CHALLENGES AND DIFFICULTIES OF THE SECTOR
ADAPTING THE CONCESSIONS
TO THE ECONOMIC SITUATION
The majority of the concessions were granted in the period of economic prosperity under conditions that were logical in view of the results in that context. At present, and since 2009, the reality is very different and the conditions of the concessions have remained as they are in the majority of the cases, ensuring the PAs’ profitability through minimum traffic and an ever-increasing fee model.
In the subsequent revisions made to the law nothing has been done to adapt it to the new reality of the port sector and to the Spanish economy as described previously. Only the PAs of certain ports have applied rebates in whole—such as Algeciras or Ferrol—and in part—such as Barcelona, Bilbao, or Málaga.
The reduction in margins and thus, in profitability—experienced by the port operators, and which could be further aggravated if the decline in traffic continues, the overcapacity, and the increase in costs, all result in extending the payback period of investment planned for in the original business plans. In Spain, the concession periods range between 30 to 35 years, whereas in Europe, these can extend up to 65 years.
Generally speaking, occupancy fees have continued to increase over the last few years, without performing a land valuation of the port terminals in line with homogeneous criteria. A good example of this is the great disparity between the amount per m2 of the occupancy fees in the different ports, or even between companies in the same port, hindering their competitiveness and creating an unlevel playing field.
This valuation does not take into account intended land use, market fluctuations, or the overcapacity existing in the system. In recent years, Spain has experienced a major real estate crisis, which has been much more severe than the rest of Europe and the world. This crisisbrought about a general decline in the value of real estate assets, being particularly more pronounced in the case of land value.
Moreover, for coastal locations, the decline in asset value has been even greater due to the surplus stock that the banks had in their balance sheets, and which they had to sell with huge discounts. This general decline has not been reflected in the evaluation of port fees by the PAs as provided for by the Law of Ports in Article 177. The minimum traffic conditions were incorporated into the law to boost the investors’ commercial activity and were defined in a context that has nothing to do with the current volume and forecasts. These minimums have not changed since then, whereas the volume of traffic has not increased since 2008 and the capacity has steadily increased, fostered by the PAs’ investments, generating greater competition and distributing traffic among ports.
Minimum traffic, within the context of an increase in capacity and decline in volume, only further contributes to damaging the private investors’ profitability, whereas Puertos del Estado’s economic self-sufficiency is ensured by the law. In this way, the PAs’ profitability remains unchanged and is much higher than the rest of port stakeholders.
The strategy of promoting inter-port competition in the port system has produced excellent results in the context of growing traffic. This strategy has led to the implementation of more efficient processes that have made it possible to reach high levels of competitiveness. However, in the current context, this strategy is questionable. In a situation with overcapacity, it is absolutely essential to have a more global vision that ensures that investments made not only do not damage the port operators’ profitability in their role as the main investors, but also guarantee the development of the Spanish port system.
As this overcapacity in the system does not go hand in hand with a corresponding increase in traffic, the Port Authorities thereby focus their plans on competing against other domestic ports and logistics chains. The Authorities operate independently and in a decentralised manner. They receive minimal intervention from Puertos del Estado. In this manner, it is not possible to ensure a level playing field among ports and oversee the implementation of a strategy on a national level.
In other sectors, the responsibility of public administrations is written into law through the inclusion of a surrender of concession . Instead, in the port sector, the concessions that include this clause in their agreements are few and far between. In Spain, the rationale behind the measurement of the port system’s efficiency is based on the volume of traffic and the management ratios related to the Port Authorities They have a business model that does not depend on economic performance or the system’s profitability. Instead, it is based on the occupancy of land at the terminals by the operators and benefited by the minimum traffic stipulated for them.
In the evaluation of the authorities’ performance, the trend in prices, the stakeholders’ profitability, the actual productivity of the operators, or the effectiveness of the investments—both public and private—are not being taken into account. Because of this, the ports’ economic situation seems to be based on the situation of the country’s import and export traffic or in the quality of the infrastructure, without focusing on the necessity, its usefulness, and the improvement in quality by boosting efficiency and productivity.
Until recently, the Spanish port sector was an attractive sector for major investors, as it had high barriers to entry due to the high initial investment required, competition in international long-distance freight transport was practically nonexistent, and it gave control over a very important part of the logistics chain.
At present, the sector has lost much of its allure. The nonexistent growth in traffic over the last 5 years and the drop in expected traffic in 2013, together with the new investments and increases in capacity, will only serve to heighten the decline in the operators’ port traffic and thus, greater pressure on the prices of their services can naturally be expected.
Moreover, the upward trend in stevedoring costs and port fees, combined with the preceding, results in the investors obtaining returns that do not compensate the investment made in the medium term, thereby bringing about a disinterest in port investments in Spain.
On the other hand, the current management of the stevedoring service generates insecurity with regard to the reliability of the service and the capacity to reduce its costs—key factors in a sector in which it costs very little for the customers to change. All of this leads to the operator not being able to effectively control the logistics chain.
Spain and the investors operating in it have managed to be competitive despite its cost structure affording little flexibility. To do this, they compete based on price to the detriment of their margins and make capital-intensive investments to boost the productivity and efficiency of their operations without obtaining a reasonable return on capital in recent years, which places the sustainability of their business at risk.
In this context, the main challenges that have to be overcome in order to ensure sustainable profitability for the port investors and the future of the sector have been identified:
- The need to adapt the conditions of the current concessions to the economic situation in the short term, and to amend them in the medium term.
- Ensure the system’s competitiveness of the system to guarantee the continuity of traffic in our ports.
- Promote a change in legislation that would allow great control over the stevedoring staff.