The Port Of Durban From An Economics Perspective Economics Essay

The Port Of Durban From An political economy Perspective Economics Essay3.1 IntroductionThis chapter get out examine the Port of Durban from an frugals view and will seek to expand on the general theory drive homeed in the literature review and apply it specific entirelyy to the Port of Durban. This chapter will besides manage as a foundation for the proceeding chapter which will analyse the various CBA options and data for Durban. The fashions signifi skunkce and mend will be examined in the context of the southerly Afri so-and-so and topical anaesthetic economy through its income and employment generating essence. though the quantity of cargo moving through a way is important, of more interest is the caseful of cargo that a port focuses on.3.2 The south-central African Port SectorBefore examining the Port of Durban in isolation, it would be prudent to briefly discuss the south African Port scenario in a broader sense. In southernmost Africa, ports ar considered landed estateal assets and ar managed by the government run recently by SAPO. southbound Africa is a major sea-trading nation comprising of approximately 8 trading ports, namely, Durban, Richards c entirely for, East London, Port Elizabeth, Mossel Bay, Cape Town, Saldanha and the under construction Coega. South Africa has evolved into a major sea-trading nation over the last four or so decades and in 2002 handled 3.6% of world sea trade by volume. In bournes of ton miles or genuinely activity, this convention increases to 6% of global trade, placing the country within the top 12 globally and resulting in a global mari snip activity share that is more than 20 fold its global GDP share. Sea trade constitutes more than 90 percent of trade in South Africa and ports play a scathing tender and stinting post both nationally and vicinityally. The majority of the port activity is concentrated on the east brim of South Africa. A everlasting(a) illustration of this particular is that Durban and Richards Bay together make up 76% of sea trade in the country. Traffic harvest-home in the 1990s was derived from 2 primary regional points and radicals, namely Durban from a general cargo perspective and Richards bay from a raw materials perspective. Richards Bay, which deals primarily in bulk goods, such(prenominal) as coal, ore and steel, has seen its annual tonnage increase from 55 million tons in 1989 to in excess of 90 million in 2000. Viewing perceived think of in terms of tonnage is a flawed approach since in terms of economic linkages and value-adding, treatment a ton of coal is not the akin as handling a ton of refined goods. The figure below illustrates the breakdown of sea trade activity by port in South Africa. It can be seen clearly that Durban and Richards Bay are giants in comparison to the opposite ports. (Chasomeris, 2003 and Jones, 2002)Fig 17 full Traffic Volume in South Africa ejaculate Department of Transport, 1998 and Jones, 2001The Sou th African Ports sector experienced significant capital intensive investment in the 1970s and 1980s, which was biased towards the bulk transfer sector. However, world trends start seen a migration towards containerisation and unitisation and South Africa is no exception, with the country utilising containers for the first time in1977. Up until 1990, the available capacity could cater for national barter levels of approximately 1 million TEUs level. The lose of adequate container capacity, combined with growing demand, brought with it a multitude of problems. On the demand side, South Africa became a democracy and re-entered the globalised world, resulting in a noticeable rise in seaborne container volumes, due to liner carriers returning to the South African trades and increased trade liberalisation. The upsurge in volumes produces necessary negative consequences of delays and vas queues. By 2000 the combined amount of annual TEUs handled in South African ports was 1.8 million and this was encompassed using with the very(prenominal) basic container quays that had been constructed in 1977. in that location was some limited capital investment in strategic areas in the 1990s, such as cargo extensions to bulk and neo-bulk facilities in Richards Bay. The new millennia brought with its bolder and more pushy port investment initiatives. A new industrial hub status port in the Eastern Cape, which was earlier envisioned but never actioned upon, was now organism constructed. Secondly, the Durban general cargo bag has received significant upgrades and extensions such as extensions to landside facilities as tumefy, deepening and extending cargo handling superstructure and infrastructure as well as deepening and widening the harbour entrance. Because of the age and mismatch of the cargo handling infrastructure, productivity has lagged that of international levels, resulting in congestion that is a constant feature of local ports. There were also supply side issue s to deal with such as liner route becoming more specific and centred around hub status ports. As such, hub status ports extradite to provide capacity that exceeds national demand, making attainment of hub port status difficult in capacity constricted scenarios. This is compounded by the reluctance of ship-owners to migrate shorter routes such as Port Elizabeth in South Africa. South African ports relative competitive stance with their southern hemisphere counterparts can be gauged from the table below. Looking at both indicators, South African ports emerge as clear leaders on both the African and grey Hemisphere front. Richards Bay is ranked first on the table in terms of total traffic, as it has a life-sized amount of coal and other bulk cargoes passing through its doors. Durban, although ranked 3rd overall, is ranked 1st in the container category it is clear that Durban is the leading multi-purpose port in South Africa and the southerly Hemisphere. (Jones, 2003 Jones, 1997 Dep artment of Transport, 1998 and Lawrence, 2000)Figure 18 African and Southern Hemisphere Port TrafficPortTotal Port Traffic(m tons) social stationContainerTraffic(TEUs 000s)RankRichards Bay91.51515Newcastle73.92914Durban49.7312912Santos43.149454Sydney24.659993Melbourne22.3613221Casablanca19.873119Abidjan14.684347Auckland13.395616Cape Town11.8103958Lagos9.111178211Mombasa8.91221910Buenos Aires7.8137165Dakar7.21414913Port Louis4.71516112Source ISL, Bremen, 2001, Jones 2003 (Selected ports, 2000)3.3 History of the Port of DurbanThe port is situated on the east coast of South Africa at coordinates 31o 02E in longitudinal and at 290 52S in latitudinal terms. Trading activities in the port of Durban can be traced back since 1824, with the port apace gaining a favoured status among seafarers amd traders due to it being a natural harbour. Interest in Durban Bay grew tremedously in the early years of its operations, with imports doubling between 1849 and 1850. This, twin with larger vessels , resulted in a much needed expansion to the harbour entrance. Over a century later, Durban has 63 stances and 6 repair berths, which can be broadly seperated into five main segments of the port. The first segments has two piers and has a multipurpose function thats handles general, parcel and unitised cargo. The second segment of the port is located by capital of Zimbabwe Island and Island View. A third segment is the Maydon Wharf area, which contains private terminals as well as terminals controlled by Transnet. The Point terminal area and the Bayhead area are the ordinal segment and fifth segment respectively. Below is a picture of the port of Durban that illustrates the five segments discussed.Figure 19 The Current Layout of Durban PortSource Google Earth, 20103.4 Economic deduction of the Port of DurbanAs, can be seen in figure 17 supra, the logistical strength of the national shipping infrastructure, rests primarily in KZN. The port of Durban, like all other public ports in South Africa, is an example of a port under national jurisdiction, its official name being the National Ports Authority (NPA), thereby allowing centralised planning. Durban is a port of choice because of its infrastructure in place enabling it to be a full service general cargo and container port . In addition to this, durban is well serviced by an adequete course and road infrastructure, which links it to the economic hub of South Africa, Gauteng. In addition to this, the KZN region is a large economic region in itself and is second still to Gauteng in South Africa. Figure 21 below, illustrates a snapshot of the South African port sector for 2009. In terms of total cargo tonnes handled, Durban has 20% of the market and is dwarfed by Richards which has more than double Durbans tonnage handled, at more than 40%. Richards Bay, which was constructed in the 1970s, has had an enormous impaction on Durbans port planning and functions. The primary basis for its existence was to serve a s high-mass export point for raw materials such as coal. Richards Bay also diversified its goods base to include, at a lower cost, goods types that were traditionally the domain of Durban such as neo-bulk cargo like steel, alloys and forest type products. At the time of Richards Bay construction, Cape-sized bulk vessels were too large to enter Durban. (Jones, 2003 and Stats SA, 2010)Figure 21 Port cargo and Vessel Statistics in South African PortsRICHARDS BAYDURBANcape TOWNSALDANHA BAYTOTAL SA PORTSDurban as a % of TotalTOTAL CARGO HANDLED77,631,15437,419,2823,058,60156,475,625182,735,36920%GENERAL CARGO VESSELS2477052203731,64843%BULK VESSELS12579303209213,60326%CONTAINER VESSELS4218838977844,23344%TANKERS1846461593441,54242%VESSEL TOTAL187448482440348915,87931%TOTAL TEUS HANDLED6,2732,395,1751,382,052NA4,334,61255%Source NPA, 2009 (Note table has been edited)Looking again at figure 21 above, it can be observed that even though Durban lags other ports in gross tonnage of cargo, it still has by far the most number of vessels docking. angiotensin-converting enzyme of the major reasons for this was the emerging dominance of Richards Bay, which forced Durban to concentrate on lower-volume bulk, break-bulk and liquid-bulk. This enabled great diversity within the port in terms of cargo type as well vessel type and quantity. Additionally, vessels that carry break bulk are traditionally far smaller than that of traditional bulk, thus explaining why more vessel docking are in Durban than Richards Bay for the same amount of cargo ceterus paribus. With reference to the figures above, it can be observed that Durban has 43% of total general cargo vessels, 42% of total tankers and 44% of total container vessels. The most important figure, in relation to Durban, is that of TEUs handled since this is where its dominance and significance come to the fore. Durban has the ideal structure to handle containers and since Richards Bay has inadequate structure for containers, Durb ans dominance in containers was from the outset. Jones (2003) show that a growing international trend of shipping lines with regards to containers is to organise trade and activities around so called hub ports which satiate and cross at sub-regional transhipment nodes. This arrangement is biased for the existence of a single hub type port on the eastern shores of the Southern region of Africa. Since, Durban is the countrys major container port, is well frequented by major shipping lines, has terminal and hub status, it is quite reasonable for it to remain South Africas primary container port. The other alternatives on the eastern sea board are not really competitors when it comes to containers. Richards Bay is primarily a bulk port and does not have the adequate infrastructure to extend its activities beyond this scope. Maputo has large deviation be from traditional shipping lines as well as limited depth and capacity. Port Elizabeth has weak land side links to Gauteng as well as having limited local demand to justify a major port there. (Suykens, 1984 Jones, 2001 and Jones, 2003)Even though Durban lags Richards Bay in terms of polished tonnage, this in itself is a poor yardstick of economic impact and significance since no nib is taken of cargo value or employment propensities of infrastructure required. Generally, in terms of economic and employment impacts, general cargo provides the most followed by dry-bulk cargo and lastly liquid-bulk. Bearing this in mind, comparing two ports only on the basis of tonnage is frivolous and more specifically in Durbans case it can be seen that from a ports perspective, it handles higher valued cargo than Richards Bay. This is particularly evident when one considers one job is created per 47000 tonnes of cargo handled at Richards Bay, whereas in Durban, one job is created per 7500 tonnes of cargo handled. Figure 22 below further illustrates the economic richness and opportunity that containers present. Additionally, in 2004 an average container vessel spent R2.94 million per port call, far exceeding the R1.8 million for a breakbulk cargo vessel as well as exceeding the R1.3 million for a bunker vessel. (Suykens, 1984 Jones, 2001, Tempi, 2006 and Jones, 2003)Figure 22 Port of Fremantles Economic impact by Cargo TypeCargo TypeOutput ($m)Value Added ($m)Household Income ($m)Employment (no.)Direct EffectsContainers177121731331Other General Cargo453018340 fluidity Bulk35208158Dry Bulk834425459Other1107Total3412151242294Direct + In post EffectsContainers3822401253195Other General Cargo965931800Liquid Bulk673817441Dry Bulk181100501339Other21119Total7284402235792Source Bureau of Economic Transport Economics Australia, 2000As is the case with South African ports, the port of Freemantle in Australia, shown in figure 22 above, derives the most economic prosperity from containers from both a direct and indirect perspective. Even though containers account for only 13% of activity in the port, they contribute 55% to economic activity. Consequently, containers have the greatest employment generating effects, followed by dry bulk and the liquid bulk. Though dynamics differ from port to port in terms of infrastructure, administration, socioeconomics and geography, a broad consensus can be reached from the figure above encompassing a kind of rule of thumb approach. As such, containers offer the most economic opportunity for a port and since Durban already focuses on this area, it would be prudent to continue with this trend. Thus, it is quite evident that both the present and future comparative advantage of Durban port rests in the realm of containerised cargoes due to reason shown above. Also, since the port is so aptly designed for and dependant on containerised cargo, the removal of this great economic magnifying source would be particularly devastating on the Durban region as a whole. (Jones, 2001 and Jones, 2003)Looking at figure 23 below, it can be seen that the Durban port has seen an extraordinary increase in containers, with annualised growth of between 8% and 10% for the last decade.As was shown above, containers form an integral cog in the Durban port machine from an economics and social perspective since they provide a source of trade, income and employment. Container growth has been driven by a range of factors such as rising volumes of world trade and reduced trading barriers, the migration of cargo to containers from other handling systems, South Africas repaird economic performance and rising per capita incomes.The facets examined below are containers landed, shipped and empty and as the diagram shows, all three categories have increased from 2002-2007. The growth between 2002 and 2007 is nothing short of spectacular, but this growth has not come without costs and constraints. However, needing containers and providing adequate space for them are two entirely different things and this will be explored below. Also, we have seen that general cargo is the richest form of cargo and has the largest employment benefits. South Africa needs extended general cargo capabilities and in this respect, Durbans needs are similar to national needs. It is thus clear that Durban needs the container industry for continued survival and prosperity, but whether the container industry needs Durban as much remains to be seen. (Jones, 2003)Figure 23 Total TEUs Landed, transportped TranshippedSource NPA, marketing graphs, 2008Durbans greatest strengths, namely its ideal location, good economic linkage and strong infrastructure, have also evolved to be its Achilles heel, since its popularity especially for containerized cargo, has seen demand surge amidst mostly fixed infrastructure. With the growth of sea trade demand, the real problems of Durban are the lack of adequate marine infrastructure, but its role as port with terminal capacity, and the managerial capacity and willingness to operate the present container terminal at acceptable performance levels . A supply side solution by the authorities to these demand pressures has been slow and limited. The growth of containerised cargo volumes has put the ports container terminal under sustained pressure since the mid-1990s, and at times has overwhelmed available capacity. The consequences of which have been frequent queues of container vessels, unduly high berth occupancy rates, and delays to container vessels and their cargoes. The port area is inundated with industrial and commercial development, making space an expensive premium, above all for neo-bulk space intensive cargoes like steel and forest products. It is therefore no surprise to see certain of these cargoes migrating to Richards Bay, where space is at less of a premium. The Durban-Gauteng rail line possesses substantial spare capacity, but operating problems associated with the availability of Transnet have reduced the reliability of rail. This problem is particularly serious for certain bulk terminals that are reliant on rail since for bulk commodities rail is the cheapest and most efficient form of transport. Previously, Durbans major economic disadvantage was its inability to host Panamax size-threshold ships due to its lack of depth. However, after recent capital investments, the entrance width has been increased from 110m at its narrowest to 220m and the depth in the outer channel from 12m to approximately 19m. However, this is far from adequate and as can be seen in Ircha (2006) which states that hub status type ports must have the following in order to remain relevant Container-stacking densities of 2000-4000 TEUs per hectare Sustained ship-to-shore gantry extend productivity of 50 moves per hour Three day dwell times 30-minute truck turnaround times On-dock rail service and Water depths by the berth of 15 metres and more.Currently, Durban subscribes to one of these parameters, and if it wishes to become efficient and remain productive and relevant, authorities should try to subscribe to all of them. Doing so would require significant capital investments such as infrastructure expansions. (Lawrence, 2000 ISL, 2001 Fairplay, 2003, Ircha, 2006, Transnet, 2010 and Jones, 2003)3.5 Multiplier ModelThe theory of the Keynesian multiplier was covered quite extensively in the literature review. Figure 22 above touched on the multiplier process for the port of Freemantle, but the concept will now be explored and applied in far more detail. The economic impact of port activities on the local economy can be subdivided into three broad areas. The first area is that of directly port-related or port generated activities, that would spare to exist if the port were to close. The second area is that of indirectly port-related activities and pertains to backwardly-linked work and infrastructure. The third and final broad category is termed induced effects, and is in fact the multiplier effect from other inputs. It arises as those employed in the previous two categories, re-spend their m oney in the local economy, thereby increasing the original economic impact. Jones (1998) conducted a sphere so as to ascertain the Port of Durbans economic impact on the local economy. Figure 24 below is taken from that same study and as can be observed, 24 000 direct port related jobs from approximately 360 businesses are created through first round inputs. Of the 24 000 jobs, approximately 8500 are from Transnet, which is an denotation of the significant role that the institution plays in the local region. The 24 000 figure translate into a betroth bill of approximately R950 million rand in 1994 wage level. Assuming an inflation rate of 10% per annum, this figure would equate to approximately R4 Billion in 2010 terms Coupled to this, many port activities were in fact excluded from the above calculation such as insurance, financial services, medical services and legal services. (Jones, 2003)Another reason why the employment figure is conservative is that it fails to account for the induced or multiplier effect. As shown in the literature review, the economic or employment effect is extended far beyond the initial pass impetus whereby the final round of total expenditure normally far exceed the initial input. The multiplier varies from region to region depending on the average marginal propensity to consume, taxes, and how much money is kept within the local region. Jones assumes that since the majority of port employees are in fact low to middle income earners, which is not an extortionate assumption. Bearing this in mind, an average tax rate of 20%, MPC of 0.85 and a retention rate of 0.85 is used to formulate the multiplier value. The data is substituted into the multiplier compare from the literature review and yields a multiplier value of 2.4. The port of Seattle conducted an economic impact analysis and depending on which assumptions they used, the multiplier ranged from 2.9 to 4.4. The port of Lake Charles Harbour also conducted an economic impact study and used a multiplier of 2.6 and the port of Hastings derived a multiplier of 1.58. Thus, the figure use by Jones is in no counseling over the top when one looks at other port economic impact papers and it even falls on the lower end of the spectrum. The case below illustrates the calculations that were used to obtain the multiplier. At 1994 wrongs total income generated by the port is approximately R2.3 billion. Once again, if we assume a 10% increase per annum, in 2010 price terms, this would equate to R9.6 Billion (Jones, 2003 Meyrick Associates, 2007 and Martin Associates, 2007)Figure 24 Multiplier for Durban (1994 prices) = 11 -c (1-t) rSubstituting the various values= 11 -0.85(1-0.2)0.85=2.4Calculating Equilibrium income for remuneration onlyYo = AYo= 950 X 2.4= R2.3 BillionCalculating Equilibrium income for all expendituresYo= (950+500) X 2.4= R3.5 BillionSource Jones, 2003Even with the multiplier effect, the regional economic impact of the port is under estimated since wages and salaries are not the only costs in a port. Industries which provide inputs and services to port establishments are excluded. In the same paper, Jones attempts to calculate these very costs and some of the examples include paper, ropes, cranes, hooks and property costs. Jones does this by working out that on average 48% of total costs are non wage costs and based on this assumption, a 1994 figure of R500 million is generated from port related expenditure which is not linked to wages. This amount extrapolated to regional labour elasticitys, induces a labour figure of approximately 7000 jobs. The refineries around the port employ around 1800 people and the Island View area about 500 as well. Thus, as Jones rightly says, the port and port related activities generate around 40000 jobs in the local economy, a figure which eThekwini online concurs with. Looking at the box above, it can be calculated that the total economic impact of the port is R3.5 Billion in 1994 prices. In 2010 monetary terms, this equates to roughly R14.62 Billion. Additionally, eThekwini online states that the port and related industries contributes over 20% of Durbans GDP and approximately 1.5% of national GDP Thus, it is quite evident that the port and its related clusters are integral to the Durban community in terms of employment and social stability. (Jones, 2003 and www.thekwenionline.org.za, 2010)Figure 25 Durban Port Employment and Output (all data at 1994 levels)Industry/SectorNumberEmploymentWage bill(R mill)Portnet15400240Portnet dredging11126Spoornet13217115Terminal operators11221390Liquid bulk terminals327516CF agents1383600135Ships agents37135065Ship chandlers17400nsContainer depots336613Container parks7260nsContainer logistics31406Shipowners operators511002nsShip repairers builders5960334Stevedores24165045Cargo equipment suppliers2200nsRoad haulers7515001nsBunker services21105Offshore services3803Tallying services51204nsSecurity33001nsMarine contractors21145Custo ms Excise1300nsOther State31001nsTOTAL36023867R950Source Jones, 20033.6 Constraints to ExpansionAs shown in Figure 18 above, Durban is the largest general cargo port in Africa and the second largest in the southern hemisphere, and Durban being a port city will benefit from any growth in international trade volumes especially of the general cargo type. Although Durbans port infrastructure is extensive, at present it suffers from critical capacity limitations. The port currently provides 63 berths that can be used for cargo related activities as well as repair facilities for a further 8-9 vessels. These capacity constraints are encountered in respect of the ports marine infrastructure, cargo-working facilities and its overall articulation with landside cargo distribution systems. The constraints are indicated in the figure below, which illustrates the situation for Durban in 2004/5, considering that the teu amount was 2,395,175 teus for 2009, it becomes clear how grave the capacity s ituation is. Considering how grave the capacity situation is, it is indeed surprising that only short term capital investments have been undertaken over the last two decades. Towards the end of the previous century, there were some capital extensions such as gantries, larger container areas and straddle carriers. In 2002, more gantries were added as well as 20 straddle carriers. The second part of the 2002 project was the relocation and specialisation of areas within the port, namely pier 1. All these short term improvements will result in the port having a present day capacity of 2.5 million TEUs. Already in 2005 the container terminal were operating at 90% capacity and now 5 years hence, with TEUs handled being 2.4 million in 2009 or 96% capacity, there is a pressing need for Durban to increase and improve its container handling operations. (NPA, 2009 and Muller, 2004)Figure 26 Port of Durban Capacity ConstraintTerminalsCurrent traffic M tonTheoretical capacity M ton costless Capa cityPercentage usedBulk Liquids23,800,000UnlimitedUnlimitedMotor vehicles units171,365220,00048,63577.89Coal1,800,0002,500,000700,00072City2,400,0005,200,0002,800,00046.15Containers1,724,2181,900,000175,78290.75Break bulk4,200,0006,300,000.002,100,00066.67Total excl vehicles33,924,218.0016,120,000.005,824,417.00Source NPA, 2006Though this paper views the port from