The pending task in port infrastructure

In port infrastructure one of the highest costs are related to fixed capital investments, such as cost of rental, concessions, etc. Many times, these high costs slow down expansions, putting at risk the entire expansion plan and, thus, affecting the supply chain.

One of the main reasons why the decision to expand a port is made is due to the need of improving productivity, along with increasing supply chain efficiency and, of course, boost port capacity. If Latin America wants to compete in the big leagues, it must invest in order to reduce.

Expanding ports and making them more efficient is part of the need to reduce material handling costs. According to the World Bank’s “Doing Business Report 2013” report, exporting a container from the region in 2012 had a cost of nearly US$1,353, which largely exceeds the average cost of OECD countries, of US$1,028. Importing a container to Latin America is even worse, as it costs US$1,549 on average while it is only US$1,080 for OECD countries. Therefore, if Latin America wants to get closer to OECD numbers, it needs to invest in its ports and make them more efficient and, thus, reduce operating costs and achieving a reduction in its transfer rates.

Where to save: infrastructure, technology, and logistics

When we talk about saving, the first thing that comes to mind is to buy at cheaper prices, but the truth is that if you pay cheaply, you pay dearly. Franc Pigna, managing director of Aegir Port Property Advisers, a U.S.-based company that advises the industry on real estate acquisitions, tells us about some solutions that may make the ever-so-needed port expansions a little less expensive to finally be able to leave the pending task behind. Pigna says that in terms of port infrastructure and operations, “the region is varied, with places like Venezuela, having a much challenged port infrastructure system, and Colombia, where they have privatized port development and that has worked exceedingly well as the private sector is meeting international operational standards. Likewise, you have ports with good operations in Chile and Mexico, and challenges in Argentina and some in Brazil as well. So there is a wide scope of efficiency in Latin America.”

Regarding what to improve inside the ports, Pigna pointed out “the optimization of the financial performance of all their assets, but principally their largest and most strategic one: their property holdings” as a key aspect. In his opinion, an efficient administration of land would liberate resources to invest or simply increase shareholders’ return.

Experts believe that it is necessary to use technology in processes that are done manually, including cargo revision and documentation. Pigna highlighted that “by computerizing certain processes you make them almost instantaneous, thus, saving time and also making it very difficult for corruption to be part of the scene.” The specialist also said that government must be ready to facilitate the coordination among the different public agencies so that the adoption of “single window” systems becomes a general rule, a system that is underway in several countries.

Another relevant issue in the port scene in the region is land infrastructure. There is a dichotomy between the varied ports and their modern facilities and the land transport system that never fails to boycott the port’s functionality by not becoming articulated to the rest of the productive chain. High transportation costs are running the port operation’s good name through the mud; therefore, part of improving port efficiency must involve improvement on land transportation.

Running behind

“Being exceedingly capital intensive, port infrastructure historically has experienced a noted lag time behind the advances of ship technology. In the last decade or so the advances in ship technology have accelerated to a point that they have far outpaced port authorities’ ability to keep up,” says Pigna. Additionally, he notes that “most governments in the last three decades or so have experienced significant and growing budgetary pressures from every facet of government responsibilities such as social entitlements, defense, education, and other issues. This has left an inadequate capital base to address the growing maintenance, modernization, and expansion of their respective infrastructures assets.”

As port infrastructure is running behind all other aspects of modernization, this has, and will, -says Pigna- “in an accelerated fashion, force governments to explore different ways to fund their port infrastructure, which will increasingly be done through the private sector going forward through the corporatization of the port authorities and in some cases their privatizations as well so that they can access the private sector capital markets”.

The challenges ahead

Notwithstanding that Latin America’s biggest challenge is the investment gap in infrastructure, as Pigna puts it, and that the answer is “invest, invest, and invest,” another key issue in this so-called holistic vision is to coordinate the different players of the supply chain. This is essential within the public sector as it calls for consistency between the requirements from customs, those who guard border crossings, and even those who govern provinces and municipalities. 

As Pigna puts it, “in the short term the challenge in the region will be to adequately fund the modernization and expansion of the ‘sea – land’ interface, mainly ports.  In the medium term the challenge will be in addressing the logistics bottlenecks located behind the ports and in their respective hinterlands based on inadequate (and in many cases, non – existent) rail, highway and hinterland located distribution and processing centres near the manufacturing base.  In the long term the challenge will be in thinking like an integrated region and rationalizing regional transport and logistics assets to create a modern logistics network.”

As we can see, the pending tasks are plenty and the challenges are many and the only recipe for success is to take it one day at a time and all the way through. Nevertheless, the moment to take action is now, that is if Latin America doesn’t want to lose its competitive edge on the way to development.

Pigna says it clearly: It is critical that the region start to make serious efforts towards economic integration. Competition today is not between nations but between regions, supply chains and global cities. This is the Latin American Challenge, to create an integrated economic block that will be able to better leverage off of its regional competitive advantages.  One major step towards this is in developing a region wide system of duties, tariffs and computerised customs and cargo processing.”

By MundoMaritimo