Paper Code: PD-071

THE DIVERGENCE OF REGIONALIZATION: THE CHALLENGES OF THE MEDITERRANEAN PORTS OF EUROPE

ELISABETH GOUVERNALa, JEAN-PAUL RODRIGUE1b and BRIAN SLACKc Universit Paris-Est, Institut Francais des Sciences et Technologies, des Transports, de lAmnagement et des Rseaux, SPLOTT Laboratory, 2 rue de la Butte Verte, Marne-laValle, France.
a

Department of Global Studies and Geography, Hofstra University, Hempstead, New York, United States, 11549. E-mail: jean-paul.rodrigue@hofstra.edu
b c

Department of Geography, Concordia University, Montreal, Quebec, Canada.

ABSTRACT The regionalization model exemplified by the Northern Range ports in Europe has been developed to such a degree that those ports now control most of the richest market regions of Europe. Their dominance of all but the southern and eastern fringes of the continent makes it very difficult for ports in those regions to compete directly. The Mediterranean ports prior to the 1990s were largely bypassed by the ships engaged in the Asia-Europe trade. Over the last twenty years it has been common to see developments in container trade in the Mediterranean through the establishment of transshipment hubs, whose growth dwarfed the container traffic at the old hinterland ports in the Northern Mediterranean, and in many cases these hinterland ports were served by feeder services from the transshipment hubs. This model has served to describe container shipping in the Mediterranean, and with the addition of new transshipment hubs on the coast of North Africa, this view has been reinforced. This paper has argued that this distinction between the gateway ports of the North and the transshipment hubs in the South is a gross oversimplification. Keywords: Port Regionalization, Hinterland, Mediterranean.

1. INTRODUCTION
Globalization and the setting of global supply chains, as far as Europe and North America are concerned, imply imbalances in trade flows where imports tend to be dominant. For ports this has incited an imported-based push in terms of hinterland development often proportional to the level of trade imbalances. At the port level these imbalances coupled with a growth of the cargo handled incite port authorities to establish strategies to better access the hinterland, service their customers, as well as reconcile inbound and outbound logistics.

Corresponding Author. 1

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Port regionalization relies on strategies pursued by port authorities and inland transport actors to improve the effectiveness of port / hinterland relations, namely by developing rail and barge services, satellite terminals, inland ports and logistics zones (Notteboom and Rodrigue, 2005). While an outcome has been higher levels of competition over hinterland traffic, regionalization remains bound to commercial considerations by shippers and beneficial cargo owners. Hinterland development as a competitive factor is particularly relevant in the European setting due to the shorter distances involved and therefore a higher propensity to contestability (de Langen, 2007). At the European level a divergence in regionalization is being observed between the Northern European and Mediterranean ports. While the impressive growth of the Asia-Europe trade transiting through the Suez Canal should have represented a substantial opportunity for Mediterranean European ports to capture additional traffic and develop the hinterland, evidence underlines that it is Northern European ports that have captured the most this traffic (NEA, 2011). Shippers opt for ports in the Northern Range as gateways to European freight distribution and such ports were able to expand their hinterland far inside Europe. This leaves a majority of ports in other regions fulfilling a role of servicing restricted markets over hinterlands that are less contestable. A great deal of the growth taking place in Mediterranean ports (e.g. Algeciras, Gioia Tauro and Marsalokk) is mainly attributable to transshipment. For several ports, the setting of a transshipment function by-passed the regular stage related to hinterland development, leaving the setting of pure transshipment hubs dependent on the strategies of maritime shipping companies. Since the Mediterranean was a secondary market that still needed to be serviced, shipping lines favored the setting of hub-and-spoke services that were often combined with relay services along the Asia-Europe trade corridor. The trend is now changing as increasingly larger ships are calling Mediterranean ports from China; trade volumes are getting significant enough to justify such services. Mediterranean ports compete with established economies of scale benefiting Northern European ports, mainly Antwerp and Rotterdam. It is argued that the proximity advantages of Mediterranean ports, such as Marseille and Genoa, have been bypassed by an effective regionalization strategy pursued by Northern European ports, enabling them to service hinterlands deep within Europe. Northern European ports appear to have had an initial advantage because of the size of their local markets and were able to build economies of scale over ever more extensive hinterlands. They benefited from economy of scale, due to larger ships calling their ports compared to Mediterranean ports. Also, due to the higher volume handled at Northern Range ports, the frequency of service is higher, which promotes more effective supply chain management. Cumulatively, they were able to counter the proximity advantage of Mediterranean ports for the Asia trade by expanding their hinterland accessibility in terms of capacity as well as reliability. The setting of rail and barges services is therefore more cost effective and reliable than using Mediterranean ports. This hinterland service advantage became even more predominant due to the density and proximity of economic activities in Northern Europe. They have obvious geographical advantages such as a richer hinterland in proximity to major gateways, a much denser fluvial network (e.g. the Rhine system) which is not present around the Western Mediterranean (with Marseille as an exception that has a limited reach; Lyon), but the decisive factor was the multiplying advantages of rail services and the setting of inland terminals along corridors. The paper underlines the divergence regionalization that has taken place in Europe, particularly vis--vis Northern European and Mediterranean ports. It is argued that the significant factor in
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this divergence relates to the fact that Northern European ports were more effective in their regionalization, thus building on their hinterland access advantages However, the paper indicates that there are growing distinctions between Mediterranean ports. Some are beginning to follow a regionalization, albeit at a smaller scale, others are maintaining an early focus on transshipment, while others in the Eastern Mediterranean are still evolving to fulfill a function where the role of transshipment still remains to be assessed.

2. THE BUILDING OF THE NORTHERN EUROPEAN PORTS ADVANTAGE

2.1 Port Ranges and Shifting Traffic Patterns
The port ranges of Europe and the Mediterranean segment the main regional markets serviced by port activities. Although there is no formal methodology that defines the extent of a port range, factors related to access to a specific water body, port proximity and hinterland contestability are usually considered. Figure 1 provides an overview of the Europe and the Mediterranean container port traffic level as well as the main ranges concerned. The division line between Northern and Southern Europe reflects the extent of the respective port hinterlands (as estimated by NEA, 2011). Although the ranges of Northern Europe are similar to those used in port range studies (e.g. Notteboom, 1997), the Mediterranean is divided in three distinct ranges. The Western Mediterranean range extends from Gibraltar to the southern tip of Italy, which covers the major economic regions of Mediterranean Europe. The Eastern Mediterranean / Black Sea range covers more marginal but rapidly growing economies of Eastern Europe and Turkey. While conventionally the Southern Mediterranean range was not considered in port studies related to Europe, it is included here because of its competitiveness to attract transshipment traffic bound to European ports, implying that a growing volume of the cargo handled relates to European derived demand. It is far from being a homogeneous range since there is little, if any, contestability between ports, each having its national hinterland.

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Figure 1 : European and Mediterranean Ports Ranges, Average Traffic, 2008-10 (in TEU) Source: Container traffic from Containerization International.

While the share of the Northern European range is dominant, the Mediterranean ranges have experienced a remarkable growth of their share (Figure 2) to account for 43.6% of the traffic handled by the considered port ranges in 2010.

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Figure 2 : Container Traffic by Port Range, Europe and the Mediterranean, 1980-20102

The respective changes in the market share of port ranges masks a dynamic which is very port and function specific (Figure 3).

Includes all the ports in the respective maritime ranges that handled a traffic above 50,000 TEU in 2010. 5

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Figure 3 : Net Containerized Traffic Changes, Selected European Ports, 2000-10 (in TEUs)

While the most significant growth in containerized traffic in the Northern range concerns its conventional gateway ports (Antwerp, Rotterdam, Hamburg and Bremerhaven), the Mediterranean ranges show a very different dynamic, since transshipment is the main growth driver. The only significant hinterland-based (gateway) growth is for Turkey and the Black Sea and for Barcelona and Valencia. It is apparent that the hinterland advantage that could have benefited to the Marseille / Ligurian ports from the surge in trade flows coming from Asia was by-passed by the regionalization of the northern range ports deep into Europe. For instance, the growth of Genoa and La Spezia, the most significant ports of the Ligurian range is negligible and even negative in the case of Genoa over the 2000-10 period. The ports of the Adriatic are faring better with an improved access to Eastern European growth opportunities. Yet they involve significant deviations from main shipping lanes, implying that they are more likely to be called by feeder services.

2.2 The Impacts of Transshipment

Transshipment has become an important feature in contemporary container shipping. Even the hinterland ports of the Northern Range have developed transshipment business. However, care has to be taken in in identifying transshipment hubs, because as, Gouvernal and Gouvernal (2012) have noted transshipped containers are double counted, so that even a port with more than 50% of its traffic comprising transshipments, it is hinterland traffic which is the still the most important source of containers. Thus only ports for which transshipments account for more than 66.5% of their traffic can be said to be transshipment hubs since it is only above that figure that ship to ship transfers represent more than gateway traffic. Such is the case in the southern Mediterranean. Since the Mediterranean was a secondary market that still needed to
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be serviced, shipping lines favored the setting of hub-and-spoke services that were often combined with relay services. The major transshipment hubs were established close to the main shipping lanes through the Mediterranean Sea and Zohil and Prijon (1999) observed a relationship between deviation from the shortest path and transshipment totals. Other Mediterranean ports, especially those in the Northern Basins were fed by feeder services. Over time this has changed. While feeder services from the transshipment hubs still serve other ports, the trend over the last decade is for carriers to replace feeder services with direct calls from Asia using 5,000-8,000 TEU vessels, and where local markets are large enough such as Barcelona, Marseille, Constanza and Ambarli with 12,000 TEU ships. There are three major clusters of transshipment hubs that accounted for much of the growth between 2000 and 2010 (Figure 4).

Figure 4 : Containerized Cargo Transshipped and Transshipment Incidence, Selected Ports, 200709 (in TEU) Source: Drewry Shipping Consultants.

The vicinity of the Suez Canal, with Damietta and Port Said, and of the Strait of Gibraltar, with Algeciras, Malaga and Tangiers Med, represent two of the clusters. The third cluster comprises Cagliari, Giaoa Tauro, Marsaxlokk and Taranto and occupies a key position of centrality in the Mediterranean. These hubs combine feeder and relay transshipment functions with negligible hinterland traffic because of the limited extent of their local markets. A more recently developed outlier is Constanza on the Black Sea. Transshipment has also become an important component of traditional hinterland ports. Barcelona, Valencia, Piraeus, Ambarli and Beirut are good examples in the Mediterranean, but many of the major Northern Range ports too have seen their share of transshipments increase over the decade.

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Mediterranean hubs represent a salient case of foreland-based regionalization where the feeder port hub effectively becomes a component of the hub port hinterland (Notteboom and Rodrigue, 2010). If transshipment traffic is removed from traffic figures, than the share of Northern Europe increases while the share of Mediterranean ports declines substantially (Figure 5). For instance, without transshipment, the share of Mediterranean ports drop from 43.6% to 34.5% of the TEU handled in 2010. This underlines that hinterland traffic does not play a significant role in the dynamics of those Mediterranean ports with short deviations from the main shipping lane.

Figure 5 : Share of Container Traffic by Port Range, 2010 3

2.3 The Hinterland Effect

The hinterland continues to play the determining role in container port development, except for a few dedicated transshipment hubs. The ports of the Northern Range exploit the richest market areas on the continent. They were thus able to exploit scale economies most effectively and establish an almost uncontestable position as gateways to large areas of the rest of Europe. Benefitting from road, rail and barge connections they extended their dominance over wide swathes of Central and Eastern Europe (Figure 6). They were able to benefit from a higher hinterland density but as well as from the continuity in this hinterland density. The most representative strategies taking advantage of this continuity were the setting of container rail shuttle services (permitted by deregulation). For instance, the Rhine system shows a continuous high density level that is un-parallel at the European level. More recently barge services (mostly from Rotterdam and Antwerp) have been illustrative of a new dynamics in hinterland accessibility. Inland ports, many of them set by port authorities, terminal operators, shipping lines and rail operators have been a salient factor in hinterland divergence. For instance, the inland port of Duisburg now handles in the range of 1 million TEU per year, which includes barge, rail and truck traffic. It

Traffic without transshipment is estimated by removing from every port of the range transshipment traffic based on transshipment incidence figures. Transshipment incidence figure could not be obtained for all ports, but all the major hubs are covered, which therefore accounts for the bulk of the transshipment activity.
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acts as a major distribution platform anchoring and expanding the reach of the Rhine/Scheldt delta ports in Europe.

Figure 6 : European Hinterland Potential (GDP), 20074

Mediterranean ports were by-passed by their Northern European counterparts as the dominant gateways to the European market. Hinterland access was the central factor behind this paradox since Mediterranean ports do not benefit much from economies of scale advantages (Medda and Carbonaro 2007). Figure 7, using a simple summation of GPD potential within a radius of 250 km, called the Hinterland Potential Index (HPI), underlines the level of economic activity in the vicinity of several major European ports. Northern Range ports benefit from an enormous hinterland potential. For instance, because of its closer proximity to Ile de France, the main cluster of economic activities in France, Antwerp has slightly higher HPI for a range of 250 km than Rotterdam. Yet, both ports have the highest HPI observed in the sample. Felixstowe, ranks high due to its immediate access to the core regions of Great Britain. Comparatively, Mediterranean ports have a much lower HPI than their Northern Range counterparts. The only exception is Genoa with its immediate access to the core economic region of Milan, and yet this advantage is increasingly being captured by the regionalization strategies of Northern Range ports.

The GDP potential is calculated using the Kernel Density methodology from NUTS (Nomenclature of Territorial Units for Statistics) level 3 units on a grid where each cell has a diameter of 20 km.
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Figure 7 : Hinterland Potential Index (250 km), Selected Ports, 20075

This leads to the assertion of conventional geographical constraints that are clearly to the advantage of Northern Range ports since outside the Rhone, there are no Mediterranean river systems reaching far into the hinterland. Western Mediterranean ports and most in the East have limited alternatives outside rail and trucking for hinterland access, which is challenging since economies of scale have more limitations in rail than for barge services. The double disadvantage of lower hinterland density and more limited capabilities to service this hinterland thus becomes more salient. Furthermore, rail services with the Mediterranean ports have poor levels of reliability, and without scale economies equivalent to those in services from Northern European ports, cannot compete in service cost, frequency and reliability in markets relatively close by. This is best exemplified by the case of the largest market potential in Italy, around Milan, which despite its proximity to Genoa and La Spezia is a contested market for Rotterdam and Antwerp (Debrie and Gouvernal, 2006). The exceptions are the two Spanish ports, Barcelona and Valencia. Both have been able to exploit domestic markets that are too far from the influence and competition of the Northern Range ports, a factor accentuated by of the change in rail gauge at the border. The economic importance of Catalonia and Madrid represent significant markets, and Barcelona in particular is establishing a regionalization over North Eastern Spain and Southern France comparable to some degree to that of the Northern Range ports but has known recently a decrease of traffic due to the crisis with a drop of 19% between 2008 and 2009

The Hinterland Potential Index is based on the summation of cells of the GDP potential grid (see Figure 6) that are within a continuous Euclidean land distance of 250 km from the port. The higher its value for a port, the more potentially richer is the hinterland in its immediate vicinity.
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3. MEDITERRANEAN CHALLENGES
3.1 An Enduring Relative Weakness of the Hinterland
Historically, there were a large number of small ports that had limited hinterlands along the Mediterranean. Because of the nature of trade flows, Mediterranean ports would have been the logical choice as gateways to Europe, but this did not take place. They were unable to expand because of physical constraints both at the ports and on the hinterland (geography). Many have a high deviation from main shipping lane of Suez to Gibraltar. Unlike the Panama Canal, the Suez Canal did not present readily limitations to the size of containerships (limited to about 4,500 TEU for Panama), implying for maritime shipping lines, the additional cost effective incentive to go directly to the ports the closest to the final destination of the cargo. In North America, the size limitations of the Panama Canal enabled West Coast ports to more effectively capture transcontinental traffic through double stack rail services since the all-water route could not as effectively capitalize on economies of scale as the Suez route. A further constraint in many Mediterranean ports is the lack of land for expansion. Backed by mountains Mediterranean port cities have limited expansion possibilities. While Northern range ports have had difficulty in securing expansion because of environmental and cost issues, they have been successful in implementing major expansion projects. Improving hinterland accessibility becomes a matter of economics, real estate and the mitigation of environmental externalities. Economies of scale are a driving force as the hinterland copes with a growth in traffic volumes as well as larger ships. The availability of land is also a constraint, but pans very differently according to the concerned ports. For instance, while land in Genoa is highly constrained due to the Maritime Alps, Fos near Marseille has ample land allocated for logistics. While land also remains a salient constraint for Northern Range ports, their more effective regionalization enable them to mitigate this scarcity better than their Mediterranean counterparts. Over the last fifteen years there has been a growing interest by the carriers in extending direct services to the more established ports in the northern part of the Western Mediterranean. Marseille, Genoa, La Spezia, Barcelona and Valencia serve populous port cities and growing local hinterlands that justified direct calls. Here a divergence occurred. The first three mentioned ports found their expansion beyond their local markets increasingly difficult because of poor service by rail, small scale economies and by the overwhelming competition from the Northern Range ports.

3.2 Eastern Mediterranean Ports

The development of the Eastern Mediterranean and Black Sea ports has been more recent. Like the North-western Mediterranean ports at the beginning, they were reliant on feeder services from the hub ports. Over the last decade, with economic growth in the Balkans and Black Sea regions and a settlement of the conflicts in the former Yugoslavia traffic has built up to the extent that the carriers are now serving some of the ports in the region directly. As the markets have built up, so vessel size has increased. Ports at the northern end of the Adriatic, in The Black Sea and most notably in Turkey have experienced traffic growth. Like the ports elsewhere their future growth will be tied to the degree with which they can extend their access to interior markets. Unlike the ports in the North-Western Mediterranean they face less intense competition from the Northern Range ports, although the reach of Hamburg extends as far as Austria and the Czech Republic.
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Originally serviced largely by feeders from the transshipment hubs in the southern Mediterranean, ports in the Northern Adriatic and Black Seas are increasingly attracting direct service calls that has led to traffic growth at several ports, including Trieste, Koper, Novorossiysk, Izmir, Ambarli and Constantza. This reflects economic development in the Balkans, Russia and, in particular, Turkey. With the exception of Ambarli, their local hinterlands are limited at present, but it remains to be seen how successful they will be in in expanding their inland services to tap more distant markets. It is interesting to note the parallel in the development of this region and of the hinterland ports in the Western Mediterranean. There too, an early phase of feeder service was replaced with direct services. The pattern is being repeated, albeit at a later stage in the Eastern Mediterranean. The question is whether these ports can be more successful than the Ligurian ports in penetrating more distant hinterland markets.

3.3 The Pull of Southern Mediterranean Transshipment Hubs

It is true that a number of ports in the southern Mediterranean have as their dominant function that of ship to ship transfers. They represent a distinct class, however, and show no signs of developing a hinterland trade component. They occupy very strategic locations in the basin and serve the interests of the carriers rather than their customers. Tangier Med was initially successful, but labor issues incited Maersk to shift in 2011 a substantial amount of traffic to Algeciras. The traffic balance between Southern and Northern Mediterranean ports remains a zero-sum game and underlines the footloose character in the selection and retention of transshipment activities.

4. CONCLUSION: TOWARDS A NEW EQUILIBRIUM?

The regionalization model exemplified by the Northern Range ports in Europe has been developed to such a degree that those ports now control most of the richest market regions of Europe. Their dominance of all but the southern and eastern fringes of the continent makes it very difficult for ports in those regions to compete directly. The Mediterranean ports prior to the 1990s were largely bypassed by the ships engaged in the Asia-Europe trade. Over the last twenty years it has been common to see developments in container trade in the Mediterranean through the establishment of transshipment hubs, whose growth dwarfed the container traffic at the old hinterland ports in the Northern Mediterranean, and in many cases these hinterland ports were served by feeder services from the transshipment hubs. This model has served to describe container shipping in the Mediterranean, and with the addition of new transshipment hubs on the coast of North Africa, this view has been reinforced. The paper has argued that this distinction between the gateway ports of the North and the transshipment hubs in the South is a gross oversimplification. For example, many of the Northern Range ports have developed transshipment trade (in the case of Bremerhaven over 50% of its containers are transshipped), and in absolute numbers, the 26.5% transshipment traffic of Rotterdam exceeds the transshipment totals of most of the hub ports. In light of all these developments, including an observed divergence in the port regionalization process of Europe, several questions remain unanswered. First, it is relevant to ask if the Northern hinterland advantage permanent. With developments taking place in the shipping industry
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such as larger ships and the practice of slow steaming, how the existing balance would shift? Second, Mediterranean ports are conscious of their disadvantages and are prioritizing strategies and investments accordingly with regionalization strategies that were previously less considered. Are these strategies going to be able the recapture some parts of the contested hinterland?

5. REFERENCES
Debrie, J. and E. Gouvernal (2006) Intermodal Rail in Western Europe: actors and services in a new regulatory environment, Growth and Change, Vol. 37, No. 3, pp. 444-459. De Langen, P.J. (2007) Port competition and selection in contestable hinterlands: the case of Austria, European Journal of Transport and Infrastructure Research, Vol. 7, No. 1, pp. 1-14. Ferrari, C., Parola, F., Morchio, E. (2006) Southern European ports and the spatial distribution of EDCs, Journal of Maritime Economics and Logistics, 8(1), 60-81. Francesetti, D.C. (2005) Italian versus Northern Range port competitiveness: A transportation cost analysis in Chinese trade, European Transport, No. 30, pp. 37-50. Gouvernal, E., J. Debrie and B. Slack (2006) Dynamics of change in the port system of the western Mediterranean, Maritime Policy & Management, Vol. 32, No. 2, pp. 107-121. Medda, F and G. Carbonaro (2007) Growth of container seaborne traffic in the Mediterranean basin: Outlook and policy implications for port development, Transport Reviews, Vol. 27, pp. 573-587. NEA (2011) The Balance of Container Traffic amongst European Ports, Zoetermeer, Netherlands, R20110190/31637000/SNE/EGR. Notteboom, T. (1997) Concentration and load centre development in the European container port system, Journal of Transport Geography, Vol. 5, No. 2, pp. 99-115. Notteboom, T. and J-P Rodrigue (2010) Foreland-Based Regionalization: Integrating Intermediate Hubs with Port Hinterlands, Research in Transportation Economics, Vol. 27, pp. 19-29. Ridolfi, G. (1999) Containerisation in the Mediterranean: between global routeways and feeder services. GeoJournal, Vol. 48, 29-34. Slack, B. and E. Gouvernal (2012) Container transhipment and logistics: a critical examination Paper submitted to Maritime Economics and Logistics. Zohil J. and M. Prijon (1999) The med rule: the interdependence of container throughput and transhipment volumes in the mediterranean ports, Maritime policy and management, Vol. 26, No. 2, pp. 175-193.

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