ports: competition and competitiveness

1
ports competition and competitiveness

• professor enrico musso
• università di genova
• dipartimento di economia e metodi quantitativi
• www.enricomusso.it
• enrico.musso_at_unige.it

University of Antwerp ITMMA - Institute for
Transport and Maritime Management Antwerp Course
in Advanced Port Economics Academic year 2003-2004
2
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

3
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

4
Port competitiveness what exactly do we mean?

• Competition requires competitiveness
• Competitive who vs. whom?
• Another terminal operator or company in the same
  port?
• Another port?
• In the same range ( same coastline, same
  hinterland)?
• In another port range?
• Relevant scale / player
• port terminal / stevedoring company
• port cluster / port authority
• port range

5
Port competitiveness players, competition and
traffic
6
Port competitivenessa matter of points of view
Players / stakeholders have different goals
GOVERNANCE
MANAGEMENT
Citizens
Forwarders MTOs Land carriers
Shippers
Port operators
Port authority
(local) governmt
Lobbies
Shipowners
Business comm.
EFFICIENT COMP
EFFECTIVE COMP
SUSTAINABLE COMP
7
Port competitiveness and production function
Which are the inputs and outputs of port
industry?
8
Competitiveness and competition The market
structure of port industry
Competion implies competitiveness What about
industrial organisation?
Which is the degree of competition /
contestability of the market? Is there an
optimal size for port terminals and
ports? Which is the bargaining power of different
players?

• Which is the degree of integration?
• Vertical integration (e.g. dedicated terminals)
• Horizontal integration (port networks
  stevedoring groups)

9
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

10
The growth in world seaborne trade (millions of
tons)
2000 1104
1950 100
11
Shipping and the world economy

• The growth of the world economy and the growth in
  world seaborne trade interact through labour
  specialisation and widening of markets

shipping
Growth of world economy
Speciali sation
Enlarging markets
12
Some dramatic changes...

• In the economy
• The boost of seaborne trade (from 525 Mt in 1950
  to 5800 Mt in 2000)
• Spatial relocation of production
• The growing importance of logistics
• In maritime transport
• Ships size
• Specialisation
• Unitisation (containerisation)
• Transhipment
• In the industrial organization of transport
  industry
• Cooperation SAs, MAs, vertical integration,
• control of intermodal and logistic cycles ,
  logistics outsourcing

13
Some dramatic changes...

• Port operations become
• more capital intensive
• labour saving
• space consuming
• In port market
• more competition between ports, lower tariffs
  and lower ports times (pressures from liners)
• risk of overcapacity,
• decreases in producers (terminal operator)
  surpluses and increases in demand (liners, MTOs)
  surpluses (caption of port economic rent)
• In port economies
• relocation of formerly port-oriented industries
• weaker spatial links with the port
  (intermodality, transhipment...)

14
and some of their consequences

• Reduction of transport costs, increase in demand
• port costs (costs of the port node for the
  transport industry, i.e. port ship generalised
  costs) shift from ships to terminals
• port service inputs shift from labour to capital
  and to land
• space consumption and negative externalities are
  bigger, because of containerisation, overcapacity
  caused by port competition, dramatic increases in
  throughputs
• the positive impact of ports tend to spread from
  local economy to national/global economy,
  including the hinterland and the shippers

? Changes can cause gaps in spatial distribution
of costs and benefits
15
The present scenario

• Volatility of lines
• Hinterland Overlapping
• Higher market power for shipping lines (MA,
  Strategic alliances)
• Increasing pressures aiming at
• reducing costs
• reducing times in ports
• increasing flexibility in services
• enhancing ad hoc contracts

Ports/terminals as the weakest contractual part

• demand-driven planning and development
• Overcapacity
• search for short term competitive advantages

16
liners
PA
Terminal operators (port logistics prov.)
17
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

18
Which are the criteria for selecting a port?
Port competition
Port selection
Who are the economic players involved? What is
the competitive advantage? Which elements
influence the competitive advantage? Does the
port/terminal operator control them?
19
Relevant elements in the contract between
shipping liners and stevedores

• handling charges
• rent (price deposit of goods on the yard area /
  in wharehouses)
• extra operations (e.g. repositioning, empty
  containers, customs, etc.)
• Priority berthing / time windows
• Guaranteed Performance (minimum standard of
  performance e.g. n cranes, total time)
• Hours of working (and / or extra-time work
  charges)
• Volume Discounts (if throughput exceeds the
  stated minimum)
• Inland services
• Duration of the contract

20
Elements affecting port performance / productivity

• berth lenght
• yard congestion
• number and performance of cranes
• Labor organization
• Istitutional context (i.e. port models)
• Ships arrival rate
• Ship size
• ratio of TEUs handled to ship capacity

21
Ratio of TEUs handled to ship capacity
of ship capacity handled
Source Drewry, 1998
of capacity handled justifies up to 100
differences in terms of moves/hour between
terminals, regardless of ship size
22
Port selection players and criteria

• PLAYERS
• shippers
• carriers
• CRITERIA
• Product, Price and Promotion decide for Place
  (Kottler)
• Current trend a shift from price (port
  duties/taxes, handling tariffs, etc.) to
  product (service time, reliability, service to
  ships, service to goods)

overall
port
terminal
Handling prices Priority / Time
windows Congestion Equipment Ratio of cargo
handled ltCapacitygt

Nautical services (pilotage, mooring,
towing) Connectivity and accessibility Port
planning Services to cargo ltCapacitygt Promotion
Hinterland Labour organisation Inland transprt
networks Port finance and models

23
Issues in competitivenessthe optimal size of
the terminal
High time costs for the ship
High bargaining power of the ship vs the port
terminal
Need to reduce port times
Increase in terminal Size/capacity
Time windows Dedicated terminals
24
Issues in competitivenessthe optimal size of
the terminal
25
Issues in competitivenessthe optimal size of
the terminal
26
Issues in competitivenessvertical integration
and dedicated terminals
Time reduction
No queues
Vertical integration
Cooperation Time windows
Concession Dedicated terminals
27

• Dedicated terminals are agreements for temporal
  and spatial exclusivity, aiming at
• increase responsiveness of terminal to the ships
  requirements
• control a previously exogenous factor influencing
  transit time in ports
• allow increase in ships size and bigger
  scale/density economies for the carrier
• enhance hub-and-spoke cycle instead than direct
  links
• through
• Co-operation between a stevedoring company and a
  shipping line
• Integration of stevedoring activities by
  shipping lines

• Where
• in connecting points between East/West trades
• in hub ports (with high transhipment rate)

28
(No Transcript)
29
Effects of dedicated terminals

• on transit time
• better scheduling of the service (reduced
  uncertainty on ship arrivals)
• no or little queueing time
• on quality / reliabity of service
• Service less variable and more reliable
  (learning capacity effect for the terminal
  operator who manages the standard fleet of the
  specific liner)
• standardisation in loading operations and yards
  management

• Pros
• Stronger link with main clients
• Securing investments by carriers

• Cons
• Risk of loosing clients (for other users
  increasing queuing times, lower service rates,
  more congested yards)
• Barriers to entry

30
Dedicated terminals - supply side
a competitive tool to attract and keep port users?
a way to attract private investments?
Discrimination between users (horizontal effect)
31
Issues in competitivenesshorizontal integration
and port networking
Increasing size Overcapacity
Vertical integration Dedicated terminals

• economies of scale / network
• Market purposes (geographic penetration)
• shareholders interests
• response to concentration in maritime industry

32
Stevedores consolidation and networking
2001 world container throughput 260 millions TEUs

• Hutchison Port Holding 9,5
• Port Authority of Singapore 7,4
• Maersk (dedicated) 4,9
• Eurogate 3,2

4 players, 25 of the market! (top 20 liners,
2000 55)
33
Stevedores consolidation and networking

• ECT (Rdam)
• Modern Terminal
• CSX World Terminals
• MAERSK-Sea Land
• HHLA
• EUROGATE
• HESSENATIE
• Antwerp, Zeebr.

34
Big players in the Italian market
Trieste (molo VII) ECT (1997-2001) Koper (2001-)
Venezia (Vecon) PSA (1998-)
Genova (VTE) PSA (1997-)
La Spezia Contship/Eurogate (1996-)
Ravenna (tcr) Eurogate (2001-)
Livorno Eurogate (2001-)
Civitavecchia PSA/Evergreen (1998-)
Taranto Evergreen (2001-)
Gioia Tauro (MCT) Contship Eurogate
(1996-) Maersk 10
Cagliari (MITH) PO (2001-)
35
A push toward both competition and cooperation

• Logistics outsourcing and supply chain
  integration
• Economies of scale and of networks
• Oligopolistic structure of the market

Integrations
36
Hyerachies and networks from mainport to
brainport to chainport
37
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

38
Container throughput in main Northern E.U. ports
39
Container throughput in main Southern E.U. ports
40
Med ports will tell you that Container
traffic in TEU Northern Range vs. Southern range
(first 10 ranked ports)
41
(No Transcript)
42
Container throughput for some European countries
43
Container throughput variation by country (1999 -
2001)
44
Whats going on beyond traffic data?

• Who benefits from port efficiency?
• Who pays?
• Ports are still a business?
• For whom?
• (is the whole port industry sustainable?)

45
Micro and macro impacts of the port
Micro impact for the port / transport /
logistics industry
Competitiveness as efficiency (for the port
operator) and effectiveness (for the port user)

• Input demand
• owners of the inputs
• local commnunity

Macro impact for the port economy the hinterland

• Output demand
• Shippers
• (producers, consumers)

46
Demaritimisation or Remaritimisation?

• Changes in port and transport industry often
  bring about
• reduced net benefits for port local economies,
  resulting from positive economic impact and
  negative impact on land and environment
• loss of local control and loss of leadership on
  port industry
• Geographical unbalance between costs and benefits
  of ports are a key issue in sustainable port
  development
• Strategies for port competitiveness must take
  into account local impact in order to strenghten
  the link between the port and its city/region

47
How do changes affect the economy?

• Labour per cargo unit dramatically decreases
• Capital and entrepreneurship shift outside the
  local control (horizontal and vertical
  integrations in port industry)
• Land price for port uses is low since
• port competition pushes down prices of
  stevedoring
• competition and low prices transfer on input
  markets
• land price lowers around the opportunity cost (or
  even below)
• Substantial and increasing external costs
  (road/rail traffic, congestion, marine and air
  pollution, etc.)
• Regional multipliers possibly lower
• ?
• A threat for port local economy?

48
Employment and throughput
1991 288.000 (316.000) 1996 278.000 (298.000)
The relationship seems weak!
49
Local economy vs. hinterland?

• The role of ports in local economies
• macro-economic (welfare)
• employment
• industrial linkage / induced effects
• environmental

50
Benefits and costs for local economies

• Benefits
• Revenue of inputs
• Multiplier effects
• Positive externalities

• Costs
• Cost of inputs
• Negative externalities

51
Summary

• Competition and competitiveness what exactly do
  we mean?
• The new port economics
• Changes in the economy
• Changes in the transport industry
• Consequences on demand of port services
• Consequences on production and supply
• The market structure of port industry new
  threats and new opportunities
• Issues in competitiveness
• Port selection criteria
• Is there an optimal size for ports and port
  terminals?
• Vertical integration the dedicated terminals
• Horizontal integration port networking
• Micro and macro economic impacts
• The role of ports and the agenda for policy
  makers

52
A changing role...
Mode exchanger
Link in the supply chain
Hinterland connect. Local development Vertical
integration Safety Environment Fair comp. /
antitrust Better modal split
New / growing tasks
Regulator for Maritime and Intermodal transport
53
Deregulation in ports

• Privatisation
• sale of shares, private capital, sale of assets,
  management buyout, project financing (BOT) (a
  problem hidden financing)

54
Models of port management...
Terminal Management Other Services Land Ownership Safety Environment
Public or service port (corp./ comm) Public Public Public Public
Tool port Private Public Public Public
Landlord port - anseatic - latin Private Private Public Public
Private port - No P.A. Private Private Private Public
55
and their performance

• Private ports
• Landlord ports
• anseatic
• latin
• Tool ports
• Public ports

56
The case of Italy

• Before 1994
• public property of land
• public planning for land use, infrastructure and
  strategic development
• public stevedoring activities
• public funding of port infrastructure.

Inefficiency of Italian ports
57

• Main reasons for the inefficiency were
• Too high labor costs
• Scarce or no flexibility in land planning
• Lack of strategic planning
• High level of bureaucracy
• Monopoly of labour supply
• Low effectiveness ? high transit costs
• Lack of reliability in transit times
• Financial problems
• No control on efficiency/effectiveness of supply.

58
Port reform of 1994

• Independent Port Authorities were established
• PAs are responsible for land use, development of
  port, its territory, infrastructure, links with
  land transport networks
• PAs are responsible of control of private firms
  operating handling services
• Cargo handling is developed solely by private
  firms after concession or authorisation
• The procedure for the concession of a port area
  should be public and by bidding
• PAs are forbidden to carry out handling
  activities and to hold shares in stevedoring
  companies
• Charges for cargo handling are fixed by the
  market
• Technical/nautical services carried out by
  private companies under supervision and control
  of PA.

59
Italian reform has proved to be effective

• Dramatic growth of demand and throughput
• Involvment of private (mainly foreign)
  investors/companies

• 1994
• port reform (l. n.84/1994)
• new Genoa-Voltri VTE terminal (f.d.)
• 1995
• new Gioia Tauro terminal (transship)

Growth rate 1983/93 4,2 per year 93-00 13
per year
60

• Persisting problems
• Labor market organization
• Extremely long and complicated procedure for port
  infrastructure and land planning
• Lack of negotiation power of PA facing
  international stevedoring groups
• Lack of the transparency and free access in the
  market of technical/nautical services
• Financial problems in funding investments in
  building/redeveloping infrastructure and
  facilities.

61
Equilibrium between different tasks / needs

• Market failures
• Natural monopolies
• externalities
• Public goods
• Port planning and land use

Competitive environment Non-market failures
Safeguarding public resources environment - tax
yeld
Efficiency
62
Issues in port organization and regulation
Public planning Self production
Competition for the market Concessions rent
Competition in the market (anti-trust
control)
Safeguarding public resources Environment - tax
yeld
Efficiency
63
ports competition and competitiveness
thank you for your attentionenrico.musso_at_unige.i
t

• professor enrico musso
• università di genova
• dipartimento di economia e metodi quantitativi
• www.enricomusso.it

University of Antwerp Institute for Transport and
Maritime Management Antwerp Course in Advanced
Port Economics Academic year 2003-2004