Ghost airport sold for 10,000: Lesson for developing nations

Ghost airport sold for 10,000: Lesson for developing nations

A group of international investors have won a bankruptcy auction for an abandoned airport in central Spain with a € 10,000 (£ 7,000) offer – 100,000 times less than it cost to build. It has one of the longest runways in Europe but today there are no planes, only hawks and falcons gliding in a the still heat over the arid yellow landscape of Don Quixote’s Castilla La Mancha. Rabbits pop up around the state-of-the-are terminal, built of steel, glass and gleaming white concrete.

Ciudad Real airport, located 235 km (146 miles) South of Madrid, was meant to be an alternative to Madrid’s Barajas airport. It cost more than 1 billion. It opened in 2008 but went bankrupt and closed in 2012. The luggage trolleys are now trussed together in the car park gathering dust and cobwebs. It is not the only while elephant to stomp across Spain’s landscape. It is merely one of the herd, a monument to the country’s burst construction bubble which brought down its banks. 

When a local construction magnate came up with the idea of an airport in Ciudad Real, money was sloshing around Spain for public works. It was the 1990s and every town in every region had a grand project to set itself apart and bring in the visitors. Bilbao was getting its own Guggenheim museum, so why shouldn’t Ciudad Real have its own airport? The airport in Ciudad Real was to be a private project, for private profit, but the business people behind it had no problem getting political support. 

Expert studies commissioned by the airport investors said it would create 6,000 jobs and a boom for the economy. There would have been a before and after for Ciudad Real. The only profit in this airport was the building of it, say local investigative journalists Carlos Otto. Is this not a lesson for some developing nations embarking on projects that have turned out to be ‘White Elephants’. 

 

Asia-Europe rates biggest weekly fall

Any hope that spot rates on the Asia-Europe trade would hold on to last week’s solid gains were dashed as the rate dropped by the largest weekly amount ever recorded by the Shanghai Containerised Freight Index (SCFI), falling by $ 276 to $ 833 per 20 foot container. After a year of record lows and a series of failed general rate increases this year, carriers were hoping the 270% increase after the 1 August GRIs would stick as the market begins what is supposed to be the traditional peak season. Instead, the spot rate on Asia-Europe fell $ 276 in a week, a drop of 25% compared to the $ 1,109 per TEU price after the GRIs. 

The Asia-Mediterranean trade followed the same path, SCFI data showed. Its spot rate dropped $ 240 to $ 879 per TEU, down from $ 1,119 last week. Since January, eight attempts to raise rates have failed to stick, even as spot freight rates fell to an all-time low of less than $ 200 per TEU in June, due to weak cargo volumes and carriers reluctance to cut capacity on a concerted basis, according to Alphaliner. Richard Ward of FFA said carriers have been unwilling or unable to take the measures necessary in the physical market that would have given them a fighting chance of maintaining last week’s increase that resulted from the implemented 1 August GRI.

 

Container shipping activities, is it illegal?

No decision yet has been made on whether Hong Kong’s Competition Commission will grant the liner industry a block exemption from new rules to be enforced from December that will effectively render container shipping activity illegal. Guidelines on how the new competition law will be implemented when it is introduced on 14 December were released by the commission. A section covering issuing a block exemption order reveals that it is within the remit of the Competition Commission to exempt container shipping from prosecution under the new rules. It its current form, the Competition Ordinance outlaws vessel sharing agreements under which most of the containers entering and leaving Hong Kong operate. 

When you think that 95% of the container throughput in Hong Kong comes in or goes out in services that are VSAs or other operational sharing agreements, that could be quite problematic, said Tim Smith, Head of the Hong Kong Liner Shipping Association. Smith is also Chairman of Maersk China. The Competition Commission is an independent statutory body established to enforce the ordinance. 

In a statement earlier this year, the watchdog said it would consider looking at block exemptions before the competition rules come into force, without mentioning any specific industries. With less than five months to go, the lack of news out of the commission’s officers is making people nervous. We are in a very uncertain situation and companies like ours do not like uncertainly, Smith told JOC.com. He said transhipment cargo was very portable and could move to Shenzhen, which would not be in Hong Kong’s interests. 

Outlawing container shipping in Hong Kong would also not be in the interest of a forwarder with officers in the city and Shanghai. A good 10% of our business moves through Hong Kong, he said. If everything moves to Shenzhen I will be forced to lay off people and may even lose the business. While it is difficult to believe that the Hong Kong government will allow a competition law to destroy its container shipping business, it is inaction has led to a steady decline of the port in the past 15 years. 

 

China slowdown, a risk for ocean carriers

The slowdown in China’s economy poses risks for container shipping but they are far smaller than the impact on the dry bulk market, according to Drewry Maritime Research. But they are not inconsiderable and will contribute to slowing world box growth, the London based Analyst cautioned. Greater China, including Hong Kong, represents approximately 30% of all container moves in the world, having doubled since the start of the century following Bejing’s entry into the World Trade Organization. 

Clearly, with such a large piece of the pie, the Chinese economy has a huge bearing on world port throughput output, Drewry says in its latest weekly Container Insight. The International Monetary Fund’s forecast of a slowing of China’s GDP from 6.8% in 2015 to 6.3% in 2016 has prompted Drewry to downgrade its outlook for Chinese and world container traffic. Limited visibility into the breakdown of Chinese port statistics makes it very difficult to assess the relative strength of container imports and exports. 

But using WTO merchandise data as a proxy Drewry puts the share of imports in the mid 40% range. Drewry estimates Chinese container imports grew by only 1.6% in 2014 while exports were up 9.1% for an unchanged net overall growth rate of 5.6%. Drewry has cut its growth forecast for Greater China’s prot throughput from 5.8% to 4.9% based on the latest WTO data, which suggests China’s merchandise imports shrank by 15.5% in the first half of the year while exports edged 1% higher. This represents a shortfall of approximately 1.85 million 20 foot equivalent units, or roughly 1% of world traffic in 2014.

 

US fines NVOCCs

The US Federal Maritime Commission (FMC) has fined seven non-vessel operating common carriers (NVOCCs) and shipping line United Arab Shipping Company (UASC) a total of $ 1.2 m for alleged violations of the Shipping Act or the agency’s regulations. UASC was the only vessel operating carrier penalised, while the other seven were non-vessel operating common carriers: City Ocean Logistics, City Ocean International, CTC International, Oriental Logistics Group, Hyundai Logistics, Falcon Marine and Aviation and Sea Gate Logistics. 

The FMC said UASC had been fined $ 537,500 for allegedly unlawfully rebating to its NVOCC customer, Falcon Maritime and Aviation, a portion of the applicable service contract rate in the form of an administrative fee not identified in the service contract and for which no services were provided. UASC was also in violation for providing transportation not in accordance with the rates and charges in its published tariff, the FMC said. The parties settled and agreed to the penalties, but did not admit to the regulatory breaches, the FMC said.

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)