Funding transport emerged as the major theme of the 2013 International Transport Summit, hosted annually by the Organization for Economic Cooperation and Development in Leipzig, Germany.
Transportation Media was invited to attend as a media participant this May among some 1,000 delegates, including NGOs, CEOs and Transport Ministers from 60 states. The focus was on potential financial solutions for investing in infrastructure, borders and transportation technology.
For logistics professionals who are doing business with and within Europe, the OECD has warned that long-term economic weakness in Europe “could evolve into stagnation with negative implications for the global economy.”
In its half-yearly update, the OECD slashed its forecast for the 17 European Union countries that use the Euro, saying it will shrink by 0.6% this year, after 0.5% drop in 2012.
But the silver lining is that the economic situation is leading to calls, evidenced at the Summit, for more innovation and cooperation in the continent’s fiercely competitive environment.
Canada’s federal government is now undergoing final rounds of talks to conclude the Comprehensive Economic and Trade Agreement (CETA), which had stalled, at press time, on European resistance to increased Canadian access to beef markets there.
Europe and the US may also begin free trade talks soon, giving Canada the impetus to get in ahead of the game.
“The parties are committed to resisting protectionist pressures in challenging economic times, and are seeking to achieve an ambitious outcome across all negotiating areas. The Government of Canada has made the CETA negotiations a priority in its international trade agenda and negotiators continue to move the negotiations forward as quickly as possible,” the federal government stated recently regarding the status of the negotiations.
As an integrated block, the EU, composed of more than 27 member states, represents Canada's second largest trading partner in goods and services. In 2010, Canadian goods and services exports to the EU totalled $49.1 billion, and imports from the EU amounted to $55.2 billion.
With budgets tight, discussion of funding at the ITF centred not only on finding innovative sources, but also on transport’s general role, as a driver of economies versus a simple mechanism for the flow of goods.
In his keynote address at the summit, Amartya Sen, professor of Economics and Policy at Harvard University, spoke about the relevance of transport and the role it could play as a stimulus tool in a time of austerity measures.
“We have to see well-chosen expansion of transport as helpful to enhancing the life of people, and as necessary transactions of commerce and tourism. My point is not confined to Europe, but applies specifically in the case of austerity,” said Sen.
“Funding transport is not only about new investments, but about maintenance. New challenges must be addressed on green transport, but budgets are tight. The irony is that there is a lot of liquidity in the markets,” said Jose Viegas, Secretary General of the International Transport Forum.
But the appetite for risk is significantly down in Europe, said David Fass, CEO of Macquarie Group in Europe, the Middle East and Africa (EMEA).
The banking market is slowly coming back, and there is more equity going into public-private model projects, but there is also less debt being incurred and lower returns for investors in these markets.
“The best short-term policies seem to be what we always considered long-term policies. But we don't want to go into them because they don't yield growth tomorrow. But these will be the ones that create the confidence and underpin the growth. We have a crisis of trust in all the institutions we've built over the years. We believe that going structural is the way to restore this confidence,” said Angel Gurría, Secretary General of the OECD, during the ITF summit opening plenary speech.
“Countries need to rebuild their transport networks. In the main port regions of Northern Europe, ports often represent about 10% of the employment base,” he added.
“Worldwide, only very few countries could say they have an overfunding of transport infrastructure. In Germany, the infrastructure is considered very good in the international context, but our problem is the budget; it’s a continuous struggle,” said Peter Ramsauer, Germany’s Federal Minister of Transport, Building and Urban Development.
Germany’s current infrastructure budget is just over 10 billion Euros, but Ramsauer said an additional four billion are needed.
Some 20 years after the fall of the Berlin wall, he said there has been some neglect of the infrastructure in the west of the country as the east was being rebuilt.
“We are trying to make a shift from east to west in regard to road, rail and waterways.
We think the best thing to do in Germany would be to introduce more tolls. There’s a
user charge already in place now for trucks weighing 12 tonnes and over,” Ramsauer noted.
Germany faces general elections in September, and Ramsauer said that regardless of who is negotiating any future policies, “we have to find structural solutions for funding transport,” he said.
During the conference, ministers released a Declaration on the Funding of Transport, which demonstrates “a clear willingness to make transport a growth strategy,” they said.
“There is a willingness politically to address the dilemma, possibly including the need to
introduce unpopular measures,” said Viegas.
The Declaration acknowledges that “a reliable, intermodally integrated transport system is essential to economic prosperity and equitable access to goods and services;
that the system needs to be financially sustainable, safe and secure and meet high standards of environmental protection.”
Most importantly, the declaration emphasized the need to align funding for transport infrastructure and services with transport’s fundamental role in the economy and society.
For example, funding policies would consider fiscal constraints to stable funding arrangements that facilitate implementation of long-term policies promoting sustainable transport.
The policies would need to be more consistent between funding practices and strategic directions for change in the sector, and decision processes would need to ensure funds are deployed to their most efficient use.
The aim of the International Transport Forum is not to approve uniform models of public consultations, said Viegas, but for Ministers to share what they have learned and take it home.
“We also know that there will not be a single magic bullet solution. Governments realize they have to put their relationship with the private sector on more stable footing without shifting the risk entirely to the other side. Mutual trust must become part of the permanent transport lexicon,” he said.
While sustainable infrastructure projects will be key to growth potential, in the supply chain, “the problem for achieving seamless road transport is not the lack of infrastructure, but rather inappropriate border procedures, which can account for up to 57% of lost transport time in some regions of the world,” said Umberto de Pretto, International Road Transport Union Secretary General Elect.
Temel Kotil, then CEO of Turkish Airlines, echoed this thought during an open ministerial forum at the summit, when transport professionals had the opportunity to address governments about industry needs and opportunities.
Kotil told the forum that regulation issues within the European airline industry, as related to routing restrictions, for example, create additional costs through fuel spending.
He called on European officials to “make the air more straight" by finalizing more "single skies" agreements with their trade partners.
“The world is normalizing more in terms of travel, culture and business, and airports should be operating 24 hours a day, said Kotil.
(In 2010, Canada finalized a Comprehensive Air Transport Agreement with the European Union allowing Canadian air companies access to the 27 member states while European air carriers are able to increase their presence in Canada.)
Harmonizing certain air regulations in the European Union would come with challenges; there are some 27 air traffic control systems at work, among them some military operations.
De Pretto stressed that using the “low lying fruits,” like existing infrastructure, and prioritizing transport operators’ use of the roads at certain times, “gives them a real business incentive.”
In a discussion on cross-border funding, De Pretto criticized European transport tax schemes saying, “Fuel taxes were initially made and collected for infrastructure, but that money goes elsewhere. So now they're saying let's collect again so we can finance rail, for example. I'm just noting that Europe is the only place in the world where we have more taxation on transport and therefore production goes elsewhere. The net effect is a high level of unemployment,” he said.
Solutions are simple and already exist, he said. Implementing key UN multilateral trade and road transport facilitation instruments – in particular the TIR and Harmonization Conventions – would effectively streamline Customs procedures and eliminate barriers that hinder international trade, he said.
The TIR Convention establishes an international customs transit system with maximum facility to move goods in sealed vehicles or containers; from a customs office of departure in one country to a customs office of destination in another country; without requiring extensive and time-consuming border checks at intermediate borders.
Canada’s Honourable Denis Lebel, Minister of Transport, Infrastructure and Communities, participated in several panel sessions at the summit, explaining Canada's approach to using public-private partnerships (P3s) to finance a number of major federal bridge projects.
“Our goal is to facilitate. We want to take as many regulations away as we can, to do the right thing to support the economy. But we have to be very careful to manage this money very well because it's public money. We have to invest with strategic choices,” said Lebel.
He noted there was a lot of discussion at the summit about “readily available funds,” but he said that many governments are in fact in crisis, and that Canada itself faced cuts to several of its federal government departments.
Lebel also attended the Ministerial Session on attracting private finance and ensuring predictable funding, and a Ministers’ Roundable (closed to the press) on attracting new sources of private finance to transport infrastructure.
Rosario Macario, Assistant Professor of Transportation at the Instituto Superior Técnico, the engineering arm of Lisbon’s Technical University, said that public-private partnerships have demonstrated the ability to harness additional financial resources and operational efficiencies.
“However, they are often ignored in the public books. The delivery model should be governed by ‘maximum value for the money.’”
The problem with P3s in Europe is that there is a “bias in planning and forecasting hindering the quality of decision at the project selection stage. There are biases towards developing new projects instead of making a more efficient and flexible use of the existing ones, and this leads to maintaining existing infrastructure in poor condition,” she said.
There is also a “lack of robust instruments for decision making, such as national infrastructure accounts (balance sheets),” said Macario.
She advocated use of a public sector comparator tool for the assessment of models to determine the proper service provider for a public sector project. It consists of an estimate of the cost that the government would pay were it to deliver a service by itself.
Canada is one of the few countries worldwide to employ this type of modelling. Lebel noted that under the new Building Canada Fund, projects with capital costs of more than $100 million will be assessed to determine if better value for money can be achieved through a P3 model.