Page 1

PORT COMPETITION WITHIN THE MARITIME LOGISTICS CHAIN Prof. dr. Hilde Meersman Prof. dr. Eddy Van de Voorde


CONTENT • Ports are complex and heterogeneous economic entities • Ports are nodes in the supply chain

• Port competition plays at different levels but is dominated by the competition between entire supply chains

1


WHY STUDY PORT COMPETITION? • Port competition is an important topic in transport economics: -

Large volumes of goods Direct and indirect employment Considerable amounts of investments Public or private? Regulation/deregulation? Strategic position

2


WHY STUDY PORT COMPETITION? • We want to understand the impacts of some important evolutions -

increasing vessel sizes specialisation of vessels and use of unit loads vertical integration within intermodal chains hub & spoke; transshipment activities economic and managerial integration of logistics chain, driven by capital flows - in- & outsourcing of logistic activities - growing public concern about the sustainability of port activities 3


• Research should be able to analyse and predict the consequences for - the capital/labour ratio and future employment in the ports and maritime sector - port planning, port capacity and port expansion - the optimal land-use - the public support e.g. NIMBY syndrome - pricing strategies for optimizing capacity utilization 4


Socio-economic evolutions, economic policy and structural changes in the world economy

THE FOCUS

Economic activity International trade Maritime trade Potential port throughput Port capacity

Competitive position of the port

EFFECTIVE PORT THROUGHPUT 5


THE FOCUS Large seaports characterised by three important elements: • The maritime aspect i.e. location on the shore and/or the capacity to handle ocean-going vessels • The goods-handling function

• The distribution function, including hinterland connections.

6


2002 Port

2009

Cargo turnover Port (million metric tonnes)

Singapore Rotterdam Shanghai South Louisiana Hong Kong Houston Chiba Nagoya Gwangyang Ningbo

335 321 239 196 193 161 159 158 153 150

Cargo turnover (million metric tonnes)

Shanghai Singapore Rotterdam Tianjin Ningbo Guangzhou Qingdao Qinhuangdao Hong Kong Busan

506 472 387 381 372 364 274 244 243 226

Source: AAPA, 2010

7


CONTENT • Ports are complex and heterogeneous economic entities • Ports are nodes in the supply chain

• Port competition plays at different levels but is dominated by the competition between entire supply chains

8


PRINCIPAL ROLES OF SEAPORTS according to the World Bank

SEAPORT SERVICES

CORE SERVICES

Marine services Terminal services Ship repair services Real-estate management Information management

VALUE ADDED SERVICES General logistics services

Logistics chain integration services

Value-added facilities 9


THE HETEROGENEOUS PORT: A MULTI-ACTOR PLAYING FIELD Non-port actors in port perimeter

Port actors in port perimeter

Non-port actors outside port perimeter

Port actors outside port perimeter 10


THE HETEROGENEOUS PORT The port actors may be roughly divided into three groups: 1. The port users: shipping companies, shippers, industrial enterprises,‌

2. The service providers: terminal operating companies, pilots, towage services, agents, forwarders, ship repairers, suppliers of foodstuffs and spare parts, waste reception facilities, and bunkerers

3. Port authorities Quantification of relationships: Coppens et al (2007)

11


THE PORT ACTORS

12


RESEARCH • Spill-overs - identification of the spill-overs: financial, employment, value added, environmental

• Direct and indirect impacts of strategies and policies - Input-output analyses can study direct and indirect impacts - Input-output analysis combined with micro- and companydata can reveal strategically important port actors - Input-output analysis with specific attention to environmental impacts

• System Dynamics to simulate the complexity of the port sector 13


Interactions between port actors • Decomposed forward linkages

• The linkage of industry i to customer j, relative to the output of that customer

14


DECOMPOSED FORWARD LINKAGES 8.25% 12.82%

AGENTS 19.35%

8.07%

23.25%

HINTERLAND TRANSPORT COMPANIES

8.09%

SHIPPING COMPANIES

TERMINAL OPERATING COMPANIES

10.73% FORWARDERS FUEL TRADE CUSTOMS BROKERS

15.09%

11.92%

SUPPORTING ACTIVITIES

8.85%

DREDGING

SHIPBUILDING/ -REPAIR OTHER TRADE 15


Interactions between port actors • Decomposed backward linkages

• The linkage of industry j to its supplier i, relative to the output of that supplier

16


DECOMPOSED BACKWARD LINKAGES 10.68%

16.54%

AGENTS 17.50%

22.57%

12.06% 41.58%

23.74%

SHIPPING COMPANIES

16.46% 24.76%

15.57% FORWARDERS

TERMINAL OPERATING COMPANIES

11.08% 42.05% 11.72% CUSTOMS BROKERS 12.75%

OTHER TRADE

HINTERLAND TRANSPORT COMPANIES

19.23% SUPPORTING ACTIVITIES FUEL TRADE

SHIPBUILDING/ -REPAIR DREDGING

12.79%

17


CONTENT • Ports are complex and heterogeneous economic entities • Ports are nodes in the supply chain

• Port competition plays at different levels but is dominated by the competition between entire supply chains

18


Origin

Owner of the goods / shipper Customs broker

Distribution Centre

Hinterland transport company Forwarder

Port

Terminal operating company

Shipping company

Port

Distribution Centre

Destination

Agent

Terminal operating company

Hinterland transport company

Receiver of the goods

Customs broker


CONTENT • Ports are complex and heterogeneous economic entities • Ports are nodes in the supply chain

• Port competition plays at different levels but is dominated by the competition between entire supply chains

20


TRADITIONAL 3-LEVEL VIEW ON PORT COMPETITION

Port range Port Y Port X

Port operator A

Traffic category 1

Port operator B Port operator C Port operator A

Traffic category 2 Traffic category 3

Port operator B Port operator D

Local/ national authority port X

Port operator A Port operator E

Port operator A

Traffic category 1 Traffic category 2

Port operator B

Port operator C Port operator A Port operator F

intra-port competition at operator level inter-port competition at operator level inter-port competition at port authority level

Local/ national authority port Y


GROWING COMPETITIVE PRESSURE

At various levels:

1. Intra-port competition at operator level (e.g. between TOC’s) 2. Inter-port competition at operator level, e.g. between TOC’s within same range) 3. Inter-port competition at port authority level

22


ULTIMATE DECISION PROCESS OF PORT USER

• Does the port under consideration offer advantages compared to other ports serving the same hinterland? • Does the port offer sufficient advantages in order to be considered as an addional port of call for an existing or yet-to-be-established liner or feeder service?

23


SUCCES FACTORS IN THE 3-LEVEL APPROACH • Trade flows and industrial activity

• Geographical location • Pricing strategy of port authorities and terminal operators • Support of regional and/or national governments - Financing port infrastructure and maritime access - Subsidies 24


Port X

Port operator C

Shipping line 1

Shipping line 3

Port Y

Port operator A Port operator B Port operator D

Port Z

Port operator D Port operator E

DESTINATION

Shipping line 2

Hinterlandprovider E

Hinterlandprovider A

Port operator B

Port operator A

Hinterlandprovider B

Hinterlandprovider C

Port operator A

Hinterlandprovider D

ORIGIN

SUPPLY CHAIN VIEW ON PORT COMPETITION


CRUCIAL QUESTIONS • Where does the power of decision lie in relation to, for example, the choice of route and/or port, shipping company, terminal operator or hinterland mode? • Which factors influence these decisions? • How do such decisions affect decision-making by other players?

• Which decisions by which players determine the competitive position of the port in question? • Is there a sequence to be discerned in decisionmaking or are certain decisions made quasisimultaneously? 26


DECISION VARIABLES IN CHOOSING A PORT Owner/ Shipper

Forwarder

Shipping Terminal company operators

Cost Location Port operations quality/reputation

xx xx xx

x x xx

xx xx xx

xx xx xx

Speed / time

x

x

x

xx

Infrastructure and facilities

x

xx

xx

Efficiency Freq. of sailings Port info system

x x x

xx x x

x x x

xx

Hinterland Congestion

x x

x x

x x

xx xx27

xx


MODELLING PORT COMPETITION: A GENERAL FRAMEWORK • The main issue: which supply chain will be chosen? Which factors influence this choice? • Summarised by the generalised cost of the chain

28


DECISIONS BASED ON GENERALISED COSTS

Subdivision into • time costs (e.g. wages, insurance premiums, handling costs, storage…) and • distance costs (fuel consumption,….) TC = h.H + d.D + Z Where

TC = total costs h = time coefficient d = distance coefficient H = time factor (in hours) D = distance factor (in miles or kilometres) Z = other costs 29


QUANTIFICATION OF THE SUPPLY CHAIN The supply chain is made up of various subsections, players and processes decision-making unfolds at different levels and involves different parties conflict of interests ? the price charged by one party will be a cost to another party in the chain and will inevitably have an impact on its operating result

30


QUANTIFICATION OF THE SUPPLY CHAIN (ctd.) • Modelling and quantification are required at different levels • One should get a handle on all relevant tradeoffs between the players involved, at all possible levels of the supply chain.

• It also offers the opportunity to analyse how potential actions affect cost.

31


ACTORS, OBJECTIVES AND INSTRUMENTS Players within a supply chain and their respective objectives and instruments Player

Objective

Instrument

Shipper and/or owner of goods Forwarder

Minimisation of generalised cost, including time cost Ibid., plus profit margin Maximisation of profit

Power of negotiation, dependent on size, strategic importance of product‌ Ibid.

Shipping company

Rates. Cost control (capacity, volume, timing, cooperation‌) Marketing Service 32


Player

Objective

TOC

Profit maximisation, Other objectives may include the establishment of a longterm relationship with the customer.

Hinterland operator

Instrument

Pricing Technological choices The provision of value added services Profit maximisation, i.e. Rates maximum differential between Capacity total revenue and cost. Flexibility Other objectives may include Speed increasing market share.

33


Player

Objective

Instrument

Port authority or operator

In the case of a private or liberalised entity: profit maximisation Alternative objective: cost minimisation for the supply chain (out-of-pocket and timerelated costs), or the maximisation of cargo volume handled.

Pricing Maritime access Concessions policy Socio-economic deliberation

34


NEW ISSUES IN PORT COMPETITION Multiple actors with - different objective functions, and - different time horizons

complicated by interwoveness of the decisions: - not only causality, but also - simultaneity

35


NEW ISSUES IN PORT COMPETITION The new playing field: Drastic scale expansion by shipowners and terminal operating companies, coupled with horizontal and vertical integration

36


UNCERTAINTY • Each market player will try to anticipate on likely strategic moves by other players • Each of these developments will have an impact on crucial decision variables, such as cost, price, and supply and demand

• As the various players are not affected in the same way, their strategies will vary accordingly 37


RECENT REACTION PATTERNS (1)

• Shipowners - reducing capacity by ending loops (e.g. CSAV), merging loops (e.g. Cosco) - effect on alliances - aggressive capacity (e.g. MSC using ULCS) or pricing policy (zero-tariffs) - diversification (e.g. CMA CGM in cruising and cars)

• Terminal operators - fixed capacity, i.e. less degrees of freedom - pricing policy 38


RECENT REACTION PATTERNS (2): The Hutchison case

• Hutchison buys from NYK majority stake in Ceres Container terminals Europe (CTE)

- Containerterminal Ceres Paragon - ro/ro and bulkterminal Ceres Amsterdam Marine Terminals • NYK: minority stake in ECT (Rotterdam) and subsidiary of Hutchison 39


TO CONCLUDE • Ports are clearly highly heterogeneous and complex environments • Successful ports belong to successful supply chains • Each port actor has his own agenda, strategic objectives and tools • Much will depend on the behaviour of the largest and most influencing customers of ports, i.e. shipping companies 40


TO CONCLUDE (ctd.) ďƒ° Port competition scenarios are more or less fixed

ďƒ° The timeframe remains uncertain Timing and optimal speed of action will determine who ultimately comes out on top

41

VAN DE VOORDE  

PORT COMPETITION WITHIN THE MARITIME LOGISTICS CHAIN Prof. dr. Hilde Meersman Prof. dr. Eddy Van de Voorde CONTENT 1 - Large volumes of good...