Evolution of freight traffic in spain
The evolution of freight traffic from 1992 until the present, and how the decline in traffic, overcapacity, and high costs are damaging the sector.
The port sector's structural problems
The decline in traffic, the overcapacity of Spanish ports, and the high costs of labour and fees are the main problems of the Spanish port sector.
Challenges and
difficulties of the sector
Main challenges and difficulties to assure profitability for port investors and the future of the sector. Ten proposals from PIPE to reactivate the Spanish ports.
What is the
Plataforma IPE?
PIPE is the Platform of Investors in Spanish Ports, created in 2013 with the aim of becoming the opinion forum within the Spanish port sector, proposing changes and improvements to boost competitiveness, development, and sustainability in this important sector within the Spanish economy.

The platform is composed of the most important business groups that have invested in the Spanish port system, and whose premises are found in major Spanish ports. The members of PIPE are found in all the Port Authorities, and are the following:

All of these companies have port concessions for stevedoring operations in more than 33 Spanish ports.

PIPE's presence in the ports of Spain
Source:
Websites of PIPE's members
Who’s who in a Spanish port
The port is a complex structure of stakeholders and companies that provide services upon which the competitiveness and services provided at a port depend.
The ship operator or shipbuilder operates a vessel at its own risk, regardless of whether it owns the ship or not. The ship operator has several partners who are: the captain, the crew (mate, boatswain, engineer, and purser), maritime pilot, tug, berthing master, and stevedore.
The captain has command of the crew and navigation of vessel to its destination, in accordance with the instructions received from the ship operator.
The maritime pilot guides the captain of a vessel in berthing and undocking manoeuvres while the vessel remains in port.
The tug, following the maritime pilot’s instructions, steers the boat to provide traction to the vessel to move it, manoeuvre it, or rescue it.
The berthing master is the operator in charge of berthing, which consists in attaching the vessel's towlines or ropes to the bollards of the docks.
The loading and unloading operators are in charge of loading and unloading freight as well as its transshipment, custody, and storage.
The shipping agency or shipping agent is the representative of the ship operators, which attends to the needs of the vessels docking in ports. On the commercial side of things, it is in charge of contacting with the forwarders and other shippers which directly hire maritime transport to tender the shipping operator’s freight for cargo transfer, whereas on the operational side of things, it supplies, equips, and clears the vessel, arranging for bunkering, cleaning, waste disposal, stevedoring, piloting, tugging, and all necessary documentation.
In addition, there are other stakeholders such as transport agents or brokers, customs brokers, underwriters, cargo inspectors, claims adjuster. The PIPE platform is included among the loading and unloading operators, whose main business involves freight handling in the port. It is important to point out the difference between those companies whose main line of business is stevedoring and are owned by investors—which is the case for the members of this platform—and companies whose port operations constitute a cost center, whereby profitability is not required, and which have guaranteed traffic, such as oil companies.

Maritime transport
in Spain

The relevance of Spanish maritime transport

In an increasingly globalised world, where large multinational companies sell their products to dozens of countries and with the gradual transfer of its production centres to countries with lower costs, transport —and as a corollary, maritime transport— has become one of the main aspects and concerns of countries and businesses in order to compete in the global economy.

The logistics chain of international freight transport is based on the multimodal chain, which includes door-to-door transport of freight from the factory to the end customer, combining different means of transport such as trucks or trains with ships, with maritime transport accounting for 90% of international freight transport and 68% of international traffic in Spain..

The current state of maritime transport in Spain

International maritime transport in Spain decreased by 15% in 2009 and it has still not recovered its pre-crisis figures. Since then, it has grown by 4% thanks to the growing internationalisation of Spanish companies which has led to the increase in the volume of exports, growing from 24% in 2009 to 32% in 2012 of international maritime transport in Spain.

The Spanish port sector is a key element in the logistics chain of maritime transport and freight transport in general. It has a direct, indirect, and induced impact in the range of 20% of the GDP in the transport sector, which accounts for 1.1%2 of the GDP. Likewise, it creates 35,000 direct jobs and approximately 110,000 indirect jobs. Moreover maritime transport accounted for 13% of internal freight traffic in Spain in 2011.

The Spanish ports

Spain has 46 ports of general interest, of which 55% are found on the Mediterranean, 27% on the Cantabrian coast, and the remaining 8% in the Canary Islands.

The choice of one port over another is key for import-export traffic and for transit traffic due to different factors, among which are: the port’s geographic location, the costs associated with port operations, and the quality and level of the service offered.

For their geographic location, the Mediterranean ports in Spain, constitute the maritime transport hub for Southern Europe, mainly competing with ports in Southern France and Southern Italy, and in relation to freight transit with ports in Northern Africa. The ports in Northern Spain mainly compete with the major ports in Northern Europe such as Hamburg and Rotterdam.

Competitiveness is important in import-export traffic. Multinational companies, such as car manufacturers, steelworks companies, etc. decide on their location based on their cost structure, in which the transport of products is an important consideration.

The greatest competition in international freight traffic between countries is found in transit traffic, which means attracting freight whose entry into the country will not be to the port in question, but instead, the port will only be an intermediate stopover, for another ship to finally carry the freight to the destination port.

This traffic, representing 28% of the global traffic total and between 55% and 64% of containers in Spain, incurs practically no costs in changing ports, which makes it very volatile. For this reason, the efficiency and quality of the service are key, with not only the cost of the service but also the cost and time associated with the ship’s stay in port key aspects to bear in mind.

The competitiveness of maritime transport is thus a key factor for domestic companies that export its products and for foreign companies that decide to set up their production centres in our country.

Setup of the Spanish port system
The Spanish port system is made up of 46 ports that are managed by 28 Port Authorities, whose coordination and control of efficiency the public institution Puertos del Estado is responsible for.

The management of ports of general interest is done under the so-called ‘landlord’ model, where the PA is merely a port infrastructure and land provider, regulating use of this public domain and ensuring availability and quality in the provision of different port services. These services are mainly provided by private operators under an authorisation or concession arrangement.

The Boards of Directors of the PAs are the government bodies which make the decisions for the ports. These are composed of 80% public officials and only approximately 20% of the seats are available to private investors, always upon election by the rest of the Board. The PAs are funded through the fees paid by the private companies that carry out its economic activity in the public port domain as companies providing services.

Types of port fees

Several types of fees are applicable: occupancy and activity fees, usage fees, and aids to navigation fees.

Several types of fees are applicable:

  • The occupancy and activity fees are paid by those private companies established in the port and which carry out commercial, industrial, or service activities, representing 37% of the PAs’ revenues in 2011:
    • The occupancy fees are paid for occupying public port domain, by virtue of a concession or authorisation granted and includes the provision of common port services to the concessionary company related to the occupied domain. These fees are fixed for the operators and for the PAs and constitute 25%4 of its revenues. The occupancy fees are revised upwards annually, having risen over the last few years.
    • An analysis conducted on PIPE’s terminals have shown that occupancy fees have increased in 64% of the cases, with an average increase of 19% with respect to 2007. Some terminals have received rebates on their occupancy fees, with considerable discounts for those with a substantial drop in profitability.
    • Despite this, there is no across-the-board discount policy due to the Port Authority or the terminals’ financial requirements.
    • The activity fees are paid for engaging in commercial, industrial, or service activities. These fees are variable and depend on the volume of traffic managed, with a minimum established in the concession agreement. The PAs collected 12% of its revenues in 2011 through these fees.
  • The usage fees are paid by the port community agents and shouldered mostly by the port operators, constituting the greatest revenue for the PAs, comprising 52% of their revenues in 2011. In turn, it is divided into several types.
    • Vessel fee, due to the use of the waters in the port’s service area and the port’s facilities.
    • Passenger fee, due to the use of the port facilities by the passengers, their luggage, or the vehicles in which they board or exit
    • Freight fee, due to the use of the facilities and areas associated with the loading and unloading of the vessel, road and rail land-based accesses and roads, and other port facilities by the freight, including its stay in the service areas.
    • Fresh fish fee, due to the use of the port’s waters and its facilities by the fishing boat or merchant ship, and the land-based facilities.
    • Sport and recreational craft fee, due to the use of the port’s waters and facilities, as well as the craft’s stay on the docks.
    • Fee for special use of the transit zone, due to the use of the transit areas and manoeuvring areas by the freight and transport equipment.
  • Aids to navigation fees, due to the use of the maritime signalling service.

Situation of the port sector

Evolution of freight traffic in Spain

From 1992 until 2008, freight traffic in Spain had an annual growth rate of 4.4%. During this period, many of the concessions that currently enable the provision of services in the ports were granted to different private investors. The investors’ business plans were based on the hypothetical continuity of this historic growth under the concession and fees model established by Puertos del Estado.

The continued increase of the system’s capacity has only heightened the decline in volume at the terminals, generating aggressive competition and exerting a strong downward pressure on prices. It is worth mentioning that in 2013, MsC transferred part of its traffic to Italian ports such as Gioia-Tauro or to Sines in Portugal, and the most immediate consequences are beginning to appear, with some terminals that have already filed for a suspension of payments.

This loss of profitability is due to 3 main reasons: the decline in traffic, overcapacity existing in the system, and high costs and inflexibility of port fees and labour. The global economic crisis led to a decline in traffic from 13% in 2009. Despite the fact that the total volume of freight steadily increased until recovering its pre-crisis figures in 2012, interruption of the aforementioned historic growth resulted in aggregated losses for the port operators equivalent to more than one year of annual business volume expected (more than 502 MTon) from 2008 to 2013.

The situation in 2013 does not look positive, and based on the results of the first 6 months of 2013, there is a 5.6% decline in traffic with respect to the first half of 2012. Additionally, the volume of traffic managed by the port operators have actually suffered a more substantial decline than that shown by the statistics of Puertos del Estado, which is having a strong impact on the port operators’ margins, and as a result, on the return of the investments made.

The traffic in 67% of the bulk terminals that fall within the PIPE platform is decreasing at a rate of 9% per year in comparison to the 6% shown by Puertos del Estado, exhibiting a sharper decline in the first 6 months of 2013 which amounts to 17%. Likewise, 56% of PIPE’s container terminals that were analysed show a negative trend with an annual average decrease of 17% for the period between 2007 to 2013, a situation quite contrary to that shown by the statistics of Puertos del Estado in which the volume of traffic remained steady between the period of 2008 to 2012.

The same cannot be said of the other stakeholders in the ports such as the PAs, with a business model which, despite the economic crisis, has maintained its revenue levels obtaining an EBITDA margin of 57%1 in 2011.

The port sector’s structural problems

1. Decline in traffic

2009 meant a 16% decline in port activity, a situation that had never happened before in the Spanish port system. Since then, the activity of loading and unloading operators has evolved, reaching 473 million tonnes in 2012, a figure still much lower than that of 2008. The forecast for 2013 is not much better than the previous year. The volume of activity lost in comparison to the expected volume will reach the amount of 700 million tonnes, a figure greater than one full year’s activity.

The main consequence of this is that the investors’ expected returns have fallen far short of the mark. Given that it is no longer possible to recover the volume lost, the only way to get the profitability figures back on track would be to extend the concession periods, a measure that has negligible impact on the port system's accounts.

2. Overcapacity

Our studies show that the container facilities—the main focus of the current port investments—will have an occupancy of 36% once the planned investments have been completed. Of this occupancy, transshipment only contributes 20%. The number of terminals with a use greater than 50% is very small. Only Las Palmas, Valencia, Algeciras, Sevilla, and Vigo have acceptable occupancy ratios. On the other hand, the model of fees and minimum traffic generates huge margins and cash surpluses for the Port Authorities. This surplus fosters the continuity of the flow of Public investments, all of this in spite of the existing overcapacity. For 2013 and 2014, there are planned investments amounting to 563 and 648 million euros respectively.

3. High costs of labour and fees

In the container business and for the decade between 2003 to 12, unit revenues are up by only 15%, whereas the occupancy fees exceed 20% and labour is 40%. Strangely enough, this disparity has been further heightened since the beginning of the crisis in 2008. The study obtains similar conclusions for the bulk business, with increases in unit labour costs (+20%) and occupancy fees (+14%), whereas unit revenues are only up by 4%. This trend in costs and revenues has a strong impact on profitability as the fees and labour constitute approximately 70% of an operator’s costs.

The salaries of stevedores are high. They almost triple that of other workers in other sectors with the same qualifications and responsibilities. At present, the port operators have little flexibility to outsource outside the system, although this could change over the coming months as a result of its revision by European legislation.

The occupancy fees constitute 80% of the total expenses in fees that a port operator has to shoulder. These fees have continued to increase over the last few years, without adjusting to the current land valuation in the real estate market (with an average decline in value of 44% during the period from 2008 to 2012), ensured by the Law of Ports in Article 177. This situation only further contributes to damaging the private investors’ profitability, whereas Puertos del Estado's economic self-sufficiency is ensured by the regulation in force.

Challenges and difficulties of the sector

Adapting the concessions
to the economic situation

The majority of the concessions were granted in the period of economic prosperity under conditions that were logical in view of the results in that context. At present, and since 2009, the reality is very different and the conditions of the concessions have remained as they are in the majority of the cases, ensuring the PAs’ profitability through minimum traffic and an ever-increasing fee model.

In the subsequent revisions made to the law nothing has been done to adapt it to the new reality of the port sector and to the Spanish economy as described previously. Only the PAs of certain ports have applied rebates in whole—such as Algeciras or Ferrol—and in part—such as Barcelona, Bilbao, or Málaga.

The reduction in margins and thus, in profitability—experienced by the port operators, and which could be further aggravated if the decline in traffic continues, the overcapacity, and the increase in costs, all result in extending the payback period of investment planned for in the original business plans. In Spain, the concession periods range between 30 to 35 years, whereas in Europe, these can extend up to 65 years.

Generally speaking, occupancy fees have continued to increase over the last few years, without performing a land valuation of the port terminals in line with homogeneous criteria. A good example of this is the great disparity between the amount per m2 of the occupancy fees in the different ports, or even between companies in the same port, hindering their competitiveness and creating an unlevel playing field.

This valuation does not take into account intended land use, market fluctuations, or the overcapacity existing in the system. In recent years, Spain has experienced a major real estate crisis, which has been much more severe than the rest of Europe and the world. This crisis brought about a general decline in the value of real estate assets, being particularly more pronounced in the case of land value.

Moreover, for coastal locations, the decline in asset value has been even greater due to the surplus stock that the banks had in their balance sheets, and which they had to sell with huge discounts. This general decline has not been reflected in the evaluation of port fees by the PAs as provided for by the Law of Ports in Article 177. The minimum traffic conditions were incorporated into the law to boost the investors’ commercial activity and were defined in a context that has nothing to do with the current volume and forecasts. These minimums have not changed since then, whereas the volume of traffic has not increased since 2008 and the capacity has steadily increased, fostered by the PAs’ investments, generating greater competition and distributing traffic among ports.

Minimum traffic, within the context of an increase in capacity and decline in volume, only further contributes to damaging the private investors’ profitability, whereas Puertos del Estado’s economic self-sufficiency is ensured by the law. In this way, the PAs’ profitability remains unchanged and is much higher than the rest of port stakeholders.

Ensuring competitiveness

The strategy of promoting inter-port competition in the port system has produced excellent results in the context of growing traffic. This strategy has led to the implementation of more efficient processes that have made it possible to reach high levels of competitiveness. However, in the current context, this strategy is questionable. In a situation with overcapacity, it is absolutely essential to have a more global vision that ensures that investments made not only do not damage the port operators’ profitability in their role as the main investors, but also guarantee the development of the Spanish port system.

As this overcapacity in the system does not go hand in hand with a corresponding increase in traffic, the Port Authorities thereby focus their plans on competing against other domestic ports and logistics chains. The Authorities operate independently and in a decentralised manner. They receive minimal intervention from Puertos del Estado. In this manner, it is not possible to ensure a level playing field among ports and oversee the implementation of a strategy on a national level.

In other sectors, the responsibility of public administrations is written into law through the inclusion of a surrender of concession . Instead, in the port sector, the concessions that include this clause in their agreements are few and far between. In Spain, the rationale behind the measurement of the port system’s efficiency is based on the volume of traffic and the management ratios related to the Port Authorities They have a business model that does not depend on economic performance or the system’s profitability. Instead, it is based on the occupancy of land at the terminals by the operators and benefited by the minimum traffic stipulated for them.

In the evaluation of the authorities’ performance, the trend in prices, the stakeholders’ profitability, the actual productivity of the operators, or the effectiveness of the investments—both public and private—are not being taken into account. Because of this, the ports’ economic situation seems to be based on the situation of the country’s import and export traffic or in the quality of the infrastructure, without focusing on the necessity, its usefulness, and the improvement in quality by boosting efficiency and productivity.

Improvement proposal

Until recently, the Spanish port sector was an attractive sector for major investors, as it had high barriers to entry due to the high initial investment required, competition in international long-distance freight transport was practically nonexistent, and it gave control over a very important part of the logistics chain.

At present, the sector has lost much of its allure. The nonexistent growth in traffic over the last 5 years and the drop in expected traffic in 2013, together with the new investments and increases in capacity, will only serve to heighten the decline in the operators’ port traffic and thus, greater pressure on the prices of their services can naturally be expected.

Moreover, the upward trend in stevedoring costs and port fees, combined with the preceding, results in the investors obtaining returns that do not compensate the investment made in the medium term, thereby bringing about a disinterest in port investments in Spain.

On the other hand, the current management of the stevedoring service generates insecurity with regard to the reliability of the service and the capacity to reduce its costs—key factors in a sector in which it costs very little for the customers to change. All of this leads to the operator not being able to effectively control the logistics chain.

Spain and the investors operating in it have managed to be competitive despite its cost structure affording little flexibility. To do this, they compete based on price to the detriment of their margins and make capital-intensive investments to boost the productivity and efficiency of their operations without obtaining a reasonable return on capital in recent years, which places the sustainability of their business at risk.

In this context, the main challenges that have to be overcome in order to ensure sustainable profitability for the port investors and the future of the sector have been identified:

  • The need to adapt the conditions of the current concessions to the economic situation in the short term, and to amend them in the medium term.
  • Ensure the system’s competitiveness of the system to guarantee the continuity of traffic in our ports.
  • Promote a change in legislation that would allow great control over the stevedoring staff.

News

Interview with José Luis Almazan Vice Pipe in the newspaper Expansion.

Contrary to what the current acting Government asserts, José Luis Almazán believes that the previous administration of Puertos del Estado has been poor. ‘Little has been done for the ports’ competitiveness’, he points out in an interview.

In his opinion, the new administration should focus on resolving outstanding issues and reconsidering the port management model in its entirety. ‘Liberalising stevedoring services, boosting competitiveness bearing in mind the current overcapacity, and putting an end to the rivalry among ports through reductions in fees are issues that the new administration should tackle over the next four years’, states Almazán who, in addition, is the Manager in Spain for the fund Queensland Investment Corporation.

In 2015, the recurring revenue of the port system reached 1 billion, with cash generation of between 450 to 500 million euros, whereas the gross operating result (EBITDA) rose to 550 million, with a turnover of 1.3 billion at the end of the year. Puertos del Estado’s profits is estimated at 200 million with a freight traffic record of 500 million tonnes.

 

Download the full interview in PDF


Recovery passes through the ports

Our ports are key for Spanish exports—one of the main drivers for the economic recovery—they are of vital importance in their role of contributing to the socioeconomic development of Spain. The Spanish port system faces important challenges, although if all the agents involved were to join forces, the current weaknesses could actually become strengths, and the threats from the competitive environment could become opportunities.

In Spain, there are 28 port authorities that manage 46 ports, handling approximately 480 million tonnes per year, contributing 20% to the transport sector’s GDP and 1.1% of the total GDP and creating more than 150,000 direct and indirect jobs. The overcapacity existing in the Spanish port system—a result of the excess in European funding and the structure of government of the port authorities—is responsible, among others, for the deterioration in competitiveness of the Spanish port system. The level of use given to Spanish port infrastructure is less than 36% of the available infrastructure, when the optimal range of use of infrastructure is approximately 80%. It seems reasonable then that before concentrating efforts on new infrastructure which hinder competitiveness, the focus should be on optimising the ones available.

The profile of the major investors and operators in the Spanish ports, grouped under the Plataforma de Inversores en Puertos Españoles (PIPE), is very interesting and attractive for the owner of the assets—in this case Spain—represented by the Public Administration. They are investors who look to the long term by their very nature—families with several generations’ history in the sector, pension funds, infrastructure funds, etc.—with a profile much more attractive than that of others whose investment horizon and expected returns on investment are not in line with the interests of the public port domain’s owner. The State should be conscious of the importance of creating a regulatory framework which makes it possible to attract the investor profile best suited to the interests of all the Spaniards.

The investors and port operators in Spain have been the ones who have coped with the effects of the severe crisis in the port sector. From 2008 until today, the level of losses in terms of traffic with respect to the forecasts is equivalent to traffic for an entire year; whereas the public revenues of the port authorities have continued to increase in this period, mainly due to the land value—which in many ports have remained at pre-crisis values—and due to the establishment of a minimum traffic for which the concessionaire pays the Administration regardless of actual traffic. It is precisely the cost of land, together with the labour costs of the freight handling system, which is one of the factors that most undermine the Spanish ports’ competitiveness, and therefore, from the Spanish economy itself.

Overcapacity could actually become an opportunity to attract certain traffic from other countries, which would lead to the generation of gross added value and the creation of jobs for Spain. To do this, and to solve the problems that were previously described, it is essential to compete under the same conditions as other European ports and in our competitive environment. One of the most evident and key aspects is being able to amortise investments within the same term as our competitors; in Spain, the maximum term of a port concession lasts 35 years, whereas in the rest of Europe, it can reach 70. The effort made by the Government with the approval of Law 18/2014, approving Urgent Measures for Growth, Competitiveness, and Efficiency, allowing the extension of concession periods to 50 years, is worth mentioning here. Nevertheless, its success will be determined by the application of the aforementioned law.

In this sense, it does not seem reasonable to demand new investments in light of the current situation of overcapacity, which would diminish the ports’ competitiveness with a double effect: it would lessen the competitiveness of Spanish exports and imports and transshipment traffic would continue to be lost, which would be detrimental to the countries in our competitive environment. The reasonable thing would be, as provided for by law, to link the extensions of concessions to the recognition of overinvestments made in the past, making it possible for the concessionaire to apply improvements in competitiveness that would affect the end customer.

Spain has always been an international benchmark in the port sector, and by retaining the profile of the current investors and operators in the Spanish port system with the appropriate legal framework and flexible conditions in its application, the established objectives can be achieved. The common mission should be the strengthening of the Spanish economy, enhancing the competitiveness of Spanish companies that export through the ports, generating gross added value and creating sustainable employment. By boosting the ports’ competitiveness, overcapacity can stop being a weakness to become a strength instead. Spain has an extraordinary opportunity to consolidate its recovery and come out even stronger after the crisis, and the Spanish ports should play a central role in this common objective. Ortega y Gasset said that ‘it is only possible to progress when you think big and it is only possible to advance when you look afar’. This is the time to be ambitious, to look afar, and to think big for the Spanish ports.

José Luis Almazán is eexecutive vice president of the Platform for Investors in Spanish Ports, PIPE


PIPE organiza un desayuno en la Agencia EFE con Álvaro Nadal

Lunes, 20 de julio de 2015

The Executive Vice-President and Spokesperson for PIPE, José Luis Almazán, and Álvaro Nadal, Head of the President’s Economic Bureau, were the protagonists of the forum organised by Agencia EFE on ‘The ports as Spain’s economic driver’.

During his participation in the forum, Almazán explained that, according to what the sector had been able to learn, the port authorities do not believe that they can get the binding reports necessary to resolve the requests before September 2016. ‘It is very worrying’ added Almazán, for whom it would be very important to have the processing stage finished as soon as possible—in other words—in the course of 2015.

The objective of this amendment is to increase economic activity and private investment, modernise the Spanish ports in terms of technology, and as a result, make them more competitive.

For Almazán, the extension of the concession period is “to change the direction” of the sector which had been severely affected by the decline in activity, as a result of economic recession, in a situation aggravated by overcapacity, high labour costs, and poor competitiveness.

Although approximately 480 million tonnes went through the Spanish ports in 2014—which is approaching the pre-crisis levels of 2007—Almazán bemoaned the loss of traffic equivalent to an entire year during the years of recession.

 


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