Time for Terminal Rethink

Hub Strategies Need to Catch Up Trade Changes

By Johan-Paul Verschuure

Breakbulk terminals used to be true multi-purpose terminals, handling a wide variety of products, sizes and weights, but no container cargo flows. Those dedicated breakbulk terminals served all parts of their hinterland’s economies.

But with container shipments now transporting more than 80 percent of containerizable goods globally, the breakbulk terminal is transitioning to a new role in the port sector as a “special service provider.” New operational strategies for ports must now focus on becoming part of the client supply chain, increasing digitization and becoming temporary “pop-up” ports for breakbulk activities.

There is a growing need to handle cargoes in ports that are too large or too heavy to be containerized, which require special handling and storage, or require value-added services at the terminal. This new role of breakbulk terminals, however, requires much more careful thinking about the value-add of the terminal in the supply chain.

This new breakbulk terminal is much more dependent on the activity and special needs in the direct hinterland than the traditional breakbulk terminal. Clear strategic direction, dedicated investment in terminals, and a
proactive market approach are key to a successful breakbulk terminal. A modern breakbulk facility must adopt a comprehensive and broad marketing approach that looks at all cargo sectors and identifies an investment policy that anticipates demand.

Breakbulk terminals in mature and larger markets have mostly kept up with this transition. In smaller and emerging markets this transition is underway or starting up. These breakbulk terminals should examine what is happening in the more developed markets, as they will likely encounter the same challenges in the future.

Supply Chain Tie-up Strategy

Looking at the successful breakbulk facilities in North West Europe, they are almost all entrenched in the supply chains of their clients. The particularly successful ones are the terminals that provide added value in the supply chain. Often this requires a dedicated special investment to tie the client to the terminal. This is exactly where new strategies should increasingly focus on.

Breakbulk facilities should aim to become part of the client’s supply chain and not just handle cargo. In some cases there are even opportunities for breakbulk operators to follow their key clients abroad and develop or redevelop terminals to suit the needs of their key clients. This close cooperation seems to be the way forward.

One problem with this, however, is that terminals may become too reliant on a small number of clients and their success. Ideally this specialized service provider approach should be adopted for multiple clients in parallel, which may be hard to achieve. Over-reliance on a low number of clients is particularly a problem when the cooperation between cargo owner and the owner/operators of the breakbulk terminal remains very traditional. The cargo owner often just pays a per-tonne fee for shipping the cargo over the quay and only in a few cases do volume indications or guarantees become established.

Business models in which the revenues and risks are shared between the cargo owner and the terminal are relatively scarce. Yet, more creative cooperation models may benefit the operations and profitability of the terminal in the long run. Shared ownership of multipurpose terminal by the key clients is even scarcer, yet seems to be a logical way forward.

Another strategy could be to link the breakbulk terminal to a container terminal. Stuffing and stripping are typically profitable activities at container terminals and breakbulk terminals can benefit from this and offer breakbulk transport as a means of onwards transportation. Breakbulk terminals can usually consolidate or break up container loads in a more efficient and cheaper manner than container terminals, and the warehousing space required for these activities can take up valuable space at a container terminal. By collaborating with breakbulk terminals, container terminals can then fully focus on serving container vessels in the most efficient way.

Increased Efficiency Via Digitization

Standardization is needed in order to fully reap the benefits of automation. But in the breakbulk sector standardization is a long way off. Given that the breakbulk sweet spot seems to be serving niche markets, standardization is not needed to the same extent as it is with containers or dry bulk.

However, digitization offers much more potential for the breakbulk sector. The difficulty with breakbulk logistics is the complex supply chain, with situation-specific and technical requirements in each step of the chain.

Digitization can deal with this flexibility and should be able to provide opportunities in matching cargo and ports based on their special requirements and based on the volatile character of the market. This does not only hold true on the land side, but also for shipping lines in the breakbulk sector. With breakbulk shipping less tied to strict schedules, digital solutions for matching supply and demand can result in new opportunities on the water side.

But digitalization challenges remain in the breakbulk sector: firstly, the players are small and numerous; and secondly, these players typically have less means to try to develop advanced platforms. As a consequence, breakbulk operators are less well suited to set up these initiatives. Instead, port authorities are ideally placed to pick up this opportunity and to take initiative and push the efficiency of the sector to the next level.

‘Pop-up’ Ports

Changes in the breakbulk sector have not necessarily resulted in changes to the business environment surrounding its ports. Breakbulk operations used to serve a wide range of economic activities and hence were relatively stable; growth and outlooks were tied to overall economic activity, similar to container terminals nowadays. However, with the transition to niche operations and strategies, operating conditions have become much more volatile, outlook horizons shorter, and operations have become tied to individual projects and clients. Port authorities around the world have not kept up with the speed of these changes.

Additionally, terms for concession agreements often have not been adjusted to reflect these new market conditions. Efficiency efforts have mostly focused on other sectors and pricing has not been adjusted. If port authorities want to keep breakbulk operations flourishing in their ports, they must work together with their breakbulk operators and other logistics players active in the industry. This will become increasingly important now that overall container growth has slowed. Indeed, the additional activity from breakbulk operations may be an interesting complementary cash flow. Also, the value-add from breakbulk operations on a per-tonne basis is typically higher than that of a containerized tonne of goods.

The ability to set up flexible port capacity can be an interesting way to capture the upswings in a volatile market – this has been seen in construction and/or assembly yards for offshore wind projects. Having a more flexible breakbulk terminal requires setting flexible terms for the “pop-up” port. It will also require more management time than the current straightforward long-term contracts with their simple pricing models.

However, with the increased availability of data and opportunities to standardize administration, perhaps now is the time to think about offering more flexible arrangements to breakbulk terminal operators or even sharing part of the risk.  

Johan-Paul Verschuure is technical director in the maritime team of consultant WSP.

Image credit: BLG Logistics