Sixth Annual Stakeholders’ Conference
Dear speakers, Dear guests, Dear colleagues,
It has been a pleasure to welcome you for the sixth edition of our Annual Stakeholders’ Conference. The conditions were very particular this year, but we are extremely grateful to the speakers and guests who joined us either in Brussels and remotely.
We did not want to “skip” 2021 as we were compelled to do for the 2020 edition due to the pandemic and the outcome of this 6th edition confirmed that it was worth doing so.
Many thanks to all speakers for their time, for sharing their thoughts and providing us with valuable insights.
Thank you to the representatives of our sister organizations who were also with us in Brussels. A particular thank to Anna Maria Darmanin for the moderation of the first session.
Consensus was voiced by speakers that the maritime logistics chain had shown itself to be very resilient and had responded well to the challenges posed by the COVID-19 crisis.
However, vulnerabilities had also been exposed due to other factors and, as such, the sector will have to ponder on the real causes of the current disruption to implement change and remain resilient in the face of such future possible crises.
The question was also raised as to whether there a level playing field truly was in place and there were calls for the Commission to consider this issue in detail, particularly with regard to the Bloc Exemption Regulation, given the backdrop of increased costs in freight shipping and the high level of market concentration.
One can agree that it is not the role of the regulator to intervene when disruptions occur in the market provided that these cannot find their root causes in the existing regulatory framework, which does not effectively guarantee a level playing field.
Looking back to 2020 while COVID-19 seemed to have limited tangible impact on global supply chains. 2021 was completely different as supply shortages of certain products had been seen.
The last two years had been challenging for other additional issues, such as labor shortages, a decline in vessel calls and hinterland transport delays, ships at anchorage were increasing, thereby putting strain on the entire system. This trend would only be exacerbated going forward as vertical and horizontal integration would only increase, and this would most likely push smaller players from the market.
Four potential disruptors for the market: environmental, technological, geopolitical and demand (demographics) are expected to also have significant impact. The market is becoming ever more complex and, across the board, there was a push towards investing for sustainable outcomes. This was putting increased pressure on technology and innovation and uptake was being seen in the form of large digitisation programmes.
Production of goods like textiles and the car industry were continually being brought back to Turkey and Morocco and it happens that Chinese manufacturers were also investing a lot in Eastern Europe and thus near-shoring is happening.
It is also expected that the EU emissions trading system (ETS) will have a big impact on the connectivity of Europe.
Moreover, panelists stated that largescale change in the sector was also required to keep pace with both the digital and green transformations. In this regard, adequate financing from both the public and private sectors would be required, particularly when it came to meeting decarbonization targets.
Further issues facing the sector identified included the fact that many seafarers were currently reconsidering their careers and thus better prospects were needed to ensure a potential labor shortage was avoided, and the need to seek solutions at a global level given the globalized nature of the modern maritime logistics chain.
COVID-19 had in many ways exacerbated tensions between the US, EU and China and highlighted the vulnerabilities of economies and the dependencies on global supply chains.
On the environmental front, the Chinese government seems more willing to engage in debate on climate change. The EU and the US had also been launching infrastructure initiatives and, last year, the ‘Build Back Better initiative’ was announced by Mr Biden. The Commission is currently announcing its ‘Global Gateway’ instrument and, though the EU and US had different strategic interests, there could be some common cooperation.
You can have access here below to the extensive version of the conference report, to the presentations and pictures on the webpage of the conference.
We look forward to seeing you next year!
We wish you and your families a joyful holiday season and a happy new year.
With kind regards,
On December 1, FEPORT held its Sixth Annual Stakeholders’ Conference. The topic of this year’s conference was: COVID-19: A crash test for the resilience of the maritime logistics chain?
Adina Valeen, EU Transport Commissioner, appearing via video message, said that supply chains in Europe were resilient and could weather the storm. However, the risk of bottlenecks was real, such as in the area of semi-conductors. COVID-19 infections were also on the rise. Transport workers were continuing to give their all to ensure the delivery of goods and personnel effort and their sacrifice had been at the heart of keeping the supply chains up and running.
The experiences over the last couple of years had shown the need to learn from difficulties and to increase resilience to face future crises. Digital solutions were key to bolstering resilience and data would increasingly play a key role, such as in terms of tracking containers so fast action could be taken in the case of delays.
Challenges posed by the pandemic came on top of pressure to make transport more sustainable. A 90 percent reduction in Co2 emissions from transportation were required to meet 2030 targets. The focus would be on the increased use of sustainable fuels, for example; however, greening shipping had its challenges. The green transition could also be seen as an opportunity for the sector and, in this regard, cooperation needed to be stepped up between stakeholders both in Europe and globally.
Lamia Kerdjoudj-Belkaid, FEPORT Secretary General, welcomed all participants and noted that this was a conference not only for FEPORT members but was also a forum where all stakeholders could participate and provide their input.
Gunther Bonz, FEPORT President, extended a warm welcome to speakers and guests. Noting that the theme of the conference was on resilience and sustainable recovery, he stated that COVID-19 was still posing threats. He praised all those workers along the logistic chains that allowed for goods to reach their final destinations.
There were serious challenges going forward and there was a key role for EU regulators to play in this regard. Blaming EU ports for delays and congestions seen was biased and not justified. Terminal operators were working 24 hours a day.
This year, the situation remained difficult and this was not only due to COVID-19, but also to certain inefficiencies in the maritime logistics chain. There was a need to check whether existing EU rules were ensuring a level playing field and the rules must be the same for all. However, this was not currently the case, and there was a need to scrutinize more and analyze data to ensure that some actors are not getting advantages at the expense of others. Mr Bonz remarked that he had expressed his fears to DG COMP about disruptions to the supply chain even before the onset of COVID-19, such as potential disruption in the Suez Canal, and the consequences of the renewal without modifications of the Block Exemption Regulation; however, no reply or follow up discussion had been forthcoming.
Mr Bonz wished all an interesting conference and thanked all attendees for their participation.
Session 1: What has happened in 2020 and 2021
Moderator Anna Maria Darmanin, ETA Secretary General, welcomed all participants and gave Mr Garratt the floor for the first keynote speech.
Mike Garratt, Chairman of MDS Transmodal, remarked that, about a year ago, his organization began to produce a quarterly review on the global container industry. Reference had already been made to the importance of data this morning, he noted, which he agreed with. His organization had started compiling databases on trade and ship deployment, among other areas, about 40 years ago. He was puzzled by the Commission’s reasons to kick the can down the road for another four years with regard to the Block Exemption Regulation. His organization worked for regulators in the UK, where they had access to confidential data; however, this set-up was still being seen in the EU. His company had produced a review on this which would be published today.
On key points that emerged from this fifth review, he stated that, pre-pandemic, the world seemed a pretty stable place. Maersk was making about a 15 percent margin at the time, for example. The pandemic led to a savage but brief slump in demand. Fiscal actions taken in the West led to a rapid recovery and the container trade recovered quickly. The first of the quarterly reviews reflected the last ‘normal’ quarter, whereby port congestion was not the problem it was today, for instance. Subsequent reviews had highlighted issues which he would explore later. The OECD was something of a lone voice in pointing out the dangers of market concentration about five years back.
Regarding trade growth, he said that there had been a 6 percent growth in terms of all internationally traded cargo and the figure for unitized cargo was 7.3 percent, according to trade data taken from about 50 different countries. The data showed that this growth was seen pretty much across the board in terms of types of goods traded. However, less of it was being carried by the lines now. There was nothing terribly difficult about forecasting long-term demand and the lines faced predictable long-term markets to match their long-term investments. Between 2010-2017, supply increased more than demand; however, during 2017-2020, the growth in supply was significantly less than that of demand.
On trends spanning from 2021-2024, the prediction was that there would be a shortage of capacity. 48 percent of capacity of services were provided by lines in consortia and 52 percent were alone. Moreover, 30 percent of all capacity was operated by consortia where members were of the same alliance, but this rose to 42 percent when members of different alliances were included. The proportion had grown from less than 30 percent in 2016 and the consortia were effectively acting as ‘bridges’ between alliances. As such, the market shares of consortia were high.
Concerning services passing through the Suez Canal, utilization rates reached around 95 percent. However, this was starting to slip slightly and the lines appeared to not be carrying quite the market share they used to. However, this had the effect of pushing up rates enormously and revenues had effectively doubled per unit carried. On consistency and reliability of shipping, in 2019, a slight improvement was seen, though a dip was seen during the pandemic. There was a recovery last year, though this factor had deteriorated significantly since. Consistency and reliability had been in long-term decline, he noted.
With regard to connectivity, the fundamental role of shipping lines was to connect producers and consumers regularly and efficiently. Port by port comparisons suggested connectivity for many ports was now falling as services focused on fewer ‘hub’ ports and that major country ports no longer had direct services, such as between the UK and Italy or Japan. Concerning carbon emissions, shipping lines had improved their emissions enormously from 2016-2016; however, the trend had flattened out since and there had even been some small deterioration recently.
On whether such trends were all due to the pandemic, self-regulation by the shipping lines to reduce the amount of spare capacity would mean the whole system would find it more difficult to survive and be resilient in the face of shocks. The original fear of a 25 percent fall in demand had led to some poor decision making, though it was not clear what the consequences of the pandemic would be at the time. Rates clearly rose to relation to shipping line service capacity available as demand surged. Further, market shares were clearly well in excess of the 30 percent rule and existing structures were clearly inadequate to deal with the shocks that hit.
Concluding, he set out several questions that should be considered:
- Did legal privileges the lines enjoyed imply a duty to provide reliable services at a predictable cost that reflected normal profits?
- Was there a real danger that super profits would encourage further vertical integration?
- Would one solution be for regulators to establish monitoring systems and to expect spare capacity to be provided to avoid such crises in the future?
- Would political pressure lead to rushed solutions? He noted there was a real danger of this happening.
- Was there an opportunity to develop agreed metrics by and for the regulators to measure this industry?
Jordi Torrent, Strategy Director of Port of Barcelona, said he was a civil servant and would give the perspective of a very diversified port. The port used to be basically a freight port but was now extremely diversified, including the presence of a five-star hotel, for example. The new strategic plan had recently been completed with a vision of how the port would look like in 2040. It took almost two years to draw up and he remarked that ‘pandemic’ was cited as a potential major disruption, though such potential disruptors were analyzed before the onset of COVID-19. Additional threats set out included climate change, reduced demand and global disruptions, such as cyberattacks or the blocking of the Suez Canal.
Growth had been low over the last few years when compared to the period 1980-2007. However, this exponential growth was driven by globalization and the opening up of China and was not expected to be seen again. Climate change affected all sectors in the port. There was very small industry at the port of Barcelona and thus the negative contribution vis-à-vis climate change was very small; however, a lot of pressure was still being felt to reduce emissions, even though the port only accounted for 2 percent of small particulates in the city of Barcelona, for example. The port was also the biggest for cruise ships in the whole of Europe. There were also many private yachts docked there and pressure was being faced to make this activity more sustainable.
He underlined the need for diversification to create employment and to resist crises that hit certain sectors harder than others, such as the cruise industry. Differentiation was also key to the port’s strategy and investments were ongoing in many areas, such as digitization and rail. Ports were becoming more and more a commodity that trade actors could choose between and they could change the port they used from one month to the next. As such, the port of Barcelona sought to be faster in areas such as digitalization and decarbonization than the other ports so as to be differentiated.
The core business was still to provide infrastructure and services that allowed customers to be competitive on the global market. The idea was also to become more sustainable and multi-modal and the port had managed to transfer a lot of traffic to rail, though a lot of trucks were still required. As such, additional multi-modality solutions were being worked on. The port was also transparent with regard to both the local community and stakeholders on issues such as emissions and vehicle traffic.
On disruptions to the supply chain in 2020 and 2021, he stated that, back in 2020, he had originally told people that COVID-19 had had no tangible impact on global supply chains. 2021 was completely different, however. For example, supply shortages of certain products had been seen.
Regarding what may happen in 2022, he noted that freight rates had been agreed for the next couple of years on the transpacific route and the figures were high. In Spain, shipping lines were traditionally more involved in inland distribution than in other European countries and this trend was accelerating. Spanish ports would likely continue buying more rail operators and locomotives, for example. Production of goods like textiles and the car industry were continually being brought back to Turkey and Morocco. Chinese manufacturers were also investing a lot in Eastern Europe and thus near-shoring was happening.
The American Fed recently said inflation was no longer merely temporary and high inflation rates may be seen over the medium and long term, with high energy prices also being seen. The EU emissions trading system (ETS) may well also soon be approved, and this would include the transport sector which could have a big impact on the connectivity of Europe.
Moderator Anna Maria Darmanin thanked the keynote speakers for their speeches. She then gave the floor to Mr DiBernardo for his intervention.
Michael DiBernardo, Deputy Executive Director of Marketing and Customer Relations at the Port of Los Angeles, stated that the port of Los Angeles was part of the San Pedro Bay Complex, which also included the port of Long Beach. 10 million TEUs had already come through the port of Los Angeles during this fiscal year. Volume is up 15.4 percent when compared with the previous year. The estimate for end of this year was 10.5 million TEUs, which would be the best year ever for the port.
An operations report was posted online each day and this showed how many ships were in the port each day and how many were at anchor. A number of ships were at anchor and those numbers were broken down into different types of ships and which port they were bound for. These numbers were coming down. In the past, ships used to rush into port for labor allocation reasons; however, labor allocations were now done further out so ships were no longer rushing in. Average time at anchor for ships at anchor was 20 days. Containers dwelling on terminal were also an issue that was being looked at. This analysis was important as it showed exactly how long it took to unload containers. The key number was 9 days and above and the idea was to expedite ships out of the terminal as fast as possible.
There had been a dramatic increase in consumer spending, he noted. In addition, there were labor shifts. For example, there had been a growth in labor demand of 29 percent over the last year due to increased consumer demand. On why the port had been so busy, strong consumer spending had been key and the biggest jump had been in e-commerce. Much of this e-commerce was becoming backlogged and COVID protocols had caused for a new approach to be taken to ensure the workforce had clean equipment between each shift, for example, and additional safety protocols had been put into force. The workforce had been under strain, however, and this had caused some of the delays and backlogs.
Moreover, there were 12 major shipping lines before the pandemic, but new entrants, such as Home Depot and Target were coming to port with their own ships. These ships were often smaller and did not have a place to bring back their empty containers to when done. Capacity at final destination was also an issue, though this had improved over the last few months. Empty container surplus remained a challenge at port, however.
Additional issues concerning empties was that they could not be brought back to port and off-dock locations had been developed to free up the ships. When cargo arrived too late for the season, it was stored for the next year. Some short-term focus was to implement a truck turnaround time incentive and to have a dual transaction approach, so they come in full and leave full. A portal had also been developed to provide customers with improved supply chain visibility. Focus had also been put on clearing the backlog of vessels. BCOs were being worked with so their cargo could be expedited.
On reducing excess, any container in terminal for 9 nine days or above would be charged 100 dollars per day per container. This threat was proving effective and the cargo was starting to be moved faster.
Longer-term, the goal was to improve dialogue with stakeholders and improve digital tools, in addition to improving policies to increase exports for American farmers and manufacturers, for example. Real-time information sharing was available under the Port Optimizer tool and this allowed for establishing a global repository of data at the data. There was also an overview of how many containers would be coming in over the next few weeks to effectively manage volumes.
Jutta Paulus (Greens/EFA, DE), Shadow rapporteur for Fit for 55 package, said that reducing emissions from ships was key and a single European sea would be helpful to allow for less congestions at ports and for more efficiency. This could allow for better information sharing in digital format before ports.
On the current situation, she feared that another port cycle might be afoot. As demand was increasing, larger ships may be built, thus leading to more investments in ports which was often taxpayers’ money. This could put increased stress on more developing countries as it was more difficult for them to ensure such investment for their ports. She asked Mr DiBernardo for a comment on this potential issue.
Regarding achieving sustainable shipping by 2050, she noted that no agreement had recently been reached on the setting out of carbon neutrality by 2050 at the global level and she asked if the US had a plan to this end, which would give the sector a push. Much more could be achieved if there was more coordination worldwide. It would not be wise to wait for the IMO, as they always waited for the slowest member to come aboard. As such, more action needed to be taken at a regional level.
Mark Dickinson, Secretary General of Nautilus, said he predominantly represented merchant navy officers and he spoke to the experience of seafarers globally. At the peak of the pandemic, around 400,000 seafarers were stuck on sea at vessels. The maximum contract duration for seafarers was 11 months and this was extended for many given that many were stuck at sea. Many others were stuck at home and unable to join their vessels. He estimated that every single seafarer was affected in one way or another by COVID-19, including being unable to work because of the pandemic. Many of those stuck at sea had been unable to get medical attention and had suffered terribly. On the longer-term consequences of COVID-19, several speakers had mentioned container shortages. However, this would pale into insignificance as seafarers continued to question their choice of careers. He estimated around 60 to 65 percent were questioning their career choice and this would have a long-term impact.
Jens Roemer, Managing Director of Hartrodt, on the current crisis from the freight forwarders perspective, stated that freight rates were at record levels. There was a market for containers at such high prices. The price was a reflection of the law of supply and demand and one should not blame shipping lines for maximizing profits. However, he questioned whether there was a functional market at play as 3 shipping alliances controlled 90 percent of key global shipping lanes. Regulators must consider this question. An issue was also the rate spread.
The pricing practice may prove to be deadly for SMEs as they were exposed to spot markets and this could be fatal for some. Regulators may also need to ask questions about this. Moreover, on vessel size, it could never be healthy if a stakeholder forced plans to go ahead that would affect all. The landside infrastructure had not been able to cope with the increasing size of ships, which had to spend more time at terminals given their size.
There was also a labor shortage at many ports and increasing vessel sizes were threatening to collapse the system. Human ingenuity and experience solved many problems during the crisis. Human resources made the difference; however, the pressure over the last few years had been enormous and each transport had to be planned and replanned numerous times. Productivity was at its lowest level and the most important tools proved to be simple telephones, he stated. On the vertical integration of shipping lines, competition was good and healthy.
The supply chain management market was open and functioning. However, there must be a level playing field. This was not the current case as shipping consortia were operating under preferential tax regimes, used unfair detention practice to their advantage and received government subsidies and were often protected under the Bloc Exemption Regulation, for example. Regulators would have to carefully consider such issues.
Moderator Anna Maria Darmanin asked panelists what lessons they had learnt and how the future looked.
Michael DiBernardo said the current trend would continue into 2022. There would likely still be huge demand for cargo coming in, stemming from consumer demand. There could also be increasing issues with labor supply, such as the struggle to have an adequate number of truck drivers. A training center was being developed at the port to help address such potential bottlenecks.
Mark Dickinson stated that shipping had a strong tradition of social dialogue and there was a sense of working together. It was pretty staggering how supply chains were kept intact by the shipping industry given the restrictions governments had put in place. There was a case of ‘sea blindness’ and governments had not strategized on transport and how essential goods and items would arrive. Why was the industry not on the radar? Because of the way the industry was run; the ships were registered in fringe locations, sometimes called tax havens, and this was a major issue.
This industry could not be sustained on the basis of hiding away in Monrovia, for example. Young people could not be sold the idea of going into a dirty industry anymore. Ports also had a role in this, especially with regard to supply chain due diligence. How many more leaks were needed from Panama before change was undertaken? One of the downsides of the crisis was that lessons would not be learnt and that it would be business as usual.
Moderator Anna Maria Darmanin asked Mr Roemer what main lessons he had learnt.
Jens Roemer stated that, while digitalization would change the way work was done, human resources needed to be taken along and would remain key. Silo thinking between stakeholders needed to be broken down and this would allow for the supply chain to be improved. He dreamt of being informed about the discharge and availability of a container five days prior to the actual availability. Data exchanges would be key in this context.
Moderator Anna Maria Darmanin asked Ms Paulus whether the industry would learn from these lessons.
Jutta Paulus (Greens/EFA, DE) replied that she was hesitant to be too optimistic. What had been made clear was how vulnerable and fragile the globalized system of shipping goods around the world really was. She would like to see additional consideration on how to better organize transport and the social conditions related to maritime transport. One way of making the sector more resilient was to have a sufficiently skilled workforce which would be up to these tasks. In some cases, there was modern slavery in place and that should not be accepted by society.
Now that the US was back at the table on climate change, it was possible for the EU and US to set up a maritime conference where such issues could be discussed and where bilateral action could be taken to get things moving, which would not be the case at the IMO.
Mike Garratt said he had heard very significant agreement about the problems at play. An alternative proposition needed to be put forward which would be a model. The question was: who would take the lead on this? Such a huge proportion of the cargo was coming from China and thus a triple agreement between China, the US and the EU was required. There had been a broad view that cargo was not the individual responsibility of any State and the hope would be that individual State authorities would take responsibility.
Jordi Torrent underlined the need of working towards standardization. Currently, the need to be flexible was also a big challenge. Europe was also very dependent on technology from Asia and this was a big challenge. Globalization was unstoppable and global supply chains, despite some near-shoring, were here to stay, thus requiring the need for increased resilience.
Moderator Lamia Kerdjoudj-Belkaid, FEPORT Secretary General, thanked speakers for their comments. She said it was wonderful that many different aspects had been covered, including the fact that human beings were at the heart of the whole process and that it was not only about goods and equipment.
Session 2: Recovery and path towards climate neutrality and growth
Moderator Lamia Kerdjoudj-Belkaid, FEPORT Secretary General, welcomed Mr Vonck and gave him the floor.
Indra Vonck, Senior Manager at Deloitte, noted that he led the global center of excellence for ports at Deloitte. He would focus on where the market was going post-COVID-19 and how major developments, such as the Fit for 55 package would tie into these trends. He cited the Chinese curse ‘may you live in interesting times’, remarking that, over the next decade, the maritime industry would be at the forefront of these interesting times. This industry was critical to keeping humans alive and that had been shown during the pandemic. COVID-19 was the perfect storm, with supply and demand in a complete state of disarray. The major goods shipped, such as textiles and steel, were all affected by different trends and market activities.
Going forward, the shocks would keep on coming and this could be in the form of a new pandemic or a new trade route, for example, in addition to risks including terrorism and climate events, for example. As such, the need for resilience in the sector was here to stay. This ‘new normal’ situation would be in place till 2023 at the earliest. COVID-19 was by far the biggest shock to hit the modern maritime industry as it was a supply, demand and transport shock. Overall, a V-shaped recovery had already been seen, however, and post-2010 growth was again being seen.
The past two years had been challenging for additional issues, such as labor shortages, a decline in vessel calls and hinterland transport delays. Demand had increased and ships at anchorage were increasing, thereby putting strain on the entire system. This trend would only be exacerbated going forward. Vertical and horizontal integration would only increase and this would most likely push smaller players from the market.
He set out four potential disruptors for the market: environmental, technological, geopolitical and demand (demographics). The market was becoming ever more complex and, across the board, there was a push towards investing for sustainable outcomes. This was putting increased pressure on technology and innovation and uptake was being seen in the form of large digitization programs. A single sea might be needed, but the question was who would pay for this. The system must also not be too lean as this could lead to lack of capacity when demand increased.
Regarding investments needed for making the industry more green and resilient, much action needed to be taken and on-shore power supply and zero emission fuels were now being discussed, and not scrubbers as was the case a year or so ago. The same was true of the port and terminal industry, such as for clean fuel cranes as opposed to diesel powered cranes. Better infrastructure for hinterland transportation would also be required and this was putting huge stress on traditional business models.
Becoming green could involve Co2 capture or the integration of city and port, for instance, and many different paths could be taken. Public-private partnerships were needed, for example, and it was a hugely complex environment effort. It will be extremely expensive to roll out such change. Typical physical assets and digital assets were becoming increasingly integrated.
There were many different use cases in terms of making infrastructure smarter, such as smart terminal platforms. Not everything needed to stay competitive would necessarily give operators a competitive advantage either as a lot was expected by the market. Firms like Maersk were also demanding that certain infrastructure was in place, like smart terminal operations. He noted that he worked for a large firm in Saudi Arabia that wanted to become a global terminal operator in 5 years and a major logistics player to compete with companies such as DHL. This was putting a lot of pressure on the market. The migration and security issue was also expected to grow in the coming years. Further, additional e-commerce was also putting stress on the infrastructure in place.
Regarding demographics, Europe was stagnating and the largest amounts of spending would likely not come from European companies. The trade on the largest global trade routes was diminishing. Given the expectation to digitize and the pressure to partake in the green transition, there was likely to be increased investment in digitization and climate change instruments.
Lower income possibilities were a risk due to the demographic situation in Europe and there was a certainty of high expenses across the board. Beautiful strategies also sometimes went wrong and this was particularly the case in this sector as many ports copied the actions of other ports. Automation should be implemented in a smart manner as the benefits of this may not be too high. Concluding, he stated that crises would be seen going forward. A lot of expenses and expectations to do better would fall on the maritime value chain given the position it occupies.
Moderator Lamia Kerdjoudj-Belkaid welcomed Mr Le Corre and asked how the China-EU-US relationship would affect the sector.
Philippe Le Corre, Senior Fellow at the Carnegie Endowment for International Peace, said that the world had changed at a fast pace since the onset of COVID-19, which had in many ways exacerbated tensions between the US, EU and China. The current period, beginning in February 2020, had highlighted the vulnerabilities of economies and the dependencies on global supply chains.
Regarding US-China relations, he cited the recent meeting between Presidents Biden and Jinping. They spoke for over three hours and the key trade issue the US side attempted to address was the importance of China living up to its commitments to buy billions of dollars of US goods and services.
China’s trade surplus actually rose to a monthly record and the US remained China’s largest trade partner on a single country basis. China had promised to buy more US agricultural products, such as soybeans and oil. The trade deal was 80 percent goods and 20 percent services and China was only importing 60 percent of the goods it said it would. China had maintained tariffs on some of the US goods and there were also issues of capacity regarding shipping from the US. The conversation between the Presidents was interesting in that the US administration seemed willing to give Beijing more time to reach the targets agreed in the trade accords.
Escalating import tariffs had already caused supply chain disruptions and more were not needed. Economic issues took a back seat to geopolitics during the summit. President Biden spoke of unfair trade practices by China, but he also raised concerns about human rights issues. He said it was their responsibility to ensure that competition between the two countries did not lead to conflict. Washington was looking to promote its own trade and infrastructure, but not as confrontationally as had the previous administration. President Jinping called on US businesses to stop stretching the concept of security overseas.
Chinese exports to Europe stood at 383 billion euro, with European exports to China standing at 202 billion euro. Re-localizations to Europe had been minimal and China still had a large trade surplus with the EU. Chinese investments in the EU dropped by almost two-thirds last year. The EU had put in place a number of mechanisms, including the screening mechanism, which could explain this drop. Beijing’s share of total inbound investments to Europe dropped 2.5 percent last year. In addition, 20 EU countries had put together screening tools. The Commission had looked into about 400 cases of investments coming from China and this also reflected the change of mood between Brussels and Beijing.
On the one hand, China was very willing to engage with the EU to counterbalance their tense relationship with the US. At the same time, there was a different mood in the EU when compared with a few years ago. Chinese projects had included Cosco buying 35 percent of the port of Hamburg and 67 percent of the port of Piraeus and this was one such area where China was interested in continuing investment in.
The Chinese government was more willing to engage in debate on climate change. The EU and the US had also been launching infrastructure initiatives and, last year, the ‘Build Back Better initiative’ was announced by Mr Biden. The Commission was currently announcing its ‘Global Gateway’ instrument and, though the EU and US had different strategic interests, there could be some common cooperation. A year ago, the EU came up with a comprehensive agreement on investment between the EU and China, though this was now frozen at the European Parliament and would likely remain so, especially given the imposition of sanctions on certain MEPs. The EU had been strengthening its defense mechanism on FDI and issues such as reciprocity and level playing fields should be considered and the US and EU approaches could be aligned.
On the Global Gateway, his understanding was that a 300 billion euro budget had been earmarked for it and that connectivity was one of the key pillars of the instrument. It was the EU’s response to the Belt & Road Initiative (BRI) and would coordinate with the G7’s Build Back Better World plan. Issues to look at regarding China also included forced labor. There was a will from China to engage with the EU, and Europe should prepare for the emergence of China as a global player.
Moderator Lamia Kerdjoudj-Belkaid agreed that, while investment between the EU and China may have slowed down, this was likely due to COVID-19 in large measure and this would likely change. She then asked Mr Banos-Lindner, as a global operator, how he saw the recovery and whether he would agree that resilience and the capacity to adapt would have to become a part of an operator’s DNA.
Federico Banos-Lindner, Vice President of External Relations of DP World, echoed that there was an initial contraction in trade due to the onset of the pandemic; however, a rebound of around 4.5 percent was then seen. The medium-term outlook was positive, though the uncertainties and issues remained. There had been a recovery of sorts, but there were unprecedented pressures, such as hikes in freight rates. Prices for shipping containers from Asia to Europe were now up to around 13 thousand dollars, which was a severalfold increase. A substantial shift in trade patterns due to tensions had also been seen. To mitigate the headwinds being faced, there would also need to be adequate vaccine roll out in countries such as Tanzania and Bangladesh, for example, and this showed that many factors were at play. The pandemic exposed many existing challenges and had exposed just-in-time manufacturing.
Additional issues included labor tensions and infrastructure investment needs. If such trends continued, there could be an impact on consumers. In some small countries, such as small island states, they may see price increases in the region of 24 percent for shipping. Opportunities did also exist, such as through the acceleration of digitization and these could offer cost savings and greater efficiency.
The shipping industry must also come to terms with further pressures, such as the need to decarbonize. The Suez Canal incident had also exposed the vulnerabilities of the supply chain and had provoked discussion on globalization and the benefits of near-shoring, for example. Many elements were coming together in a convergence of different pressure which made it difficult to plan effectively.
Moderator Lamia Kerdjoudj-Belkaid, on sustainability, asked Mr Banos-Lindner how he saw the Fit for 55 proposals. Would they be integrated into the global corporate strategy?
Federico Banos-Lindner replied that sustainability actions could no longer be mere ‘tick the box’ exercises. The logistics and supply chain sectors were resource intensive and sustainability was a critical element going forward. His organization had pledged to decarbonize by 2040 and defined KPIs and clear targets had been set out. Some of the technological innovations would also be taken advantage of to achieve decarbonization and tailored measures would be rolled out, such as maximizing efficiencies through the use of solar energy where possible.
Moderator Lamia Kerdjoudj-Belkaid noted that Ms Tax would be a shadow rapporteur on one of the Fit for 55 proposals. What were her expectations from the sector?
Vera Tax (S&D, NL) said she was shadow rapporteur on the refuel EU maritime file under the Fit for 55 package. The EU must be an early adopter of sustainable shipping to meet its goals and the Commission was putting increasingly stringent limits vis-à-vis carbon intensity on fuels used on vessels from 2025.
All GHG emissions would have to be taken into account. The responsibility for compliance lay with the shipping company and the legislation needed to be rolled out as soon as possible regarding the marine fuel mix. Existing supply side measures needed to be complimented regarding the deployment of sustainable fuels and production needed to be incentivized, so that the price gap could be reduced. The number of sustainable fuels currently available were limited and very expensive. Lower density also implied sacrificing cargo space which presented challenges. Longer lifecycles for ships also meant higher risks of stranded assets and many were afraid that revenues from ETS would not go directly into investment infrastructure which should be the case.
Moderator Lamia Kerdjoudj-Belkaid said that Ms Tax had clearly understood the challenges faced by the sector and thanked her for her comments. She then noted that the Waterborne Technology platform was trying to look at the different needs of the stakeholders in the sector. She asked Mr Gebraad whether recovery would also require a lot of sustainable investments?
Jaap Gebraad, Secretary General of Waterborne Technology Platform, explained that members of the platform were located in 19 different EU countries and all had a different perspective. There had recently been a strategic recognition of the sector in terms of moving towards zero emission waterborne transport, for new vessels and with regard to retrofitting. He stated that it also needed to be questioned as to how ships would look in a decade’s time and certainty was required for the sector. RD&I was key to the sector, but this needed to be connected together with additional elements required regarding deployment, such as up-to-date legislation. The planning cycle in terms of investments was far longer than other industries and the question was where investments would be allocated and who would pay for these investments.
Moderator Lamia Kerdjoudj-Belkaid said this was a very clear answer. She then asked Mr Häder whether grids would collapse if ships could unplug in the future. Was there a lack of investment when it came to energy production or was it possible to catch up?
Henning Häder, Policy Director Issues at Eurelectric, replied that such a question was one he frequently received nowadays. The question as to whether the power sector could supply enough power, and at acceptable rates, was one that would become more relevant going forward. In the context of Fit for 55, speed was of the essence, which included ramping up investments in the area of renewables, for example. Electricity demand would increase going forward and his organization had been asking the regulators to do their homework.
There was an enormous challenge regarding decarbonization and 500 gigawatts of new capacity, around half of the entire EU power supply, would have to be added over the next decade. Around 60 to 70 billion euro in investment in power supply would be required per year. Investment in grids also needed to be significantly scaled up.
Discussion is ongoing with regulators on the need to ensure adequate investment was made available to the sector. Grids would become a lot more active and a study done earlier this year showed that 40 billion euro per year would need to be invested in the low and medium scale distribution infrastructure to ensure they could take on the challenge. The sector was ready for it but the right regulatory framework needed to be in place, as did the right incentive system for investment. First movers should also not be penalized. However, grids, would not collapse, he concluded.
Moderator Lamia Kerdjoudj-Belkaid asked Ms Papantoniadou whether the EU was providing enough resources to finance green deal ambitions.
Sofia Papantoniadou, Feedback to Policy Coordinator for CEF – Transport, CINEA, replied that the EU certainly was. The goal of the green deal was also to make the EU economy sustainable and, as such, the relevant tools had been identified. Programs under the remit of CINEA included CEF, for example. CINEA would have 31.5 billion euro for financing perspectives under this instrument. Funding was also being made available for carbon emission capturing and the budget was 9.76 billion euro when it came to transport, energy and climate under Horizon Europe. 4.76 billion euro would be made available under the LIFE program.
The renewable energy financing mechanism and the just transition mechanism would also be available. While the resources required were much higher, the EU’s financing would hopefully crowd in money from the private sector.
Supporting port infrastructure, with a focus on sustainability, would be key, as would supporting the digital transition. Waste management would also be supported port-side and, on the shipping side, new technologies would be supported regarding fuels such as ammonia and hydrogen. CINEA was also supporting the connectivity of ports and connectivity of forwarders. The programs outlined were starting to open and relevant priorities also included supporting motorways of the sea and smart applications. New calls under Horizon Europe would also soon be launched. Ports were not for freight alone, she noted, they were complex environments that were being looked at from a wider perspective.
Moderator Lamia Kerdjoudj-Belkaid thanked all speakers, noting she had heard the need for the sector to be sustainable, agile and smart. Investing in sustainability was a very important value. She then gave the floor to Ms Kopczynska.
Magda Kopczynska, Director, Waterborne Transport of DG MOVE, stated that one important topic touched on today was where the sector stood and what had been learnt. Regular contact and close cooperation between market operators and the Commission needed to continue if policy implemented was to be fit for purpose.
For a long time, the efficiency of logistic operations had been a major driver of globalization and low-cost shipping had allowed for the creation of global supply chains. At the same time, this reduced the need for holding stocks and supported just-in-time business models.
However, COVID-19 hit and exposed the weaknesses of this model. Transport nodes and hubs, such as terminal operators, became key to ensuring the flow of the maritime logistics supply chain and a smart and connected sector was integral in this regard.
Since the beginning of the pandemic, the Commission had fought to keep borders open and this was achieved under the green lanes initiative, for example. There was unease again, however, and there were still problems with the functioning of ports and some were very reluctant to allow crews to come in and leave again, though most of these ports were located in third countries. She stressed that the users’ persecutive had to be taken into account and she was happy to hear that ports were ready for the green revolution that was coming.
The importance of multi-modality was often mentioned. This would continue to be the case as it was the key to making transport more efficient. A smarter way of using the existing infrastructure was required. Each mode must be made more efficient, green and more sustainable. Transport must therefore be viewed as a system. The proposed new TEN-T framework would be put on the table on the 14th of December.
On greening, the cost must be borne in mind. However, the cost of not going green was also huge. Possibly, the balancing of these costs would need to be discussed further in context of the Fit for 55 package. Today, Vice-President Timmermans would present three proposals in this area and Parliament would then start discussing them. Regarding digitalization, agreeing on the objective first was key to deciding which instruments were required. The Commission had heard the need to be technologically neutral; however, things also needed to be interoperable and allow all to partake. As such, policies must not be too prescriptive, but also allow all to use the data systems that would be coming on-line. She underlined the need for good exchanges of information.
Mega-ships had benefitted in terms of efficiency, but there were also difficulties regarding infrastructure. All interested parties needed to come together to discuss this issue. Today, Global Gateway should be adopted, and it was an initiative that would try to influence infrastructure to be built outside the EU to ensure the smooth functioning of the global supply chain. Partnerships would be established as part of the strategy as regional cooperation was key.
During the conference, Ms Paulus had called for action on a global and European level on decarbonization and she stated that the Commission would continue to push for legislation at both the EU level and at the level of the IMO. There was now a plea for a single EU sea and that was ambitious. It would have to be seen if and why this should be implemented. A point of departure could be to ascertain as to what the missing elements were regarding this suggestion. Additional important points made today included the issue of reduced connectivity between ports and the question of labor concerns.
It was clear many seafarers were questioning their career choices and the attractiveness of the sector needed to be improved. The only career that was still popular in transport was becoming an airline pilot. All issues concerning competition related questions would continue to be looked at by the Commission. Concluding, Ms Kopczynska thanked FEPORT for the invitation.
Moderator Lamia Kerdjoudj-Belkaid thanked Ms Kopczynska for her comments and also thanked those participants who had followed online.
- Mr Mike Garratt, Chairman of MDS Transmodal
- Mr Jordi Torrent, Strategy Director of Port of Barcelona
- Mr Michael DiBernardo, Deputy Executive Director, Marketing and Customer Relations of Port of LA
- Mr Indra Vonck, Senior Manager at Deloitte
- Mr Philippe Le Corre, Senior Fellow at the Carnegie Endowment for International Peace
Look at the Conference recording here.
Look at the Conference photo gallery here.
Download the Conference booklet here.