of efficiency but would entail a social cost. | Price reduction: The main benefit of increased competition is likely to be reduced charges. |

4.3.5. Choice of option

Ex