Addressing City Port performance, sustainability competitive challenges through innovative property practices and use

1. 24 June 2008 Addressing City � Port performance, sustainability & competitive challenges through innovative property practices and uses 11th International Conference Cities & Ports Stockholm, Sweden

2. Summary 24 June 2008 11th Int�l Conference Cities & Ports Where is the industry at, where is it going and how did we get here? Industry factors affecting ports and cities. Changing role of port authorities. Why a port�s largest asset � property � needs to be strategically managed. The evolving relationship between cities and ports.

3. Where is the Industry today? Revolution not evolution 24 June 2008 11th Int�l Conference Cities & Ports

4. 21st century market dynamics Dynamic Global trade growth Global Carriers Ship size Sea trade, logistics Political & social constraints Changing role of ports Impact Expansion, modernisation of infrastructure and ports for more capacity requires massive capital = release tied up equity in port properties Increasing vertical integration of global carriers in the logistics chain and their growing influence and control at the cost of both cities and ports and from local /regional to global. Deeper reach into the hinterland; integration of logistic chain; specialised facilities = more property Integrating supply chains = more real estate throughout hinterland Congestion & contamination = remove truck traffic, transfer non throughput activities off port Increasingly becoming property asset managers = shift business model 24 June 2008 11th Int�l Conference Cities & Ports

5. World Bank�s 2010 Global Economic Prospects � 90% of Global trade by sea � but the savings are now on land 24 June 2008 11th Int�l Conference Cities & Ports

6. Global container ports: Relentless growth to slow down but cargo needs to be processed requiring increasingly larger land banks

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8. Terminal capacity Strong focus on optimising the capacity of existing terminals due to lack of land with such concepts as dry and inland ports, intermodal facilities Greenfield and brownfield terminal development face many obstacles (e.g. legal, environmental etc) Demand side of the equation quick to react/dynamic, capacity side generally very slow due to massive capital requirements 2006 global capacity = 614 million teu pa; forecast confirmed expansion to 2012 = 159 million teu 2012 total forecast confirmed capacity = 773 million teu pa; total forecast demand by 2012 = 774 million teu 11th Int�l Conference Cities & Ports

9. 24 June 2008 11th Int�l Conference Cities & Ports Forecast average capacity utilisation -developed nations

10. 24 June 2008 11th Int�l Conference Cities & Ports Forecast average capacity utilisation � emerging nations

11. Increasing ship size Need to reach ever deeper into the hinterland 24 June 2007 11th Int�l Conference Cities & Ports

12. 24 June 2008 Growth in container ship size

13. Growth in containership size

14. Growth in containership size

15. Emma Maersk (PS) class 397 metres long 15.5 metres maximum draft 22 boxes wide (Post-New-Panamax) 13,500 teu (est) 157,000 dwt 25 knots

16. Maximum ship size

17. Draft � the needs of the few to be paid by the many? And there�s another issue to consider too. Carriers have become largely attuned to governments, port authorities and even terminal operators funding the massive capital dredging programmes that are typically needed to accommodate ever larger ships (eg c$1 billion at Antwerp). This state of affairs can hardly continue indefinitely � when so few carriers and ships benefit. We would not expect any advance beyond 14.5m maximum vessel draft unless such a move were accompanied by a radical change to the basic organisation/structure of liner shipping � eg new deep-water ports away from urban areas; massive increase in transhipment; faster terminal operations. There is no practical enthusiasm for such a change except in a very few quarters. So existing ports with good water depth may lose some fo their advantage as others catch up, but it will be a very expensive undertaking which will have to be paid for by someone. In the EU the �user pays� principle is certainly gaining ground, and this could lead to a rude awakening for carriers if the subsidies run out. And there�s another issue to consider too. Carriers have become largely attuned to governments, port authorities and even terminal operators funding the massive capital dredging programmes that are typically needed to accommodate ever larger ships (eg c$1 billion at Antwerp). This state of affairs can hardly continue indefinitely � when so few carriers and ships benefit. We would not expect any advance beyond 14.5m maximum vessel draft unless such a move were accompanied by a radical change to the basic organisation/structure of liner shipping � eg new deep-water ports away from urban areas; massive increase in transhipment; faster terminal operations. There is no practical enthusiasm for such a change except in a very few quarters. So existing ports with good water depth may lose some fo their advantage as others catch up, but it will be a very expensive undertaking which will have to be paid for by someone. In the EU the �user pays� principle is certainly gaining ground, and this could lead to a rude awakening for carriers if the subsidies run out.

18. Who�s got the deep water?

19. Shipping line consolidation & terminal expansion � Impact on terminals, ports & cities Maersk (P&O Nedlloyd) and Hapag Lloyd (CP Ships) - latest evidence of consolidation APM Hampton Roads private terminal doubles port capacity to 4M TEU Each shipping line or alliance brings ever larger volumes to each terminal Implications for utilisation and �spare� capacity Does consolidation increase or decrease customers� bargaining power? Does it decrease the bargaining power, control and leverage of cities and ports? Can this result in a new city � port partnership?

20. Ports, Logistics chain, intermodality Altering the basic function of container ports 24 June 2008 11th Int�l Conference Cities & Ports

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22. Ports � now nodes in an ever expanding and integrating global supply chain Within present supply chain weakest link are the ports and their inability to process more throughput and increase capacity. Urban functions considered secondary factors, if at all, by port operators; their focus: time, efficiency, transport systems, profits. Just in time is now �integrated time�, requiring more specialised facilities such as �fast buildings�. Property and its management at, near and related to ports is key to addressing these issues. 24 June 2008

23. 24 June 2008 11th Int�l Conference Cities & Ports Regionalisation Ports will integrate into new freight paradigm � major impact on land usage Inland distribution cost - now savings area eg cheaper to ship container from Asia to Europe than Southampton to Felixstowe Constraints (political, ecological, economic) will force hinterland expansion and access 3PL heavy users of real estate facilities

24. 24 June 2008 11th Int�l Conference Cities & Ports Regionalisation (cont.) Corridors and inland terminals � cornerstones in port regionalisation Inland ports critical to in maintaining major seaport efficiency, attractiveness and competitive advantages (eg velocity/productivity) All of which is heavily dependent on strategic management and development of land usage (excerpts from: Notteboom T E, Rodrigue J E, 2005 (revised), Port Regionalization: Towards a New Phase in port Development, Maritime Policy & Management

25. 24 June 2008 11th Int�l Conference Cities & Ports Regionalisation

26. 24 June 2008 11th Int�l Conference Cities & Ports Ports: No longer business as usual due to: Land shortages, escalating property values & costs Economic/functional obsolescence Security and ecological constraints Profitability & productivity demands Regionalisation

27. 24 June 2008 11th Int�l Conference Cities & Ports Port Authorities Market demands forcing structural Port Authority changes � is more corporatisation coming are? Port Authorities now major asset managers � need to start acting this way to obtain maximum financial performance New challenges like proper lease structuring, asset management practices and port property values need to be addressed.

28. 19 June 2008 AAPA XVII LA Congress Panama Port Property Port Authorities (PA�s) control significant strategically located waterfront property, which typically: Is the largest asset on their balance sheet Financially underperforms May operationally be underutilised Is viewed as an administrative function - not a strategic asset

29. Cities 24 June 2008 Investing in infrastructure assets

30. Changing relationship between cities and ports 1960�s/70�s containerisation changes city � port interdependence through: Reduced labour usage Negative impact on quality of life Greater separation between port and city But, today�s environment should move port authorities and cities closer. 24 June 2008 11th Int�l Conference Cities & Ports

31. Congestion and contamination A 9,000 teu ship discharging 4,000 teu at hub port requires 2,00 trunk moves and ten stack-trains of 200 moves each. 24 June 2008 11th Int�l Conference Cities & Ports

32. Ecological Constraints 24 June 2008 11th Int�l Conference Cities & Ports

33. Ecological Constraints 24 June 2008 11th Int�l Conference Cities & Ports

34. Cities & ports A new partnership? 24 June 2008 11th Int�l Conference Cities & Ports

35. No longer that far apart Cities Competitive: against other cities as a place to live and do business. Productive: job creation Profit: Increase tax base and revenues Technologically advanced: Attract & retain business Ports Competitive: against other ports. Productive: Throughput, capacity, hinterland reach Profit: maximise revenues, streams and port values Technologically advanced: attract & retain clients 18 October 2007 Investing in infrastructure assets

36. Opportunities & solutions Interdependent once more (?) 24 June 2008 11th Int�l Conference Cities & Ports

37. 24 June 2008 11th Int�l Conference Cities & Ports Potential impact of more strategically used port properties Higher integration of hinterlands with port, increased port efficiency and viability; need for more land Compress the supply chain, only area of cost reduction now Requires disciplined approach managing port properties eg, EVA assessments

38. City � port initiatives Create intermodal platform with city and port and the adjacent hinterlands Aggregate and facilitate all land holdings, development processes to enhance private sector development opportunities for value added logistics Become joint facilitators for PPP projects, the private sector has the money and the will. 18 October 2007 Investing in infrastructure assets

39. 24 June 2008 11th Int�l Conference Cities & Ports Conclusions Ports have substantial equity tied up in land which needs to be released for expansion and modernisation. The private sector will play a significant role in accomplishing this. The investment impact will be significant for both ports, the supply chain and the host cities. Ports will never be managed the same, will need to bridge best practices of the port & property industries. In partnership ports and cities will be able to offer the necessary environment so as to carve their niche in the global supply chain and attract global carriers and logistics providers.

40. 24 June 2008 11th Int�l Conference Cities & Ports Thank You Aegir Port Property Advisers +1 305 423 7711 +1 305 423 7712 F www.aegirports.com info@aegirports.com Drewry Shipping Consultants Ltd +44 20 7538 0191 +44 20 7987 9396 F www.drewry.co.uk