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    Port Economics

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    Michael Dixon
    This document provides an overview of the key players and economic factors in port logistics. It discusses terminal operators, port service providers, carriers, forwarders, port authorities and various hinterland modes. It examines topics like scale economies, competition, costs advantages, and the factors that determine port hinterlands. The document also introduces the concept of port clusters and discusses variables that determine cluster structure, behavior, governance and performance.

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    Port Economics

    Uploaded by

    Michael Dixon
    87 views49 pages
    This document provides an overview of the key players and economic factors in port logistics. It discusses terminal operators, port service providers, carriers, forwarders, port authorities and various hinterland modes. It examines topics like scale economies, competition, costs advantages, and the factors that determine port hinterlands. The document also introduces the concept of port clusters and discusses variables that determine cluster structure, behavior, governance and performance.

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    An Introduction to Port Economics of different rules of different modes

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    This document provides an overview of the key players and economic factors in port logistics. It discusses terminal operators, port service providers, carriers, forwarders, port authorities and various hinterland modes. It examines topics like scale economies, competition, costs advantages, and the factors that determine port hinterlands. The document also introduces the concept of port clusters and discusses variables that determine cluster structure, behavior, governance and performance.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    87 views49 pages

    Port Economics

    Uploaded by

    Michael Dixon
    This document provides an overview of the key players and economic factors in port logistics. It discusses terminal operators, port service providers, carriers, forwarders, port authorities and various hinterland modes. It examines topics like scale economies, competition, costs advantages, and the factors that determine port hinterlands. The document also introduces the concept of port clusters and discusses variables that determine cluster structure, behavior, governance and performance.

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    Port economics;

    An introduction

    Dr. P.W. de Langen


    Internet: www.porteconomics.nl
    1

    Terminal operators (I)


    Primary clients: shipping lines
    Secundary clients: shippers and forwarders. In
    some cases direct contracts with these clients.
    additional clients: hinterland transport firms
    (road, rail barge).
    Tariff structure: contracts for a substantial period.
    Peculiarity: shipping lines charge Terminal
    Handling Charges to shippers. These are in general
    higher than what they pay the shipping line.
    In general not operating at full capacity, due to
    2
    indivisibilities in supply.

    Terminal operators (II)


    High fixed costs
    Labour costs are about 50% of total costs. For
    some firms, labour costs are fixed in practice.
    Three potential bottlenecks: seaside, landside and
    storage capacity.
    Aim: peakshaving in order to maximise
    utilisation of assets.
    Coordination with shipping lines very relevant
    For this reason (and others) frequent vertical
    integration.
    3
    Emerging internationalisation

    Port service providers


    Towage (and mooring)
    Paid by shipping line
    Small part of overall port costs: risk of monopoly
    pricing
    Regulated
    Competition can become destructive

    Pilotage
    Regulated, mostly a single service provider
    Paid by shipping line
    Increasing pressure to introduce competition

    Other port services: ship supply, bunkering etc


    Trend to more concentration
    4

    Carriers
    Scale is a central driver
    Many niche markets, both in terms of
    commodities and ship design
    Contracts with shippers/intermediairies
    Two types: tramp shipping and liner shipping
    Aim: minimise port-port costs. This implies
    they are less concerned with hinterland costs.
    Some carriers (esp. in the container market) also
    offer door-to-door services. This is termed
    carrier haulage.
    More concentration in industry
    5

    Forwarder
    Non asset owning transport intermediary
    Added value: volume discounts so cheaper for
    shippers with small volumes
    Added value: professional management of
    transport flows
    Added value: professional management of logistics
    Engaged in hinterland transport for merchant
    haulage transport.
    Many small forwarders exist: limited concentration
    6

    Port authority
    Revenue: port dues (paid by shipping lines)
    and land lease (paid by terminal operators,
    other tenants).
    Different levels of involvement. In most
    cases responsible for safety in the port,
    vessel guidance, port planning and
    expansion.
    Potential monopoly position
    7
    Particular institutional position

    Hinterland modes

    Road
    Rail
    Inland Shipping
    Pipeline
    (shortsea/feeder)

    Different roles of different modes

    Hinterland modes
    Rail: strategic role for serving
    contestable hinterland
    Road: similar accessibility to
    contestable hinterland
    Inland waterways: limited market
    coverage
    Pipeline: for industrial users

    Road

    Fast and flexible


    Frequently scale diseconomies.
    No scale economies; why not?
    Infrastructure: dedicated?
    What will be the effect of road pricing
    on scale economies in road transport?
    10

    Rail
    Infrastructure and services both
    relevant
    Infrastructure: state subsidies, unfair
    competition
    Services: state owned operators,
    gradually more competition
    Services: key is volumes
    Services: concept is shuttle trains: no
    shunting

    11

    Inland waterway

    Slow
    Strong for bulk cargo
    Imbalance
    For containers
    multi-modal
    Cooperation between operators
    Waiting time in port bottleneck
    Awareness
    Rising performance

    12

    Contestable vs captive hinterland


    Captive: all regions where one port has
    a structural cost advantage and as a
    consequence a dominant market
    position (say >50%).
    Contestable: all regions where no
    single ports has a significant cost
    advantage, with as a consequence
    competition between ports and no
    dominant market position.

    13

    Analysing port hinterlands


    Port A

    Assumption: equal hinterland accessibility


    (only distance matters)
    equal hinterland costs

    Port B
    equal hinterland costs

    Port C
    Sea Land

    14

    Other factors that determine


    hinterland costs
    Scale economies in handling
    Presence of infrastructure (road, rail,
    barge)
    Infrastructure pricing
    Congestion on infrastructure
    Quality of services (also related to
    scale)

    15

    Cost advantage to hinterland


    Advantage port A
    locations
    Constant costs

    Scale economies due


    To bundling (equal for
    Both ports)

    Cost
    Advantage
    Port A
    ($/ton)

    Port A
    200

    km
    Cost
    Advantage
    Port B
    ($/ton)

    Port B
    150

    100

    50

    50

    100

    150

    200

    Distance advantage to closest port (km)


    16

    Cost advantage in hinterland


    Cost advantage > 5 $/ton
    Cost advantage 2-5 $/ton
    Cost advantage 1-2 $/ton

    Port A

    Port B
    Inland
    node

    Port C
    Sea Land

    17

    Europe: large contestable hinterland

    Contestable
    hinterland

    18

    The relevance of scale economies


    Scale is very relevant in pipeline, inland
    barge and road transport
    Unit costs decrease substantially when
    volumes rise
    Path dependent development, with firstmover advantage
    Scale is also an organisational issue!
    19

    Example: Austria after introduction


    of new infrastructure
    Effect Rhine-Main-Donau canal on market shares ports
    45.0%

    40.0%

    35.0%

    Rotterdam
    Antwerpen
    Bremen
    Hamburg

    30.0%

    25.0%

    20.0%

    15.0%

    10.0%

    5.0%

    20

    0.0%
    1991

    1992

    1993

    1994

    1995

    1996

    1997

    1998

    1999

    2000

    2001

    Clustering in seaport
    Cargo handling is the core of a port cluster
    related are activities in transport, logistics,
    production and trade
    The relevant region comprises of the direct
    port area, surrounding logistics nodes and
    business districts

    21

    Clusters as unit of analysis


    Firms, countries, industries and (increasingly)
    networks are widely used units of analysis.
    A cluster is a relatively new unit of analysis, that
    differs from the ones mentioned above.
    A definition of a cluster is: A population of
    geographically concentrated and mutually related
    business units and institutes centred around a
    distinctive economic specialisation.

    The cluster is a good unit of analysis for


    analysing ports
    22

    The logic behind clustering


    Clusters develop because firms choose to
    locate in each others proximity. This offers
    economic advantages, because of three
    reasons:
    Joint labour market
    Input/output relationships
    Knowledge spill-overs

    Furthermore, clusters offer opportunities to


    reduce transaction costs and develop
    networks
    23

    Clustering in value chains for


    different commodities
    .
    Commodity
    Dry bulk
    Liquid bulk
    Fruit
    Containers

    Transport
    Storage,
    transport
    management
    Storage,
    transport
    management
    Storage,
    transport
    management
    Storage,
    transport
    management

    Logistics
    Blending

    Production
    Steel
    production

    Trade
    Commodity
    trading

    Blending

    Oil refining
    chemical
    production
    Juice
    production

    Commodity
    trading

    Postponed
    manufacturing

    Trading of
    import products

    Sorting and
    re-packing
    Assembling

    Fruit auction

    24

    Employment in the port cluster


    Cargo handling

    7,060

    Logistics

    12,822

    Multipurpose

    952

    Oil transhipment and storage

    1,323

    Labour Pool

    941

    Warehousing

    1,499

    Full container

    2,965

    Other logistics

    10,000

    Bulk (ore, coal, grain)

    1,269

    Roll on / roll off

    333

    Port industries

    28,000

    Other stevedoring

    600

    Oil refineries

    4,734

    Chemical industries

    7,735

    Transport

    29,497

    Food

    2,049

    Navigation

    2,755

    Other industries and suppliers

    13,482

    Inland navigation

    3,058

    Others (pipe, rail, road)

    7,532

    Trade (approximation)

    6,000

    Intermediaries

    6,920

    Trade activities in port area

    3,000

    Cargo control

    896

    Port related trade located in city

    3,000

    Salvage / towage

    1,542

    Ship chandlers

    1,023

    Institutes

    4,296

    Others

    2,057

    Municipal Port Authority

    1,258

    Shipbuilding

    3,714

    Customs

    1,177

    Others

    1,861

    Source: RMPM, 2001, RMPM, 1999 and Dutch Chambers of Commerce, 2001

    25

    The port cluster in Rotterdam


    total port employment, divided in different systems
    40000
    35000
    30000
    25000
    20000
    15000
    10000
    5000
    0

    stevedoring

    transport

    logistics

    production

    trade
    26

    External environment

    Cluster
    structure

    Cluster
    behaviour

    Cluster
    performance
    27

    Cluster structure and cluster performance


    Cluster structure
    Agglomeration effects
    Internal competition
    Cluster barriers
    Heterogeneity

    Cluster
    governance

    Cluster
    performance
    NPV of value added

    28

    Internal competition in
    Rotterdam
    Internal competition is in general fierce, but
    limited for

    the landlord
    pilotage
    Mooring
    cargo handling

    Firms indicate that internal competition adds to


    the competitiveness of a cluster and fosters
    specialisation
    29

    Internal competition:
    problematic
    Exists only when the MES (minimum
    efficient size) is small compared to the
    market
    Leads in many cases to unstable situations
    due to very low marginal costs and very
    high fixed costs
    Therefore, in many cases, natural internal
    monopolies exist in many seaports.
    30

    The importance of governance


    The better the governance, the more competitive the
    (port) cluster
    Firms are efficient, because of a selection mechanism.
    This mechanism is absent for governance!Therefore, we
    cannot assume that effective governance arises
    automatically.
    This argument shows the strategic importance of
    developing valuable governance structures
    Economic competition is increasingly becoming
    competition over different systems of production
    (Hollingsworth et. al. 1997, p.38).
    31

    Variables for the quality of


    governance in seaport clusters

    The presence of trust


    The presence of leader firms
    The presence of intermediairies
    Solutions to Collective Action Problems
    (CAPs)

    32

    Cluster governance
    Cluster structure

    Presence of intermediairies
    level of trust
    Embedded leader firms
    Solutions to collective
    action problems

    Cluster
    performance
    NPV of value added
    33

    Variables for quality of cluster governance


    Trust

    Intermediaries

    Low coordination
    costs

    Leader
    firms

    Solutions
    to CAPs

    Scope of coordination
    Beyond price

    Sub-variables
    -Infrastructure
    For collective
    Action
    -Role public
    Organisations
    -Community
    argument
    -Voice
    -Leader firms

    Quality of
    Cluster governance
    34

    The presence of trust


    Trust lowers transaction costs
    trust enables cooperation and specific
    investments
    Trust enables innovation

    35

    The presence of leader firms


    Leader firms have positive external effects
    for other firms in the cluster, with regard to
    Innovation
    Internationalisation
    Creating solutions for CAPs

    36

    The presence of intermediaries


    Intermediairies lower transaction costs
    Intermediairies enable cooperation and
    innovation

    37

    Solutions for CAPs


    A CAP exists when collective benefits exceed
    collective costs and free riding can not be
    prevented.
    The quality of solutions for CAPs depends on

    the presence of an infrastructure for collective action


    The legitimacy of a community argument
    The presence of leader firms (large firms)
    The role of public actors in the cluster
    The use of voice

    Issues for a CAP solution include: specific


    incentive structures, individualising collective
    benefits, financial arrangements
    38

    CAP issues in port clusters


    Port marketing and promotion
    Interest representation
    Innovation
    Training and education
    Port information systems
    Labour pool
    Knowledge development and diffusion

    39

    Collective action regimes


    Solutions for CAPs cannot be addressed in general.
    Different governance issues can be identified and for
    each of these issues the governance regime differs.
    A regime involves not just any informal group that
    comes together but a group with access to
    institutional resources that enable it to have a
    sustained role in making governing decisions
    (Rosentraub and Helmpke).
    Regimes are not automatically efficient and by nature
    relatively inert
    40

    Investments in collective action

    Iv = voluntary investments
    I* = optimal amount of investments
    Costs and
    benefits of
    investments
    for the cluster

    Underinvestment, negative effect port performance


    Marginal cost
    of investments
    Marginal benefits
    of investments

    Iv

    I*

    41

    Investment level

    I* depends on composition of
    port cluster
    I* = optimal amount of investments in
    CARs

    Marginal
    costs and
    benefits
    Marginal costs of investments
    (assumed the same)

    I*2

    MR2, port cluster


    with dominant firm
    (e.g. single user
    port)

    MR1, port with large


    number of firms

    I*1

    Investment level

    42

    Level of voluntary investments depends


    on leader firms, associations, trust etc
    Iv = voluntary investments
    I* = optimal amount of investments
    Costs and
    benefits of
    investments
    for the cluster

    Benefits of high Iv

    Marginal cost
    of investments
    Marginal benefits
    of investments

    Iv1

    Iv2

    I*

    Investment level

    43

    Factors that determine the level


    of voluntary investments in
    CARs
    Organizational infrastructure
    Leader firms
    Trust

    44

    An infrastructure for
    collective action
    In many cases, collective action requires a specific
    organisation, collectively owned by members
    Such an organisation can be termed an association
    Thus, specific associations play an important role
    in the governance of clusters
    In different clusters the organisational structure of
    the associations differs. This can have a huge
    impact on the competitiveness of the cluster.
    45

    The role of the (public) PA


    The PA is the perfect institutional arrangement to charge
    port users for investments in CARs that are in the interest
    of all port users.
    Ports are special in this respect: other clusters lack such an
    actore positioned to act as cluster manager.
    Goals of PA
    Increase level of investment in CARs
    Secure investments are cost-effective
    To make investments cost effective, public private
    partnerships, joint responsibility and joint funding are
    46
    relevant.

    The perfect institutional


    structure of P.A.s
    Ideally P.As should have the following
    characteristics
    Self-sustaining
    Autonomy with regard to price setting and
    investment decisions
    Revenues related to performance of port cluster
    Goal: maximise performance of port cluster
    Freedom to create direct charges when
    possible.
    47

    Implications for P.A.s


    P.A.s should not be private, unless there is no need
    to create effective collective action regimes.
    This is only the case for single / limited user ports.
    Cases from the UK: Felixtowe, London and
    Liverpool
    P.A.s should have the jurisdiction over one port
    cluster
    National/statewide port authorities are not effective
    Multiple municipal port authorities for adjacent port
    facilities are also not effective.
    48

    Some best practices in PAs acting as


    cluster managers

    Rotterdam: education and innovation system.


    Hamburg: Marketing
    Amsterdam: seaport/airport cooperation
    Barcelona: port community system
    New York and LA/Long beach: hinterland
    access
    Los Angeles: environmentally friendly road
    transport
    Melbourne: supply chain solutions for customers
    49

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