Nationalise Clydeport

PE2029: Nationalise Clydeport to bring the ports and harbours on the river Clyde into public ownership

Submission by Dr. Alfred J. Baird to the Holyrood Petitions Committee

(Professor of Maritime Business, retired)

31 January 2024

Since the early 1980s, successive Tory Governments have sold off most major British ports, comprising extensive port land estates, cargo handling (i.e. terminal) activities, as well as portregulatory functions (i.e. the ‘port authorities’). In almost all other countries the state has generally retained ownership of port land and merely rents/concessions (i.e. ‘privatises’ with a small ‘p’) cargo handling operations and associated port services (towage etc.). This has enabled other countries to continue to plan and invest in new port capacity in line with the growing trade needs of the national economy. In most other countries the state has also retained the public port ‘authority’ in its statutory regulatory role (i.e. for licensing port works, issuing by-laws, ‘taxing’ ships and goods, and economic and safety regulation within estuarial areas); however, this is not the case in the UK where the new private port owners were also ‘given’ these important port regulatory functions (on dissolution of public port authorities at the time of privatisation). UK privatised ports have since been allowed (by statute) to more or less regulate themselves, and inevitably in their own interest.

Most of the privatised major UK ports (usually grouped by estuary) initially found their shares trading on the London Stock Exchange, quickly creating multi-millionaires out of former MBO (Management Buy Out) public port officials, also reflecting the fact that the City was able to more accurately value a port’s real worth far better than Government. Major UK ports have since been acquired by offshore registered private equity firms, and today the latter own virtually all major ports on Scotland’s three main central belt rivers and firths – Clyde, Forth and Tay – serving the international trading needs of most of the Scottish economy.

Offshore registered private equity firms have paid a high premium to acquire Scottish ports;however, this does not reflect the quality or extent of assets acquired, but rather the significant local and regional/estuarial monopoly power (and hence sustained profitability) that comes with ports. In any event, this high premium has to be repaid through port surpluses and this means port charges are high and must remain high, which in turn acts as a constraint on trade development in Scotland. Scotland’s major privatised ports are leveraged acquisitions which means the acquired ports carry a large debt burden (i.e. from loans facilitating their acquisition) that is ‘loaded’ onto their balance sheets. However, this is not debt used to invest in creating new port assets, it merely reflects the cash ‘borrowed’ by the equity fund ‘managers’ (or ‘financial engineers’) from ‘fund’ investors in order to acquire the port business. A key issue here is that the resultant high level of indebtedness implies there is very limited scope for the port to borrow further in order to invest in building major new port capacity. This suggests the private equity financial ‘model’ is unsustainable for any economy that seeks to expand trade and achieve economic growth, primarily because moving more trade (and hence generating economic growth) cannot be done without first providing additional new port capacity. Other concerns with the private equity model of ownership relate to the lack of transparency, in the sense that nobody aside from fund managers know who the fund investors are, or where the cash used to acquire the port has come from, plus offshore registration allows these firms to avoid paying tax in the host nation where surpluses are generated.

In comparison with other European nations, Scotland’s port-trade position appears poor and under-developed. Indeed, the modest trade volumes flowing through Scotland’s major container ports today (i.e. Grangemouth and Greenock combined) are more or less at the same level as that of Iceland’s major port, Reykjavik, which handles 250,000 teu (twenty-foot equivalent containers) a year. Thus, Scotland’s ‘major’ ports sector is comparable to Iceland in terms of total unitised cargo volume, despite the fact that Iceland’s population is just one twentieth of Scotland’s. Freight traffic moving through Irish ports amounts to over three million freight units a year, some ten times greater than the international traffic moving via Scotland’s major ports, and volumes shipped through Flanders ports are even higher, in excess of ten million teu/year.

Holyrood’s Infrastructure and Capital Investment Committee previously noted that investment has simply not occurred in Scotland’s major ports for at least the past 30 years. Spending on renewing port equipment is not considered enough. Scotland needs new, advanced seaport capacity to better serve today’s ships and to help expand and facilitate trade in order to grow the economy. Public expenditure on Ireland’s major ports over the last 30 years exceeds £3bn, aided in part by EU funding. Completely new marine terminals have been developed downstream from the old/obsolete port areas at Dublin and Belfast, providing the capability to handle ever larger ships and greater trade and passenger volumes. Port investment in Sweden, Norway, Denmark and especially Flanders is also in the many €billions over the past 30 years, during which time the needs of shipping and the logistics role of ports has been transformed. Scotland appears, by comparison, a poor relation, having to make do with obsolete port infrastructure, most of it dating from Victorian times. This means Scotland’s major ports are nowhere near internationally competitive, and the meagre trade volumes currently moving through our major ports compared with other nations, in addition to declining overall trade values, reflects this reality.

Because Scotland’s major privatised ports are inadequate, outdated, and expensive, Scotland therefore attracts relatively few international shipping services, which means much of our international trade is ‘leaked’ via ports in England, from where more frequent shipping connections can be accessed. However, this alternative routing should not be viewed as positive or in any way as a sustainable long-term solution for the Scottish economy. Scottish trade that is currently more or less forced to access international markets by land via remote UK ports faces the very significant added burden of higher land transport costs, as well as costs from congestion and delays (e.g. on the Channel routes, plus road congestion throughout much of England, and rail capacity constraints). It may cost as much to send a container by road/rail from Glasgow to Southampton as it does to ship the same container by sea from Europe to Asia. This costly dependence on access via remote ports in England not only ensures Scotland’s lack of competitiveness, it acts as a constraint to further development of new Scottish trade. Using routes via ports in England therefore negatively affects the competitiveness of existing trade, and inhibits development of new trade flows that could be generated if the Scottish economy benefitted from direct access to international markets via advanced, low-cost ports in Scotland and related shipping services. 

Existing UK inland logistics arrangements, whereby most international imports to Scotland initially enter the UK via ports and then Regional Distribution Centres (RDC) in England, and are then moved north by road/rail as domestic movements, serves to add further costs to Scotland’s transport account. This is another reason why it is important to provide advanced,cost competitive ports in Scotland, offering frequent international shipping connections to help redirect much of this import traffic so that it might better access Scotland directly by sea from the continent. As well as helping to reduce transport costs, this would also provide related logistics/added value jobs at RDC’s in Scotland (rather than south of the border as is currently the case).

A key objective of any port regulator (i.e. port authority and/or national government agency) is to prevent the interception of economic rents by particular interest groups. Major ports tend to be natural local/regional monopolies, so the interests of users and the wider economy (i.e. producers and consumers) must be protected accordingly. However, the UK port privatisation ‘experiment’ has had the opposite effect in that successive port owners, and today the offshore private equity firms, have enjoyed an unhindered veritable feast as far as the interception of economic rents are concerned. The price paid for this regulatory ‘negligence’ on behalf of the state is what we see today, i.e. a lack of port investment, constrained trade development, and weak (if any) economic growth.

The numerous, generally unrestricted and often archaic range of port charges (e.g. ship dues, cargo dues, conservancy fees, pilotage, towage etc.) still levied by private port ‘authorities’ on ships and cargo unfortunate enough to enter Scotland’s outdated harbours equate to a ‘private’ tax on trade. The higher these port charges are, and research has shown them to be higher than other European ports, then the more likely it is that trade will fall, or that trade will simply not move at all. Industrial production is mobile and today easily shifts location, as Scotland knows only too well, whilst new trade is simply not facilitated. A government that ignores its seaports in this way, as is evidently the case in Scotland, also ignores its trade, and hence ignores a very significant part (if not the most significant part) of its economy.

By disposing of major ports and disregarding their important regulatory functions, the UK(and Scottish) government has effectively withdrawn from the ports economy, with the result that the economy now depends on the ‘market’ (or rather, offshore private equity firms) to provide new port capacity as and when required. This presumption fails on a number of counts, not least the very long-term nature of port investment relative to the short-term nature of ‘the market’; private equity funds have a maximum timescale of typically between 4-8 years, whereas a port’s economic life has a much longer time horizon of well beyond 30 years. Ports depend on long-term financing for new infrastructure. Moreover, the private equity modus operandi is to acquire mature, profitable port businesses; it is not intended or designed to build new ports. In a largely self-regulated port market like the UK, private port owners also have an incentive to restrict capacity because this has the effect of maintaining port charges at a high level; however, the consequence of this is congestion, which hinders trade growth and also constrains economic growth.

As an illustration, if cargo volumes are growing at an average of between 6%-8% per annum at a given port (reflecting GDP growth just under half this level), the port in question will need to double its handling capacity every ten years. However, when port capacity is constrained, economic growth will likewise be constrained. Ultimately, it is entirely irresponsible for any state to depend on speculative private equity funds to assume the responsibility for ensuring a country’s new port capacity is provided in a timely fashion (i.e.new port capacity is required well in advance of trade growth). The state itself has to be far more pro-active in the port economy, as is the global norm.

The specific port privatisation model adopted in the UK (and nowhere else) has therefore resulted in very limited investment in the creation of new international port capacity in Scotland over the past 30 years. In the UK as a whole, only a handful of major new port projects have been taken forward during this period, albeit these were mainly promoted by specialist international port operators, not private equity funds, and are in the few estuarial areas where public port authorities were retained (i.e. Thames/London Gateway and Haven/Felixstowe). One significant UK international port project taken forward by private equity owners, a new £300m quay at Liverpool, was delayed for a number of years until a capacity crisis point was reached, and the project only proceeded after significant public resources were committed by the UK government and the EU towards dredging costs, with over half the development costs being long-term financed by the European Investment Bank (EIB). The latter project was managed (and part financed) on behalf of Guernsey registeredport owner Peel Ports/Deutsch Asset Management by another private equity outfit, Lend Lease. 

However, the absence of any major investment in new international port capacity in Scotland by private equity port owners, and the impact this has on trade and economic growth, remain of major concern. The high debt burden that UK private equity owned ports continually carry on their balance sheets as a consequence of leveraged transactions, and the need to use any profits to pay interest on this debt (and ‘fund management’ fees), means these ports are severely limited in their ability to finance major investments in new infrastructure. Reflecting this reality, the private equity owners of Scotland’s major ports on the Forth, Clyde and Tay, have no current or envisaged plans for any significant investments in new port infrastructure; essentially, 

The evidence therefore suggests that the prevailing UK port ‘policy’ over the past thirty years whereby international port provision has been left more or less entirely to ‘the market’ (i.e. to offshore private equity firms/leveraged acquisitions) has been and continues to be something of a catastrophe for Scotland’s international trading position, which is now particularly weak in comparison with other similar sized countries in northern Europe. The lack of investment in new international port capacity and in shipping connections has undoubtedly held back economic growth. This will have had a negative knock-on effect on employment throughout the Scottish economy, not least in manufacturing, and further suggests that Scotland is simply no longer internationally competitive, evidenced not only by a worsening and constrained export position, but also by limited successes in terms of inward investment; firms will simply not locate in nations that lack modern ports and sophisticated shipping connections serving key markets.

Scotland’s major central belt seaports today are debt-ridden, profit-maximising, self-regulating, estuarial monopolies owned by tax-avoiding offshore registered private equity outfits, locked into a financial (i.e. debt-ridden) ‘model’ which effectively hinders new port investment and modernisation. This has left Scotland offering mostly obsolete port infrastructure to an increasingly technologically advanced global shipping industry, the inevitable consequence of which has been a serious barrier to trade and a block on economic growth.

There are clearly several very good reasons for ensuring that proper consideration is afforded by any national government to critical aspects influencing trade development, such as port investment, port capacity, port modernisation, and port regulation. Public port authorities, like any public authority, were created as public entities for a purpose. To dissolve these public authorities was a negligent act, and the last thing any state should do is hand over maritime regulatory powers and key national port capacity and investment decisions to private port monopolies, yet that is effectively what the UK has done with its major ports. Scotland’s economy has paid, and is still paying, a heavy price for this policy blunder, which should be rectified as a matter of urgency.

It can therefore be argued that the failure of the present Scottish ‘port market’ to provide new international port capacity is one of the main reasons, if not the principal reason behind Scotland’s poor and worsening trade performance. No economy can sensibly depend on the offshore private equity model of port ownership and regulation to bring about trade growth; by its very nature, the private equity model actually limits investment in new port infrastructure, whilst continually demanding excessive profits, followed eventually by selling-on of what are ‘mature’ port assets to another ‘fund’ to do precisely the same thing over again. Ultimately, there comes a time when the nation’s port assets are so obsolete and trade is so diminished that this model is completely unstuck; given Scotland’s moribund trade position that time seems ever closer.

On this basis I would urge the Committee to support this petition to return the Clyde port authority into public ownership. I would also urge the same in respect of the Forth and Tay ports authorities.

Note on Alf Baird: began his working career in the 1970s as a Shipping Clerk at the port of Leith. After a degree in Business Studies at Napier University in Edinburgh in 1993, he was employed there first as a researcher and then as lecturer, completing his PhD on strategic management in the global container shipping industry in 1999. He was appointed Director of the Maritime Research Group at Napier in 1997, and in 2005 was appointed Professor of Maritime Transport, subsequently Professor of Maritime Business. He has been appointed as specialist advisor on maritime transport matters for a number of select committees of Parliaments in the UK, Northern Ireland and the Isle of Man, and as advisor to various government agencies and ports including the European Commission, Scottish Enterprise, Highlands & Islands Enterprise, Clydeport, and Orkney Islands Council. 

MY COMMENTS

Alf Baird is a committed expert on these matters. The Scottish Government would do well to give his advice a fair hearing. They must wish they had done so over the ferries. If they had, a replacement fleet, a much more effective and competitive fleet, would have been in place saving the taxpayer literally hundreds of millions of pounds.

I am, as always

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