Transportation Summit 2011: Best Practices Shaping Global Logistics, Vancouver, BC, March Benchmarking the Canadian Gateways and Corridors Governance Model Jean-Paul Rodrigue 1 & Stephen Blank 2 1 Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA; Van Horne Researcher in Transportation and Logistics, University of Calgary, Canada 2 Adjunct Research Scholar, Center for Energy, Marine Transport and Public Policy, Columbia University; Senior Research Analyst, Arizona State University’s North American Center for Transborder Studies

Benchmarking the Canadian Gateways and Corridors Governance Model 1 How does governance applies to intermodal transportation? 2 Which governance criteria can be used for benchmarking? 3 To what extent gateways and corridors are an effective governance strategy?

Intermodal Transportation: Emerging Paradoxes Geographical and functional diffusion of containerization. Massive investments. Rationalisation (corridors and sites). New standards, practices and technologies. Increasing returns. Incremental changes. Decreasing returns. Consolidation (maritime, rail and trucking). Emergence of large operators. PPP. Supply chain control. Added- value-capture.

Main Causes of Public Divesture in the Transport Sector Fiscal Problems (we’re broke) High Operating Costs (we have few incentives) Cross- subsidies (profits are spent elsewhere) Equalization (everyone must have their fair share)

Governance and Supply Chains Don’t Match Extraction Processing Fabrication Assembly Distribution Retailing Logistics Chain 1 Transport Chain 1 LC 2 LC 3 Logistics Chain 4 TC 2 TC 3 TC 4 TC 5

Governance and Intermodal Transport: Potential Benchmarks CriteriaEconomic SectorIntermodal Sector Participation Involvement of private capitalAccess to intermodal assets (modes & terminals) by the private sector (national and foreign) Transparency Clear regulatory processAvailable information about policies and actors Fairness Consistent regulationsPolicies in line with modal market potential Decency Secure property rightsSecure ownership and operational contracts Accountability Measures for litigationIntermodal operators complying to policies Terms for renegotiation Efficiency Limited compliance costsCompliance costs below operating revenues

Transport Terminal Governance: Main Benefits and Issues Profit / Externalities Performance / Productivity Monopoly / Rent seeking Compliance / Accountability PublicOwnership PrivateOperationsPPPPPP

The Governance Setting of Gateways and Corridors: Many Actors Supporting Functional Integration Corridors and Hubs Gateways Maritime Freight Distribution Inland Freight Distribution Maritime shipping companies (Private). Waterways and navigation channels (Public). Terminal operators (Private). Port operations (Port Authority). Land ownership (Public and Private). On-dock rail (Port Authority and terminal operators). Near-dock rail (Rail companies). Trucking and barging (Private). Roads and highways (Public). Rail lines (Rail companies; ownership or right-of-way). Transport Actors

Security Trumping Trade? Maritime Security Initiatives Implemented by The United States InitiativeTypeYearDescription Automated Targeting System (ATS) Cargo screening1999Weighted model applied to inbound cargo manifests to assign risk factors. Customs-Trade Partnership Against Terrorism (C-TPAT) Certification2001Transferring some of the Customs responsibilities to importers and exporters to reinforce overall security levels. Benefits include reduced likelihood that containers of participating firms will be examined. Container Security Initiative (CSI) Cargo tracking and screening 2002Increasing security related to ocean going containers through the targeting and screening of high risk containers bound for the US before they are loaded. Megaports initiativeCargo tracking and screening 2003Installation of radiation detection equipment in key foreign ports. Reducing the illicit trafficking of nuclear and other radiological materials. 24 hour ruleAdvance cargo information 2003Implementing the cargo-related information at least 24 hours before a container is loaded aboard the vessel at the last foreign port. Standards to Secure and Facilitate Global Trade (SAFE) Certification2005Implementing C-TPAT and CSI security practices with foreign trade partners. Importer Security Filling and Additional Carrier Requirements (ISF, 10+2) Advance cargo information 2009Implementing the collection of cargo-related information by requiring information from both the importer (10 information elements) and the carrier (2 information elements) to be transmitted at least 24 hours before the goods are loaded. 100% scanningCargo screening2012?Non-intrusive inspection of 100% of all inbound cargo containers.

Pressures for Governance: Vertical and Horizontal Integration in Port Development Commodity Chain Port Holding Horizontal Integration Intermediate hub Inland Port Rail / Barge Distribution Center Inland Modes and Terminals Distribution Centers Maritime Shipping Port Terminal Operations Terminal Maritime Services Inland Services Port Services Vertical Integration

Governance Changes in Port Authorities: Competing over the Hinterland Planning and management of port area. Provision of infrastructures. Planning framework. Enforcement of rules and regulations. Cargo handling. Nautical services (pilotage, towage, dredging). Conventional Port Authority Expanded Port Authority

Value Propositions behind the Interest of Equity Firms in Transport Terminals Diversification (Risk mitigation value) Diversification (Risk mitigation value) Source of income (Operational value) Source of income (Operational value) Asset (Intrinsic value) Terminals occupy premium locations (waterfront). Globalization made terminal assets more valuable. Traffic growth linked with valuation. Same amount of land generates a higher income. Terminals as fairly liquid assets. Income (rent) linked with the traffic volume. Constant revenue stream with limited, or predictable, seasonality. Traffic growth expectations result in income growth expectations. Sectoral and geographical asset diversification. Mitigate risks linked with a specific regional or national market.

Risk Transfer and Private Sector Involvement in Public-Private Partnerships Design - Build Degree of Private Sector Involvement Degree of Private Sector Risk Operation & Maintenance Build-Finance Design-Build-Finance-Maintain D-B-F-M-Operate Concession Privatization PPP Models

Privatization and Financing Models Sale or concession agreement Divesture part of a political agenda (budget relief). Public sector is forced to sell or lease some of its infrastructures. Infrastructure is transferred on a freehold basis. Requirement; used for its initial purpose. Long term lease (50 – 75 years). Requirement that the concessionaire maintains, upgrade and build infrastructure and equipment. Concession for new project Tap new sources of capital outside conventional public funding. Fiscal restraints. Experiment with privatization. Getting the latest technical and managerial expertise for the infrastructure project. Management contract Ownership remains public. Management given to a private operator. Through a bidding process. Popular in the terminal operation business (maritime and rail). Efficiency improvements.

Typology of Global Port Operators StevedoresMaritime Shipping Companies Financial Holdings Horizontal integrationVertical integrationPortfolio diversification Port operations is the core business; Investment in container terminals for expansion and diversification. Maritime shipping is the main business; Investment in container terminals as a support function. Financial assets management is the main business; Investment in container terminals for valuation and revenue generation. Expansion through direct investment. Expansion through direct investment or through parent companies. Expansion through acquisitions, mergers and reorganization of assets. PSA (Public), HHLA (Public), Eurogate (Private), HPH (Private), ICTSI (Private), SSA (Private). APM (Private), COSCO (Public), MSC (Private), APL (Private), Hanjin (Private), Evergreen (Private). DPW (Sovereign Wealth Fund), Ports America (AIG; Fund), RREEF (Deutsche Bank; Fund), Macquarie Infrastructure (Fund), Morgan Stanley Infrastructure (Fund).

Container Terminal Portfolio of the four Main Global Terminal Operators, 2010 Top ten terminal operators: 65% of the world’s total container handlings

The Governance of Gateways and Corridors is Effective if it Reflects a Functional Reality

The North-American Container Port System and its Multi-Port Gateway Regions Multi-port gateway regions 1. San Pedro Bay 2. Northeastern Seaboard 3. Southwestern Seaboard 4. Puget Sound 5. Southern Florida 6. Gulf Coast 7. Pacific Mexican Coast

Major Rail Corridors Improved since 2000

Conclusion: Gateways and Corridors Governance in a New Global Economic Setting A Growing complexity of supply chains and governance. The “last regulatory mile”. B Port authorities and terminal operators as active actors. Setting of functional corridors. C Finding value to capture and capital to finance. Governance as a risk mitigation strategy.