Johanna Shikukutu
Feliciana Monteiro
What’s in it for Namport and Namibia?
For starters, Namport recently announced a concession of its new container terminal, which was awarded to Terminal Investment Limited (TIL), a subsidiary of Mediterranean Shipping Company (MSC), the world’s largest shipping company by volume of containers carried. Founded in 2000, TIL has grown to become one of the largest and most geographically diverse container terminal operators globally. The company operates 40 terminals and two development terminals in 27 countries. In Africa, TIL operates the terminals of the Port of San Pedro on the Ivory Coast and the Port of Lomé in Togo, respectively.
What benefits does this concession hold?
The concession of a new container terminal to a private operator marks a fundamental change in Namport’s business model, from a public service operator to a landlord one.
In the public service port model, public port authorities are responsible for the port as a whole, with ownership of the infrastructure and superstructure, and the hiring of employees for the direct provision of port work. The port authority has direct control over the facilities and operations. Therefore, the private sector is a mere external customer.
In the landlord port, the public port authority owns the port infrastructure and is responsible for its management, while the superstructure (all the equipment needed to provide services) is owned, including the hiring of labour, by private companies.
The public sector continues to own assets and perform operations that are considered strategic, leaving investments, operations, and contracting to the private
sector. This is currently the most common form of organisation in large ports around the world most notably in open/free market (capitalist) countries as in Europe. However, the activities of port authorities are not limited to the provision of port facilities but may have an active role in the provision (i.e. construction) of infrastructures, such as jetties or dredging.
The Namibia National Development
Plan (NDP 5), calls for Namibia to have a sustainable transport system by 2022, supporting a world-class logistics hub connecting SADC to international markets. In line with this call, Namport’s vision is to be the best performing seaport in Africa and through its mission, it is committed to providing world-class port services to all seaborne trade through excellent customer service, sustainable growth, and social responsibility to contribute to the transformation of Namibia as a logistics hub.
Improving efficiencies and optimising costs is a key focus for Namport. The new container terminal at the port of Walvis Bay allows Namport to scale up operations and handle larger cargo volumes. In 2021, general cargo and overall container volumes at Namport (both ports) reflected modest increases of 11% and 5% respectively. However, the restrictions in the movement of people and trade due to Covid-19 saw the decrease of import and export containers year on year by 14% and 8% respectively. The total cargo handled through the ports of Lüderitz and Walvis Bay stood at 6.2 million tons in 2021, while during the year 2019/20 it stood at 5.5 million tons. Despite the disruption by Covid, indications are that the demand for cargo handling at Namport continued to increase and is expected to increase.
The port of Walvis Bay, a deep-water harbour is strategically located on the Namibian coast to provide an easy and fast shipping route between Southern Africa, Europe, the far East, and the Americas. The port receives between 1 800 to 2 500 vessel calls each year and handles about five million tons of cargo. In terms of container handling, the port of Walvis Bay handles bulk and breakbulk cargo and has a throughput capacity of 750 000 TEUs per annum and 10 million break-bulk cargo.
With TIL handling the container terminal at Walvis Bay port, both Namport (in terms of value-added activities) and Namibia (in terms of employment creation) stand to benefit from this concession, and therefore place the port of Walvis Bay among world-class ports.
When markets are naturally competitive and can be efficiently served by multiple firms, there is no need for public sector or regulatory intervention. However, when markets are naturally monopolistic such as in the ports sector, monopoly concessions allow some of the benefits of competition to be created, even in the absence of direct competition between companies.
Private enterprise has had a significant impact on port operations and management, responding to the new demands of increasingly international and complex logistics chains, especially in container operations, and has grown significantly in the first two decades of this century. According to the World Bank, the volume of containerised cargo worldwide practically quadrupled between 2000 and 2019 (from 225 million TEUs to 796 million), corresponding to an average annual growth of about 7%.
The opening to the private sector has been driven by broader trends in the transportation sector as well as a new understanding of the role of the public sector in infrastructure provision. Some of the main reasons behind this trend are as follows:
The private sector is generally more efficient than the public sector, so the former can provide better services at lower costs;
By using private capital, the public sector can redirect its resources to other priorities;
The private sector is more business oriented and is better able to respond to changing markets.
Regardless of ideological discussions, it has been amply demonstrated in the port sector (and beyond) that the competitive pressure felt in the private sector ensures financial capacity and management discipline that cannot be replicated in the public sector, not even with mechanisms designed to ensure competitiveness.
In general, private managers have incentives for efficient performance provided by their holdings as well as the risk of takeover or bankruptcy. Thus, private ownership is more likely to implement incentives for increased efficiency than public ownership. Public authorities remain immune to takeover and insolvency as well as performance monitoring that is reflected, for example, in share price variation. Moreover, the possibility of political interference in management is an ever-present risk in the case of public ownership.
The port sector has realised that it can operate more efficiently with private operators. The UK, Argentina, Germany, Canada, Australia, Chile, Colombia, Brazil, Belgium, Netherlands, Mozambique, and Portugal are just a few examples of countries that have opened the operation of terminals and ports to private initiatives.
Finally, changes in distribution patterns are creating a hierarchy in the sector with major ports (hubs) of large size and capacity, and feeder ports (feeders) of smaller size and capacity.
The same differentiation occurred in the aviation sector a few decades ago. As in the airport sector, hubs compete with each other for large inter-regional and intercontinental cargo flows while feeder ports compete for offering cheap and efficient services in the hope of one day becoming hubs.
Drawing a parallel with the airline industry, the need for large infrastructure investments in ports to accommodate the increased demand and the opening up to the private sector has boosted the creation of investors and port operators with a global presence. These trends have allowed the creation of a small number of large terminal operators (and in parallel large shipping companies) through a wave of mergers and acquisitions.
According to the latest statistics, the five largest shipping lines control two-thirds of the total container ship capacity, and the 10 largest more than 85%. Terminal operation is not as concentrated, but at least five global terminal operators are controlling a capacity of about 200 million TEU, approximately 25% of the market, mainly concentrated in the largest port hubs. This is currently the structure of the maritime sector.
In summary, increasing private participation in the port sector stems from the need to make port management market-oriented, thereby meeting the needs of its customers, subject to meeting its financial objectives. The belief that the private sector has characteristics essential for success is so strong that the concept of port reform in several countries is invariably associated with the concession/privatisation of assets. We can confidently- conclude that the concession of the new terminal to a private operator is a win for Namport and Namibia.
*Johanna Shikukutu is employed by the City of Windhoek in the department of Urban & Transport Planning. She has interest in maritime administration, transport policy, port management, and sustainable mobility.
*Feliciana Monteiro is a Professor at UBI Business School in Luxembourg and Brussels. Her primary areas of interest are port economics, transport policy, and sustainable mobility.