The surcharge simply highlights how far the shift from manufacturing to importing has gone in the UK. The ports are booming. The flow of foreign investment into facilities has matched the flow of cheap goods from China.
Martyn Pellew, group development director for PD Ports points out: “The recent continued decline of UK manufacturing and the move to low labour cost economies in the old eastern block but also and most especially to the Far East and notably China, which is home to eight of the world’s top 20 container ports, has brought about an increase in deep sea container movements of imported products to the UK.”
The government has been reviewing its ports policy and plans to publish the results in the summer. Last year the Department for Transport commissioned MDS Transmodal to produce a report on the growth in port traffic over the next 25 years. The results for lift-on lift-off suggest that continuing growth in traffic would lead to a requirement for additional capacity by 2010 and significant additional capacity may be required in the longer term. Similarly, the results for ro-ro indicate that continuing growth in traffic may lead to a requirement for additional capacity by 2010.
It also predicts a need for more capacity for trade cars and dry bulk traffic over the next few years.
“Our overall conclusion is that between 2004 and 2030 container traffic is expected to grow by 178 per cent as measured by teu and HGV units by about 112 per cent,” says MDS.
Growth in the market means that the atmosphere in the industry is now very different from a couple of years ago when the government turned down plans for a £600m container terminal at Dibden Bay on the other side of the river from the Southampton terminal.
There are now plans for massive port developments at a number of ports including Teesport, Liverpool, Bristol, Dover and Felixstowe. However, there are fears that surcharges will become common as ports seek to recoup the additional infrastructure costs related to expansion.
One of the major problems for many of the major ports is poor transport infrastructure to and from the port. It is not uncommon to hear shipping lines complain that their biggest problems are not at sea but along the A14 and A34.
David Whitehead, director of the British Ports Association says: “The basic market condition of ports is that they are driven by location, which of course can’t be changed. However, there are probably three main strategies. The first is to ensure that they have the right road and rail links and this is a matter for negotiation with local authorities and Development Agencies; the next is investment and many ports in the UK are keeping a careful eye on the demand for new feeder capacity; thirdly, and this is particularly an issue for UK trust and municipal ports, is the question of making sure that the management structure is right and that the port can play to its strengths.”
The simple answer, he says, is to invest in new road and rail capacity, or possibly to introduce congestion charging which would introduce some element of control of traffic flows.
Felixstowe has taken a lead in surcharging containers to pay for infrastructure developments relating to the Felixstowe South reconfiguration. This project, which will involve the re-development of Landguard Terminal, the former P&O North Sea Ferries Terminal and the original Dock Basin, will increase the container capacity at Felixstowe by about 50 per cent.
In a letter to customers, the port’s chief executive Chris Lewis said government consent was subject to a number of conditions, the main one being that a legally binding commitment has to be given by the port to fund external road and rail upgrades, before construction of the expansion can begin.
“The cost of external infrastructure upgrades would previously have been funded by the government, with the Port of Felixstowe being responsible only for the developments within its boundaries. However, due to a change in government policy in 2004, external infrastructure costs are now levied directly on the industry.”
It estimates the cost of this work to be some £85 million and is levying a surcharge of £5.50 per container until the end of 2008. The timescale for recovery and cost per container beyond 2009 will be determined over the next 12 months.
The Freight Transport Association has complained about the surcharge saying it is bad for British business and could set a precedent for ports and airports around the UK. Christopher Snelling, head of rail freight and global supply chain policy, says: “It is the role of government to fund rail and road investments for which it has a responsibility to society as a whole. It is notable that no other major industrialised country, including the United States, has pursued such a policy.”
The FTA is also unhappy with the way Hutchison has handled the situation. Snelling said: “In a meeting with Hutchison after the surcharge had been announced we raised a number of concerns regarding the scheme and the rationale behind it.
Snelling points out that there is not even any guarantee that the upgraded infrastructure will be used for freight. In theory it is possible that rail improvements funded by entirely by the surcharge might end up benefiting passenger services alone.
As well as expanding Felixstowe, Hutchison Ports is planning to develop container facilities in Harwich at Bathside Bay. In December 2005, the deputy prime minister and the secretary of state for transport issued “minded to approve” letters for this £300 million scheme that would make Harwich potentially the second largest container port in the UK, almost doubling the total quay length to 3,000 metres, and enabling the port to handle up to four deep-sea container vessels simultaneously.
The new Harwich International Container Terminal would have 1,400 metres of quayside, 15 metres of water alongside the quay, 11 ship-to-shore gantry cranes and 44 rubber-tyred gantry cranes, and storage yard capacity of 52,000 teus.
Hutchison Ports says no decision has been taken on whether there will be an infrastructure surcharge for the Bathside Bay development.
On Teesside, PD Ports plans to develop a £300m deep sea container terminal at Teesport, known as the Northern Gateway Container Terminal (NGCT). In March, the company submitted an additional report following the submission of the original environmental impact assessment as part of the planning application for the NGCT project in April 2006. The plan is to start work next year so that operations can begin in 2009-10.
Martin Pellew points out: “The move away from bulk traffic flows at ports has been more than balanced by the increased use of containerised traffic via UK ports. PD Ports has been in the forefront of the move by ports to reposition themselves as centres for logistics activity.
“UK ports have had to respond to the style of UK retailing which expects a lean supply chain. Ports have to offer fast turnaround for ships entering and mooring at UK ports and also fast collection by lorries or rail services to reach end consumers often via regional distribution centres of wholesalers, retailers or freight forwarders. The latest trends have seen the rise of import centres being built at or close to the port. These centres avoid unnecessary road mileage of goods being sent to inland distribution centres before unpacking or devanning from containers which then need to be returned to the port of entry. One such import centre of 350,000 sq ft has opened at Teesport, in the North East of England, in spring 2006 for Asda Wal-Mart.”
This Asda centre handles the general merchandise range and is saving more than two million lorry miles a year. The import centre has succeeded in developing a new route to market, says Pellew. “It has eliminated any over-dependence and therefore risk from problems and delays at southern UK container ports.”
Gary Smith saw the benefits of port-centric logistics at Teesport when he was logistics manager for Savers Health & Beauty, part of the AS Watson group. And last year he left to set up Global Transport Logistics. “I recognised the need for a ‘one stop shop’ solution and was convinced a demand existed in the north of England and Scotland to support a logistics business capable of delivering a door-to-door service from and to anywhere in the world.
GTL operates a 55,000 sq ft bonded warehouse in Teesport offering a complete supply chain solution including sea, air and road freight, bonded warehouse facilities, container transport and pallet distribution. It manages all elements of the logistics chain and caters for a varied client base including retailers, manufacturers and petro-chemical industries.
Pellew reckons there are significant cost as well as environmental arguments why the imports can be better processed through added value services based at a port. He points out that often the land values at ports are well below those of central UK golden triangle areas in the Midlands.