Port Economics

Wayne K. Talley

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317358961
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

Port Economics is the study of the economic decisions (and their consequences) of the users and providers of port services. A port works as an "engine" for economic development. This book provides a detailed discussion of port freight service users, such as freight water and land carriers, that have their ships and vehicles serviced and their cargoes unloaded by ports, as well as passenger services such as ferry carriers which are serviced by ferry passenger ports.

This text continues to enhance our understanding of port economics by exploring the economic theories, supply and demand curves, and the actual and opportunity costs relating to the carriers, shippers and passengers who use ports.

This new edition has been updated throughout. This includes:

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• An expanded discussion of container, break-bulk, dry-bulk, liquid-bulk and neo-bulk ports;

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• An introduction of port service chains, hinterland transport chains, maritime transport chains and port multi-service congestion;

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• A discussion of seaborne trade, dry ports, port centrality and connectivity and free trade zones.

This updated and comprehensive introduction to port economics will be of benefit to students and researchers in their study of port economics and management. It is also of great importance to professionals who manage and operate ports as well as freight and passenger carriers.

Chapter 1
Introduction

What is a port?

A port (or seaport) is a place at which the transfer of cargo and passengers to and from vessels to waterways and shores occurs. The port may be a cargo port (handling only the transfer of cargo), a passenger port (handling only the transfer of passengers) or a combination cargo/passenger port (handling the transfer of both).

A marine terminal is a distinct infrastructure within a port for the transfer of cargo and passengers to and from vessels. A port may have several marine terminals – for handling either the same or different types of cargo. A port’s marine terminals may be common-user or dedicated. If common-user, vessels of all shipping lines are allowed to call at the terminal subject to existing government regulations. If dedicated, the terminal is restricted to vessel calls by the shipping line (or party) that owns or leases the marine terminal.

Ports provide services as opposed to producing physical products (as in the case of manufacturing firms). Ports, for example, transfer shipper cargo between port aprons and moored vessels or between two moored vessels. The amount of shipper cargo that enters a port and then departs the port is referred to as port cargo throughput. Ports utilize resources such as labor, mobile capital (e.g., cranes) and infrastructure (e.g., wharfs) in transferring cargo to and from vessels.

A port is also a place where marine terminal services are provided to transportation carriers such as shipping lines, railroads and trucking firms. The services include, for example, vessel and vehicle maintenance and the assembling and sorting of vehicles. Carriers may also have administrative offices at ports.

A port is an economic unit. Ports may be commercial – that is, privately owned seeking to make a profit – or publicly (i.e., government) owned, generally not seeking to make a profit. A public port’s objectives may include promoting regional employment, economic development and the export of commodities for which the region has a comparative advantage. Public ports are typically managed by public port authorities. A public authority is an independent (or quasi-independent) agency that has been given the authority by the government owner of the port to manage the port.

In most places in the world, ports are located on the shore lands of cities. These lands are generally highly-valued, since they often have many alternative uses. In addition to being used for marine terminals, they may also be used for tourism and recreation industries, residential and office buildings, nature parks and commercial fishing industries. Consequently, port land expansions are often entrusted to governments and regulatory authorities to reconcile the interests of all parties competing for the land.

A port is a node in a transportation network. A transportation network is a spatial system of nodes and links over which the movement of cargo and passengers occur. A node is a center in a transportation network from which cargo and passenger movements emanate. A link between two transportation nodes is the transportation way (e.g., waterway, highway, railway and airway) distance between the nodes. Important determinants in the location of transportation nodes are their accessibility and capacity to handle the transfer of cargo and passengers. Physical geography is also an important determinant of whether a particular location will be selected as a node at which a port is constructed.

What is port economics?

Port economics is the study of the economic decisions (and their consequences) of the providers and users of port services. Port service providers supply port services to port users. The port (or marine terminal) operator that operates a port or one (or more) of its marine terminals is the primary service provider of a port. Other port service providers include, for example, ship agents, freight forwarders, third-party logistics firms, custom brokers, ship pilots and ship towage firms.

Port users demand port services and utilize the port as part of the transportation process of moving cargo and themselves as passengers to and from origin and destination locations. Port users include shippers (passengers) that provide cargo (and themselves as passengers) to be transported and carriers such as shipping lines, railroads and truck carriers (passenger water carriers such as ferry companies) that do the transporting.

Cargo ports

Ports are typically cargo ports. Cargoes include general and bulk cargoes. General (dry non-bulk) cargoes are either goods of various sizes and weights shipped as packaged cargo or goods of uniform sizes and weights shipped as loose (non-packaged) cargo. The former is either container or break-bulk cargo, while the latter is neo-bulk cargo. Container cargo is general cargo stored in standardized containers, generally 20 or 40 feet in length without wheels – that is, as a TEU (twenty-foot equivalent unit) or as an FEU (forty-foot equivalent unit). Break-bulk cargo is general cargo that is packaged on pallets or in wire or rope slings for lifting on and off a vessel. Examples of neo-bulk cargo include automobiles, steel and lumber. Bulk (dry and liquid) cargoes are cargoes that are neither packaged nor of uniform sizes and weights. Examples of dry-bulk cargo include coal and grains; crude oil and refined petroleum products are examples of liquid-bulk cargo.

Cargo ports are described by the prominent type of cargo handled. If a port, for example, handles mostly container (break-bulk) cargo, it will be described as a container (break-bulk) port. In comparison, passenger ports are classified by the prominent type-of-passenger vessel (rather than by the type of passenger) that calls at the port. For example, a passenger port may be a cruise (ferry) port, where calls by cruise (ferry) vessels are prominent.

Vessel cargo transportation networks

Types

A vessel’s transportation network may be an origin-to-destination (O-D), a mainline-feeder (MAIN-FEED) or a mainline-mainline (MAIN-MAIN) transportation network (Chadwin, Pope and Talley 1990). In an O-D network, the same vessel transports cargo from its origin port through the network to its destination port. In the MAIN-FEED and MAIN-MAIN networks, the same vessel does not necessarily transport cargo from its origin port to its destination port. These networks consist of sub-networks that are connected by a common port. For the MAIN-FEED network, the sub-networks consist of a mainline network over which cargo is transported in relatively large vessels and a feeder network over which relatively small vessels feed cargo to and from the mainline network via the connecting (or feeder) port. When cargo is transferred from one vessel to another at a given port, the cargo is referred to as transshipment cargo. The MAIN-MAIN network consists of two mainline networks, where cargo is transferred from one mainline network to another at a port that is common to both mainline networks. By contrast, an O-D network is one for which there is no transshipment of cargo among the network’s ports.

An O-D network may be a constant or a variable frequency port-call network. A constant frequency port-call network is one over which a vessel calls at all ports in the network the same number of times (generally once) on a given round trip. A variable frequency port-call network is one over which a vessel calls at some ports more than others on the same round trip.

A constant frequency port-call O-D network is depicted in Figure 1.1. The figure has two separate ranges of ports separated by an ocean, with ports A, B and C on one side and ports D, E and F on the other side of the ocean. A vessel calls once at each port on each round trip, covering a broad range of ports. If the number of port calls on the network increases, vessel schedule adherence (and thus the reliability of service) is likely to be adversely affected.

Figure 1.1 Constant frequency port-call O-D network

A variable frequency port-call O-D network is depicted in Figure 1.2. It depicts the network in Figure 1.1 except a vessel calls at port A twice while maintaining one call at each of the remaining ports on each round trip. A broad coverage of ports is maintained on a variable frequency port-call O-D network, while providing more frequent vessel calls at ports where there are higher volumes of cargo.

Figure 1.2 Variable frequency port-call O-D network

Figure 1.3 Mainline-feeder network

A mainline-feeder network is depicted in Figure 1.3. The mainline network DEFB has a connecting feeder network Djk, feeding cargo into and out of feeder port D, a port common to both networks. Relatively large vessels serve mainline network DEFB and relatively small vessels operate over feeder network Djk. The vessel service achieves broad coverage in the DEF port range, takes advantage of a vessel’s cost economies of vessel size at sea by calling at only one port on the ABC port range and takes advantage of a vessel’s cost economies of vessel utilization (or load factor) in port from the increase in the concentration of cargo at port D.¹

Cost savings to the shipping line in the network in Figure 1.3 are expected to arise from feeder-ing cargo on a relatively small vessel from port j to port D and then combining this cargo with cargo already at port D for transport on a relatively large vessel to destination port B – as opposed to providing direct service between ports j and B and between ports D and B. However, with this cost savings, a loss in revenue to the shipping line is also expected. Feeder vessel service generally is a poorer quality of service than direct vessel service. For example, the sum of the transit times of cargo moving from port j to port D and then to port B will be greater than the transit time of direct service between ports j and B. If the shipping line seeks to maximize profits, it will have been rational in establishing a feeder port at port D if the cost savings related to the feeder port are greater than the revenue lost.

In Figure 1.4, a mainline-mainline network is depicted, consisting of mainline networks ABCE and GHIE, having the common port E. At port E, cargo is transferred to and from the two networks from one vessel to another. Since relatively large vessels are used on mainline networks, the vessel service is able to take advantage of cost economies of vessel size (i.e., utilizing a larger vessel) at sea. The shipping line will have been rational in establishing a transshipment port at port E if the cost savings related to the transshipment port are greater than the revenue lost. In Figure 1.5, a combination of mainline-feeder and mainline-mainline networks has been created by merging the networks depicted in Figures 1.3 and 1.4.²

Vessel service patterns

Figure 1.4 Mainline-mainline network

In sailing over vessel transportation networks, vessels may use a number of service patterns, for example, end-to-end, round-the world, pendulum, triangle and double-dipping service patterns (Tran and Hans-Dietgrich 2015, p. 145). In an end-to-end vessel service pattern, a vessel sails back and forth between two markets, say the West Coast of North America and the Far East markets. In a round-the-world vessel service pattern, a vessel sails in only one direction, say westbound or eastbound. In a pendulum vessel service pattern, a vessel sails among three markets and the middle market is the service’s fulcrum, where a vessel swings to its either side in order to service the three markets. In the triangle vessel service pattern, a vessel serves three markets, but only in one direction in order to eliminate the imbalance of cargo traffic between the markets. In the double-dipping service pattern, a vessel calls at a middle port both ways to combine short-haul and long-haul traffic.

Figure 1.5 Mainline-feeder and mainline-mainline networks

Port positions

Centrality

A port’s centrality position in a vessel transportation network is indicative of the port’s strategic ability in the network to attract port traffic (cargo and passengers) – that is, traffic that passes through the port to and from the port’s hinterland and foreland markets (Hayuth and Fleming 1994). The port hinterland is the port’s landward side and the port foreland is the port’s seaward side. With ports centrally located in their vessel transportation networks, they have greater ability to attract cargo for export and import. “Port centrality represents a port’s ability to attract both cargo traffic from its hinterland area and liner shipping services from its foreland market” (Wang and Cullinane 2016, p. 327).

Origin-destination (O-D) cargo is cargo that is loaded on a vessel at its port-of-origin and is unloaded from the same vessel at its port-of-final-destination. O-D ports arise because of their greater cargo-traffic-generating power (attributed to their centrality-location attributes). O-D cargo moves between two ports – its origin port and its destination port – and it is economical to provide this direct service between the two ports. Such ports have been referred to as hub ports.

Intermediacy

A port’s position in a vessel transportation network has also been described in terms of its intermediacy location. As opposed to direct service, ports may also be involved in transshipment service. At a transshipment port, cargo is unloaded from arriving vessels and then loaded on departing vessels destined for the cargo’s port-o...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Preface
• Abbreviations
• Chapter 1: Introduction
• Chapter 2: Cargo ports: operations
• Chapter 3: Port freight service users: carriers
• Chapter 4: Port freight service users: shippers
• Chapter 5: Passenger ports and users
• Chapter 6: Port efficiency
• Chapter 7: Port effectiveness, performance evaluation and investment
• Chapter 8: Port competition, pricing and cases
• Chapter 9: Port service chains
• Chapter 10: Hinterland transport chains
• Chapter 11: Maritime transport chains
• Chapter 12: Port governance, privatization, concessions and public–private partnerships
• Chapter 13: Port security and safety
• Chapter 14: Ports and the environment
• Chapter 15: Port dockworkers
• Chapter 16: Smart capabilities: ports, ships, cargo and shipping routes
• Index