EmiratesÆ Khan: Terminal investment must match shipping
Vikas Khan, chairman and chief executive officer of Dubai-based startup carrier Emirates Shipping Line and former head of Norasia, believes investment in inland infrastructure needs to match that being made by the shipping industry, while its focus shouldn't just be on large gateways if cargo bottlenecks are to be avoided.
Emirates' strategy since it started operations earlier this year has been to carve itself a niche by calling at little-used ports rather than to be fixated on mega-ports, which have received undue attention when it comes to infrastructure development, Khan told delegates at the Intermodal 2006 event in Hamburg Tuesday.
'While I fully support the large ports, I propose rapid development of smaller terminals along the coast,' said Khan. 'Inland cargo should seek a gateway at the nearest coast or waterway keeping the shortest distance by land and longest by water.'
Khan said the lack of investment in land-side infrastructure and intermodal networks has damaged supply-chain efficiency and driven final transportation costs up, with land-based transportation far outweighing the sea leg in terms of price.
For example, Khan said transportation prices from Antwerp to Munich are about 240 percent higher than from Shanghai to Antwerp.
He said shore-side inefficiencies are also handicapping shipping lines' operations as the turnaround of vessels at port is limited by yard, gate, rail and road speeds. 'So a $120 million ship waits outside because of land-side bottlenecks,' said Khan.
Also, limited competition and expansion in rail transportation is forcing shipping lines to focus their services to well-connected ports, Khan said. 'If these connections are limited to mega-ports, then we will all go there and congestion will naturally follow,' he warned.
The Emirates' boss believes the answer is for land-side infrastructure, to enter into the free-market environment in which shipping operates, rather that the 'controlled economies' it presently does, as much of it is in the hands of world governments.
'Very few countries have taken steps to ensure efficient and sufficient inland infrastructure. Land-side development over the next 10 years is like a circus trapeze without a net. We just have to hope,' Khan said.
'Will ports and terminals be ready for what we all see coming? More importantly, is there enough inland and intermodal infrastructure available all over the world?' Khan asked.
Even among the mega-ports, Khan doubts many will be equipped to cope with imminent challenges presented by ever-larger containerships. Using the Port of Los Angeles as an example, Khan said that a 13,000-TEU ship — which American Shipper believes already exists with the 'Emma Maersk' ' would generate 14,000 truck moves in three days.
'Will L.A. be ready to accommodate one truck move every 18 seconds in the very near future? And if it does, it will only be one 13,000-TEU ship alongside,' Khan said.
Khan applauded the shipping industry for investing in future growth and contrasted $26 billion on new ship orders in 2006 with $8.2 billion earmarked in the same period for inland infrastructure worldwide, excluding China.
'I'm questioning whether all other partners in the supply chain have invested enough to keep pace with the growth which is sure to follow,' he said.
Khan also added his name to the growing list of shipping bosses who question the reality of vessel overcapacity in the last year or so, the perception of which some lines feel has contributed to the decline in freight rates starting late-2005.
'We have been blamed for this over investment (in ships. According to forecasters) shipping companies have been bullheaded and gone ahead to create an oversupply. Yet, did we really have an oversupply in 2005? In 2006? The forecasters say next year. Maybe they will be right this time,' Khan joked.
'Looking at trade flow patterns, it takes very little to realize that of all the resources in the supply chain, certainly the number of ships will not be the bottleneck,' he said.
Getting back to his call for more attention to be paid to smaller, secondary ports and terminals, Khan said what is needed is public/private partnerships with intra-governmental cooperation in Europe and central planning in the United States together with financial incentivization.
'Just as shipping has no capacity constraints because of maximum participation by private players, similarly infrastructure requires the indulgence of the private sector,' Khan said.
'If Canadian teachers can find terminals attractive enough to buy four of them for 27 times their 2007 projected earnings, I'm sure that given the right stimulus, we could get the funding for rapid development of the entire infrastructure.'