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Post: Privatisation comes to African Ports

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Privatisation comes to African Ports

Operations at Africa’s ports are becoming increasingly privatised, a move that many commentators hope will bring increasingly better efficiencies.

This is the case in Tanzania, Kenya, Mozambique, and now in South Africa too.

In October 2023, the UAE-based multinational DP World signed a 30-year concession agreement with Tanzania Ports Authority to operate and modernise the port of Dar es Salaam. Meanwhile, the Kenya Ports Authority put out tenders seeking for global companies to partner with Kenyan firms to run the port of Lamu and sections of Mombasa port.

In Mozambique, the port of Beira has been operated by the public-private partnership Cornelder de Moçambique, a joint venture between Moçambique Ports and Railways and Rotterdam-based Cornelder Holdings, for the past 25 years. After significant investments in the port’s infrastructure and efficiencies, the World Bank’s 2022 Container Port Performance Index now ranks Beira Port as the most efficient in southern Africa.

In South Africa, the Philippines-based terminal operator International Container Terminal Services Inc. (ICTSI) recently entered a 25-year joint venture with Transnet. ICTSI is set to take over operations at Durban’s container terminal, bringing hope that Durban’s problems may soon be resolved.

“Privatisation can significantly improve the operations of South African ports, simply because the private sector is more efficient than the public sector.”

Durban port has become notorious for extremely long delays in recent months: in November 2023, the state-owned port authority Transnet announced that it would take up to 15 weeks to clear the long line of vessels that were sitting anchored off Durban port. After boosting its operational capacity, Durban Container Terminal (DCT) Pier 2 managed to reduce the backlog from more than 43 000 containers in November to less than 2 000 by mid-February.

Nonetheless, there is a still a backlog and a long-term solution is needed.

“South Africa is currently losing business to ports in Mozambique, with cargo moving through Maputo rather than the struggling ports of Durban and Richards Bay,” observed Dolphin Bay’s Chief Operating Officer Thinus Ferreira. “The port of Durban remains congested, and Dar Es Salaam – which is a key port for Dolphin Bay – has a 12-day berthing delay.”

Dolphin Bay’s experience is that a 12-day berthing delay often results in an actual delay of about 40 days, as schedules change and shipping lines try to avoid these delays.

Transnet Port Terminals is already leveraging its existing infrastructure to improve efficiencies, including using a rail link between back-of-port facilities and the terminal for the loading of import containers.

More good news is that South Africa’s Minister of Finance, Enoch Godongwana, told Parliament during his recent Budget speech for the 2024/2025 financial year, that the cash-strapped Transnet would be opened to third-party operators from May 2024.

While the problem is particularly bad in Africa, shipping delays are a global problem. In January 2024, Kuehne+Nagel’s Seaexplorer Schedule Reliability Report indicated that only 47.1% of the world’s ocean freight shipments are delivered on time, with an average two-day delay for all vessels.

“However, Africa pales in comparison to the world’s most prominent ports,” said Thinus. “Shanghai, for instance, handles in five days what Dar es Salaam does in a year. Likewise, what in Mombasa takes in a year, Shanghai does in 10 days.”

The difference, he said, is that most ports in the United States, Europe and even China, are run by private operators. In Africa, where importers and exporters face some of the longest delays, the privatisation of ports could significantly improve operations and outcomes.

“Private companies need to make profit,” explained Thinus. “And at the end of the day, efficiency will bring them higher profits. Currently, Transnet as a state-owned entity doesn’t need to be efficient or cost-effective.”

The Dolphin Bay Brief reached out to Waldo Krugell, a Professor in Economics at North-West University, who agreed with Thinus. “Privatisation can significantly improve the operations of South African ports, simply because the private sector is more efficient than the public sector,” he said. “State-owned enterprises often pursue multiple goals that are not all compatible with least-cost efficiency. There are good reasons for things like affirmative procurement or supporting localisation, but they frequently have higher costs. A private sector operator has to be profitable, and that is a clear incentive to manage performance and ensure efficiency.”

He explains that the privatisation of ports can potentially improve efficiency through several mechanisms, including investment in infrastructure, streamlined operations, specialisation, performance-based contracts, and customer service orientation.

“A 12-day berthing delay often results in an actual delay of about 40 days.”

“There are several examples of ports that have been privatised. For instance, the Port of Singapore has improved its efficiency and profitability tremendously since it was privatised in 1997, becoming the second busiest port in the world. Another example is the Jebel Ali Port in Dubai, which privatised its operations in 2000 and has since become one of the busiest ports in the world.”

But the success of port privatisation initiatives can vary depending on factors such as regulatory environment, market conditions, and the specific terms of the privatisation agreements. “Additionally,” said Waldo, “concerns exist regarding potential negative impacts such as loss of public control, labour disputes, and social equity issues. Therefore, careful planning, monitoring, and oversight are essential to ensure that privatisation leads to the desired improvements in efficiency while safeguarding the public interest.”

Thinus warns that there are no quick fixes for Africa’s state-run ports. “These delays are going to be with us for quite a while,” he said. “But more and more African administrations appear to be realising the strategic importance of an efficient supply chain, so at least things are moving in the right direction.

“For now though, Dolphin Bay and our clients still need to focus our actions to overcome the obstacles of inefficient supply chains as part of our daily business.”

Source: Dolphin Bay

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