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From: LATROBE UNIVERSITY BULLETIN

March/April 2008

Dredging up the public costs

By Peter Turnbull

Peter Turnbull is Distinguished Fellow at La Trobe University's Institute for Advanced Study and Professor at Cardiff University Business School. This is a transcript of his commentary on 'Perspective' featured on ABC Radio National.

The controversy sparked by the dredging of Port Phillip Bay is one that is being repeated in developed countries around the world. In Europe, for example, the European Commission is giving serious consideration to proposals that might dilute environmental protection enjoyed by coastal areas under the Birds and Habitats Directive. The fear is not that major European ports will become 'backwaters' – to use the words of Victorian Premier John Brumby when justifying the dredging of Melbourne's principal access channel – but that environmental regulations now stand in the way of 'economic interests'.

But what are these 'economic interests'? Where does all the money go, and who pays the price?

The world economy has grown rapidly in recent years – world domestic product increased by 69 per cent between 1984 and 2004 – but this growth pales in comparison to the increase in world exports (at 195 per cent) and the export of manufactured goods (which was over 240 per cent over the same period).

These goods are shipped around the world on ever larger cellular container vessels, especially on the dominant eastwest trade routes. Container traffic has experienced double-digit growth over the last decade and the very largest vessels now have the capacity to carry in excess of 12,000 container boxes when measured in Twenty-foot Equivalent Units.

The principal advantage of these ships is that they offer huge economies of scale – it is now claimed that it costs less to ship a container box from Shanghai to Southampton than it does to then move the box by road to Scotland. Globalisation might create a disproportionate growth in the demand for transport services, but innovations in transport fuel the growth of the global economy.

The 'freight factor' in developed countries is now less than 4 per cent, so it is quite literally possible to make almost anything, almost anywhere in the world, and then ship it to almost anywhere else, without transport costs being a constraining factor.

But there is a downside. One of the principal disadvantages of ever larger container ships is likely to be the detrimental impact they can have on the city-port environment.

It's not simply the draft of these vessels that places much greater demands on our transport infrastructure – ports also need larger and stronger stacking areas for more container boxes, they need bigger cranes with greater 'outreach' to unload the ships, and better hinterland connections to cope with peak traffic demand.

A major concern of environmentalists and the communities of city-ports in Europe is that the construction of ever larger container vessels is nothing compared to the costs of dredging access channels, investing in more extensive container terminals, buying new equipment, and building new or improved access roads to the port.

In most ports, the costs associated with accommodating larger vessels are typically shared between the private and public sectors. Port super-structure – which is basically everything above, on and beyond the quay wall within the port area – is usually financed by the private sector.

Today, only a handful of trans-national corporations have the wherewithal to make the necessary investments in facilities capable of handling the very largest ships. This group includes the five major international shipping lines that now control well over 40 per cent of the world's fleet and the four global container terminal operators who now control more than a third of world-wide port container port movements. So those who benefit most, in terms of their profits, also pay – but they don't pay for everything. Port infrastructure costs, most notably access channels, quay walls, and landside connections such as road and rail links, are still a public responsibility in most countries. So the taxpayer will also bear some of the cost.

Not surprisingly, a major concern of many people in city-port communities is the accountability and transparency of the relevant port authority. Do you know how your money is being spent?

There is a worldwide trend towards greater financial and operational autonomy for public port authorities, largely as a result of financial pressures on the public purse and the demands of major users, such as the big international shipping lines, for the ports to be more 'customer friendly'. So who benefits most from your taxes?

In the past, Europeans would have little difficulty answering this question. Major European ports have been developed as Maritime, Industrial and Distribution AreaS (giving us the acronym 'MIDAS') and the maritime regions still account for over 40 per cent of the European Union's gross domestic product. The 'golden touch' of Europe's major ports helped to make the continent the richest in the world, but today we're looking for a 'greener fingerprint'.

So the next time you're stuck in traffic behind a container truck, breathing CO2, try to calculate how many pairs of training shoes are stuffed inside the metal box in front of you. Then ask yourself the following question: 'If somebody, somewhere, in the transport chain saves a few dollars on the shipping costs of a container box from China to Europe, to Australia, or indeed anywhere else in the world, will the consumer now pay $99.95 for a pair of trainers instead of $100?'