Access to ports - Written evidence from Hutchison Ports Ltd (PA 03)

Written evidence from Hutchison Ports Ltd (PA 03)

Summary

Hutchison Ports (UK) ("HPUK") welcomes the Committee’s Inquiry and the acknowledgment of the importance of access to ports.  HPUK agrees with Government forecasts that future growth in the ports will be focused mainly on the container sector. Due to the economics of operating large container ships, the ports that will continue to be the main focus for growth will continue to be those in the South and East. Capacity at Felixstowe/Harwich will grow to 8 million TEU per annum and it will continue to be the largest port for container traffic. The connections to and from Felixstowe are also a major route to market for exporters in the Midlands and North and are important to Government’s strategy to encourage an export led recovery and to grow exports to markets outside Europe. HPUK believes that the Government will get the best return on investment in access to ports by prioritizing investment in the A14 corridor to remove bottlenecks on routes serving the UK’s most important port complex.

PART A – GENERAL COMMENTS

1. Introduction

1.1 Hutchison Ports (UK) ("HPUK") welcomes the Committee’s Inquiry and the acknowledgment of the importance of access to ports.  The provision of efficient access to ports is vital if the UK is to remain a strong player in the global market, delivering jobs and growth and an export-led recovery.  Government action needs to be driven by this overall objective, and take account of the specific nature of the UK Ports market, including the need to promote a level playing-field.

1.2 HPUK is a member of the Hutchison Port Holdings ("HPH") Group, a subsidiary of the multinational conglomerate Hutchison Whampoa Limited ("HWL"). HPUK owns and operates the Port of Felixstowe, London Thamesport and Harwich International Port and, with over 3,000 employees, is the largest employer in the UK port industry.

· Port of Felixstowe is the largest container port in the UK. All the major container lines have a presence in Felixstowe and the port has over 90 services per week to every part of the world. It has a total of nine deep-water container berths, including the new Berths 8&9, opened in September 2011. The port handles over 3.5 million TEU of container traffic each year which represents more than 40% of all the UK’s container trade. In addition to containers, Felixstowe handles roll-on/roll-off (Ro/Ro) ferry services to North West Europe.

Felixstowe is also the UK’s largest container rail terminal handling 58 freight train movements per day, connecting the port with 16 inland destinations. Felixstowe has two rail terminals and HPUK is investing £40 million (including a €5 million contribution from the EU TEN-T budget) in a third terminal. The new North Rail Terminal will open in mid-2013. It will be capable of accommodating longer trains and permit 35-wagon freight trains to use the port. Eventually, the new terminal will double rail freight capacity at Felixstowe.

· Harwich International Port is one of the UK’s leading multi-purpose freight and passenger ports, with road and rail links to the Midlands, London and the South East. It is ideally located for North Sea freight and passenger traffic to and from Scandinavia and the Benelux countries, offering first class roll-on/roll-off, ferry, container and bulk operations. Harwich is also a leading port for the shipment and transfer of wind turbines to offshore wind farms.

Consent was received in March 2006 for Harwich International Port to develop a new deep-water container terminal at Bathside Bay, adjoining the existing facility. The new container port will offer 1,400 metres of deep-water quayside, 11 ship-to-shore gantry cranes, and a total capacity of 2.1million TEU per annum.

· London Thamesport is located on the River Medway. The Port, which includes container and warehouse operations, covers a total area of 85 hectares. It offers automated secure container yards and modern warehousing. The quay is equipped with two deep-water container berths, dredged to a depth of 15 metres alongside.

2. The UK Ports Market

2.1 The port sector in the UK has two main characteristics that set it aside from similar industries in most other countries; it is, predominantly a private sector industry, relying on private investors to identify the need for, and fund, additional capacity, and, secondly, it is characterized by competition between a large number of generally quite small ports, as opposed to competition between two or more operators within often much larger ports as is often the norm elsewhere. Both of these characteristics have implications for the provision of inland infrastructure.

2.2 Ports handle a wide range of cargo types and modes, each of which has separate implications for inland transport. Bulk cargoes, for instance, typically have relatively low unit values and cannot bear the cost of lengthy transport legs to or from the port. Ports that handle these cargoes therefore tend to have a relatively local hinterland.

2.3 Unitised ports, namely Ro/Ro and containers, serve larger hinterlands. The Ro/Ro market can be sub-divided into a number of largely distinct markets such as the Irish Sea, Western Channel, Dover Straits and North Sea that have, to varying extents, regional characteristics.

2.4 Container ports, and particularly deep-sea container ports, serve national hinterlands. There are relatively few deep-sea container ports in the UK. Felixstowe is, by some margin, the largest, handling over twice as many containers annually as Southampton, the second largest. Smaller quantities are handled at London Thamesport, Tilbury, Liverpool and Bristol. The provision of facilities for the very largest ships is costly and entails lengthy and inevitably expensive planning requirements. Only Felixstowe, London Thamesport and Southampton are capable of handling the largest container ships. Dredging costs to accommodate the largest ships are usually commercially funded in the UK but often publicly funded on the continent. The costs of the publicly funded dredging may not always be recovered in charges to port users.

2.5 HPUK’s ports are all common-user facilities, i.e. they serve any shipping line wishing to call at them. Other ports or facilities, including a number that handle bulk, semi-bulk and some ferry terminals are dedicated to one single user.

2.6 Government forecasts predict the strongest future growth in the container port market with lesser growth in Ro/Ro traffic and negligible growth in other sectors in the period to 2030 [1] . HPUK concurs with this forecast pattern of growth and believes the areas of greatest growth should be the focus of the current inquiry.

2.7 HPUK operates predominantly unitised ports and, unless stated otherwise, the comments in this submission refer to unitized traffic only and, within that sector, predominantly to the deep-sea container market.

2.8 Unitised traffic generates the greatest demand on inland infrastructure. It is also the mode that supports much of the export traffic manufactured in the UK. Where funds for investment are scarce it makes sense to concentrate on the provision of infrastructure to the sector that is growing fastest, deep-sea containers, and, within that market, the ports that are handling the greatest volume.

3. The Deep-Sea Container market

3.1 The size of ships serving the deep-sea container trades has grown significantly in recent years. The delivery of the 15,550 TEU E-class Maersk vessels in 2006 heralded the latest step change in the industry. Since then there has been a rapid increase in the number of ultra-large container ships (ULCSs) in service. All the largest vessels calling in North West Europe, including the UK, are on the Europe-Asia trade.

3.2 The number of ULCSs is set to increase further and the next generation of mega ships, Maersk Line’s 18,000 TEU Triple-E class vessels, are due to enter service in late 2013.

3.3 The deep-sea container shipping industry is very volatile and highly competitive. Tight control of costs and the preservation of sailing schedules – arriving on schedule or maximizing the opportunity to regain schedule when delayed – are of paramount importance to ship operators.

3.4 Container ships on all the major trade routes call in North Europe as well as the UK. The greater size of the European markets dictates that something of the order of 75% of ship capacity will be for continental Europe with only about 25% for the UK.

3.5 The main ports of call in Europe are all centred in the Hamburg – Le Havre range with the greatest concentration in Rotterdam. The charter costs of operating ULCSs are approximately $50,000 per day [2] . Any deviation from this route adds significant cost and delay. The UK ports that minimize deviation from the core axis are those in the South and East of the country between Southampton and Felixstowe.

3.6 Large container ships are reluctant to deviate to ports on the west coast of the UK or significantly further north than Felixstowe on the east coast.

3.7 The deployment of larger vessels and the continuous increase in bunker costs has resulted in lines "slow steaming" to save costs. This requires more vessels in each string of service (11 vessels now compared to 8 a few years ago), reducing the number of port calls and sharing more slots on each other's vessels. As a result, port operators are seeing a reduced number of calls but the size of each call increased. This puts additional strain on resources: equipment, labour and yard. Dwell time of boxes in ports have also reduced. This peak and trough situation creates additional pressure on landside activities, both for the road and rail transportation linking the port to the national distribution centres.

3.8 Congested road and rail networks around urban centres is not something unique to the UK but is a phenomenon visible worldwide. Together with the need to speed-up maritime access by locating terminals nearer to main shipping routes, it has been the major factor behind a global trend for ports to be developed away from urban centres. Examples can be found in locations on all continents including Maasvlakte 2 in Rotterdam, Shanghai, Wilhelmshaven and Sydney/Botany Bay.

3.9 With greater potential for expansion through consented projects at Bathside Bay and Felixstowe, a location closer to the main ports of north Europe, the absence of a lengthy river access, and the ability to avoid congested urban inland networks, there is no threat to Felixstowe’s current position as the UK’s largest container port. Future growth is forecast to be greatest in the container sector and, within that sector, will be greatest in Felixstowe/Harwich area.

3.10 Government policy supports the rebalancing of the economy by boosting exports and narrowing the North-South divide. A significant proportion of export manufacturing is in the Midlands and the North. With the slowdown in the Eurozone, there is also a need to increase exports to new markets outside Europe. The main shipping routes to all these markets go through Felixstowe and there should, therefore, be a clear priority to invest in the A14 corridor as the main artery serving the UK’s most important port complex and the principal route to market for exporters throughout the whole country.

4. Port Planning

4.1 The port planning system in the UK is extremely complex. Securing consent for port developments can take many years and involves the assessment of numerous impacts.

4.2 The system, and legal requirements, are so complicated that they are understood be very few people even within the industry or amongst regulators. Some developments have required Town and Country Planning Act (TCPA) consents as well as approval under the Harbours Act. Other, very similar, applications have been approved only under the Harbours Act.

4.3 There has been little consistency or clarity in the approach taken in recent port planning decisions towards the provision of inland infrastructure. Inconsistencies in the planning system distort the port market and can result in the sub-optimal provision of port capacity. It is unclear to what extent the revisions to planning procedures for nationally significant infrastructure projects will remove these inconsistencies going forwards but a transparent and consistent system is required to encourage investment in ports.

4.4 It still seems remarkably easy within the planning system for vexatious objectors to impose potentially expensive delay upon the developers of strategically important projects. The correct balance between the rights of the individual and the ability of developers to deliver nationally important projects in a timely and cost effective manner is still to be found.

5. Rail Freight

5.1 The majority of freight trains (38 per day currently, 19 in each direction) from Felixstowe travel down the Great Eastern Man Line (GEML) around the North London Line (NLL), then up the West Coast Main Line (WCML) to destinations in the Midlands and North West. As developments improve the Felixstowe to Nuneaton (F2N) line, more services use this route to access the East Coast Main Line at Peterborough or the WCML at Nuneaton.

5.2 Scale is critical in developing a wide range of intermodal options. The large volumes passing through Felixstowe create a virtuous circle. To be attractive to shippers, rail must be competitively priced, serve the destinations they need, and offer sufficiently frequency of service to represent a viable option to road freight. Without sufficient volume, and in the absence of large levels of grant, these are not possible.

5.3 In addition to providing the critical mass to support frequent services, the concentration of volume at one or two large ports allows the utilization of individual trains to be maximized. Without high levels of utilization, cost and carbon efficiencies cannot be achieved. The utilization of rail wagons at Felixstowe is high at 81%.

5.4 If a policy was contemplated to support the use of smaller regional ports one consequence would be the loss of economies of scale necessary for a viable rail freight industry and a reverse shift from rail to road with a commensurate increase in congestion and carbon emissions.

5.5 The recent High Level Output Statement (HLOS) published by Government included £200 million for the Strategic Freight Network in Control Period 5 (2014-2019) as well as other specific measures that will improve the F2N route. HPUK believes that these measures, and the implicit priority given to the route, are appropriate given the most likely pattern of future container trade growth.

5.6 Longer term plans should be progressed as a priority to electrify F2N. Provisional work should be undertaken in CP5 to allow upgrades to take place early in CP6.

5.7 It is critical to the future performance in both operational and environmental terms that F2N is electrified as the switch to electric locomotives over the next 10 years will make this a necessity.

5.8 There is a lack of clarity in the way Network Rail allocates elements of its budget such as that earmarked for the Strategic Freight Network. Whilst a degree of discretion may be necessary, there should be greater transparency regarding the criteria used and the decisions made.

5.9 The opportunities to encourage third party investment in the rail network are not being maximized. Any discussions about investment in the railway focusses on risk-sharing. A greater emphasis on reward-sharing might encourage other companies to invest in the network.

6. Road Freight

6.1 The relatively short distances over which much freight moves will mean that road is likely to remain the dominant mode for the carriage of goods to and from ports for the foreseeable future.

6.2 Felixstowe and Harwich have the advantage of being located away from congested urban centres but are strategically placed between, but close to, the main shipping lanes and the major areas of consumption/production. Traffic to/from the Haven ports does not significantly exacerbate congestion at the most crowded parts of the UK road network.

6.3 HPUK has introduced a number of systems to help manage road freight. Most notably, the Vehicle Booking System (VBS) through which hauliers pre-book hourly slots to call at the port has helped reduce peaks in demand and the strain they can place on both port and local road infrastructure. The Paris optimization software also provided by HPUK allows customers that use it to match inbound and outbound loads by road and rail to optimize equipment use, lower cost, and reduce the impact upon port-connected infrastructure.

6.4 HPUK supports early action to address the bottleneck on the A14 between Cambridge and Huntingdon although heavy goods vehicles from the Haven Ports account for less than 4% of vehicles on this section [1] . The route also serves port traffic from the south, including Thames and Channel ports, using the M11 and A1 to destinations in the North. Government should not wait until 2018 as suggested to take action.

6.5 HPUK opposes the proposal to charge tolls on the improved section of the A14. The proposal is arbitrary and discriminatory. It will impinge upon all businesses for which the road is the route to market, including exporters in other regions, increasing cost and reducing competitiveness. Any proposal to introduce tolls should only be made as part of a strategic and comprehensive national scheme.

6.6 If tolling to fund the new infrastructure cannot be avoided, it must be complemented by an efficient non tolled route to give businesses and motorists an alternative.

7. Maritime Access

7.1 As well as ensuring adequate access by road and rail, it is important that modern deep-sea ports have appropriate maritime access for the ultra-large container vessels that call at major European ports.

7.2 The importance of maintaining advertised shipping schedules – and the imperative to recover schedules when time is lost due to unforeseen events – is of great importance to container shipping lines. This dictates that ports with short navigation channels, dredged to a sufficient depth to allow access at all states of the tide have a significant advantage.

7.3 The trend to larger vessels, and the costs of dredging and delays, has led to a trend, visible worldwide, of ports moving downriver, away from city centres, and towards the open sea. Examples of this can be seen in many places around the world including Wilhelmshaven, Rotterdam and Shanghai as well as in the UK where Felixstowe has replaced London’s once dominant position. Moving away from city centres has the additional benefit of frequently taking port traffic away from the more congested elements of inland infrastructure.

7.4 Unlike certain/many other countries in the EU and around the world, the funding of maritime access channels in the UK has been the responsibility of port authorities who make investments on a commercial basis. Although this practice has put UK ports at a competitive disadvantage to many mainland European ports, it has worked well and ensured a level competitive playing-field within the UK.

7.5 The practice of commercially funding maritime access channels has also had the benefit of ensuring only investments backed by a sound business case proceed and has avoided the inefficient use of public funds. The recent decision to fund maritime access to the Port of Liverpool through a Regional Growth Fund grant to Sefton Borough Council, undermines this principle and, due to the competitive nature of the UK port market, threatens the viability of commercially funded investments elsewhere.

PART B – COMMITTEE’S QUESTIONS

1. What should be the priorities for improved access to ports, and why?

Greatest growth in future will be in the deep-sea container market. Deep-sea containers vessels will continue to call predominantly in the South East but serve a national hinterland. Priority for port access should, therefore, be connecting other regions with the hub ports in the South East and particularly Felixstowe which handles the greatest volume of container traffic and where the pound-for-pound return on infrastructure investment will be greatest. From a port access perspective, traffic – both road and rail – to/from Felixstowe avoids the already most congested parts of the UK transport network around London. Investment in the A14 and the Felixstowe to Nuneaton rail link should be afforded the highest priority.

2. Is the delay in producing a National Policy Statement for National Road and Rail Networks creating problems for improving access to ports? If so, in what ways and where?

There is a clear distinction between the strategic planning procedures for road and rail. The system of Control Periods and long term planning for rail is transparent and inclusive. The system for road investment is less so and can sometimes appear opportunistic and arbitrary. The decision to introduce tolls to upgrade the A14, but to fund upgrades to other routes by more conventional means, is one example. We are not sure that National Policy Statements are the answer but to introduce a long term planning regime for roads based on similar principles to those which exist for the railway would appear to have considerable merit.

3. How satisfactory are the current and proposed decision-making structures, including Local Transport Boards?

The UK’s major ports are mostly, and need to be, connected to the strategic road and rail networks. The answer above applies also to decision-making on these routes. Local Transport Boards may have greater importance for smaller ports but, as far as we are aware, most Boards are still being formed and it is too early to say how effectively they will work.

4. To what extent can investment in road and rail infrastructure influence the market and regional decision-making on port development?

The provision of adequate road and rail infrastructure is an important element for shipping lines and shippers in choosing which port to use. However, the location of the port relative to the optimum shipping routes and inland origin/destination of the cargo is probably more important. Public investment in infrastructure to regional ports that are not best located to service the ships that carry the goods will be inefficient and represent a poor use of scarce funds.

Any attempt by Government to influence port development through selective investment of road and rail is likely to discourage private port investment where it is really needed and undermine the system of market-led port investment that has served the UK very well for many years.

5. Are decisions on port development taking sufficient account of the traffic generated by ports and associated development needs?

Some applications for port development have been accompanied by extensive Transport Assessments which take full account of both road and rail impacts. This has not been the case at all locations and for all developments, and there is a clear need for a consistent approach.

6. How realistic are current assumptions about rail’s modal share of ports traffic? Under what circumstances could rail freight or inland shipping play a greater role in reducing port-related road freight?

HPUK is fully committed to growing rail traffic through its ports and is backing this commitment with significant private investment. High utilisation of rail services and frequent departures are necessary to keep down the costs of rail services and to offer a quality of service that makes them attractive. These are only possible at large ports. The continued development of hubs such as Felixstowe, supported by investment in appropriate elements of the Strategic Freight Network, is the best way to maximise rail’s modal share.

The geography of the UK and lack of navigable inland waterways means that inland shipping will not play a significant role in the distribution of unitised traffic throughout the UK. There is however a greater potential for increased use of coastal shipping. At the moment this represents only a very small proportion of domestic freight movements. The same cost and service frequency/quality factors that apply to rail transport apply equally to coastal shipping. The prospect for increasing the use of coastal shipping is therefore also greatest, and maybe only possible, at those ports with the largest volume of traffic.

7. Are there any regulatory barriers to investment in ports? What could and should be done about them?

The cost, complexity and uncertainty of the planning system can represent a significant barrier to port investment. It is too early to say whether revisions to the planning system have done much to improve the situation.