Asian Port Opportunities not for the Faint Hearted

“Scrap your cut and paste approach to design: the exciting demand for Asian ports needs a different plan of attack,” says Aurecon’s Jeroen Overbeek, Ports and Marine Leader - Asia, outlining the opportunities and challenges confronting the development of ports in Indonesia and nearby territories. He suggests that fundamental differences in the physical and investment environment, compared with Europe and North America, require a more holistic and fundamental design approach.  
  
That’s all very well, you might retort, but where does a marine engineer’s function start, how wide should their scope be and what will define a successful outcome? Are they merely there to apply their skill and ingenuity to creating solutions for the technical problems in the ‘4Ds’: Distance, Downtime, Depth and Durability, or should they start by reviewing the customer’s brief to identify opportunities for improved project outcomes and end user experience? 

All that glitters…

“South-east Asia should be a marine engineer’s dream,” states Overbeek. “The area has long and narrow landmasses and tens of thousands of islands, as well as a large population and growing economies. Marine transport would seem ideal to support the economic growth and development of the region and connect it with other parts of the world. Despite this, wholesale port development is still struggling to take off.”

If the ten economies of the Association of Southeast Asian Nations (ASEAN) were combined in a single country, it would have the seventh largest economy in the world and one of the fastest growing. However, well publicised and big dollar investment plans from several of the region’s governments have as yet failed to transform dreams into reality for various reasons. Some of these reasons are political, some economical and some practical. Leaving politics out of this debate, the other two reasons are briefly touched on here.

Nurturing the dollars…

To fund the massive investments planned, governments are looking beyond tax dollars to institutional and private investors, who need a return on those dollars. While terminal operators certainly can and do make money, this is often ‘facilitated’ by public investments in base infrastructure for the port with a much longer return on investment than the terminal alone. While governments can take this approach, it lacks attraction for other investors. “It is exacerbated by the difficulty in quantifying and ring-fencing credible returns from the ‘combined’ investment in the base infrastructure of channels, breakwaters, reclamations and logistic connections,” adds Overbeek.

Asia is different…

The need for the right mix of long and short views on return is the case everywhere, but the difficulty in weighing up choices is compounded in Asia by rugged terrain and widely scattered populations. For instance, if the USA, Europe and ASEAN are compared, it stands out that the USA’s larger landmass is almost fully land-connected. Although Europe has a very long coastline, it is again largely connected by land apart from the UK and Ireland, which are only separated by a relatively short distance over water while, with the Channel Tunnel, the UK is arguably ‘connected’. Population densities are higher near the coast with a reasonable spread inland. 

“Contrasting with this generalised situation among western nations, the ASEAN landmass is fragmented into numerous large and small islands with population densities varying considerably,” says Overbeek. “Some of the major cities have similar populations to European countries, while other areas are very sparsely populated.”

A recent Organisation for Economic Co-operation and Development (OECD) report looking at port cities identified these differences with the following typologies:

The implications for port development…

The Asian ‘picture’ poses a dilemma for investment: large ports offering aggregated volumes of goods are necessary for international trade and attracting mainline vessels. Such ports are most suitably placed close to manufacturing and processing centres near the larger cities or large commodity production centres. For the regional trade, something similar is true though vessel sizes and volumes might be smaller. However, for local trade, whether national or across borders, a large number of smaller ports will be necessary catering to low volumes of goods being brought in and out for local, low-density populations. 

“The regional and local shipping aspect is especially relevant for countries such as Indonesia with limited and often challenging land connections outside of Java,” comments Overbeek. 

Deciding on a port location…

The two major factors governing where to locate a port are the physical environment, particularly metocean conditions, and the other is the position in the logistics chain. Both considerations ultimately are heavily influenced by government policies and politics. 

Though private port investors make their decisions largely on commercial and practical grounds when it comes to single-user or single commodity developments, such as those associated with mines or petrochemical products, this is not always the case for major public port developments. Governments can have motives beyond short-term development goals, such as access and projects considered in the interest of the ‘public’ or, the country may not always be able to offer the quantifiable and, importantly, immediate monetary returns private investors are looking for. The differences in viable timeline perceptions mean that co-financing in some form of PPP arrangement is by no means a panacea for avoiding stakeholder issues.

Competition versus cooperation…

While the Master Plan on ASEAN connectivity has identified marine connectivity as a mutual goal, it appears most of the announced large developments are still viewed through a country lens only rather than a regional one. While this may reflect an understandable degree of nationalism, the geography of ASEAN and wider Asia is such that there are many places in, say, Indonesia that are closer to Malaysia and the Philippines than they are to potential port locations in Indonesia itself. While private investors have recognised this reality, it seems that governments do not always embrace the facts. 

“The sheer magnitude of the investments needed in Asia, and the timeframe, implies that a more coordinated approach in future decades would yield a win-win situation throughout the region,” asserts Overbeek. “It would allow more effective allocation of available funds with Public Private Partnerships investing in mutually advantageous projects, generally the larger, multi-user regionally or internationally focused hubs. Governments would finance less ‘commercially viable’ ports, which would nonetheless improve flow of goods, trade and economic activity throughout the region, providing their payback through the economic multiplier effect.”

Starting on the right foot…

The speed of development has been much greater in Asia than in the USA before it, and in Europe before that. Combined with the geographic ‘quirks’ of the region, dispersed population and, to date, limited regulatory integration, the question of when, where and how fast to develop which ports is not an easy one, but a start has to be made.

“What is clear is that a holistic regional approach is the starting point, supported by solid research and honest advice on the economic and technical viabilities of such projects,” concludes Overbeek. “Our approach is to ensure that the customer understands what is in their best interest before committing to designing a specific port.”