We are testing a new beta website for gov.scot go to new site

Container Transhipment and Demand for Container Terminal Capacity in Scotland


Container Transhipment and Demand for Container Terminal Capacity in Scotland

Executive Summary

Background and Objective

Container transhipment hubs are regarded as major economic engines and internationally there are many examples where national governments have promoted such initiatives as a key element of national economic strategy. Hubs can permit firms to benefit from direct access to very low cost, frequent and fast global and regional transport services. This is attractive for local firms and for multinational corporations and is an incentive for industry to locate distribution and other commercial activities relatively close to a hub. Indeed, the vast majority of container transhipment hubs form an integral part of free trade zones, the main aim of which is to develop additional local cargo and at the same time strengthen the attractiveness of the location itself.

Access to a container transhipment hub or hubs in Scotland would therefore be expected to provide a major economic boost, not just to indigenous industry in its quest to compete globally, but also as a tool in attracting foreign direct investment. A positive economic effect from transhipment hubs in Scotland would in turn mean that employment created nationally (as a result of hub port developments) would likely far outweigh any jobs created at the terminals themselves, notwithstanding the latter will be an important factor at the local level.

The objective of this study is to provide an accurate, up-to-date overview of the north European container port market (direct and transhipment), with a focus on the key drivers and issues affecting future developments in the market. The study has a particular emphasis on analysing issues affecting current and forecast demand for container transhipment capacity, and especially with regard to the proposed major container terminal developments at Hunterston and Scapa Flow.

Containerport Demand in North Europe

Figure X.1 illustrates that global containerport demand has consistently increased more rapidly than output, on average by a factor of 3.2. In addition to direct, trade-related factors, containerport demand has also been boosted by the continuing containerisation of general cargoes in developing markets and of backhaul bulk cargoes in developed markets, and by the increasing use of transhipment.

Figure X.1 also shows that growth in transhipment has been even more dynamic than general container growth. Transhipment traffic during the 1991-2002 period has expanded by an average of almost 14% per annum. Growth has been very steady over the period with the exception of 2001 when transhipment expanded by 6%, which was still almost three times world output growth for that particular year.


In northern Europe, the total volume of containerport traffic doubled over the 1992-2002 period, from 17.3 m teu 1 to 34 m teu (Figure X.2). Growth has occurred in every year over the period, with an average growth rate of 7.0%.


West North Continent ports (i.e. France and Benelux) have lost market share to the East North Continent ports (i.e. German ports). Whereas in 1992 West ports accounted for 43.5% and East ports 20.7%, by 2002 the West port share had fallen to 40.3% and the East share had risen to 24.6%. This has mainly been as a result of the movement of a greater proportion of transhipment traffic for Baltic/Scandinavian markets through German seaports. The UK seaport share has also declined over the period, from almost 25% in 1992 to 22.8% in 2002. The recent erosion in the UK share reflects the loss of transhipment business from Felixstowe to Continental ports as a result of congestion at the former.

In 2001, 30% of traffic moving through the major north European hubs consisted of transhipment, equivalent to 7.5m teu. Transhipment results in a reduction in the number of direct port calls made by large vessels, and consequently a move to hub and spoke service networks.

The economic advantage of reducing the number of port calls has become more pronounced, and the share of transhipment within total demand is already high, and is forecast to continue rising. A consequence of this has been a distinct shift from the traditional transhipment/natural hinterland ports to greenfield site developments whose existence is largely based on their transhipment potential.

A positive growth outlook is anticipated for transhipment in north Europe as it is in other regions of the world where the transhipment incidence is already far higher (on average transhipment accounts for 49% of volume across all major world container ports). Consequently, new port developments with a strong transhipment orientation are expected, in north Europe as in other regions.

For the East North Continent ports area (i.e. Hamburg and Bremerhaven), transhipment represents the largest and fastest growing market, accounting for almost 44% of throughput in 2001, up from 29% in 1991. Over the period, transhipment in the East ports has risen more than threefold from just under 1.0 m teu to 3.4 m teu.

Increasing transhipment is due to the introduction of far larger ships and the consequent move by major carriers to reduce the number of direct port calls in favour of hub and spoke services. Container vessels have virtually doubled in size over the last decade, from under 5,000 teu capacity to 9,600 teu, and the process of upsizing still has further to go.

Almost half of all North Continent deep-sea containerport throughput in 2001 (48%/6.4 m teu) was accounted for by Far East trade, with about one third (31%/4.2 m teu) for North/Central America. This compares with 39.1% for Far East and 40.3% for North/Central America in 1991.

Container throughput at UK major ports has more than doubled from 2.6 m teu in 1991 to 5.6 m teu in 2002. At Felixstowe, the top UK containerport, the transhipment incidence reached a high of almost 30%. Similar to the rest of north Europe, two major trades - Far East and transatlantic - together account for almost three-quarters of all UK deep-sea containerport throughput.

Containerport Supply in North Europe

Projections by Ocean Shipping Consultants (OSC) suggest that overall North European containerport capacity will increase from 39.4 m teu in 2001 to 74.7 m teu in 2010. These projections take account of all current planned developments, but do not include the Hunterston and Scapa Flow proposals.

Over the 2001-10 period, import/export container demand in North European ports is forecast to grow by 56-58% to 39-42 m teu, depending on the pace of economic growth. Further expansion of 23-38% is anticipated to result in 48-53 m teu in 2015.

At North Continent ports, growth over 2001-10 is forecast at 58-65% to 23-24 m teu; for British Isles the forecast growth is 48-54% to 9.5-9.9 m teu over this period. Scandinavia has forecast growth of 53-60%, while the East/South Baltic region is expected to achieve growth of 134-225% to 2.27-3.15 m teu, the wide range reflecting the uncertainty of forecasting economic growth for this region, particularly Russia.

Transhipment demand in North Europe is forecast to increase even faster, by 69-90% to 11.38-12.78 m teu over 2001-10, and by a further 26-34% over 2010-15. The most rapid growth is expected to be in the Eastern North Continent ports (i.e. Hamburg and Bremerhaven). The expansion of transhipment traffic in this port region is forecast at 74-103% over 2001-10. Forecasts for 2015 suggest a total North European transhipment market of between 14.3-17.1 m teu.

Analysis of the port supply/demand balance indicates that the major North European ports are already operating well beyond the benchmark 70% capacity utilization level. With regard to container port supply, operational excess capacity must be viewed as an unavoidable cost rather than an indication of inefficiency and wastage of resources. The problem of 'operational' excess capacity is further exacerbated through the increased use of very large container ships. Although a container port may continue to function at say 80% or even higher capacity utilization, as this represents saturation it means the facility is stretched to such a level that customers become dissatisfied and it risks losing business to other competing ports.

By 2005, and taking into account all planned port capacity additions, the overall capacity utilization levels under either demand scenario will not fall below the 70% threshold level for East North Continent or for UK major ports. Consequently, additional port capacity will be necessary in both of these areas as early as 2005. However, West North Continent ports (i.e. France and Benelux) appear under less pressure and are expected to take up some of the slack.

The overall capacity position is not expected to ease sufficiently in respect of East North Continent ports, at which the predominant focus is already on transhipment for Baltic/Scandinavia. Thus, there would appear to be a requirement and opportunity for additional capacity to be provided to specifically target this market. There would therefore seem to be a role for a new hub (or hubs) more especially in terms of North Continent East transhipment markets, even assuming all planned developments go ahead.

An important issue here relates to the question of existing planned developments and whether or not all of these developments will actually materialise. Considering the strength of opposition to a number of schemes on environmental grounds, it is the view here that not all of these planned developments will occur, and that there will therefore be a need for additional capacity to be provided to support markets currently served by major ports, and particularly in the UK and North Continent East.

Based on OSC's demand forecast, which assume (unrealistically, in our view) that all planned developments will proceed, there would still be a requirement for an additional 1.65 m teu of capacity by 2010. It stands to reason, therefore, that if a proportion of projected capacity does not come on stream, the pressure on available capacity will be significantly greater by 2010. We estimate that if 10% of planned developments do not come on stream, then by 2010 there will be a capacity shortfall of 3.5m teu, and if 20-30% of planned developments do not come on stream the shortfall will rise to between 5.5-7.4m teu. There would therefore appear to be an opportunity to introduce additional container port capacity, and particularly during the 2006-2008 period, more especially capacity geared towards transhipment, as well as capacity to serve the UK direct market.

Container Industry Trends

Historically, containerport throughput has increased at up to three times as fast as GDP. The incidence of transhipment is also increasing and transhipment has become the most dynamic aspect of container shipping in recent years.

Related to the growth in transhipment has been the ongoing development of new types of terminals at 'offshore' locations (i.e. distant from urban centres, close to ocean trade routes, offering natural deep-water) where the primary focus is on transhipment traffic.

Even larger vessels of up to 12,000 teu (i.e. Suez-max) are forecast to enter service before 2010. The draught and other infrastructure demands of such vessels are expected to too much for many established cityports. To fully discharge and load a very big ship at a port which is largely dependent on land access for containers generates a huge dilemma for the terminal operator and requires substantial areas of land for train marshalling and road gate facilities. Conversely, at the new types of 'offshore' transhipment terminals where there is a very high transhipment ratio, land access is far less of an issue (if an issue at all).

Partly as a direct consequence of physical infrastructure limitations, carriers have been reducing the number of port calls per service loop. Reducing the number of port calls is dependent on the continued development of hub-and-spoke networks, based on one or two direct calls per major port range and an ever-increasing use of transhipment.

The revenue per container move in transhipment - which entails both a discharge and a loading - is generally lower than that achieved in the import/export sector. However, the costs involved in developing an 'offshore' transhipment hub are typically far less (as much as 50% less) than providing the same scale of facilities at a port that is largely dependant on land access, and/or where the water depth has to be increased artificially through major dredging works.

Ongoing industry concentration in liner shipping has placed far greater bargaining power in the hands of carrier consortia in their dealings with ports and terminals. Today's huge scale of investment necessary for major container handling operations favours far closer relationships between lines and terminal operators. Carrier investment in strategic terminals has in turn drastically reduced the 'footloose' nature of shipping companies (and transhipment traffic), placing their relationship with ports and terminals on a sounder and longer-term economic base.

The ongoing development of new style 'offshore' transhipment hubs is the container shipping industry's answer to the changing demands posed through handling larger vessels and increasing trade flows. Proposals for new hubs at Scapa Flow and Hunterston need to be viewed in this context.

Container terminal company operating margins have been 'outstanding', in some instances above 20%, offering high yield potential, and this has made the terminal investment business an attractive proposition. Transhipment ports have performed above the industry average in growth terms, reflecting the highly dynamic nature of the transhipment sector.

Political and environmental issues are becoming more and more significant for port development projects. As a consequence, ongoing container terminal development at constrained traditional port locations is no longer taken for granted. This serves to enhance the attractiveness of development at 'offshore' locations.

Strengths of Hunterston and Scapa Flow (relative to other hubs in North Europe)


Significant additional costs are incurred when creating new infrastructure at established port locations. With further channel and berth deepening required to accommodate larger ships, this also raises the question of sustainability of future port development at such locations given the availability of natural deep-water alternatives elsewhere in the same trading region. The availability of natural deep water access channels capable of accepting the largest container ships in service or envisaged is a key strength for both Scapa Flow and Hunterston. The availability of land to expand the terminals in future in line with container volume growth also represents an important strength for both Scottish hub locations.

The natural sheltered location of both hub options is an advantage many other ports do not enjoy, although efforts will need to be made at the design stage in order to help minimise the potential effects of adverse weather on terminal downtime.


In terms of feeder costs/teu, compared with Rotterdam (Europe's largest container port) Scapa Flow would offer lower feeder costs for North Atlantic/Norwegian Sea and Baltic/Scandinavia markets, while Hunterston is more competitive for Irish Sea, UK and Iberian markets. This is primarily due to shorter feeder distances from the Scottish hub locations.

By reducing average feeder distance there would be a proportionate saving in transport movement (i.e. tonne-kilometres), as well as a reduction in transit time.

In the case of hub and spoke transhipment via Hunterston or Scapa Flow, in order to maintain an each-way weekly schedule on an Asia-Europe-USEC pendulum itinerary this would require a string of 11 vessels compared with 12 ships at present, the latter due to the longer multiport voyage options currently employed. Using transhipment via the proposed Scottish hubs as opposed to current multiport schedules therefore offers carriers a potential fleet saving equivalent to 1 large vessel (i.e. $11.5 million in charter-equivalent costs per annum based on 5,500 teu ship size) for each weekly service string deployed. That is to say, if two service strings were deployed, the potential saving would double to $23.0 million/year, and so on for each service string subsequently introduced. Deployment of larger ship sizes would yield even greater savings.

Transhipment terminals at Hunterston and Scapa Flow therefore potentially offer the market significant cost savings in terms of:

  1. Mainline and feeder operating costs;
  2. Mainline and feeder fleet capital/charter costs; and,
  3. Terminal capital investment and operating costs.

Collectively, these cost savings constitute significant strengths that existing hubs will find difficult to match and should help both terminals in their efforts to build a sustainable competitive advantage.

Figure X.3 illustrates the forecast traffic growth in the catchment areas for Hunterston and Scapa Flow. In the case of Hunterston's catchment area, the market is expected to increase from 10.7m teu in 2004 to 19.4m teu in 2015. For Scapa Flow the market is expected to increase even more rapidly, from 8.4m teu in 2004 to 17.1m teu in 2015.


While there is some overlap in these markets, it is anticipated that for more than half their respective catchment areas, Hunterston and Scapa Flow would not compete against each other. This is due to Hunterston's primary focus being towards UK direct import/export markets, the latter currently served via congested UK south-east ports, whilst Scapa Flow's orientation is towards Baltic/Scandinavian feeder markets currently served via East North Continent ports. Thus, it is largely for UK transhipment and West North Continent port transhipment markets (e.g. Iberia, Ireland and UK feeder markets) that competition would exist.

The proposed Scottish hubs may qualify for various forms of grant aid at Scottish, UK and European levels, in addition to EIB loans and local support for training and marketing. This would be conditional on each port's ability to demonstrate effectiveness in positively helping to address the challenges of road traffic growth, safety at sea, reducing bottlenecks, offering more sustainable development, reducing peripherality, improving competitiveness, and facilitating European enlargement. The appropriate agencies need to explore these issues in more detail and as a matter of some urgency.

The lower (relative) cost of land at Hunterston and Scapa Flow will be expected to be important, all things being equal, compared with similar developments at established port locations in urban and semi-urban locations. However, other factors such as state subsidies at continental ports may serve to diminish this advantage. The opportunity cost of using land for commercial port activities in urban locations, especially where there is a shortage of land for city development purposes, will be higher relative to the opportunity cost of land in rural locations, and this will tend to strengthen the case for development at non-urban sites such as Hunterston and Scapa Flow.


Consolidating regional transhipment flows at a single location would ease operations management and enhance service reliability, and should constitute a strength for the hub and spoke approach. Consolidation of feeder traffic flows at a single hub offers added scope for improved feeder ship scale economies (i.e. using larger feeder ships where possible).

Compared with Rotterdam, Scapa Flow offers the potential for shorter feeder connections and hence faster transit times in respect of North Atlantic/Norwegian Sea, Baltic/Scandinavia and UK feeder markets, while Hunterston offers shorter feeder connections to Irish Sea, UK west coast and Iberian markets, in addition to providing direct access to the GB market. This implies, as noted above, that Scapa Flow and Hunterston would compete for business in rather different sectors of the north European direct and feeder markets. In other words, the container shipping market would be likely to view these two terminals as non-substitutable, hence there appears to be demand for both, and this is to a large extent reflected in the fact that both terminals are being taken forward by the private sector.

Hunterston's opportunity therefore rests in its ability to serve the GB market direct, primarily as a deep-water alternative to the congested ports of Felixstowe and Southampton, added to its competitiveness in serving Ireland and Iberia by feeder.

Scapa Flow's opportunity rests in its ability to better serve North Atlantic/Norwegian Sea, Baltic/Scandinavia and GB feeder markets, and this opportunity is strengthened by the capacity constraints anticipated at the East North Continent hubs of Hamburg and Bremerhaven.

With a strong focus on transhipment, both Hunterston and Scapa Flow offer good prospects for net productivity improvements relative to current ports used in multiport service itineraries, albeit that productivity levels may be expected to be superior at a pure transhipment facility such as Scapa Flow.

Clydeport is now well integrated into a number of port-related business activities, including container terminal operations, road haulage and logistics, and container feeder services. Clydeport is therefore able to offer users a comprehensive service package. This factor is likely to be important in that ports such as Hamburg have made similar investments (via subsidiaries) in feeder services and feeder terminals (e.g. Lubeck and St. Petersburg) in order to expand traffic flows.


Major container terminal investments are expected to generate significant direct and indirect employment impacts. North Ayrshire has a male unemployment rate of 6.7%, which is well above the Scottish and UK average. Nearby East Ayrshire has a similar unemployment rate. This would appear to suggest that there is potentially a ready supply of port labour at Hunterston. Orkney does not have anywhere near the unemployment levels in North Ayrshire, although the islands economy is continuing to undergo structural change. Thus, while Hunterston would appear to have a ready supply of labour, in Orkney a proportion of labour would have to be brought in, albeit previous experience in the oil industry suggests this can be achieved.


The Scapa Flow development will result in virtually zero landside impacts in terms of road and rail container traffic. While Hunterston's landside impacts will be more significant, this is expected to be proportionately far less than is the case at similar-sized port developments at major UK ports in the south of England where road transport dominates inland flows and where the transhipment ratio is relatively low.

Hunterston is considered to be a brownfield site, although the land required for the container terminal largely comprises mudflats and intertidal areas and ultimately this may not necessarily be regarded as brownfield. Scapa Flow is a greenfield site. In the final analysis, progression of these developments will be decided on the basis of economic and social impacts balanced against their environmental impacts, taking into account the level of local support and opposition. In this respect major environmental gains to be stressed are likely to relate to the avoidance of channel dredging, reduced transport movement, and modal shift from road to sea.

Unlike Scapa Flow, Hunterston will depend to a significant extent on road and rail transport, both of which will need upgrading to allow the proposed terminal to compete effectively in the UK direct container market. Clydeport intend to promote the Hunterston location on the basis that it affords improved access to the main UK markets using land transport infrastructure that is less congested than is the case for ports in the south of England.


Hunterston and Scapa Flow are expected to offer a safer shipping option than current practice whereby very large vessels are routed on far longer intra-European estuarial multiport voyages via the heavily congested and shallow English Channel, Dover Strait and North Sea basin areas. This should be regarded as a positive factor for both Scottish transhipment locations.

By comparison with present multiple port call itineraries of large ships in shallow estuarial areas, a call at a deep-water terminal at Hunterston and/or Scapa Flow would ensure a far safer transport alternative (i.e. the probability of delay, collision or other maritime incident would lessen significantly).

Fast and ease of navigable access at Hunterston and Scapa Flow, coupled with a reduction in the number of regional mainline vessel port calls (the latter involving higher risk of delay), would ensure a more reliable transport service.


The containerport market in Northern Europe is expected to continue its upward trend, with demand forecast to more than double over the 2001-2015 period. The most dynamic sector of this market is transhipment, which will generate demand for significant additional containerport capacity geared towards transhipment. Analysis of forecast containerport capacity in Northern Europe suggests that there is likely to be a need for additional capacity to serve, in particular, the UK import/export market, and the Baltic/Scandinavia transhipment markets. These constitute the most probable markets for Hunterston and Scapa Flow respectively. Pressure to provide additional capacity will intensify if, as expected, certain currently planned developments do not materialise.

Internationally, governments tend to court, and in many instances finance, container terminal developments in that they offer an economy major benefits such as direct access to low cost global transport connections. Container-shipping hubs (and the global transport connections they offer) act as an important lever for inward investment and as a tool to strengthen regional and global competitiveness. Indeed, it is difficult to see any downside from either development as far as the Scottish economy is concerned. This suggests that the relevant economic agencies, local authorities, and the Scottish Executive should continue to do all they can, together with the private sector, to help bring these schemes to fruition, including taking advantage of EU and UK financial support where this exists for such projects.