How Free Trade Zones Can Enhance Trade Development

Conference on “Global Connectivity With The

Mediterranean Basin, July 2nd & 3rd 2012, Treiste, Italy

Anand V SharmaMantrana Maritime Advisory Pvt Ltd, Mumbai, India

Contents

• Trieste Port Overview

• Free Trade Zones & Its Impact on Container Volume

• Jebel Ali – A Case Study

– Macro View

– Container Growth UAE

– Distribution of FTZ & Transshipment Traffic at Jebel Ali

– Commodities Growth at Jebel Ali FTZ

– Jebel Ali –Analysis of 2008 Statistics

– Jebel Ali – Mainline Vessel Calls Weekly

– Jebel Ali – Feeder Movement

• Prospects for Trieste

– EU-Mediterranean Container Distribution

– Features of Mediterranean Ports

– Strategic Advantage & Hinterland

– Italy Container Port Traffic

– Historic Port Traffic of Trieste

• Way Forward for Trieste

• About Mantrana

• End

2

Tertiary Hinterland

Secondary Hinterland

Primary Hinterland

3

Trieste Port Overview

www.mantrana.in

Population GDP (Const GDP (Current

mn 2000 US$ Bn) US$ Bn)Italy 60.3 1148.1 2061.0

Hungary 10.0 56.3 128.6

Austria 8.4 224.0 379.1

Poland 38.2 251.1 469.4

Slovakia 5.4 45.9 87.3

Croatia 4.4 28.0 60.9

Germany 81.8 2069.5 3280.5

Trieste

• Strategic Location

• Borders several land locked countries

• Minimum distance to the hinterland

• High Draft of 18 m

• Best suited for Low total logistics cost

• Cost competitive vis-a-vis to northrn ports

• Handles less than 400,000 TEU annually

Mediterranean Gateway

to EuropeWhat Should Trieste do to handle large

volumes of containers???

4

Free Trade Zones & Its Impact on Container Volume

www.mantrana.in

• Container Volumes at ports are driven by Transshipment, Hinterland & Free Trade Zones

� Not possible to design & Develop 100% transshipment port from day 1

� Transshipment is mostly induced as a follow-on effect of large container volume at ports

� Once initiated, gradually transshipment traffic becomes much larger

• Trieste due to its off route location, faces large deviation for mainline vessels for direct call

• Demography does not allow it to act as sole gateway port to Italy

• Free Trade Zone is an alternative way to increase volume

• Free Trade Zone coupled with Gateway to Central Europe

• Annual Traffic of 1 mn TEU attracts mainline vessel

• Trieste could achieve it only, if it has a larger synergy between Free Trade Zone and Port

Jebel Ali Free Trade Zone could be good example which is successful container port due to large Free Trade Zone

A Case Study of Jebel Ali

6

Jebel Ali – A Case Study (Macro View)

www.mantrana.in

Salalah

DammamShahid Rajaee

UAEJeddah

East

Ideally, a main line vessels due to its high

slot cost tends to move in a path of

minimum deviation. Other ports need to be

serviced using Feeder Vessels. However

large volume generated at the ports due to

domestic requirement or Free Trade Zones,

makes deviation to the remotest corner

commercially attractive

Large Volume Generated at Jebel Ali FTZ

renders deviation to normal course

commercially viable

7

Jebel Ali – A Case Study (Container Growth UAE)

www.mantrana.in

2

4

5

11

17

0

5

10

15

20

1991 1996 2001 2006 2011

Container Volume (mn TEU)

Jebel Ali

Khor Fakkan/Sharjah

Mina Zayed

Fujairah

Population GDP (Current GDP (Per Capita

mn US$ Bn) growth, %)

Saudi A. 27.4 434.7 3.8

UAE 7.5 297.6 1.4

Iran 74.0 419.1 5.8

Oman 2.8 57.8 3.9

• UAE with 7.5 mn population

handles 17 mn TEU

• Jebel Ali handles more than 75%

of the container traffic in Persian

Gulf

• Largest transshipment Port

• Traffic induced by Free Trade Zone

8

Distribution of FTZ & Transshipment Traffic at Jebel Ali

www.mantrana.in

4.2 8.7 11.8 11.6 13.0

0

20

40

60

80

100%

2002 2005 2008 2010 2011

inTrade VolumeAll values mn TEU

Transhipment + Empty

69.0%

24.1% 26.3% 25.3% 23.8%31.0%

75.9% 73.7% 74.7% 76.2%

Post 2008, Trade Traffic Seams to have Saturated. Still, due to large scale of operation total port

traffic continues to rise. Mostly driven by Transshipment.

9

Commodities Growth at Jebel Ali FTZ

www.mantrana.in

1.4

2.1

3.1 3.2

0.0

1.0

2.0

3.0

4.0

2002 2005 2008 2010

Container Volume (mn TEU)

Vegetables

Finished eatables

Chemicals, Plastics, etc

Wood Products

Textile

Machinery

Others

Jebel Ali created infrastructure suitable to store, trade and process to be consumed in the region.

This has led to large scale container inflow/Outflow from the port

10

Jebel Ali –Analysis of 2008 Statistics

www.mantrana.in

11.8 mn TEU

Trade Volume (30%)

Transshipment (45%)

Empty Unit (25%)

3.1 mn TEU

Imported For Domestic Consumption (12.6%)

Imported to process & export (3.6%)

Imported to store & Re-export (5.1%)

2.2 mn TEU

Traffic generated due to acting as agateway port to Middle East

Induced container handling due tolarge volume of container traffic

Imports (21.3%)

Export ( 3.6%)

Trading (5.1%)

Detailed Analysis of 2008 Statistics of FreeTradeZone Induced Port Traffic

Free Trade Zone has

induced close to 8 times

traffic in the Jebel Ali

Port (including

transshipment and

empty container)

11

Jebel Ali – Mainline Vessel Calls Weekly

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Northern Europe, 6

Mediterranean, 10

North America, 6

West Africa, 3

Red Sea, 16

East Africa, 4

South Africa, 4

South East Asia, 22

India, 26

Far East, 22Jebel Ali

• 48 Mainline Vessels (excluding feeder) call on Jebel Ali per week

• 25 continue on East-West border route, and 23 return to their region

12

Jebel Ali – Feeder Movement

www.mantrana.in

1%

37%

12%

20%

9%

8%7%5%

1%

Origin of Container Traffic to Jebel Ali

Australia

Africa

Europe

Far East

Indian Subcontinent

Mediterranean

Middle East

Americas

South East Asia

Feeder Movement Per Week at Jebel Ali14

10 109 9 9

6

4 4

21

• Jebel Ali - Gateway to Middle East, India and Africa

• 10-Yr CAGR of nearly 14% for container traffic

• More than 6,000 container vessels calls annually

• Middle East and Far East account for more

than 50% of traffic handled at Jebel Ali

• 80% of transshipment is for Middle East

• 75% movement is within Gulf

Source: DP World

Prospects for Trieste

14

EU-Mediterranean Container Distribution

www.mantrana.in

• More than 18 Mn TEU container

trade between Europe and Asia

annually

• 75% Share of Northern Ports &

25% Mediterranean ports

• Bulk opportunities arise from

Asian regions

• Transshipment facilitated growth

at ports like Gioia Tauro and

Algeciras

• Med ports lose out to northern-EU

ports in accessing high GDP

regions

Free Trade Zone enables

services to EU countries.

If Trieste could achieve

more than 1 mn TEU

traffic. It could attract

mainline vessels with idea

of Transshipment

15

Features of Mediterranean Ports

www.mantrana.in

Hub ports,

Transshipment rate of 87% & 90%

at Damietta & SCCT resp.

Largest

Transshipment

terminal in Med.

Handled 4.2 Mn TEU,

highest in Med

Transshipment hub for

NAPA ports

Excluding Transshipment traffic, Mediterranean Ports Share in EU total traffic reduces from 44% to 35%

Tertiary Hinterland

Secondary Hinterland

Primary Hinterland

16

Strategic Advantage & Hinterland

www.mantrana.in

• Ideal location of Trieste, enables it

to provide maximum sea travel and

minimum land travel for any

container destined for Austria,

Slovakia, South Germany, Poland,

etc

• Absence of Critical volume at the

port, discourages mainline vessels

to make direct call to Trieste.

• Transshipment at Tauro or Taranto,

feeder movement to Trieste

followed by last mile connectivity by

road or rail to Hinterland increases

total logistics cost making Northern

ports more commercially attractive

• Demography does not permit Trieste to act as Gateway port of Italy. However, it

certainly favors Central Europe

17

Italy Container Port Traffic

www.mantrana.in

1.6

3.3

6.6

9.0

0

2

4

6

8

10

1991 1996 2001 2006 2011

8.6Container Volume (mn TEU)

Gioia Tauro

Genoa

La Sepzia

Cagliari

Taranto

Leghorn

Naples

Venice

Trieste

• Gioia Tauro, largest transshipment terminal in Med. accounts for 24% of total Italian container traffic

• Trieste has a total share of 4% in Italy’s container traffic

• In order to attract, mainline vessel & transshipment traffic. Trieste would require to achieve critical

volume which could only happen by way of developing a Free Trade Zone.

18

Historic Port Traffic of Trieste

www.mantrana.in

0.0

0.1

0.2

0.3

0.4

1991 1996 2001 2006 2011

0.14

0.170.20

0.22

0.39

• Despite the deepest draft (18m), Trieste has only 4% share in Italy’s total container traffic

• Economic development in S. Germany, Czech Republic, Hungary, Balkans and Turkey

• More than 30% of container from these markets utilize intermodal services

• In the absence of Domestic Hinterland, Trieste would have to target Central & Eastern Europe

• Free Trade Zone and good inland connectivity would be key drivers of it

19

Way Forward for Trieste

www.mantrana.in

• Identify Trade Patterns of East Europe and Central Europe

• Develop Free Trade Zone with opportunity for Stake holder countries by way of Equity Stake

� Equity Stake to incentivize last mile connectivity by respective countries

• Develop large scale of operation

• Market to Shipping Lines Trieste

� Gateway to Central Europe

� Time Saving & Slot Cost Saving

• Provide bulk discount on THC for large volumes of container handled by Shipping lines annually

� Terminal Handling Charges (THC) constitutes a fraction of cost of product

� Discount on THC could be offset with the profit at Free Trade Zone

• Create an economy of Scale at Free Trade Zone for cost effective quality products

• Every Free Trade Zones is unique in its market focus, customer profile and Scale of Operation

� Trieste should work to identify its niche areas for Developing Free Trade Zone

20

About Mantrana

www.mantrana.in

• Dedicated Consultants for the Maritime Sector

• Undertakes economic advisory on the following maritime segments

√ Ports & Logistics

√ Shipbuilding

√ Shipping

√ Marine Tourism

• Following are key services provided by Mantrana Team

√ Market Study / Traffic Study

√ Project Feasibility Study

√ Business Plan

√ Bid Advisory

√ Due Diligence for investment

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Landmark : Near CBD Station, Opp. IDBI Bank Bldg.

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