Hub ports set to change Africa’s ‘Milk Run’ model of container routes

March 23, 2009
Author: Lunga Ngcobo

Durban, 23 March 2009 - The chief strategist at South Africa’s Transnet Port Terminals says there is an opportunity for shipping lines and cargo owners to gain a cost advantage by consolidating traffic in South Africa for distribution to East and West Africa. Already container lines are beginning to rationalise port calls globally due to the financial crisis, diverting services between Asia and Europe by bypassing the Suez Canal and sailing around the Cape to avoid transit fees and increased insurance costs due to piracy.

Speaking at the TOC Asia 2009 Conference in Shenzhen, China earlier this month, Mervin Chetty, General Manager of Strategy, Safety, Health, Environment and Quality, argued that a container hub or relay strategy in Sub-Saharan Africa could lower the cost of trade for shipping lines and cargo owners.

“This would entail the move of Sub-Saharan Africa away from its current multiple gateway system of medium sized ports, towards the model of a transhipment hub with large gateway feeder ports. A hub in South Africa should offer large transhipment volumes as well as gateway volume to feed cargo to other destinations in Africa,” he said.

Currently Transnet is developing its flagship container terminal at the Port of Ngqura (Coega) which lies midway between the Americas, Far East and Asia on the east coast of South Africa. The terminal will have an initial capacity of 800,000 TEUs when it starts commercial operations in early 2010 and will ramp up to two million TEUs by its end state.

This is expected to decrease pressure on other busy South African container terminals in Durban, Pier 1 and Cape Town where Transnet has already seen a large increase in transhipment traffic as a result of vessels diverting from the Suez Canal.

Chetty said the benefits of such a hub model for Sub-Saharan Africa would include greater coordination of long term capacity planning, increased economic activity, employment opportunities and growth, as well as increased national trade competitiveness as a result of economies of scale, scope and density.

“For cargo owners, hub ports would offer savings in total yearly supply chain costs through increased shipping line competition and improved service levels and time, while greater maritime activity would improve access to regional and global markets,” he said. He added that shipping lines would see better vessel utilisation with fewer stops and increased port efficiency and speed at the hub.

Operators in the region have already recognised the potential of positive growth and are actively developing their capacities.

In Durban, South Africa, an additional 600,000 TEUs is being developed to bring the total container capacity of the port to 3.6 million TEUs by 2011, including Durban container terminal’s re-engineering project which will realise the true potential capacity of the Southern Hemisphere’s busiest container terminal, or 2.9 million TEUs. Cape Town’s container capacity will be increased from 700,000 to 1.4 million TEUs when RTGs are introduced as part of an overall five-year expansion programme. Together with the Ngqura developments, these advancements will boost South Africa’s container-handling capacity by 32% over the next five years.

Elsewhere in Africa, the Port of Djibouti is creating an additional three million TEUs to achieve a total capacity of 3.4 million TEUs, while in Dakar, Senegal an additional 1.5 million TEUs would bring total capacity to 1.75 million TEUs. Similar investments are being made throughout Sub-Saharan Africa in ports like Port Louis in Mauritius, Mombasa in Kenya, Lagos in Nigeria, Walvis Bay in Namibia and Maputo in Mozambique.

“The call patterns of major shipping lines in Africa are currently dominated by a ‘milk run’ model with multiple calls traversing the various ports in the region, which can be costly and ineffective,” said Chetty, illustrating the route of one major shipping line.

He said the current reality is that shipping lines are adopting asset utilisation and cost reduction strategies to improve their bottom line, with some restructuring of routes and rationalising their current networks during this financial crises. Between eight and nine percent of the world’s fleet are being considered for lay-ups.

Chetty said South Africa’s growth is tightly bound to its trade partners. Asia is the most important of these trade partners, with China constituting 17% of South Africa’s total container trade and another 21% traded between South Africa and the rest of Asia. Northern Europe constitutes 20% of container trade with South Africa and Sub-Saharan Africa 12%, while the remaining 30% is spread across several other regions. A trade agreement between South Africa, Brazil and India is also expected to increase container throughput therefore increasing south-south trade.

Although Sub-Saharan Africa suffers from high sea freight rates and costs to export, South Africa, compared to its neighbours, is well positioned to feature as a hub due to the country having economies of scale and a network of infrastructure assets.

Chetty said the development of a well-equipped hub port in Sub-Saharan Africa therefore made economic sense for the maritime industry and port users.