ports: competition and competitiveness

ports: competition and competitiveness professor enrico musso università di genova dipartimento di economia e metodi quantitativi www.enricomusso.it enrico.musso@unige.it University of Antwerp ITMMA - Institute for Transport and Maritime Management Antwerp Course in Advanced Port Economics Academic year 2003-2004

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

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

Companies: TOs Stevedoring Co. Intra - ports Inter - ports FIRMS One commodity Specialization Integrat. in supply ch LOCAL Port Authorities Port Bodies Inter - ports Inter - clusters Many commodities Land use Services NAT ? (Governments?) (“Port systems”?) Inter - clusters Inter - range All commodities Overall performance Land transp networks Port competitiveness: players, competition and traffic

Port competitiveness:a matter of points of view… Players / stakeholders have different goals MANAGEMENT GOVERNANCE Citizens Forwarders MTOs Land carriers Shippers Port operators Port authority (local) governmt Lobbies Shipowners Business comm. EFFICIENT COMP EFFECTIVE COMP SUSTAINABLE COMP

Shipyards (building) Shippers Fotwarders MTOs Carriers Shipwoners Shipping companies Shipyards (demolition) Inputs: - space - labour - capital - entrepreneurship - networks - “environment” Output: - throughput - impact PORTS Port competitiveness and production function Which are the inputs and outputs of port industry?

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)

The growth in world seaborne trade (millions of tons) 2000: 1104 1950: 100

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

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, M&As, vertical integration, • control of intermodal and logistic cycles , logistics outsourcing

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 producer’s (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...)

…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

The present scenario • “Volatility” of lines • Hinterland Overlapping • Higher market power for shipping lines (M&A, 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

liners PA Terminal operators (port logistics prov.)

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?

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

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

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

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

Issues in competitiveness:the 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

Fig. 1a Total Costs S N’’ M’’ N’ 2 SPUs M’ 1 SPU O B A Total Port Time M N 1 SPU Fig. 1b Number of Ships 2 SPUs Issues in competitiveness:the optimal size of the terminal

Total Costs 3 SPUs 2 SPUs 1 SPU K H M N Number of Ships Issues in competitiveness:the “optimal size” of the terminal

Issues in competitiveness:vertical integration and dedicated terminals Time reduction No queues Vertical integration Cooperation Time windows Concession Dedicated terminals

Effects of dedicated terminals • on transit time: • better scheduling of the service (reduced uncertainty on ship arrivals) • no or little queueing time onquality / reliabityof 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

Rationalisation of supply chain (vertical effect) Trade Off an (obliged) answer to the ship-owners ’ bargaining power? Dedicated terminals - supply side a competitive tool to attract and keep port users? a way to attract private investments? Discrimination between users (horizontal effect)

Weakness of ports/terminals Horizontal integration as possible reaction Issues in competitiveness:horizontal 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

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%)

HPH • PSA • P&O Ports • ICTSI • SSA BIG 5 drewry, 1998 • CONTSHIP • NOORD NATIE Stevedores consolidation and networking • ECT (R’dam) • Modern Terminal • CSX World Terminals • MAERSK-Sea Land • HHLA • EUROGATE • HESSENATIE • Antwerp, Zeebr.

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-) Gioia Tauro (MCT): Contship Eurogate (1996-) Maersk 10% Taranto: Evergreen (2001-) Cagliari (MITH): P&O (2001-)

Between: • Terminal operators and maritime carriers • Conceded and dedicated terminal • Terminal operators and networks • Terminal operators and inland terminals Vertical Horizontal • Between terminal operators • Between port authorities 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

Territorial paradigm Mainport “Isolated“ ports protected markets Concentration and competition Ec. of scale Decentralisation Spatial hyerarchies Competitive paradigm Brainport Port networks port/inland terminal netw Specialization Network cooperation Cooperative paradigm Chainport Hyerachies and networks: from mainport to brainport to chainport

Container throughput in main Northern E.U. ports

Container throughput in main Southern E.U. ports

Med’ ports will tell you that … Container traffic in TEU: Northern Range vs. Southern range (first 10 ranked ports)

Container throughput for some European countries

Container throughput variation by country (1999 - 2001)

What’s 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?)

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)

Demaritimisationor 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

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?

Employment and throughput 1991: 288.000 (316.000) 1996: 278.000 (298.000) The relationship seems weak!

The roles of ports outside the local economy: • in the transport industry (microeconomic): • reduction in costs (efficiency) • increase in transport demand • in the hinterland (macroeconomic): • development of international trade Local economy vs. hinterland? • The role of ports in local economies: • macro-economic (welfare): • employment • industrial linkage / induced effects • environmental

Benefits: Revenue of inputs Multiplier effects Positive externalities Costs: Cost of inputs Negative externalities ? ? Benefits and costs for local economies

ports: competition and competitiveness