Competencies in the Danish Maritime Cluster: A benchmarking-analysis

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Competencies in the Danish Maritime Cluster: A benchmarking-analysis

Britta Gammelgaard, Henrik Sornn-Friese, Jens Hansen, Mads Jessen and Morten Larsen

February 2013

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2 Competencies in the Danish Maritime Cluster: A benchmarking-analysis

February 2013

ISBN: 978-87-996049-1-3

This benchmarking-analysis was prepared by the Departments of Operations Management and Center for Shipping Economics and Innovation of Copenhagen Business School, and published by the Danish Maritime Cluster (DKMK)

The Danish Maritime Cluster is funded by the Capital Region of

Denmark and the European Social Fund

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3 Table of contents

Chapter 1: Introduction ... 6

1.1. Structure of the benchmarking- analysis ... 11

Chapter 2: Norway... 13

2.1 History ... 15

2.2 Maritime Policy ... 17

2.3 Logistics ... 18

2.3.1 Infrastructure ... 18

2.3.2 The Logistics Industry... 19

2.4 Research and Development ... 20

2.5 Higher Education ... 23

Chapter 3: The Netherlands ... 29

3.1 History ... 30

3.3 Logistics ... 32

Chapter 4: London ... 41

4.1 History ... 42

4.3 Logistics ... 44

Chapter 5: Virginia ... 56

5.1 History ... 56

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4

5.3 Logistics ... 59

Chapter 6: Singapore ... 68

6.1 History ... 70

6.3 Logistics ... 72

Chapter 7: Hong Kong ... 82

7.1 History ... 82

7.3.2 Logistics ... 85

Chapter 8: Shanghai ... 93

8.1 History ... 94

8.3 Logistics China ... 96

8.3.1 Infrastructure China ... 96

8.3 Logistics Shanghai ... 98

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5

Chapter 9: Denmark ... 110

9.1 History ... 111

9.3 Logistics ... 113

9.3.2 Logistics Industry ... 116

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6 Chapter 1: Introduction

This benchmarking-analysis is conducted as a part of a comprehensive set of cluster analyses in

“Project The Danish Maritime Cluster”.

The purpose of the benchmarking-analysis of the Danish maritime cluster - measured against a range of international known and respected maritime clusters - is extracting the characteristics of the Danish maritime cluster´s unique competence. The maritime cluster is defined as shipping industry, transport related services, maritime business services, offshore, shipbuilding and equipment industry. Together with the project´s SWOT analysis, this benchmarking-analysis will make it possible to outline a strategy for further development of the competencies, which already exist within the Danish maritime cluster. To a certain extent, such an analysis gives the possibility to uncover competencies, which the Danish Maritime cluster possibly could lack. This aspect has been given attention in the process, however, the basis of this analysis has primarily been that Denmark already holds a long list of competencies and often at a high level, and further that the future development therefore must be based on these competencies.

The cluster concept builds on Harvard professor Michael E. Porter´s theory from the end of the 1990s, which states that competitiveness also can be found in companies´ value chains and network relations and with origin in a particular geographical area or a region with a specific institutional structure. According to economical evolutionary theory, relations to customers, suppliers, competitors, service providers etc. are developed over time, and are the basis for retention as well as development of new competencies. In addition, political governance also have an effect on the competencies which the cluster develops over time, including offering common goods such as schools and universities, creating excellent framework conditions and involving in the development of setting standards.

With these perspectives on what a benchmarking-analysis for maritime clusters is the analysis starts with a historic overview over the unique conditions, which are related to the maritime area. Next, we will look at maritime policy that could have influenced the maritime development in a specific geographical area or country. The third benchmark in the analysis is the connection of sea to land, customers and end-users for the products that are transported by the maritime sector, viz.

infrastructure and logistics. The fourth benchmark is research and development taking place in the

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7 cluster. Finally, the last benchmark is supply of higher education programs in and related to maritime activities.

The selection of the first two clusters for the benchmarking-analysis falls on two geographically close clusters, that is, the Netherlands and Norway which Denmark often compares itself with and which furthermore both are old shipping nations. Next is the cluster in London, chosen because of its status as global financial center and center for maritime services, among these maritime insurance. Finally we look outside Europe, where we have chosen Virginia on the East Coast of the US, with one of the largest ports in the US and a long tradition for trade and maritime activities. In Asia, we look at the two Chinese giants, Shanghai and Hong Kong. Furthermore, we are investigating Singapore, which has the same amount of inhabitants as Denmark and has developed its maritime cluster intensively during the last decades.

Data and information for this benchmarking-analysis was gathered by desk-research through internet, reports, books and scientific articles.

The result of this benchmarking-analysis is first of all the importance of different historical and geographical backgrounds, when explaining the position of the maritime clusters today. Historical traditions dating back to colonial times is why London, the Netherlands, Virginia, Singapore and Hong Kong today are significant maritime clusters, even though they have evolved from pure centers for trade- and shipping and maritime competencies to land-based service- and knowledge based maritime clusters. Shanghai was open to international trade back in the imperial era, and the communist government thus considered it appropriate to invest in Shanghai as an international center for trade- and transport. Denmark’s and Norway’s maritime traditions are dated back to the Viking Age; today both countries are offshore-nations; Norway, of course, more than Denmark due to its geography and ownership of large oil fields in the North Sea. Denmark, however, is visibly different from the other clusters in the way that maritime activities take place outside of the country;

in particular, after a large part of the shipbuilding industry has been relocated outside Denmark.

Competencies in international trade and value-creation are thus particularly necessary for the further development of the Danish maritime cluster.

The maritime clusters operate under very different political governance structures, which influence the degree of involvement of the public sector in the support of maritime cluster-activities. The clusters spans from Virginia in the United States, where economic activities essentially are left to

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8 private initiatives (however, port terminals are public property), to Shanghai in China, where the government not only participate in planning and funding, but also strongly regulates the sector.

Hong Kong and Singapore have also a strong public strategic perspective; however, here private companies and their demands play a substantially stronger and clearer role. In London, public authorities participate in the establishments of new infrastructure (e.g. in the form of London Gateway), and the Dutch authorities are also active in the effort of establishing a national, industry driven research-and development unit. Norway as well as Denmark engages in the development of national strategies to improve the respective countries global competitiveness. Especially, advantageous taxation systems, historically developed as a response to the growth in the flags of convenience, seems to be a recurrent underling characteristic of the selected maritime clusters.

In the maritime clusters of Virginia, London, the Netherlands, Singapore and Hong Kong, logistics and infrastructure play an important role; not at least because those clusters are located around ports, where access and redistribution of freight are pivotal. The same applies to Shanghai.

Logistical facilities and infrastructure to transport large volumes of freight do not play the same substantial role in Norway and Denmark, and at least in Denmark due to the internationalization of the cluster. In this regard, however, it should be mentioned that from a more delineated geographical perspective, one can identify regional maritime clusters in Esbjerg and North Jutland, where the logistical aspects are central.

In those clusters – Singapore, Hong Kong, the Netherlands and perhaps even Norway -, where public authorities fund specific research and development programs, it is a recurrent feature that activities are addressed and driven by the companies issues (difficult to see if this also applies to Shanghai). Cooperation between companies, universities and public authorities is the driving force in the development of knowledge and innovation. The same development can be identified in Denmark, with regards to specific public funding of research and innovation.

A common feature of the selected maritime clusters is the prevalence of higher education. In addition, general scientific disciplines can be applied in many companies within the maritime industry. The higher education concerning a specific maritime area is dominated by engineering;

economy- and management programs exist, however these are rarer.

All in all, a future strategy for skill development in the Danish maritime cluster must be based on the strengths that the Danish maritime cluster already possesses. A considerable strength is the

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9 international outlook and commercial competencies; these competencies can sensibly be developed further as technical and economic cooperation skills in global supply chains and networks. For instance, the Danish maritime equipment companies have, more than before; the need for acquiring international competencies and relations after the Lindø Yard was closed. In this regard it should, however, be mentioned that the maritime equipment industry in Denmark was, compared to the equipment industry in for instance Sweden, faster to focus their orientation on international markets, which today is a contributing factor to the success of the Danish maritime industry.

Furthermore, public authorities are active in the international policy context; these strengths can maybe be developed further. Moreover, based on democratic traditions, private Danish companies and public authorities are in a constructive dialog: this cooperation can be further improved and further competencies can be developed. Regardless whether the economic development will take place in Denmark (e.g. in the offshore activities in the North Sea) or abroad, the development of the international competencies and technical and economic competencies on an international level are of absolute necessity. Today, clusters are tied to a geographic area, however, inside the maritime clusters companies act in global supply chains in global industries.

Table 1: Benchmark-overview Historic

development

Maritime policy Logistics Research and

development

Higher education Denmark Strong and

international traditions within shipping and shipbuilding companies.

Recently offshore active- ties have become a big- ger part of the cluster

DIS; tonnage tax.

Government action plans in 2006 and 2012

Good

infrastructure and

connections to other countries.

Ranked number 6 in LPI 2012

Project the Danish Maritime Cluster and the Danish Mari-time Fund. No dedicated national effort within the maritime area

A specialized technical master program is under development.

Technical and commercial electives.

Executive MBA in shipping and logistics

Norway Shipping,

shipbuilding, finance, classification, insurance and other

knowledge

Norway’s International Ship-register/NIS;

tonnage tax

Inland transport dominated by shipping.

Publicly funded programs:

Maritim 21 and

Smarttrans

Bachelor and master programs in shipping, ship design, maritime law, logistics etc.

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10 companies

The

Netherlands

Historically a strong

shipping nation. After the WWII´s destructions, focus is now on the strategic location and building of ports, infrastructure and logistics

Manning Act, tonnage tax

Rotterdam is Europe’s largest port and logistics center Ranked number 5 in LPI 2012

The industry driven research center Dinalog

Specialized masters degrees especially at the Erasmus University in Rotterdam

London Shipping and

shipbuilding but now leading knowledge based cluster within finance, insurance maritime law etc.

British Ship Registry; request for support of education or education of seafarers

London port, London Gate-way.

The United Kingdom ranked number 8 in LPI 2012

UK Research Council;

small dedicated public research- funding

Specialized master programs in numerous areas, especially maritime finance

Virginia Natural harbor; 400 year old port on the United States’ East Coast

Public owned harbor (VPA);

outsourcing of terminal operations

Access to large, dense- ly populated areas in USA Dry port;

intermodal opportunities.

USA is ranked nr. 9 on LPI 2012

No access to information about specific public funded projects other than what is done on the universities

Special focus on education in natural

sciences, for example engineering science

Hong Kong Natural harbor by the Pearl river.

Focus from export-import to knowledge and high tech industry

HK Ship Register;

tonnage tax favorable tax conditions and professional guidance. SCM center

”Green Lane” for trucks to Shenzhen.

PolyU research center in shipping and logistics.

Earmarked research funding

A broad range of maritime programs on bachelor and master levels.

Special focus on logistics and maritime studies Shanghai Shanghai

opened for international trade with the reforms in the

”Privatization” of public owned activities. Foreign shipping

companies are

Shanghai has the world’s biggest container port.

China ranked

Shanghai International Shipping Research Center and

SMU; special focus on shipping technology, IT and

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11 1970s almost equally

treated to their Chinese

competitors. Goal:

International maritime center in 2020

number 26 in LPI 2012

Logistic Research Institute

engineering science. 20.000 students

Singapore Independent since 1965 and has since then worked on making the unique location between East and West a strategic and economic advantage

Good economic framework conditions. MPA gives economic support to

companies. Goal:

Global maritime knowledge hub in 2025

Logistic center with port-airport.

Public- private partnership with SMF and MPA as link; MINT, MCF

Master programs in maritime studies, maritime services, offshore-technology, supply chain

management etc.

1.1. Structure of the benchmarking- analysis

This benchmarking-analysis is hence structured around the following points; Introduction, History, Maritime Policy, Logistics, Research and Development and Higher Education.

The introduction of the chosen maritime cluster outlines unique characteristics in a maritime context and introduces general key facts about the maritime cluster. The history part presents a short historic overview over the unique conditions, which are related to the maritime cluster described.

Under maritime policy, we look at maritime policy that has influenced the maritime development in a specific geographical area or country. Furthermore, we examine logistics, including infrastructure and the logistics industry, which deals with the connection of sea to land, customers and end-users for the products transported by the maritime sector. Next, we look at research and development in the maritime cluster, and lastly the supply of higher education programs in and related to maritime activities.

This benchmarking-analysis draws upon three international rankings from 2012-13; Logistics Performance Index (LPI), Ease of doing Business Index and the Competitiveness Report.

The World Banks Logistics Performance Index (LPI) investigates and benchmarks multidimensional logistic performance of approximately 150 countries. LPI uses individual country

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12 characteristics and data from industries to judge the performance of the country (World Bank, LPI, 2012). The index consists of six components: 1. The efficiency of customs and border management clearance; 2. The quality of trade and transport infrastructure; 3. The ease of arranging competitively priced shipments; 4. The competence and quality of logistics services; 5. The ability to track and trace consignments; and 6. The frequency with which shipments reach consignees within scheduled or expected delivery times.

The World Banks Ease of Doing Business Index ranks 185 economies on a scale from 1 to 185 (1 = most business friendly environment). For each economy the ranking is calculated as the simple average of the percentile rankings on each of the 10 topics, including the following indicators:

starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings for all economies are benchmarked to June 2012 (World Bank, Ease of Doing Business Index, 2012).

The World Economic Forum’s Competitiveness report 2012-2013 assesses 144 economies. It contains a detailed profile of each of the economies including in the study as well as an extensive section of data tables with global rankings covering over 100 indicators. The report contributes to an understanding of the key factors that determine economic growth, helps to explain why some countries are more successful than others ins raising income levels and opportunities for their respective populations, and offers policymakers and business leader an important tool in the formulation of improved economic policies and intuitional reforms (World Economic Forum, 2012- 2013).

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13 Chapter 2: Norway

Norway is one of the leading shipping nations in the world and the third largest exporter of oil.

Norway has a unique history as a shipping nation. In Norway, the maritime sector is separated in three groups, with the shipping industry being the most dominant, contributing with approximately 50 % of the value creation in the sector (Jakobsen et al., n.d, A).

According to Jakobsen in Wijnolst (2006), the Norwegian maritime sector is composed of three groups (Wijnolst, 2006):

 Ship industry¹

 Shipping²

 Maritime services³

Maritime transport is of high importance in Norway. Land transportation is difficult in the winter due to the tough climate and deep valleys and fjords. The Norwegian coastline is 25,148 km. and about 80 % of the Norwegian population lives at a proximity of 10 km. to the coast (Gammelgaard et al. 2009). The Norwegian maritime industry had a value creation of 140 billion NKR. in 2009 (Jakobsen, 2011).

Already in 1992, the first analysis of the Norwegian maritime cluster was written. The study, “Et konkurransedyktig Norge” (A competitive Norway), concluded that the Norwegian maritime cluster appears to be the strongest and most dynamic cluster (Benito et. al., 2000). The Norwegian shipping industry is not based in one particular region in the country. It is located along the whole coastline.

According to Jakobsen (2011), 9 maritime regions constitute the shipping industry in Norway.

These are:

1. The Oslo Area – Oslo, Akershus, Østfold, Oppland and Hedmark 2. BTV – Buskerud, Telemark and Vestfold

3. Agder – East and West Agder

4. Rogaland Sør – the Stavanger area and Rogaland south of Boknafjorden

5. Haugalandet and Sunnhordland – Haugesund area and Rogaland north of Boknafjorden 6. Hordaland with Sogn and Fjordane – Hordaland without Sunnhordland, but with Sogn and

Fjordane

7. Møre and Romsdal

1 Ship building, ship equipment, ship vehicles, naval architects, Retailers and wholesalers

2 Tankers, bulk, rigs, offshore, cruise, ferry, ship management

3 Ship broking, ship finance, ship insurance, classification and legal services

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14 8. Trøndelag – både South and North Trøndelag

9. Northern Norway – Nordland, Troms and Finnmark

Especially the maritime region of Møre and Romsdal and Hordaland serves as the driving forces on the West Coast and in particular in the Bergen and Oslo area (Benito et al., 2003).

Maritimt Forum is a Norwegian organization founded in April 1990 between Norges Rederiforbund, TBL-skip, Skipsutstyrsgruppen i TBL, Norsk Skipsmeglerforbund and Det Norske Veritas (DNV). Maritime Forum, defines the maritime industry as all companies that owns, operate, design, build, and supply equipment to specialized services to all types of ships and other floating units. The organization consists of 700 companies and organization in the maritime sector. They all contribute to give a broader understanding and attention towards the economic importance of the sector. Furthermore, the Maritimt Forum creates increased cooperation between the sectors in the maritime cluster. Maritimt Forum is divided into different regions of the country (Maritimt Forum, 2012).

Despite Norway’s small population and country size, Norway holds the 7^th largest fleet in the world based on total gross tonnage controlled by parent companies located in Norway (IMO fleet statistics, 2010). Measured in Gross Domestic Product (GDP), the maritime sector contributes with approximately 3 % of the Norwegian GDP (Jakobsen, 2011).

Furthermore, the renowned Norwegian classification society Det Norske Veritas (DNV) holds 16 % of the ship classification market and the market share has increased in recent years. One can argue that to examine pure fleet size is a misleading assessment of the position of the cluster. However, the capability of the Norwegian shipping industry gives a misleading position if one only examines the volume of cargo that is shipped. In general, it does not say anything about the cluster but only about the shipping industry, which is a part of the cluster. Core strength of the Norwegian Shipping industry is the complexity of their fleet. Many ships are specialized and require huge expertise, which implies that the amount of freight moved not necessarily is a factor (Jacobsen, 2011). The capital city in Norway, Oslo, is one of the leading maritime finance centers in the world. Nordea and DnB Nor, which are world leading in ship finance with a combined market share of 40 % are located in Oslo.

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15 2.1 History

According to Tenold (2012), the development of Norwegian shipping since 1960 can be divided into three phases. The first phase, 1960-1973, was characterized by massive expansion and investments made in response to the continuous growth in world demand. Then a period characterized by crisis followed with a decline in the demand for shipping throughout the 1970s and 1980s. Finally, the sliding curve once again changed and the country’s shipping industry was revitalized following upon the introduction of the Norwegian International Ship Register (NIS) in 1987.

An indicator for the economic significance of shipping in Norway is that the shipping industry accounts for approximately 3% of the Norwegian GNP. In the twenty years period from 1950 to 1970, shipping contributed with 50% of Norway’s export earnings (Jacobsen, 2011). Transportation by sea was by far the most favorable way to get goods around the country with such a long coastline. Even though a gradual decline in importance could be expected since development of the infrastructure made transportation by land easier, the importance of the maritime sector remains strong. Throughout the Norwegian history, maritime activities have played a consistently played a key part of the national economy, particularly with regards to service export where shipping accounts for about half of all exports in services from Norway. Logistically, sea transportation is crucial for Norway's foreign trade with goods since the import and export mostly get transported by sea. The geographical development has spread the sector along most of the coastline, providing basis for economic activity in many areas (Benito et al., 2003).

The Norwegian fleet, measured in tonnage terms, is the largest in the Nordic region (Denmark, Finland, Sweden and Norway). Norwegian owners have since the 1960s owned more than half of the Nordic fleet in tonnage terms, and for long periods more than 60% (Tenold et al., 2012). While the growth in Danish shipping at least until recently has been confined almost completely to one segment - container shipping - the Norwegian industry has had success with focusing on niches such as chemicals, ro-ro/car, offshore service ship and liquefied gas. The old strongholds - dry bulk carriers and the tankers are still an important part of the fleet; however since 1975 the specialized segments have increased in importance.

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16 Table 2: Sector growth in Norwegian Shipping (*1000 dwt)

1974 1988 2001

Growth 74-01

Growth in

% Passenger ships and ferries (Gross Tonnage) 350 566 1136 786 225

Tankers 21470 14317 29057 7587 35

Combination ships 7545 4464 4155 -3390 -45

Bulk Ships 9385 7305 11004 1619 17

Other dry cargo ships 3190 1870 5066 1876 59

Offshore services ships 324 737

Source: Tenold et al., 2012

Even though the Norwegian shipping industry is still heavily involved in low-tech sub-sectors such as crude oil transportation, where tankers and bulk ships still is by far the largest sectors, other sectors are facing higher growth rates in %. Table 2 shows us that there is heavy development within passenger ships and ferries, and the sector has managed to more than treble. Offshore service ships have also seen excessive growth. From 1988 to 2001, the fleet within that sector has doubled.

Combination ships which is ships carrying two types of cargo such as crude oil and heavy bulk ore have seen a fall of 45%, which contribute to the conclusion that more specialization is the trend in Norwegian shipping (Tenold et al., 2012).

The post-WWII period has seen important changes within the maritime sector. Cost efficiency considerations have led to flagging-out of vessels from high-tax industrialized countries and to the introduction of open ship registers, hiring of seamen from low-wage countries, extended vessel lives, and relocation of ship building to lower cost countries. Even though such developments mainly have an effect on the cargo sector, specialized sectors such as for example cruising has also faced growing demand as a result of higher disposable incomes and changed leisure activity patterns.

In the World Bank report “Ease of doing Business Index 2012”, Norway was ranked 6 (World Bank, Ease of Doing Business Index, 2012). Moreover, according to the World Economic Forum Competitiveness report, Norway is ranked 15 (World Economic Forum, 2012-2013).

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17 2.2 Maritime Policy

The main goal for the Norwegian authorities is to ensure that the country’s ship-owners maintain international competitiveness. However, this is conditioned by the politician’s set of values and considerations (Tenold et al., 2012). In the years before the great international shipping crisis of the 1970s and 1980s, when there was continuously growing demand for transportation, there had been little or no conflict between the two political considerations: International competitiveness, and the political set of values. However, as a result of the international shipping crisis, a conflict between either lowering wages or hurting the competitiveness as other countries offered cheaper labor. This analysis on maritime policy in Norway is limited to only comment on the two major changes, which had the largest impact on competitiveness after 1960, namely the country’s changing flag policy and the later tonnage tax reform (Tenold and Brautaset, 2008).

The changing flag policy

In 1975, the authorities emphasized the idea in Stortingsmelding no. 23 1975-76 that Norwegian shipping should be based on vessels carrying the Norwegian flag and employing Norwegian crews (Tenold et al., 2012). This, however, was a rather old-fashioned way of looking at an industry in crisis and did not fit to the internationalization of the shipping industry throughout the world. By the early 1980s, economically motivated flagging out of Norwegian vessels had begun. The authorities accepted that a more flexible flag policy was necessary to maintain a Norwegian shipping sector, and in 1984 a suggestion of a register that combined the use of foreign labor with Norwegian ownership was introduced in Stortingsmelding no.53 1984-85. The Norwegian seaman’s unions were extremely hostile and afraid of declines in rights and payments. They believed that an opening for foreign labor could enable the owners to push down salaries. At first, the ideas were dropped but the continuing flight of tonnage from the Norwegian flag resulted in the Norwegian fleet was reduced by more than a third of the fleet in 1986 (Tenold et al., 2012). The authorities overtrumped the unions and a new institution, the Norwegian International Ship Register (NIS), was established on 1 July 1987. The authorities saw in NIS a way to maintain developed maritime competencies in a market with rising competition. That is, it was considered a counter attack on the trend of out flagging vessels. The register, which had initially been viewed with skepticism, turned out to be an instant success. The market was at recovery and massive investments were once again made within the sector. Thus, because of repatriation of previously flagged-out ships combined with investments in new capacity encouraged by the upswing in demand, the dramatic decline in the Norwegian fleet

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18 in the 1980s was turned around, making the Norwegian fleet in 2008 the largest in the Nordic region with a 4, 3% share of world tonnage (Tenold et al., 2012).

The tonnage tax reform

Norway, as well as many other countries, has trough time had large problems with the taxation of their shipping companies. Because the maritime sector contributes with much growth and employment, it is necessary to ensure international competition. Throughout the 1990s, the maritime cluster in Norway was on its way to recovery, importantly aided by the introduction of the tonnage tax scheme in 1996. The tonnage tax changed the way that shipping companies were taxed.

Before 1996, Norwegian shipping companies had been taxed solely on their income. With inspiration from the Netherlands, a new scheme was introduced where the Norwegian shipping companies would be taxed on the basis of their registered tonnage instead (Tenold et al., 2012).

2.3 Logistics

According to the World Bank Logistics Performance Index, Norway was ranked 10 in 2010 (LPI, 2010). On the ranking for 2012, Norway dropped 12 places and is now ranked 22 (World Bank, LPI, 2012). The maritime sector is handling 95 % of the transport of foreign traded goods and 45 % of domestic transport (Gammelgaard et al., 2009).

2.3.1 Infrastructure

The Norwegian road system is comprised of 72,033 km highway, including 664 motorways and 4,114 km railroads. Furthermore, two Norwegian ports play an important role in the Norwegian maritime sector and hence the logistic development in the country. These are the Port of Oslo and the Port of Bergen (Gammelgaard et al., 2009).

Port of Oslo

One third of the entire population has its residence inside the Oslo Region. The Port of Oslo mainly handles oil, salt, cement, stone, timber, newsprint, grain, and animal feed. Lo/Lo container handling is the fastest growing segments in the port (Gammelgaard et al., 2009).

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19 Port of Bergen

The Port of Bergen is located in Hordaland and is a highly specialized port with 90 % of the goods being dry bulk. The Port of Bergen is a dominant port in Europe and the port consists of oil refineries, bunkering, slipways, dry and floating docks. The port handles mainly goods arriving to Norway and Sweden and exported goods destined for the United Kingdom (Gammelgaard et al., 2009). The Royal Norwegian Navy has its base in Bergen, and buys for 600 million. NKR.

equipment each year (Business Region Bergen, n.d).

2.3.2 The Logistics Industry

Alnabru Logistics Centre is an important logistic driver for Norway. It is placed near Oslo and three of Norway’s biggest shippers are operating from Alnabru; Schenker Norway AS, Norway Post, Tollpost Globe AS. These three companies control 75 % of the rail transport in Norway. The center primary handles imported goods, mostly containerized, before distributing it further out. Above 70

% of the outgoing flows of goods are containerized. The center is 517,700 m²big and enjoys the developed infrastructure, which surrounds the Oslo region.

Geographical, Alnabru is placed only 10 kilometers from the Port of Oslo and experiences huge growth rates. In 1992, the center handled 100,000 TEU⁴, which increased to 400,000 TEU in 2004.

In 2004, the center employed approximately 2,000 employees (Kristiansen, 2006).

The most important export markets for Norway are in Europe. 66 % of the Norwegian exports are to European countries. Sweden and Germany are the two most important export markets for Norway.

The way the Norwegian goods are exported has changed from 2000 to 2010. From 2000 to 2010 more goods was transported by truck, vessels and by airplane, while there was a decrease in the amount goods export transported by ferry and rail (see table 3) (Eidhammer et al., 2012).

Table 3: Means of transportation in 1000 tonnes of exports, and percentage change from 2000 to 2010

Year Truck Ship Ferry Airplane Rail Total

2000 3215 31297 1277 54 804 36646

2010 4672 39885 824 - 646 46118

4 TEU means twenty-foot equivalent unit

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20

Change 45 % 27 % (-)35 % 70 % (-) 20 % 26 %

Source: Eidhammer, 2012

2.4 Research and Development Maritim21 strategy

In 2009, following advice from the Norwegian Government’s Maritime Advisory Board (MARUT) comprising key industry representatives, the Norwegian Ministry of Industry and Trade initiated the comprehensive maritime research and innovation strategy Maritim21. The competitive advantage of the Norwegian maritime companies lies in the high level of knowledge, creativity, quality and professional competence. Hence, a high level of competencies is a prerequisite and has great importance for the growth of the maritime industry. In this regard, by joining actors between the maritime industry and politics through cooperation and emphasis on maritime research and innovation, it is the overall aim of the Maritim21 strategy to consolidate and further strengthen Norway’s competitiveness in positions in which Norway enjoys competitive advantages. In particular, the mandate is to place Norway as the most attractive global, knowledge-based and environmentally friendly maritime industry by 2020 through developing new and more efficient forms of collaboration between industry and government and within the industry itself, and further to concentrate industry innovation on new business models (Norwegian Shipping, 2011).

In practice, the Maritim21 strategy, which is an integrated part of MARUT, is granted NOK 190 million per year by the Ministry of Trade and Industry for maritime research, NOK 130 million of which is earmarked for the innovation program of maritime activities and offshore operations (MAROFF). MAROFF was started in 2010 with duration of 10 years. The main objective of the program is to help realize the government's maritime strategy for the promotion of innovation and environmental value creation in the maritime industry. The target groups for MAROFF are shipping companies, shipbuilding industry, service providers, equipment suppliers to all types of vessels, and research institutions. That is, MAROFF contributes by financially supporting maritime companies and research institutions in the development of their knowledge advantages. In addition, the program also supports knowledge building in technological and social science of importance to the maritime industry (Forskningsrådet, 2010). Furthermore, the maritime industry is continuously working on formulating clearer project plans for the seven areas and is conducting workshops within the industry and between the industry and politics in order to increase the government’s

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21 understanding for the need of increased funding in these areas. In fact, the industry called for the government to grant NOK 505 million per year instead of NOK 190 million due to capital-intensive research projects and demonstrations. However, the Maritim21 strategy did not receive this additional funding in the government’s 2012 national budget (Norwegian Trade Portal, 2012).

The Maritim21 strategy focuses on seven prioritized areas in which research institutions and maritime companies can seek funding. These seven areas has been concretized and formulated by seven separate working groups (Maritim21, Lanseringsrapport, 2010).

1) Maritime knowledge hub and infrastructure 2) Maritime policy and regulations

3) Innovation and maritime business development 4) Energy efficiency

5) LNG-fuel (Liquid natural gas) 6) Demanding maritime operations 7) Arctic transport and operations

An example of the success of the Martim21 so far, is the development of distribution and use of liquid natural gas as maritime fuel. That is, a green alternative to traditional fuels, which support sustainable growth within the shipping industry. What is more, the development of this area is a result of close cooperation between companies, organizations and research institutions in the maritime sector (Norwegian Shipping, 2011). Another example where the Maritim21 strategy so far has made an impact is within the field of energy efficiency. In this regard, in 2011 the Maritim21 was able to kick-start and facilitate the expansions of the collaboration Environment Management in Practice (EMIP) between five of Norway’s largest shipping companies, also known as WG5, to include additional industry actors and research institutions such as Kongsberg Maritime, Marorka and NTNU, under the name EMIP phase 2.

The Working Group 5 (WG5) consists of BW Gas AS, Grieg Shipping Group AS, Höegh Autoliners AS, Klaveness Maritime Logistics AS and Wilh. Wilhelmsen ASA. These ship-owners have been collaborating since 2009 on preparing their ships to be the test platforms for improved energy efficiency. However, the Maritim21 strategy has contributed by integrating additional

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22 industry actors and research institutions in the work of WG5, with the goal of coordinating action plans for testing energy saving measures on test ships. Hence, the EMIP 2 is expected to benefit all project participants. That is, the ship-owners will be able to reduce fuel consumption by approximately 20-30 %, benefiting their bottom line and competitiveness. In addition, the research institution NTNU will hopefully benefit by attracting new students. Also the Norwegian companies Kongsberg Maritime and Marorka will benefit by developing cost-competitive sensor technology, smart integration of sensor technology for improved measuring, and integrated decisions support tools (Norwegian Trade Portal, 2012).

SMART program

The Norwegian Research Council (Forskningsrådet) launched in 2006 “Næringslivets transporter and ITS”, also called SMARTTRANS. The SMARTTRANS program is a research program developed in 2006 and targeted towards the Norwegian transport industry and its stakeholders. The overall aim of the project is to create a more effective and sustainable transportation industry. The project should increase the expertise and solutions on problems faced in the transport industry in Norway, such as how to achieve distance- and time costs reductions. In addition, the SMARTTRANS program should result in a more distinct and targeted research towards the transportation industry. The research program running from 2007-2014 has a budget of 21.2 NKR in 2007. 20 million NKR is supplied by Samferdselsdepartementet, 1 million NKR by Fiskeri- OG Kystdepartementet and 0.7 million NKR by Nærings- og Handelsdepartementet.

The main challenge of the SMARTTRANS is that the transportation industry historically is not research oriented. Therefore, a huge effort must be made in motivation of the companies in the industry and encourage them to use the findings. In order to attract funding from the SMARTTRANS’ budget, a project must address specific topics. That can been within the field of:

 Integrated Supply Chain

 Use of ITS (intelligent transport systems) in transportation

 Reduction of distance- and time costs on transportation

Recently SMARTRANS deployed a research funding of 24 million NKR with the time horizon of 3 years i.e. ultimo 2014. Research projects within 4 areas are supported financially by SMARTTRANS (Forskningsrådet, 2012).

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23 2.5 Higher Education

In order for a cluster to function, develop and grow, a sufficient infrastructure with good conditions for education and training is necessary. A well-functioning labor market and specialized educational system is important for renewal and innovation within the cluster. As an effect of maritime policies on manning rules, clusters are becoming more and more internationalized and a workforce is comprised of many different nationalities.

Norway experiences a lack of a well-educated maritime workforce. Although Norway has several maritime educations, the Norwegian maritime sector faces increasingly demand for skilled employees, such as engineers, naval architects, ship officers etc. Thus, in 2006 the Norwegian government launched its science strategy (“realfagsstrategien”), which is a joint promotion of Mathematics, Science and Technology (MST), with the aim of making it more attractive for young people to apply for mathematics, science and technology educations. The MST strategy was a response to the globalization and the increased demand for skilled labor. Both Norwegian trade and industries compete as a high wage country against low wage countries. Hence, the Norwegian government recognized that MST competencies where needed in e.g. maritime activities. The motivation behind the development of the MST strategy was a decline in students graduating with a degree in MST, although Norway on an overall basis had experienced an increase in people graduating with a higher education. In the application year 2004 to 2005, applications declined with 16.6 percent and compared with Norway, the trend in Denmark has been stable over years (Norwegian Ministry of Education and Research Strategy, 2006-09).

The Norwegian Navy has educations programs, which also enable people to work in the maritime sector. Many different colleges and universities offer traditional maritime educations such as colleges and universities in Bergen, Stavanger, Tromsø, Trondheim Ålesund, Stord, Haugesund, Molde, Bodø and Vestfold. The studies on these maritime training and educational programs primarily prepare to operate and work onboard ships. Moreover, there are 15 technical schools and 15 upper secondary schools with education towards the maritime industry (Stø Kurs, 2007).

The following tables illustrate undergraduate and graduate programs offered by respectively the University of Oslo (UiO), BI Norwegian Business School in Oslo, Aalesund University College, Vestfold University College, Molde University College, Bergen University College, University of Science and Technology (NTNU) in Trondheim and the University of Stavanger (UiS).

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24 Table 4: Undergraduate programs offered

Undergraduate programs Offered by BSc in Maritime Law and Maritime Insurance UiO

BSc in Shipping Management BI in Oslo

BSc in Ship-design Aalesund University College

BSc in Shipping and Logistics Aalesund University College BSc in Nautical Studies (3 years plus 1 year

seagoing service - optional)

Aalesund University College Bachelor of International Logistics (3 years) Aalesund University College BSc in Shipping and Logistics Vestfold University College BSc in Nautical Science Vestfold University College BSc in Maritime Technical Management Vestfold University College

BSc in Logistics Molde University College

Source: Maritim Karriere, n.d. and EduMaritime, 2012 Table 5: Graduate programs offered

Graduate programs Offered by

MSc in Maritime Technology NTNU

Nordic Master in Maritime Engineering NTNU

MSc in Maritime Engineering NTNU

MSc in Coastal and Marine Civil Engineering NTNU

MSc in Maritime Law OiU

MSc Maritime Insurance and Risk Management OiU

MSc in Offshore Technology UiS

MSc in Maritime Engineering Bergen University College

MSc in Sea Technology Bergen University College

MSc in Ship-design Aalesund University College

MSc of Product and System Design Aalesund University College

MSc in Logistics Molde University College

MSc in Maritime Management Vestfold University College Executive MBA - Shipping, Offshore &

Finance (1.5 years, Part-time)

BI in Oslo

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25 Source: Maritime Karriere, n.d. and EduMaritime, 2012

Doctoral program Offered by

PhD in Marine Technology NTNU

Source: EduMaritime, 2012

In addition to the traditional maritime educations, the Norwegian Colleges offer opportunities to take separate post-graduation maritime courses in crisis management, safety, navigation and so forth (Maritim Karriere, n.d.).

In 2009, the Norwegian shipping industry employed 96,000 of which 19,200 of them had a higher education. The most popular education is engineering, as 44 % of the 19,200 are engineers. What is more, surprisingly 21 % of the Norwegian maritime industries’ workforce is unskilled (Jacobsen 2011). The amount of skilled labor differs from region to region. A study concluded that the demand of skilled labor is lower in North Norway than in other parts of the country. In general, the demand and the supply of skilled labor differ dependent on the region (Hervik and Jakobsen, 2001).

References

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26 - Business Region Bergen, no date (website), accessed September 2012, available at:

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%20Facts%20and%20Figures.pdf

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27 http://menon.no/upload/2011/09/28/attracting_the_winners.pdf

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28 - Wijnolst N (2006): Dynamic Maritime European Clusters, Maritimt Forum, Norway and

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29 Chapter 3: The Netherlands

The Netherlands is famous for its main seaports of Rotterdam and Amsterdam, each of which constitutes a regional maritime sub-cluster. The Dutch Maritime Network, which is a formal organization, has existed since 1997 with the explicit purpose of promoting and reinforcing the cluster (Janssens, 2006). Rotterdam is placed in the Rijmond region in the heart of the Netherlands and is not only the biggest port but also the most concentrated maritime sector in Europe.⁵ Rotterdam seaport was developed at the delta of the rivers Rhine and Meuse, which historically has played an essential role in serving the European hinterland e.g. parts of Austria, Germany and Switzerland as the rivers gave access to inland waterways. The maritime cluster surrounding Rotterdam has been developed through hundreds of years, which have insured a strong tradition and experience within the maritime industry. Furthermore, the cluster has become an important part of the Dutch economy. The Dutch maritime industry stands for 2.9 % of the GDP (Janssens, 2006).

Total throughput by commodity was in 2011 in Rotterdam 434, 6 gross weight x metric tons.

Overall the total throughout consist of dry bulk goods, liquid bulk goods and containers⁶. Measured in pure employment, the Port of Rotterdam employed 87,111 in 2010 and covered 100 square kilometers (Port Statistics, 2011).

The Port of Amsterdam is located only 70 kilometers from Rotterdam, and the two ports functions together as a part of the Dutch maritime cluster. Amsterdam is a part of the North Sea Canal region and lots of transshipment to both smaller ships and to vehicles for transport by land takes place here. As many other sectors, the worldwide financial crisis represented a decline of activity and Amsterdam faced declines in transshipment of oil products in the first six months of 2010 at respectively -8% for oil products, -15% for pit coal and -57 % in container transshipment (Janssens, 2006). Throughput peaked in 2008 with around 95 million tons and faced a decline in 2009 with a throughput of approximately 84.5 million tons. However, in 2011 the port regained some strength and almost recovered most of the losses with a result of 93 million tons (Port Statistics, 2011).

Amsterdam is the largest ‘airport-seaport’ combination in Europe, meaning that they combine air and sea logistic with flows of both cargo and passengers. Both Amsterdam Airport Schiphol (4th largest European Airport) and the metropolitan city of Amsterdam are within a 15 minutes distance

5Europeans Ports: 1.Rotterdam (2011 434,6 gross weight x metric) 2. Antwerp (187, 2 gross weight x metric tons) 3.

Hamburg (132, 2 gross weight x metric tons)

6Drybulk: Agribulk, iron ore and scrap, coal, other dry bulk; Liquid bulk: crude oil, minerals oil products, LNG, other liquid bulk; containers: roll-on/ roll-of and other general cargo

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30 from the seaport. Amsterdam also offers direct connections with the hinterland through the

‘Betuweroute’ (rail) and Amsterdam-Rhine canal (inland waterway).

According to the World Banks “Ease of doing Business Index 2012”, the Netherland is ranked 31(World Bank, Ease of Doing Business Index, 2012). In addition, the Netherland is ranked 5 on the World Economic Forum most competitive countries in the world (World Economic Forum, 2012-2013).

3.1 History

The Netherlands has for many centuries been a leading maritime nation. Around the mid nineteenth century, the Netherlands held a leading role with the invention of the steel steamship and were at the outbreak of the Second World War a center for the leading companies in shipping, shipbuilding, ports, marine equipment, dredging and yachting. Furthermore, the Netherlands had one of the largest merchant fleets in the world that ensured profitable trade with its colonies and other countries. After the Second World War, the fleet was nearly extinct. Due to use of the ships in warfare, the equipment and supplies were transferred to Germany and heavy bombing had destroyed most of the Rotterdam port. Furthermore, the Dutch colonies were lost and the profitable cross trading with the Far East were diminished (Janssens, 2006).

Evolvement trough participation in the oil tanker market was not of high priority. However, during the two oil crises of 1973 and 1978-1980, the demand for transport carried by oil tankers declined, giving costly restructuring costs to the cluster competitors, resulting in a cost advantage for Rotterdam. Instead the Dutch were among the first movers within container shipping and the Dutch benefitted from their ability to specialize in niche markets such as heavy lift, reefer and forest products (Janssens, 2006).

The 1960s saw the majority of the leading Dutch liner shipping companies merging, eventually creating the giant liner shipping company Nedlloyd in 1970. In 1981, Nedlloyd acquired the KNSM and thus came to represent almost the entire Dutch intercontinental liner shipping industry. By the late 1990s, a strong concentration process was taking place within the international container shipping industry caused by a combination of large infrastructural and cash demanding demands and the obvious need for smoothing out business fluctuations in a way different from the old liner shipping conferences. Nedlloyd was an active player in this process. In 1996, it acquired the venerable British shipping company P&O Containers, making the new company one of the largest

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31 container shipping companies in the world. In 2005, the Danish A.P. Moeller Maersk Group overtook Nedlloyd (P&O Nedlloyd, 2012).

The oil crises resulted in huge rises in fuel prices and encouraged search for oil and gas offshore.

Given that many oil and gas companies were centered in Rotterdam, the Dutch quickly became leading suppliers for especially offshore heavy lift operations, including carrying rigs, barges, modules, drill tenders, jackets and mooring systems, and maritime infrastructure heavy lift operations, such as carrying dredging equipment, dry docks, bridges, tunnels, cranes etc. The shipbuilding industry started building very large tankers and specialized vessels, such as dredgers and passenger vessels, but also simple short sea ships. This home market evolvement was used by the dredging industry, and they gained progress through the development of technologies, which were required for offshore activities. Many acquisitions over the decades resulted in the Van Oord Company, which is the leading Dutch dredging company today and one of the largest dredging and

marine contractor in the world (Van Oord, 2012).

The inland shipping sector, where the foundation of the competitive transshipment position of the Dutch ports is centered, won market shares through innovation and laid the foundation for many new ship types, which corresponded to new developments in deep sea shipping, chemical-gas and container carriers, eventually resulting in a positively spillover effect where these new competencies lead to sales within specialized ship building (Wijnolst et al., 2003). Thanks to the canals, many destinations in the Netherlands, Germany, Belgium, France, Switzerland and Austria can be reached. Furthermore, thanks to the Rhine-Main-Danube Canal, even destinations in Central and Eastern Europe are accessible from Rotterdam by freight barge. The fishing industry followed the flows within the cluster and modernized early. However, it was met by regulations from the EU, which implemented a quota system⁷ limiting the sector on further expansion and forced them to reduce its fleet. The Netherlands once again saw a rise to another profitable niche sector in supplying the market for pleasure yachts. That is, especially the upscale super yachts segment expanded in the nineties and is today one of the leaders on mega-yacht building. The Dutch Royal Navy rebuilt the fleet and their heavy focus on reduction in manning costs and the development of advanced radars and design of advanced frigates has ensured them a place as technology leader with unique frigates that requires minimum crew (Wijnolst et al., 2003). The marine equipment sector benefitted from the developments in shipbuilding dredging and has developed into a separate Dutch

7 Quota system, the system was introduced by the EU to ensure that certain fish species would not extinct as a consequence of overfishing

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32 industrial stronghold with a number of world leading companies. For instance, IHC Merverde is the world market leader in the design, fabrication and supply of equipment and services for the dredging and alluvial mining industries, serving some fifty percent of the world market (IHC, 2012). Maritime services, which consist of many smaller sectors such as ship financing and research and development, are parts of the Dutch maritime cluster (Wijnolst et al., 2003).

3.2 Maritime Policy

The aim for the Dutch policymakers is to create shipping conditions, which are competitive on the world marked. In the view of Dutch policymakers, Dutch ship owners should not be forced to sail under foreign flags because of unprofitable business terms. This support from the policymakers enables the shipping industry to be highly competitive, regardless of the increasing foreign competition. The Dutch maritime ministry is governed by a number of departments. Sailing under Dutch flag gives favorable conditions for ship owners. Since the introduction of the Manning Act in 1996, manning regulations are beneficial for Dutch vessels. After implementing the Manning Act, there are no restrictions on what nationalities can be employed on Dutch vessels. Nevertheless, captains must have either EU, Icelandic, or Norwegian nationality (Janssens, 2006). A global demand for highly educated and specialized workers makes requirement for companies in and around Rotterdam difficult. Furthermore, the labor environment is flexible and favors the companies. Companies can easily hire and fire workers, as there is a safety net to cover them if they should need it (EMCC case study, 2008).

The Ministry of Transport is an important link between the maritime world in the Netherlands and also new innovation initiatives to ensure future growth in the industry. Furthermore, the Ministry also is responsible for nautical education. Lately the Ministry offers a combined Navigation, Engineer and Radio- operator offices education. A new initiative has been developed called the

“Maritime Innovation Board”, which gives opportunities to building networks across sectors and enables the sectors to share knowhow (Janssens, 2006).

3.3 Logistics

The Netherlands is placed in the Benelux region. The three Benelux countries the Netherlands, Belgium and Luxembourg are the so-called European gateway. Benelux plays a key role in logistic as Benelux countries handle 60 % of the goods transported to the countries in Northern and Western Europe.