The Blackwell Companion to Maritime Economics (Blackwell Companions to Contemporary Economics) [1 ed.] 1444330241, 9781444330243

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THE BLACKWELL COMPANION TO MARITIME ECONOMICS

Blackwell Companions to Contemporary Economics The Blackwell Companions to Contemporary Economics are reference volumes accessible to serious students and yet also containing up-to-date material from recognized experts in their particular fields. These volumes focus on basic bread-and-butter issues in economics as well as popular contemporary topics often not covered in textbooks. Coverage avoids the overly technical, is concise, clear, and comprehensive. Each Companion features introductions by the editors, extensive bibliographical reference sections, and an index. A Companion to Theoretical Econometrics edited by Badi H. Baltagi A Companion to Economic Forecasting edited by Michael P. Clements and David F. Hendry A Companion to the History of Economic Thought edited by Warren J. Samuels, Jeff E. Biddle, and John B. Davis A Companion to Urban Economics edited by Richard J. Arnott and Daniel P. McMillen The Blackwell Companion to the Economics of Housing: The Housing Wealth of Nations edited by Susan J. Smith and Beverley A. Searle The Blackwell Companion to Maritime Economics edited by Wayne K. Talley

The Blackwell Companion to Maritime Economics Edited by Wayne K. Talley

A John Wiley & Sons, Ltd., Publication

This edition first published 2012 © 2012 Blackwell Publishing Ltd. Blackwell Publishing was acquired by John Wiley & Sons in February 2007. Blackwell’s publishing program has been merged with Wiley’s global Scientific, Technical, and Medical business to form Wiley-Blackwell. Registered Office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK Editorial Offices 350 Main Street, Malden, MA 02148-5020, USA 9600 Garsington Road, Oxford, OX4 2DQ, UK The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK For details of our global editorial offices, for customer services, and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com/ wiley-blackwell. The right of Wayne K. Talley to be identified as the author of the editorial material in this work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress cataloguing-in-publication-data The Blackwell companion to maritime economics / edited by Wayne K. Talley. p. cm. – (Blackwell companions to contemporary economics) Includes bibliographical references and index. ISBN 978-1-4443-3024-3 (hardback : alk. paper) 1. Shipping–Economic aspects. 2. Merchant marine. I. Talley, Wayne Kenneth. HE582.B56 2012 387–dc23 2011045993 A catalogue record for this book is available from the British Library. Set in 11/13 pt Dante by Toppan Best-set Premedia Limited

1

2012

To my wife, Dorothy (Dolly) Cordle Talley

Contents

List of Figures List of Tables Notes on Contributors Preface PART I INTRODUCTION

x xv xix xxviii 1

1

General Introduction Wayne K. Talley

2

The Evolution of Maritime Economics Trevor D. Heaver

16

3

The Business of Shipping: An Historical Perspective Ingo Heidbrink

34

4

International Seaborne Trade Michael Tamvakis

52

PART II

MARITIME CARRIERS AND MARKETS

3

87

5

Maritime Carriers in Theory Wayne K. Talley

89

6

Maritime Freight Markets Siri Pettersen Strandenes

107

7

Intermodalism and New Trade Flows Lixian Fan, Mohan M. Koehler and Wesley W. Wilson

121

8

Cruise Lines and Passengers Simon Véronneau and Jacques Roy

138

9

Ferry Passenger Markets Tor Wergeland

161

viii

CONTENTS

PART III

SHIPPING ECONOMICS

185

10 Dry Bulk Shipping George A. Gratsos, Helen A. Thanopoulou and Albert W. Veenstra

187

11

Liquid Bulk Shipping Dimitrios V. Lyridis and Panayotis Zacharioudakis

205

12

Container Shipping Theo Notteboom

230

13 New Business Models and Strategies in Shipping Peter Lorange and Øystein D. Fjeldstad

263

14 Shipping Regulatory Institutions and Regulations Paul G. Wright

281

15

304

Shipping Taxation Peter Marlow and Kyriaki Mitroussi

16 Seafarers and Seafaring Heather Leggate McLaughlin

321

17

333

Safety in Shipping Di Jin, Hauke Kite-Powell and Wayne K. Talley

18 Piracy in Shipping Maximo Q. Mejia, Jr., Pierre Cariou and François-Charles Wolff

346

PART IV SHIP ECONOMICS

371

19 The Economics of Ships Harilaos N. Psaraftis, Dimitrios V. Lyridis and Christos A. Kontovas

373

20 Ship Finance: US Public Equity Markets Costas Th. Grammenos and Nikos C. Papapostolou

392

21 Ship Finance: US High Yield Bond Market Costas Th. Grammenos and Nikos C. Papapostolou

417

22 Ship Finance: Hedging Ship Price Risk using Freight Derivatives Amir H. Alizadeh and Nikos K. Nomikos

433

23

452

Marine Insurance Stanley Mutenga and Christopher Parsons

PART V PORT ECONOMICS

471

24 Ports in Theory Wayne K. Talley

473

CONTENTS

ix

25

Port Governance Mary R. Brooks and Athanasios A. Pallis

491

26

Port Labor Peter Turnbull

517

27 Port Competition and Competitiveness Theo Notteboom and Wei Yim Yap

549

28

571

Container Terminal Efficiency and Private Sector Participation Baris Demirel, Kevin Cullinane and Hercules Haralambides

29 Determinants of Users’ Port Choice Photis Panayides and Dong-Wook Song

599

30 Port Investment and Finance Sander Dekker and Robert J. Verhaeghe

623

31 Ports as Clusters of Economic Activity Peter W. de Langen and Elvira Haezendonck

638

32 Port State Control Inspection Deficiencies Pierre Cariou, François-Charles Wolff and Maximo Q. Mejia, Jr

656

33 Port Security: The ISPS Code Adolf K. Y. Ng and George K. Vaggelas

674

34 Port Security and the Quality of Port Interchange Service Wayne K. Talley and Venus Y. H. Lun

701

Index

717

List of Figures

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 5.1 5.2 6.1 6.2 7.1 7.2 7.3 7.4 8.1 8.2 8.3

World seaborne trade shares, in billion ton-miles World seaborne trade development by major commodity, in million tons World seaborne trade development, in million tons, and average haul Crude oil import development, 2001–2009 Crude oil export development, 2001–2009 Oil product export development, 2001–2009 Oil product import development, 2001–2009 The choice between gas pipeline and LNG Natural gas trade development, 2001–2009 Hard coal trade development, 1980–2009 Seaborne iron ore trade development, 1975–2008 Steel products trade development, 1975–2008 Seaborne grain trade development, 1975–2008 World merchandise trade by major commodity groups, 2008 Volume and value of seaborne trade by cargo type, 2006 Containerized trade volumes, 2009 (estimates) Shipper demand for maritime freight transportation service at full prices Passenger demand for maritime passenger transportation service at full prices Volatility in Baltic Exchange freight indexes Time charter rates for container vessels, 2000–2009, in US$/day Average quantity over time (million kilo) Surviving and failing new flows – linear Surviving and failing new flows – log Probability of exit, entry size and containerized North American passenger market Average annual passenger traffic growths (%) – North America (1999–2008) Mexican and Central American market

53 54 54 57 58 60 61 63 63 68 72 73 77 82 83 84 102 103 109 112 128 130 130 133 147 148 149

LIST OF FIGURES

8.4 8.5 8.6 8.7 8.8 8.9 8.10 9.1 9.2 9.3 9.4 9.5 9.6 10.1 10.2 10.3 10.4 10.5 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12 11.13 11.14 11.15 11.16 11.17 11.18

Average annual passenger traffic growths (%) – Mexico and Central America (1999–2008) Caribbean ports passenger market Average annual passenger traffic growths (%) – Caribbean (1999–2008) European passenger market Average annual passenger traffic growths (%) – Europe (1999–2008) Far East and Oceania passenger market Average annual passenger traffic growths (%) – Far East and Oceania (1999–2008) Overlaps in the ferry market Hierarchy of ferry demands The diversity of the top five ferry operators, 2008 Number of trailer-decks on ferries delivered 1965–2010 Strategic types of shipping markets Positioning of the ferry shipping segment Bulk cargoes, 1970–2008 Tanker and bulk carrier capacity in million dwt, 1970–2009 Fixture counts per contract type per month, 2001:1 to 2009:12 (in percentage share) Fixture counts by month, 2001–2009; loading iron ore at West Australian ports Contracts duration and average period rate, Capesize vessels The shipping cycle stages Ras Tanura–Rotterdam 280K tons VLCC Worldscale rate time series VLCC vessel capacity supply time series in million tons DWT Oil tanker capacity demand time series Laid-up tonnage for oil tankers 150,000 tons DWT oil tankers in slow steaming mode OBO ships, Capesize >160,000 tons DWT supply time series O&P Aframax Tankers order book time series in tons DWT Future market for Capesize Bulker in tons DWT Newbuilding prices for a VLCC of 315,000–320,000 tons DWT VLCC in US$ million Price in US$ million for a five-year-old double-hull 310,000 tons DWT VLCC Scrap prices in US$ million for VLCC oil tankers time series Interaction between shipping market variables in the time field Cross-correlation between supply for transport services and freight rates Cross-correlation between freight rates and demand for sea transportation services Oil production of OPEC countries versus VLCC oil freight rates Freight rate generation mechanism Effects of external factors on freight rates

xi

150 151 152 153 154 155 156 162 168 171 174 177 178 191 194 199 200 201 212 215 216 217 217 218 218 219 219 220 220 221 221 222 223 226 226 227

xii

11.19 12.1 12.2 12.3 12.4 13.1 13.2 14.1 14.2 15.1 15.2 18.1 18.2 18.3 18.4 18.5 18.6 18.7 18.8 18.9 18.10 18.11 20.1 20.2 21.1 22.1 22.2 22.3

LIST OF FIGURES

Schematic approach of the freight rates generation mechanism Container trade on the main routes, in TEU (full containers) Traffic imbalances on the main routes, based on volumes in TEU (full containers) Container rates (including BAF and CAF) from a North European container port to a series of overseas destinations, in October 2009, in US$ Evolution in strategic alliance configuration in liner shipping Portfolio: owning steel – Seaspan example (container fleet owner) Portfolio: using steel – Clarkson offshore hedge fund example Structure of the IMO Timber load line mark and lines to be used with this mark The EU maritime cluster Comparison of fiscal regimes Number of reported acts of piracy and armed robbery against ships (1996–2008), by year Number of reported acts of piracy and armed robbery against ships (1996–2008), by location Number of reported acts of piracy and armed robbery against ships (1996–2008), by type Number of reported acts of piracy and armed robbery against ships (1996–2008), by status of ship when attacked Number of reported acts of piracy and armed robbery against ships (1996–2008), by type of vessel Relationship between number of attacks and GDP per capita, 1996–2008 Real GDP per capita (in 2005 US$) and location of attacks, 1996–2008 Number of reported acts of piracy and armed robbery against ships and socio-political indicators in Indonesia (1996–2008) Number of reported acts of piracy and armed robbery against ships and socio-political indicators in Bangladesh (1996–2008) Number of reported acts of piracy and armed robbery against ships and socio-political indicators in Nigeria (1996–2008) Number of reported acts of piracy and armed robbery against ships and socio-political indicators in Somalia (1996–2008) US shipping IPOs and secondary offerings 1987–2010 (as of March 2010) Average number of analyst coverage per share US shipping high-yield bonds 1992–2010 (as of March 2010) Plot of second-hand ship values and Cal2 4TC FFA in the Capesize sector Plot of second-hand ship values and Cal2 4TC FFA in the Panamax sector Plot of second-hand ship values and Cal2 6TC FFA in the Supramax sector

227 232 247 250 252 270 272 286 292 306 312 354 356 357 358 361 362 363 364 365 366 367 401 406 420 440 440 440

LIST OF FIGURES

24.1 24.2 24.3 24.4 25.1 25.2 25.3 27.1

Shipper demand for port freight interchange service at full prices Passenger demand for port passenger interchange service at full prices Maritime-carrier demand for port vessel interchange service at full prices Surface-carrier demand for port vehicle interchange service at full prices A broader view of governance The multi-modal governance vision The local infrastructure or transportation governance structure Framework for analyzing inter-container port relationships for the case of two ports 27.2 Analysis of changes in container shipping services for the case of two ports 27.3 Evolution of market share and average annual growth based on annual throughput in TEU 27.4(a) Development of ASC which called at Port Klang, Singapore and Tanjung Pelepas 27.4(b) Development in share of ASC connected to the selected ports 27.5 Evolution of market share and average annual growth based on annual throughput in TEU 27.6(a) Development of total ASC which called at Hong Kong and Shenzhen (in TEU) 27.6(b) Development in share of ASC connected to the selected ports 27.7 Evolution of market share and average annual growth based on annual throughput in TEU 27.8(a) Development of ASC that called at the selected ports in Northwest Europe (in TEU) 27.8(b) Development in share of ASC connected to the selected ports 28.1 Relationship between efficiency (DEA-CCR) and scale (throughput) 28.2 Relationship between efficiency (DEA-BCC) and scale (throughput) 30.1 Decision making on port investment and finance strategies 30.2 Interdependent stages in the port cargo transfer process 30.3 Schematization of a port from a national welfare perspective 30.4 Efficiency gains due to economies of scale in port exploitation 31.1 A “decision tree” for a cluster manager 31.2 The ownership structure of CMP 31.3 Evolution of CMP market share in Sweden and Denmark (1998–2008) 31.4 Dynamic port portfolio analysis of CMP and eight relevant competing ports 32.1 Mean number of deficiencies (bar) and detention rates (line) over time, by type of vessel and year 32.2 Type of deficiency detected by port state control authority, vessel age at inspection and flag of registry 32.3 Change in number of deficiencies detected between two successive inspections, by type of vessel

xiii

486 486 487 487 503 503 503 555 556 557 559 559 560 562 562 564 566 566 590 590 626 627 634 634 643 648 649 650 660 662 667

xiv

32.4 33.1 33.2 33.3 33.4 33.5 33.6

LIST OF FIGURES

Change in number of deficiencies detected between two successive inspections, by type of deficiency Port security administration structure in Hong Kong Port security administration structure in Greece The three-tiered security levels adopted by the port of Hong Kong Information on the current security level in Greece Procedures for the approval of PFSAs and PFSPs in the port of Hong Kong Procedures for the approval of PFSAs and PFSPs in the port of Piraeus

668 682 684 685 686 688 689

List of Tables

2.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 7.1 7.2 7.3 7.4 7.5 7.6 7.7 8.1 8.2 8.3 8.4 8.5 8.6 8.7 9.1 9.2 9.3 9.4

Segmentation profile of research Oil trade matrix (2009) Oil and refined products trade flows (2009) LNG trade matrix (2009) Coal trade flows (2008) Iron ore trade flows (2008) Steel trade flows (2008) Wheat and coarse grains trade flows (2007) Soybeans and rice trade flows (2007) The twenty leading service operators of container ships at the beginning of 2009 Degree of containerization in a selection of European mainland ports New trade flows by year Coefficient estimates for equation (1) Coefficient estimates for equations (1) and (2) with a natural log dependent variable Failure proportions by containerization Coefficient estimates of failure probability Revenues for three major cruise lines in 2009 Aggregate revenues for three major cruise lines between 2005 and 2009 Operating expenses for three major cruise lines for 2009 Aggregated operating expenses for three major cruise lines in 2007, 2008 and 2009 Operating and net income for three major cruise lines in 2009 North American market ships European market ships Fleet for four segments 2008, including ships on order Distribution of world ferry traffic volumes, 2008 Number of routes and competitors in selected ferry regions, 2006 European ferry routes with three or more competitors

26 59 62 66 69 72 74 78 80 123 124 128 129 131 132 132 143 143 144 145 145 157 158 163 165 166 166

xvi

LIST OF TABLES

9.5 9.6 9.7 9.8 9.9

Ferry traffic in the Greek archipelago in 2005 Selected large non-European ferry operators, 2008 Ranking of European ferry operators by passenger capacity of ships, 2008 Market shares of top twenty ferry operators The route basis of the top ten operators, with the percentage of their passenger capacity Possible ranking of technologies regarding various route aspects Development of market shares on the Dover–Calais route (%) Ferry industry attractiveness, from a route perspective World population and large dry-bulk cargoes in million metric tons, 1960–2009 Major iron ore importers, mid-1980s and 2008 Dry-bulk vessel sizes, mid-1980s and mid-2000s Share of vessels > 200,000 dwt in total bulk carriers within age bands Share of the leading dry-bulk carrier fleets in the world dry-bulk tonnage by flag, 1989 and 2009 Top six dry-bulk carrier fleets controlled by nationals, January 2009 Top 15 crude oil producers and consumers Top 15 crude oil importers and exporters Estimated productivity of tankers, bulk carriers and the residual fleet, selected years Cross-correlation tests between oil production of OPEC countries and demand for oil tanker transport service Cross-correlation between oil production of OPEC countries and VLCC oil freight rates World container port throughput and its components for selected years Top twenty container ports based on throughput in million TEU (1975–2009) The ranking of major container handling regions in the world (in million TEU) Composition of the world cellular container ship fleet in October 2009 Composition of the cellular container ship fleet for selected dates Changes in fleet operations, TEU-mile supply Financial results for a number of major container shipping lines Breakdown of transport costs Shanghai–Brussels for a 40-foot container with a cargo load value of 85,000 euro (market prices of February 2007) Slot capacities of the fleets operated by the top twenty container lines (in TEU) Shipping business model archetypes Calculation of the effective rate of tax Net present value per £1 m invested Tonnage tax in different flags in 2009

9.10 9.11 9.12 10.1 10.2 10.3 10.4 10.5 10.6 11.1 11.2 11.3 11.4 11.5 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 13.1 15.1 15.2 15.3

167 169 169 171 172 175 179 181 191 192 193 193 196 197 206 207 207 225 225 231 234 236 238 240 242 246 249 254 269 308 311 314

15.4 16.1 16.2 16.3 17.1 17.2 17.3 18.1 20.1 20.2 20.3 20.4 20.5 21.1 21.2 21.3 21.4 21.5 22.1 22.2 22.3 22.4 22.5 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 26.1 27.1 27.2 27.3 27.4 27.5

LIST OF TABLES

xvii

UK tonnage tax rates Estimated supply of seafarers 2005 Estimates of numbers of seafarers for top ten supplying countries Estimated demand for seafarers 2005 Variable definitions and descriptive statistics Cargo vessel accident damage severity equation estimates Marginal cargo vessel accident damage severity probabilities Characteristics of 3,957 reported acts of piracy and armed robbery against ships (1996–2008), by location of attack (%) US Initial Public Offerings and Secondary Offerings statistics 1987–2010 (as of March 2010) Total world fleet (DWT million), March 2010 Total world orderbook (DWT million), March 2010 Institutional ownership per sector (as of March 2010) Deadweight and average age of US public shipping companies Characteristics of shipping companies that defaulted in 1999 Shipping high-yield bond offerings according to year of issuance as of March 2010) Brief description of rating standards Shipping high-yield bond offerings according to Standard & Poor’s credit rating classification, 1992–2010 Descriptive statistics for shipping high-yield bonds ratings Baltic FFA and Sale and Purchase assessments Descriptive statistics of vessel values and 2nd nearest calendar FFA prices Result of Johansen’s reduced-rank cointegration test of log-prices (p) and log calendar TC FFA (f) Result of VECM for three sizes of dry bulk carrier Estimates of OLS hedge ratios for three sizes of dry bulk carriers Responses and other sources Current governance structure US Port governance and management definitions US public seaports governance and responsibilities Entities operating container terminals in non-UK European seaports Entities operating container terminals in North America Board structure Board composition Dock labor schemes in Europe, North America and Australasia Service attributes of the EU1 service of the Grand Alliance ASC affected by inter-port competition in the Malacca Strait ASC affected by inter-port competition in the Pearl River Delta Comparison of container shipping statistics between Hong Kong and Shenzhen (2006) ASC affected by inter-port competition in the Antwerp–Hamburg range

315 322 322 323 338 341 343 352 395 402 402 407 408 419 421 424 425 427 438 441 444 445 447 496 497 499 499 506 507 508 509 523 555 558 563 563 567

xviii

LIST OF TABLES

28.1 Summary statistics of variables for efficiency analysis 28.2 Efficiency estimates of the container terminals in the sample 28.3 Summary statistics for efficiency estimates 28.4 Average efficiency estimates for each country in the sample 28.5 Average efficiency estimates for each year in the sample 28.6 Summary statistics of variables for Tobit regression analysis 28.7 Summary output for Tobit regression analysis 28.8 Average technical efficiency in the Eastern Mediterranean region 28.9 Port governance and average efficiencies 28.10 Average technical efficiency in Turkey 28.11 Scale efficiency estimates of the container terminals in the sample 29.1 Shipping line port choice studies 29.2 Port selection criteria measures 29.3 The ranking of port selection criteria 31.1 Key characteristics of both port perspectives 31.2 Activities included in a port cluster 31.3 Cluster investments of PAs 31.4 Key total traffic figures of CMP (2001–2009) 32.1 Characteristics of vessels inspected (2002–2009) 32.2 Type of deficiency by year of inspection 32.3 Probability of detecting a deficiency: marginal effects 32.4 Probability of transition in deficiencies from t-1 to t: marginal effects 33.1 The composition of PASAC in 2009 33.2 The composition of the MSC and the PSA 34.1 An empirical analysis of port interchange versus port security service operating option responses

580 582 582 583 583 585 585 587 588 589 592 605 613 616 640 641 644 649 659 661 663 670 682 685 709

Notes on Contributors

Amir H. Alizadeh is a Reader in Shipping Economics and Finance at Cass Business School, City University London, and a visiting professor at Copenhagen Business School and the University of Geneva. He has published in the areas of freight market models, markets for ships, and derivatives and risk management in financial and commodity markets. He has delivered Baltic Exchange courses in “Freight Derivatives and Shipping Risk Management” and “Advanced Freight Modeling and Trading” in maritime centers worldwide. Mary R. Brooks is the William A. Black Chair of Commerce at Dalhousie University, Halifax, Canada. She has been actively engaged in the work of the US Transportation Research Board since 1993 and is a member of the Marine Board of the US National Academy of Sciences. She is the founder and chair of the Port Performance Research Network of more than 50 scholars interested in port governance and port performance issues. Pierre Cariou is an Associate Professor at Euromed Management, Marseilles Business School, France. He held the French Chair in Maritime Affairs at the World Maritime

University, Sweden from 2004 to 2009, where he was also in charge of the Shipping and Port Management MSc. From 2001 to 2004, he was Associate Professor in Economics at Nantes, France. He completed his PhD in 2000 on liner shipping strategies. His main research interests are in maritime economics, safety and security. Kevin Cullinane is Director of the Transport Research Institute at Edinburgh Napier University. He is a Fellow of the Chartered Institute of Logistics and Transport, a Visiting Professor at the University of Gothenburg and an Honorary Professor at the University of Hong Kong. He has been a logistics advisor to the World Bank and a transport advisor to the governments of Scotland, Ireland, Hong Kong, Egypt, Chile, Korea and the UK. Sander Dekker is presently a senior consultant of Ports and Waterways at Grontmij N.V. in the Netherlands. He is involved in port development projects in the Netherlands and elsewhere, and specializes in feasibility studies and asset management. He graduated from Delft University of Technology (MSc, PhD) in the field of Strategic Port

xx

NOTES ON CONTRIBUTORS

Planning. Since graduation (2005), he has worked as a consultant. Baris Demirel is a senior customs expert at the Turkish Customs Administration. He received his BS in Business Administration in 2001 from the Middle East Technical University (in Ankara, Turkey), and his MS in Maritime Economics and Logistics (MEL) in 2009 from Erasmus University Rotterdam as a government scholar. His dissertation on the impact of private involvement on port efficiency won the MAERSK Line Best Thesis Award at the MEL Center of Erasmus University in 2009. Lixian Fan is currently a PhD student in the Department of Logistics and Maritime Studies at the Hong Kong Polytechnic University. She received her Bachelors and Masters degrees in Statistics from universities in mainland China. Her research interests include shipping economics and policy, ship investment and marine logistics. Øystein D. Fjeldstad is the Telenor Professor of International Strategy and Management at BI-Norwegian School of Management. He holds a PhD in Business Administration and a Master of Science in Management Information Systems from the University of Arizona, and the Siviløkonom degree from the Norwegian School of Economics and Business Administration. His research interests include strategy, innovation and organizational design, with empirical contexts in telecommunications, financial services, shipping and technology. Costas Th. Grammenos is Professor of Shipping, Trade and Finance at City University London. In 1977, he introduced

a bank shipping finance credit analysis and policy that is utilized by most international banks. He has drawn the attention of the shipping world to equity and debt markets. He was awarded a DSc for creating the new academic discipline “Shipping Finance” and appointed OBE (Hon) and CBE (Hon) by HM Queen Elizabeth for “services to teaching and research.” George A. Gratsos is the President of the Hellenic Chamber of Shipping, Vice President of HELMEPA and a board member of the Union of Greek Shipowners. He is a naval architect with a degree from the Massachusetts Institute of Technology and a PhD in Shipping Markets from the University of the Aegean. He holds and has held various national and international shipping industry positions and is the President of Standard Bulk Transport Corp., which manages bulk carriers. Elvira Haezendonck is an Associate Professor at the University of Brussels (VUB) and Visiting Professor at the University of Antwerp, Erasmus University Rotterdam and Euromed Marseille. Her research covers (environmental) strategy, competition analysis, corporate social responsibility (CSR), and stakeholder management applied to ports. She has been involved in over 30 national and EU research projects, for example long-term strategy analyses, strategic projects, multinational strategies and impact assessments. Since 2010 she has held a research chair in Public–Private Partnerships at VUB. Hercules Haralambides is Professor of Maritime Economics at the Erasmus School of Economics and Director of the Erasmus Center for Maritime Economics and Logis-

NOTES ON CONTRIBUTORS

tics (MEL). He is the founder and editor-inchief of the quarterly Maritime Economics and Logistics, the founder of the Special Interest Group on Maritime Transport and Ports of the World Conference of Transport Research (WCTR), and one of the three founders (1990) of the International Association of Maritime Economists. Trevor Heaver is Professor Emeritus, University of British Columbia. In recent years, he has been Visiting Professor at the Universities of Antwerp, Sydney and Stellenbosch. He is a founding member and a past president of the International Association of Maritime Economists and a past chairman of the World Conference on Transport Research. He has published widely on transportation, logistics and transportation policy and has consulted for corporations and governments internationally. Ingo Heidbrink is a German maritime historian currently working as a Professor of History at Old Dominion University in Norfolk, Virginia. His research interests are methodology of maritime history, fisheries history and interdisciplinary projects in the context of maritime history. He is Secretary General of the International Commission of Maritime History and CoPresident of the North Atlantic Fisheries History Association. Di Jin is a Senior Scientist at the Marine Policy Center of the Woods Hole Oceanographic Institution. He holds a PhD in Economics–Marine Resources from the University of Rhode Island. He specializes in the economics of marine resources management and marine industries and has substantial research experience in the com-

xxi

mercial fishing and aquaculture industries, the offshore oil and gas industry, the marine transportation industry and coastal management problems. Hauke L. Kite-Powell is a Research Specialist at the Marine Policy Center of the Woods Hole Oceanographic Institution. He received his PhD in ocean systems management and a degree in naval architecture, technology and policy from the Massachusetts Institute of Technology. His research focuses on public and private sector management issues for marine resources and the economic activities that depend on them, and on the integration of economic and physical/biological models. Mohan Koehler graduated magna cum laude from the University of Oregon with majors in Finance and Economics with departmental honors in economics. His research has focused on intermodal transportation and the dollar–euro spot exchange rate. He served on the Duck Store’s board of directors as Chairman and Treasurer from 2008 to 2010. Christos A. Kontovas holds a diploma in Naval Architecture and Marine Engineering from the National Technical of Athens (NTUA) (2005). He is currently a doctoral researcher at the Laboratory for Maritime Transport of the NTUA. His PhD studies focus on quantitative methods for risk assessment and decision making that can be used in investigating threats to human life, property and the environment (oilspills and air emissions). Peter W. de Langen works at the Port of Rotterdam Authority, Department of Corporate Strategy, as senior advisor and is

xxii

NOTES ON CONTRIBUTORS

involved in various strategic renewal projects. He also holds a part-time position as Professor of Cargo Transport and Logistics at Eindhoven University of Technology. He publishes articles on port selection, port policy, and international transport and logistics chains in academic journals and codirects a dissemination platform for port studies at www.porteconomics.eu. Peter Lorange holds a DBA degree from Harvard University. He is a former President of the Lorange Institute of Business Zurich and of the Norwegian School of Management. He has taught at the Wharton School, University of Pennsylvania, and the MIT Sloan School of Management. He holds numerous honorary doctorates, and has published 18 books and 120 articles. His areas of special interest are strategic management, strategic planning and entrepreneurship for growth. Venus Y. H. Lun is a Lecturer in Shipping Logistics in the Department of Logistics and Maritime Studies, Hong Kong Polytechnic University. She is the founding editor of the International Journal of Shipping and Transport Logistics. Her research papers appear in such journals as Expert Systems with Applications, the International Journal of Production Economics, the International Journal of Production Research, Resources, Conservation and Recycling and Transport Reviews. She has also published five books. Dimitrios V. Lyridis is an Assistant Professor of Maritime Transport in the School of Naval Architecture and Marine Engineering (NA&ME) at the National Technical University of Athens (NTUA). His scientific interests include shipping finance, maritime transport and logistics, safety, security, and

environmental protection. He has a diploma in NA&ME, an MS in Marine Systems Management, an MSE in Industrial and Operations Engineering, and a PhD (from the University of Michigan) in NA&ME. Peter Marlow is Professor of Maritime Economics and Logistics at Cardiff University. He has more than thirty years’ experience in academia and research work and is the author of more than one hundred published works. He is President Emeritus of the International Association of Maritime Economists and Visiting Professor at Dalian Maritime University. His research interests include the fiscal treatment of shipping and the choice of flag in international shipping. Heather Leggate McLaughlin has published widely in both industrial and academic journals. She was a Specialist Advisor on Maritime Affairs to the House of Commons Select Committee for Transport, and more recently has been engaged in European Commission projects to promote water freight transport. She is editor of the international journal Maritime Policy and Management and is currently a member of the Faculty of Business and Management at Canterbury Christ Church University. Maximo Q. Mejia, Jr. is Associate Professor of Maritime Law and Policy at the World Maritime University (WMU), Malmö, Sweden. Before joining WMU, he saw duty on board various navy and coastguard vessels and in shore-based facilities in the Philippines. He teaches and writes on maritime policy, law, human factors, safety, and security issues. He is Associate Editor of the WMU Journal of Maritime Affairs.

NOTES ON CONTRIBUTORS

Kyriaki Mitroussi is a Senior Lecturer at the Cardiff Business School, Cardiff University. Before her current post she served as a Lecturer at the University of Piraeus, Department of Maritime Studies. She has worked with shipping companies and has also been involved in consultancy services. Her broad research interests include shipping management, third-party ship management, safety and quality in shipping, and shipping policy. She is a member of the International Association of Maritime Economists. Stanley Mutenga is Director of Starz Risk Solutions, Senior Lecturer at Cass Business School, Visiting Lecturer at the Copenhagen Business School and the University of Oslo, a chief examiner for the Institute of Financial Services (IFS) School of Finance and the Chartered Insurance Institute (CII), and an exemptions advisory board member for the Institute of Risk Management (IRM). His research has won him awards. He has served on a number of UK boards and holds a PhD in risk and insurance from City University London. Adolf K. Y. Ng is an Assistant Professor in the Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University. His doctorate is from Oxford University, UK and his research interests include port management, transport geography, maritime security and education. He has published a book on port competition and over 60 articles in leading maritime, transport and geography books, journals and conference proceedings. He is currently serving as a Council Member of the International Association of Maritime

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Economists (IAME), and is a Chartered Member of the Chartered Institute of Logistics and Transport (CMILT). Nikos Nomikos is Professor of Shipping Risk Management and Director of the MSc degree in Shipping, Trade and Finance at Cass Business School, City University London. Before joining Cass he was a Senior Analyst at the Baltic Exchange in charge of the freight indices and risk management divisions. He has published numerous papers, articles and book chapters, and a leading book on Shipping Derivatives and Risk Management. Theo Notteboom is a Professor at the University of Antwerp, President of ITMMA (Institute of Transport and Maritime Management Antwerp) and parttime Professor at the Antwerp Maritime Academy. He has published widely on port and maritime economics. He is President of the International Association of Maritime Economists (IAME) and President of the Belgian Institute of Transport Organizers (BITO). He is a fellow of the Belgian Royal Academy of Overseas Sciences and on the editorial boards of several journals. Athanasios A. Pallis is Assistant Professor ( Jean Monnet in European Port Policy) in the Department of Shipping, Trade and Transport, University of the Aegean. He has held visiting positions at the Center for Energy, Marine Transportation and Public Policy, Columbia University, New York, the Centre for International Trade and Transportation, Dalhousie University, Canada, and the Institute of Transport and Maritime Management, University of Antwerp,

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NOTES ON CONTRIBUTORS

Belgium. He is a regular contributor to UNCTAD, OECD and European Sea Ports Organisation (ESPO) discussions on port governance, economics and policy. Photis Panayides is an Associate Professor in Shipping Economics at the Cyprus University of Technology. He holds a PhD in shipping economics/management. He has authored three books and over 30 scientific journal papers in the fields of shipping economics and transportation. He serves on the editorial boards of Maritime Policy and Management and the Journal of Business Logistics and is also a member of the Board of Directors of the Cyprus Ports Authority. Nikos C. Papapostolou has worked at the Costas Grammenos International Centre for Shipping, Trade and Finance at Cass Business School since 2002. He holds a BSc in Money, Banking and Finance from the University of Birmingham, and an MSc in Shipping, Trade and Finance and a PhD in finance, both from Cass Business School. His research interests include the utilization of capital markets as a source of finance for shipping companies, shipping syndicated loans, and technical analysis. Christopher Parsons is Professor of Insurance at Cass Business School, London, and recipient of the Chartered Insurance Institute Morgan Owen Medal and Prize for the best research paper by a CII member. He has published two books on insurance law, contributes regularly to insurance and legal journals and lectures widely in the UK and elsewhere. In 2010 he received (with Stanley Mutenga) the International Association for the Study of Insurance Economics/International Insurance Society Research Awards Prize.

Harilaos N. Psaraftis is Professor of Maritime Transport at the School of Naval Architecture and Marine Engineering at the National Technical University of Athens. He holds a PhD from the Massachusetts Institute of Technology (MIT), where he taught from 1979 to 1989. He has published two books and over 80 refereed articles. He is the former CEO of the Piraeus Port Authority and a current member of the Greek delegation to the International Maritime Organization. Jacques Roy is a Professor of Logistics and Operations Management at HEC Montreal where he is also Director of the Carrefour Logistique, a university–industry forum on Supply Chain Management, and Director of the research group Chaine, which conducts research activities in the field of supply chain management. He has served for many years as a management consultant with several large Canadian corporations and governmental organizations. Dong-Wook Song is a Reader in Maritime Logistics at the Logistics Research Centre, Heriot-Watt University, Edinburgh. His recent visiting positions include the Bordeaux Management School, France, and Nanyang Technological University, Singapore. He is a co-editor of the International Journal of Logistics and was recently invited to become an Associate Editor of Maritime Policy and Management. His more than one hundred refereed publications are a product of his interest in managerial and strategic aspects of global maritime logistics. Siri Pettersen Strandenes is a professor in the Department of Economics, Norwegian School of Economics and Business Admini-

NOTES ON CONTRIBUTORS

stration (NHH), and honorary visiting professor in the Costas Grammenos International Centre for Shipping, Trade and Finance at Cass Business School, London. She has published in international research journals and is a member of the editorial board of Maritime Economics and Logistics. Also, she is member of the IAME council, and has been a board member for several companies and institutions. Wayne K. Talley is the Frederick W. Beazley Professor of Economics, Eminent Scholar and Executive Director of the Maritime Institute at Old Dominion University, Norfolk, Virginia, U.S.A. He is an internationally recognized transportation economist, holding honorary visiting professorships at City University (London, U.K.), National Chiao Tung University (Taiwan) and Shanghai Maritime University (China). He has published numerous academic books and papers and serves as Editor-in-Chief of Transportation Research Part E and Deputy Editor-in-Chief of the Asian Journal of Shipping and Logistics. His 2009 book, Port Economics, is the first textbook in the area. Michael Tamvakis is a Professor of Commodity Economics and Finance at Cass Business School, City University London. He teaches economic and financial aspects of all main commodity groups (energy, metals and agriculture) as well as in shipping economics. His research interests are in the areas of commodity economics and finance in general and energy derivatives markets in particular. Helen A. Thanopoulou is an Associate Professor in Operations Management of Shipping Companies. She has studied Economics (University of Athens) and

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Development Economics (Paris 1 Panthéon– Sorbonne). She holds a doctorate in maritime studies from the University of Piraeus where she taught briefly. In 1995 she joined Cardiff University. She returned to Greece in 2004 to join the University of the Aegean, in the Department of Shipping, Trade and Transport on Chios Island where she lives. Peter Turnbull is Professor of Human Resource Management and Labour Relations at Cardiff Business School, Cardiff University. He has published widely in leading international journals on labor relations in the port transport industry. He is currently working with the European Commission and the ILO on social dialogue in ports and is the author of the ILO’s Guidelines on Training in the Ports Sector. George K. Vaggelas is an advisor to the President and CEO of Thessaloniki Port Authority SA and a Research Fellow at the Jean Monnet program in European Port Policy at the University of the Aegean (UoA). He received a PhD in port economics and management from the Department of Shipping, Trade and Transport (UoA). He has authored or co-authored several journal and conference papers on port and maritime economics and management and has participated in several EU projects. Albert W. Veenstra is a senior research scientist at the Dutch research organization TNO and an assistant professor at the Rotterdam School of Management. His research interests are shipping, port development and operations, and global logistics. He has published papers and book chapters about topics in maritime economics and has lectured around the world on logistics, shipping and ports.

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NOTES ON CONTRIBUTORS

Robert J. Verhaeghe is an Associate Professor in the Civil Engineering Department at Delft University of Technology (DUT). He is involved in teaching and research in the field of infrastructure development. He graduated from MIT (MSc, PhD) in the field of civil engineering systems (transport, water). After graduation (1977) he joined Delft Hydraulics and worked for 18 years as a consultant in the field of water resources development. He joined DUT in 1994.

uoregon.edu/∼wwilson). He is a former president of the Transportation and Public Utilities Group (TPUG) of the American Economic Association and holds a variety of positions in organizations, editorial boards, etc. Over the last decade, he has been actively involved in assessing waterway investment benefits for the Army Corps (www.corpsnets.us), and in estimating shipment-specific costs for the Surface Transportation Board.

Simon Véronneau is an Assistant Professor of Operations Management at Quinnipiac University and an Associate Researcher both in the Supply Chain Research Group at HEC Montreal and at the CIRRELT. He holds a PhD in operations management from HEC Montreal. His research focuses on global supply chains, transport management, and real-time critical operations management. He is a licensed senior navigation officer with work experience in the Canadian Coast Guard and on cruise ships and merchant ships.

François-Charles Wolff is Professor of Economics at the University of Nantes. He is also an associate researcher at the Institut National des Études Démographiques. He received a PhD in economics from the University of Nantes in 1998. He received the Jacques Tymen Prize in 1999 and the Novatlante Prize in 2000. He is author or co-author of more than 70 peer-reviewed papers.

Tor Wergeland is an independent consultant and senior advisor to MARINTEK, Trondheim. For more than 20 years, he was a Professor of Shipping Economics at the Norwegian School of Economics and Business Administration. He has been a professor at Copenhagen Business School, where in 2001 he started an MBA in Shipping and Logistics. He has also been involved in a Maritime MBA at Euromed Management, Marseille. He is co-author of two MBAtargeted textbooks – Shipping (1997) and Shipping Innovation (2008). Wesley Wilson is a Professor of Economics at the University of Oregon (darkwing.

Paul G. Wright has been involved in international shipping for many years, having experience at sea on a variety of ship types before embarking on an academic career at the Plymouth University, UK. Before taking up his present position as Associate Director of the Marine Institute, he was Head of the International Shipping and Logistics Group at the University of Plymouth. His key interests lie in ship and port operations, including their legislative environment. Wei Yim Yap is a former head of research and strategic planning for the Maritime and Port Authority of Singapore. On the academic side, he has publications in international refereed journals and vast experience in lecturing on BSc and executive training

NOTES ON CONTRIBUTORS

courses in maritime and port economics. He has worked closely with industry and government agencies to complete numerous projects to the benefit of both industry and academia. Panayotis Zacharioudakis is the co-founder and R&D Director of Ocean Finance and a Senior Researcher in the School of Naval Architecture and Marine Engineering at the

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National Technical University of Athens (NTUA). His scientific and professional areas of interest are risk assessment and management, market modeling and forecast, operational research, and logistics. He holds an Engineering Diploma (NTUA), an MSc in Marine Science and Technology (NTUA), an MSc in Shipping, Trade and Transportation (University of the Aegean), and a PhD (NTUA).

Preface

Maritime economics is the economics of maritime transportation, i.e., an economic analysis of its users (shippers and passengers), primary service providers (transportation carriers and ports), secondary service providers (e.g., ship pilots and towage, ship agents, stevedores and freight forwarders) and resources (e.g., labor, infrastructure and mobile capital such as ships). As a field of study, maritime economics consists of shipping economics, ship economics and port economics. Shipping economics is concerned with the economics of transporting freight by ships. Ship economics is concerned with the economics of ships that are used in maritime transportation. Port economics is concerned with the economics of ports, i.e., the provision of port services and the users of these services. This book has benefited from my numerous maritime- and transportation-related activities over the years: presentations and

discussions with colleagues at conferences, in particular the annual conferences of the International Association of Maritime Economists; visiting positions at the University of Oxford (England), University of Sydney (Australia), University of Antwerp (Belgium), City University London (England) and the University of Wollongong (Australia); Senior Research Fellow at the Marine Policy Center, Woods Hole Oceanographic Institution; Editor-in-Chief, Transportation Research Part E: Logistics and Transportation Review; and Executive Director, Maritime Institute, Old Dominion University. The outline of the chapters of this book greatly benefited from discussions with Amir Alizadeh, Faculty of Finance, Cass Business School, City University London, while he was a Visiting Professor of Maritime and Supply Chain Management during the 2008–9 academic year at Old Dominion University. WAYNE K. TALLEY Norfolk, Virginia

I

Introduction

1

General Introduction Wayne K. Talley

This chapter provides a general introduction to the contents of the book. Specifically, a two-paragraph synopsis of each of the chapters, 2 through 34, is provided. In Chapter 2 the evolution of maritime economics as a field of study is discussed. Maritime economics as an explicit field of study is less than fifty years old. Before 1960 there were publications on the subject, but they did not have a separate identity. The field has evolved from the study of the history of shipping, e.g., trade-offs among alternate ship designs, contractual arrangements for shipping and trade, and managing port infrastructure and services to efficiently serve the needs of trade. Research in maritime economics has become more complex and its quantity and quality are higher than ever. Improved availability of data, methods to analyze these data and theories have contributed to this growth. University programs in maritime studies worldwide have been established and a greater number of journals are publishing research in maritime economics.

An historical perspective of shipping – evolving worldwide from primitive to developed societies – is presented in Chapter 3. The ancient cultures of Egypt, Greece, Mesopotamia and Rome were involved in the early stages of the development of shipping. Shipping is the oldest mode of transportation for moving large quantities of cargo. The business of shipping has been impacted over time by a number of factors: (1) geopolitical factors that affect the demand for transportation, (2) development of maritime technology, (3) development of ship types to transport certain types of cargoes, e.g., such bulk cargoes as oil, ore and grains, and (4) intra-modal (among shipping companies) competition and intermodal (e.g., from land routes to and from ports by railways and trucks) competition. Without shipping the development of the modern industrialized world would have been impossible. Chapter 4 considers commodity trade flows in shipping. The commodity-trade

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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classification system of the United Nations includes one hundred major categories of commodities, each containing several subcategories. Given this granularity of information, the chapter restricts itself to providing an overview of the major worldwide commodity trade flows – the main export and import flows in recent years, in the context of the underlying factors driving each commodity. The chapter is divided into two main sections – major bulk commodities, and general cargo and containerized trade flows. A slowdown in world trade followed the financial crisis in 2008. The majority of trade flows are still growing, but at a slower pace; other flows have contracted. What does the future hold? Will the rate of worldwide oil depletion result in prohibitive energy prices for shipping, thus leading to a further slowdown? Will natural gas suffice as a bridge fuel? Chapter 5 describes a maritime carrier from a microeconomic theory perspective. A maritime carrier is a firm that provides for-hire transportation service by transporting goods and/or individuals in vessels over a waterway from one location to another. Maritime carriers are described by the type of vessel utilized – for example, ferry and cruise lines use ferry and cruise vessels respectively – and by the type of cargo transported – for example, LNG and container carriers transport liquefied natural gas and containers respectively. If the amount of transportation service provided by a maritime carrier is the maximum amount that can be provided given the resources at the carrier’s disposal and the amounts of cargo (numbers of passengers) provided by shippers (individuals) to be transported, then the relationship may be described as the maritime carrier’s pro-

duction function in the provision of transportation service. If so, the maritime carrier is technically efficient. A maritime carrier’s operating options are the means by which it can vary the quality of its service. A maritime carrier is cost-efficient if it minimizes cost in provision of its technically efficient services. The demand by passengers and shippers for maritime transportation services is a derived demand. Maritime freight markets in which cargo is transported by water are discussed in Chapter 6. These markets tend to be cyclical in nature because of the volatility in both the demand for and the supply of world shipping services. Variations in service demand reflect world economic activity and global trade and tend to be short-term in nature, while variations in service supply tend to be long-term in nature. Beyond vessel speed adjustments and lay-ups, adjustments in service supply tend to take longer. When shipbuilding capacity is scarce, it may take three to four years after a contract is signed for a new vessel to be built. Thus, prices for shipping services may fluctuate greatly because of adjustments to differences in demand and supply for these services, which results in volatile maritime freight markets. Maritime freight markets are dominated by east–west trade flows. This dominance has been strengthened by the importance of Asia and the increasing importance of interregional Asian trades. The fragmentation of geographical production processes has added intermediary products to these trade flows, especially since many of the production processes are outsourced to emerging markets in Asia and transition economies in Eastern Europe. Chapter 7 discusses intermodalism and new trade flows. Intermodalism is the trans-

GENERAL INTRODUCTION

portation of freight in an intermodal container or vehicle, using two or more modes of transportation. Before the 1950s, freight was packed in boxes, barrels and bags for transport by two or more modes from origin to destination. In the 1950s the introduction of containers provided for a more efficient intermodal transportation system, which, in turn, stimulated a significant growth in world trade – because of the lower rates and reduction in delivery times that ocean container transportation brought. Intermodal container transportation has also impacted trade routes; for example, rather than seaborne trade from Asia arriving at the US East Coast via the Panama Canal, an alternative land route to this all-water route came into being in April 1984, when container ships began calling at ports along the US West Coast to unload their containers for placement on doublestack trains for transport to the East Coast (a landbridge service). Data for new trade (cargo) flows into the US from foreign ports without a history of flows to the US are also analyzed. The analysis suggests that new trade flows are greater for exporting foreign countries which have relatively large amounts of hinterland transport infrastructure and whose foreign ports handle container cargoes. Further, the more developed a foreign port is from an intermodal perspective in providing new trade flows to the US, the greater the likelihood that it will grow and the smaller the likelihood that it will fail. Chapter 8 discusses the evolution of the cruise industry – water carriers that provide transportation, leisure and tourism services. In the early days of the industry it was often stated that passengers aboard cruise vessels were either just married or nearly dead. However, this is no longer true. Cruise pas-

5

sengers now are of all ages. Cruise lines seek to tailor their services to accommodate the wishes of their customers. Some old markets of cruise lines have reached saturation, e.g., the Alaska market. New markets in the Far East, the Middle East and Australia are experiencing explosive growth in new cruise business. Expedition tourism, targeting the affluent passenger, will continue to gain popularity. Remote destinations unspoiled by mass tourism that feature secluded and out-ofthe-way places, such as Antarctica and the many historic islands dotting the Pacific Ocean, are drawing cruise passengers. The inland-waterway cruise market in Europe is another growing market and is expected to experience double-digit growth in coming years. Small river-cruise vessels offer amenities far surpassing those of the average hotel and restaurant associated with typical bus tours. Chapter 9 describes the world’s ferry passenger markets and identifies the main characteristics of these markets. The world’s ferry industry transports almost as many passengers each year as the world’s airline industry. The services demanded by ferry passengers range from pure transportation to entertainment and sightseeing. From a supply perspective, ferry operators have a wide range of technologies from which to choose. There are a few ferry companies that provide ferry services far outside of their home region, but no ferry company provides global ferry services. The establishment of new ferry routes tends to be difficult, since access to marine terminals at the end points of these routes must be obtained. Ferry routes face limited intramodal competition, something which is evident from the fact that only a very few

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ferry routes in the world have more than two competitors. The majority of ferry routes are served by only one ferry company. In addition to passengers, ferries worldwide transport millions of cars and trailers each year. Chapter 10 discusses the world dry bulk shipping industry. In 2009 its fleet of ships had the largest carrying capacity of any shipping industry fleet, surpassing the tanker industry fleet. The dry bulk shipping market has experienced volatility over time. Sources of the volatility include external influences (such as changes in the economic geography of bulk trades and in the state of the world economy) and inherent dynamics (such as inter-firm competition and changes in the distribution of maritime activity among countries). The volatility in the market had reached new heights by late 2008. The magnitude of the decline in the market was historic. The chapter also focuses on the changing dynamics of the dry bulk shipping industry over time and the adaptation of the industry to globalized conditions. Shifts in geographical patterns, fleet characteristics and market traits are discussed. In the twentyfirst century, the market transformation of the dry bulk shipping industry will be affected by economic geography and the mechanics of shipping markets. Chapter 11 presents a discussion of the world liquid bulk shipping industry. Liquid bulk cargo is bulk cargo that is transported in tanks, into and out of which the cargo is pumped. The largest amounts of liquid bulk cargoes shipped are crude oil and oil products. Other categories of liquid bulk cargoes, for which the amounts shipped are much smaller, include: liquefied gas (LNG and LPG), vegetable oil and liquid chemicals. The liquid bulk shipping industry is vital for

the transportation of oil and its products from a limited number of oil-producing countries to the rest of the world. Liquid bulk cargoes represent one-third of the total volume of maritime cargoes. Although oil is transported over land by vast pipeline, specialized truck and specialized rail networks, the amount transported is small in relation to the amount transported by tanker vessels. The liquid bulk shipping industry has drawn worldwide attention for its vessel oil spills and potential spills. In order to reduce oil spills from tanker vessel accidents, many countries in the world are now requiring that by 2012 or 2015 tanker vessels must be double-hulled in order to enter their waters. Chapter 12 provides a comprehensive overview of current issues in the container shipping industry. Topics include market growth, the changing geography in container shipments, capacity management, the pricing problem in the container shipping industry, the search for scale and scope operations by container shipping lines, and evolving networks over which container shipping lines operate. Container ships transport a limited range of standardized containers: the twenty-foot equivalent unit (TEU) and the forty-foot equivalent unit (FEU). Slightly diverging container units include 45-foot containers, high-cube containers, and tank and opentop containers. The advantages and cost savings from container shipping include faster vessel turnaround times in ports, a reduction in cargo damages and the associated insurance fees, and integration with inland transportation modes, e.g., truck, barge and rail. With the advent of container shipping, globalization of intermodal transportation was established. Container shipping has been

GENERAL INTRODUCTION

instrumental in reshaping global supply chains, allowing multinationals to reshape their global sourcing strategies and develop global production networks. New supply chain practices, in turn, have placed stricter requirements on container shipping lines with respect to frequency, reliability and global coverage of service. Before 2009, container shipping lines operated in a market characterized by moderate to strong growth. Asian economies represent an ever-increasing share of global container volumes. Chapter 13 discusses business models and strategies for shipping. The shipping industry market is complex, dynamic and risky, which is attributable to its being fixedasset-intensive, having assets with long lifetimes and being exposed to volatile global flows in cargo and energy prices. Recent events, such as the significant decline in world trade, the dramatic decline in ship prices and the lack of available capital for the purchase of new ships, have accentuated the complex, dynamic and risky aspects of the shipping industry market. Emergent business models and strategies that may be beneficial to the shipping industry are presented in this chapter. The chapter reviews industry forces that are forcing changes in the business models and strategies of the shipping industry. Shipping business models and their relationships to shipping strategies are discussed. Four shipping industry business model archetypes that, taken together, capture the shipping industry are presented, as are competitive and cooperative strategies within these business model archetypes. The way changes in business models shape the transformation of the shipping industry and, in turn, shipping industry strategies is analyzed. Shipping industry strategies are tied

7

to the broader strategic management literature. Chapter 14 provides an overview of the primary international institutions and regulations for ensuring safe, clean and levelcompeting operating environments for international shipping. The concept of the freedom of the seas dates from the seventeenth century, when national shipping rights were restricted to a stated number of miles from a country’s coast. This freedom was established by the United Nations at the end of World War II via its Conference on the Law of the Sea. There have been three significant international conferences since the end of World War II that have shaped legal concerns associated with the sea. The 1982 United Nations Convention on the Law of the Sea established internal, territorial and archipelagic water limits, defined contiguous and exclusive economic zones, and described the legal regime governing the international navigation of the high seas. Areas of importance to international shipping are the right of innocent passage in territorial seas, criminal and civil jurisdiction on board ships and in relation to ships in territorial seas, rights of passage through straits used for international navigation, and freedom of the high seas. International shipping regulations have primarily been developed under the aegis of the United Nations International Maritime Organization (IMO). The responsibility of a flag state is to ensure that ships flying its flag are surveyed by a qualified surveyor and have on board appropriate charts and navigation equipment, and qualified masters and officers. The shipping industry has been subject over the last thirty years to various forms of corporate tax systems imposed by international governments. Chapter 15 analyzes

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the economic justification for a shipping corporate tax and its implications for the liquidity of the industry and its future investment decisions. The type of shipping corporate tax that has increasingly been adopted by countries (and more recently by European countries) is the tonnage tax. The consensus is that fiscal policies such as a shipping corporate tax that are directed at the shipping industry should consider their opportunity cost to the countries imposing the policies and to the shipping industry itself. The shipping industry has some unique features: (1) ships are mobile assets; (2) ships may be registered anywhere in the world; (3) the shipowner (or the shipowner’s representative) is free to choose among available registers, so that the level of ship taxation has become a determinant of register choice; and (4) a ship may be registered under a national flag or a flag of convenience (or an open register). Chapter 16 explores the market for seafarers and its specific characteristics. The chapter’s primary focus is on the supply of seafarers – their number, recruitment, retention, mobility and migration. Seafarers play a vital role in the water transportation of international trade. Numerous seafarer skills are required. Seafaring is one of the world’s oldest professions. It is undergoing considerable change from a technological perspective. The international seafaring labor force is segmented according to specific skills and educational levels, which provides an opportunity for seafarer labor discrimination. Specifically, this means that shipowners can segment seafarers by wage and working conditions. However, such discrimination has been tempered by the regulation of seafarer working conditions and by such organizations as the International Labour

Organization (ILO) and the International Transport Workers’ Federation (ITF). The efforts of these organizations have resulted in significant improvements in the working conditions of seafarers. Chapter 17 discusses vessel accidents – unintended happenings that may or may not result in damage to the vessel. The likelihood of a vessel sustaining damage in an accident is the product of two probabilities: (1) the probability of involvement in an accident (event probability) and (2) the probability of vessel damage given that an accident has occurred (damage conditional probability). The severity of vessel accidents varies from the loss of the vessel to an absence of vessel damage. This chapter also uses data from a US Coast Guard vessel accident database for 2001–8 to analyze the determinants of vessel damage severity in individual cargo vessels. Four types of vessel (freight barge, freight ship, tank barge and tanker) are considered in the investigation. The empirical results suggest that freight barge accidents have the highest probability of incurring vessel damage and total losses. Freight ships are expected to incur less vessel accident damage than freight barges, tank barges and tankers. Accidents at nighttime and involving older vessels are associated with greater vessel damage. Accidents involving larger vessels, occurring in spring or involving vessels with steel hulls are expected to result in less vessel damage than their alternatives. The policy implications of the results are that relevant vessel safety regulations should be modified or designed to improve the safety of freight barges, older vessels and nighttime navigation. Chapter 18 discusses the historical and geographical development of piracy in shipping. Contentious issues in defining piracy,

GENERAL INTRODUCTION

recent changes in the geography and modi operandi of piracy, and how poverty and political instability have been root causes of piracy are also discussed. Piracy is a landbased economic and socio-political problem that manifests itself at sea. Ship piracy has posed a threat to trade and shipping for millennia. Ancient accounts show piracy flourishing in the Eastern Mediterranean as early as four thousand years ago. In the 1970s, less than a century after its apparent demise, a number of attacks ushered in modern piracy. In 2009, a total of 406 piracy and armed robbery incidents were reported worldwide, a 40 percent increase on 2008. Within the last twelve years the sophistication and organization of attacks have increased and patterns and trends in location and armed robbery against ships worldwide have shifted. Today, piracy attacks against ships in the waters off Somalia, followed by demands for ransoms of millions of US dollars, have become common. In 2009 piracy attacks off Somalia represented 53 percent of all such attacks reported worldwide. Chapter 19 discusses the economics of ships – a broad subject area that encompasses, for example, ship design, shipping network design, ship markets, ship safety, ship security, and impacts of ships on the environment. The chapter focuses on selected aspects of the economics of ships and highlights a few related issues that are important today. Two important criteria governing the economics of ships are concerned with how to (1) optimize the economic performance of a ship and (2) incorporate risk into decision making in respect of the economics of ships. Incorporating risk into decision-making models should be of significant benefit

9

to shipowners in their decision-making practices. Ship costs may be categorized as capital costs, crew expenses, vessel expenses, cargo expenses, terminal handling charges, port charges and administrative expenses. An important decision variable in optimizing ship economic performance is ship speed. Ship speed is important in that it is the main determinant of fuel costs, a significant component of vessel expenses. Given the high degree of uncertainty in ship economic performance, ship risk management has become an important dimension of the economics of ships. Ship risk management addresses events that can influence expected ship cash flows. A discussion of the US equity capital markets as a source of finance for shipping companies – that is, for financing the acquisition of newly built vessels and the sale and purchase of second-hand vessels – is found in Chapter 20. The shipping industry is one of the world’s most capital-intensive industries, utilizing a wide array of capital sources for its finance. In addition to equity finance, shipping companies use mezzanine finance and debt finance. Sources of equity finance include the owner’s private equity, the company’s retained earnings, and public and private equity offerings. The main types of mezzanine finance include preference shares, warrants and convertibles. The types of debt finance utilized by shipping companies include bank loans, export finance, bond issues, public or private placements, and leasing. The chapter presents an overview of the US equity capital markets for shipping, possible reasons for public listing by shipping companies, and the advantages and disadvantages of such a decision. Also, an overview of trends in the issuance of shipping

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stocks in the US for the period 1987–2010 is provided. In addition, factors that may affect the pricing and long-run performance of shipping and key issues for investors and shipping companies in the US equity capital markets are discussed. Chapter 21 highlights the US high-yield bond market as a source of debt finance for shipping companies. The anatomy of the US shipping high-yield bond market and the market’s advantages and disadvantages are discussed. Further, the importance of credit ratings, the pricing of shipping high-yield bonds and the probability of their default are presented. The US high-yield bond market commenced in 1992 and in 1998/99 a number of shipping companies defaulted on their bonds, resulting in a sharp decline in volume activity for the next couple of years. However, the re-emergence of the US high-yield bond market that began in 2009 continues today. This market has become important to shipping companies as an alternative source of finance. Some of the advantages of the US high-yield market include a longer repayment horizon and the less strict covenants that a high-yield bond issue may entail. Investment banks have played an important role in the recent issuance of high-yield shipping bonds. While the 2009 statistics for syndicated bank finance show a substantial decrease in the overall annual volume of shipping syndicated loans, bank finance is expected to remain a major source of capital for shipping companies. In Chapter 22 the volatility in the prices of ships is discussed. Such volatility has long been a concern for shipping companies, shipyards and banks, because short-run fluctuations in ship prices have a significant impact on the profitability and viability of

these enterprises. Also, a reduction in the value of a ship may affect the shipowner’s creditworthiness and thus his ability to service the debt obligations of the ship. This chapter also examines the possibility of hedging ship price risk using forward freight agreements (FFAs). Specifically, a data set of dry bulk ship values and forward freight agreements for the same type of vessel is used to investigate the effectiveness of FFAs in hedging ship values. The results indicate that FFAs are indeed very effective for hedging ship price risk. For the Capesize ship market, the results indicate that hedging 85 percent of the value of a ship using FFA contracts would reduce the variability of one’s hedging position by as much as 86.5 percent. Chapter 23 discusses marine insurance – an efficient means of protecting investments in ships and their cargoes. A form of marine insurance that is used today was well established in Europe by the fourteenth century, the earliest known policy being issued in Genoa in 1347. Relatively sophisticated insurance markets – places where one could find many insurance underwriters and supporting services – were found in a number of North European cities (including Antwerp, Amsterdam, Hamburg and London) in the seventeenth century. Ship- and cargo owners (or their advisors) should read the clauses of marine insurance policies carefully in order to understand what is covered or excluded under these policies. Some policies are more comprehensive than others. When selecting an insurance policy, the insured should also have a good understanding of the insurance laws in the jurisdiction of the underwriting association. However, the major clauses of marine insurance policies have been converging, and the differences in insurance

GENERAL INTRODUCTION

coverage have become more subtle over time. Marine insurance may eventually become uniform worldwide, offering universally accepted coverage for both hull and cargo insurance. Chapter 24 presents a microeconomic theory of the port. A port is a place where cargoes and passengers are transferred to and from vessels and to and from shores and waterways. Ports are also nodes in transportation networks and thus are used by transportation carriers in the provision of transportation services. A port provides interchange services: for example, received cargoes and passengers are passed through to departing vessels and vehicles. The users of port services include shippers, passengers and transportation carriers, i.e., maritime and surface carriers (railroad and truck). The primary port service provider is the port (or terminal) operator. Port production functions relate the maximum amounts of interchange services that ports can provide, given the amounts of resources utilized and the amounts of cargo and the numbers of passengers, vessels and vehicles received by the port. A port’s operating options are the means by which it can differentiate the quality of its interchange services. A port’s resource function for a given resource relates the minimum amount of the resource to be employed by the port to the levels of its operating options and the amounts of cargo and numbers of passengers, vessels and vehicles received. The long-run total cost function for a multi-service port relates the minimum costs incurred by the port over the long run to the resource prices paid by the port, the levels of freight, passenger, vessel and vehicle interchange services provided by the port, and the amounts of cargo and numbers of passengers, vessels and

11

vehicles received by the port. Shippers, passengers and carriers incur two prices for port interchange service: shippers and passengers incur a money price that is charged by the port for the service and a time price related to their cargoes and themselves while in port. Chapter 25 discusses recent developments in port governance. The globalization of production and distribution, changing forms of cargo transportation and technological breakthroughs ended a long period of stable, state-controlled (government) port governance in most countries. Although government ownership of ports remains firmly entrenched in many countries, private management in the provision of port services has also been widely adopted. Port corporatization continues to be an acceptable governance option. Under port reform, ports have incurred difficulty in addressing issues with their hinterlands, such as congestion and infrastructure investment beyond the traditional boundaries of the port. In some cases, this has spurred interest in broader and more community-based governance models. A study of major international ports reveals the involvement of private interests in port terminal operations, a movement toward more effective and efficient management of ports, a trend for port authorities to go beyond their traditional functions, and recognition of the economic influences on ports. Chapter 26 focuses on the socioeconomics of port labor and the regulation of the port labor market that has been contested in ports worldwide. Conflicts on the waterfront have shaped the historical development of the port labor workforce. It is no coincidence that ports with the most effective forms of labor market regulation also

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have the lowest strike incidence. The transition from port casualism to containerization to commercialization has been marked by port labor conflict and dissension among port management, labor, government and third parties (e.g. local communities, direct customers and wider business interests) affected by port activities. The chapter describes how employment agreements negotiated under port technological advancements of containerization have transformed the casual system of port labor employment. Some ports have adapted their labor market far more effectively than others to the challenges of containerization and the modern-day demands of the port customer. However, conflicts between port labor (and its trade unions) and port management still remain. Port management seeks to minimize labor conflicts in order to avoid disruption to shipping and to various value-added services that it provides to its customers. Chapter 27 discusses competition among and the competitiveness of container ports. Definitions of and approaches to the analysis of container port competition and competitiveness are presented. Container ports are in a better position to compete with neighboring container ports if they have modern infrastructures supported by competitive and reliable transportation services and serve as collection and distribution points for hinterlands that extend far beyond their traditional boundaries. Ports that lose ship calls will experience a decline in connectivity, choice of service providers and container throughput. The negative impact will also affect other ports that have complementary services with the port. A methodology is presented for analyzing inter-container port competition and competitiveness of container ports along

the Malacca Strait, the Pearl River Delta and the Antwerp–Hamburg range. It is demonstrated that the configuration of container shipping line services has a direct effect on inter-container port competition. The decision by a container shipping line to switch port calls from one port to another can lead to significant economic and commercial ramifications for both ports. Container ports that are less flexible in accommodating the needs of shipping lines may be circumvented, while ports that are able to accommodate, complement and add value to the port calls of container shipping lines will be preferred. Chapter 28 discusses port performance. Significant gains in productivity by ocean transportation over recent decades have left ports as the last remaining component for improving the efficiency of maritime logistics chains. Since improvements in the efficiency of a country’s ports are likely to reduce its export cargo prices, thereby making the country’s export products more competitive in global markets, governments are increasingly recognizing the importance of improving the efficiency of their ports for the economic well-being of their countries. In many parts of the world, governments have taken action, either direct or indirect, to improve port performance, for example by installing labor-saving cargohandling equipment, promoting improvements in port labor productivity, simplifying customs procedures, promoting greater use of information technology and commercializing port management. The literature suggests that private sector participation in port operations enhances port performance and thus port productivity. This chapter extends the literature by investigating the impact of private sector participation on the operations of ports in

GENERAL INTRODUCTION

the Eastern Mediterranean region, with particular emphasis on the ports of Turkey. Turkey has recently adopted a policy of partial port devolution, including some privatization. The results of the investigation suggest that Turkey’s private container port sector is outperforming its public container port sector in terms of efficiency in the provision of services to customers, thereby providing some justification for Turkey seeking to apply port privatization to its remaining public container ports. Chapter 29 discusses port choice by shipping lines and shippers as well as the effects of logistics and supply chain management decisions on port choice. Port choice by shipping lines is critical to determining whether shipping lines can realize their operational, service and financial performance goals. A key issue is how the different structural characteristics of shipping lines affect their port choice decisions. For the ports themselves, their selection by shipping lines and shippers directly impacts their performance and viability. Where intense port competition exists and in order to have sustainable port competitiveness, it is important for port mangers to have a thorough understanding of the factors that influence the selection of their ports by shipping lines and shippers. Ports play an important role in facilitating the logistics and supply chain management objectives of their shipping line and shipper users. In order to do so, ports must evolve beyond their traditional functions of moving cargo to and from ships, trucks and railcars to become links in global logistics chains. Some shipping lines are more logistics- and supply chain management-oriented than others, for example those that have invested in their own port terminals, thereby requiring knowledge of how ports play a

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nodal role in supply chain management. With the gradual abolition of the conference system, shipping lines have come to realize that their competitiveness largely depends on creating customer value, and port choice has become critical in this respect. Chapter 30 presents a framework for making port investment and finance decisions. The most effective port investment option requires a port’s cargo transfer process to be considered as a set of interdependent links. An efficiency improvement in each link is then considered, and hence the efficiency of the total transfer process is enhanced. Furthermore, all links should be modified to obtain a chain of mutually balanced link capacities so that problems related to port capacity bottlenecks are minimized. The selected investment option may address capacity expansion, improved services, and demand management measures leading to an improved utilization of existing facilities (or combinations of these). A distinction should be made between public and private interests in making port investment decisions. Evaluating port investment from a public perspective requires that all related costs and benefits (direct and indirect) be considered in determining the optimum port investment decision. In contrast, the private perspective focuses on port competition and port hinterland connectivity in making port investment decisions. Chapter 31 discusses port clusters. A port cluster is a spatially concentrated group of firms of related industries for which one firm is a port; these firms are linked through vertical and horizontal relationships. The chapter discusses the relevance of applying the cluster concept to ports, as well as the port cluster concept as a tool for analyzing

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the impact of port cooperation and changing port governance structures on ports located in geographical proximity. Central to the port cluster concept is the recognition that interdependent firms cluster together in port regions for purposes of coordination and resource sharing. The port cluster concept has been applied by the Chinese government in port planning and the Korean Maritime Institute in developing logistics clusters. Analyzing ports from the perspective of port clusters provides (1) new insights into determinants of port competitiveness, (2) additional measures of port performance, (3) insights into the role of the port in promoting activities among interdependent firms in its region, and (4) an alternative framework to that of port governance for describing the role of port authorities. A dominant firm such as a port authority may have a strong influence on the performance of a cluster. In many port clusters, the port authority or a terminal operator plays a crucial role in the success of the port cluster. Chapter 32 presents a discussion of port state control (PSC) – a regime of unannounced safety inspections on board foreign ships in ports or marine terminals by designated PSC authorities for the purpose of verifying the adherence of ships to international regulations related to ship manning, equipment, maintenance and operations. These regulations are found in the 1974 International Convention for the Safety of Life at Sea, the 1978 International Convention on Standards of Training, Certification and Watch Keeping for Seafarers, the 1973 International Convention for the Prevention of Pollution from Ships, the 1966 International Convention on Load Lines, the 1969 International Convention on Tonnage Measurement of Ships, the 1972 Conven-

tion on the International Regulations for Preventing Collisions at Sea and the 1976 Merchant Shipping Convention. PSC inspections provide information about factors such as vessel age, vessel type, classification society and vessel flag, which may predict the likelihood that a vessel will be found to be substandard. These factors are reflected in the target factors used by PSC regional memoranda of understanding (MoUs). This chapter describes these target factors and how vessel deficiencies detected during PSC inspections are corrected or recur over time. A data set of 42,071 vessels/ inspections carried out from 2002 to 2009 by 18 state members of the Indian Ocean MoU (IO-MoU) is used to determine factors that increase the likelihood of detecting vessel deficiencies in PSC inspections and the persistence of vessel deficiencies in subsequent PSC inspections over time. Chapter 33 is concerned with port security and counter-terrorism activities within the port’s domain that protect port facilities and coordinate security activities between the port and its users. It discusses the International Maritime Organization’s International Ship and Port Facility Security (ISPS) Code, the major international port security regulatory code, and examines the challenges faced by ports in the implementation of this Code. For the latter, cases studies of port security at Hong Kong in Asia and Piraeus in Europe are used. In Hong Kong, port security is not widely regarded as an important port issue, as revealed by the fact that port security managers hold junior positions. The core rationale of port security compliance by major stakeholders of the Port of Hong Kong appears to be one of avoiding potential economic consequences from non-compliance (e.g., losing US trade). In contrast, the Port

GENERAL INTRODUCTION

of Piraeus has a strong security culture. It has implemented a stricter form of the ISPS Code, and cooperates with other ports on port security know-how and good practice. Chapter 34 addresses the effects of port security activities on the quality of port interchange services. Specifically, it addresses the question: Can improvements in the quality of port security service increase the quality of port interchange services? Although it is generally agreed that improvements in the quality of port security service such as one-hundred percent scanning can have a negative effect on the quality of port interchange services (for example by increasing port congestion), the question of a positive effect has not been investigated heretofore in the literature. Data for investigating whether improvements in the quality of port security

15

service can improve the quality of port interchange services were obtained from an e-questionnaire that was e-mailed to a database of container port operators. In the questionnaire, respondents were asked whether increases (or improvements) in container port security service would have a positive effect on the quality of container port interchange services. The results of the empirical analysis suggest that increases in the quality of port security service, via increases in the amount of throughput that is inspected and more frequent security inspection of entrance gates, departure gates and storage yards, will result in an improvement (i.e., a decrease) in port cargo theft. These results provide evidence that improvements in the quality of container port security service can result in improvements in the quality of container port interchange service.

2

The Evolution of Maritime Economics Trevor D. Heaver

2.1

Introduction

The history of ships, trade and related businesses is global, long and fascinating. It is important to note the relationship of this chapter to that history. First, the context here is dominantly European and reliant on English-language materials. Second, the time period studied is very short in relation to the history of ocean shipping but long in relation to the brief existence of maritime economics as a field. It is long because the history of the field reveals the distinctive characteristics of maritime industries which provide the general framework for studies of maritime economics.

2.2

The Foundations

Maritime economics as an explicit field of study is less than fifty years old. Goss (2002) notes that before 1960 there was “very little maritime economics” and Grammenos (2002a) notes that in the late 1960s there were only a few publications on maritime

economics. Yet the roots of the subject lie in the special challenges and risks of seaborne trade that go back to time immemorial. Three aspects of the special challenges and risks are evident in the history of shipping. They are: first, the technical or engineering, and therefore the pecuniary, challenges created by the need to make trade-offs among alternate ship designs; second, the difficulty of reaching contractual arrangements for shipping and trade that give rise to specialized market structures; and, third, the difficulty of managing the infrastructure and services provided at ports to serve the needs of trade efficiently. The challenges of travel by the seas and the oceans have given rise to many specializations in human endeavor. Some of the challenges have ceased to be major matters; such is the case with navigation, because of technologies from chronometers in the eighteenth century to global positioning systems today. However, the development of more specialized, more sophisticated and larger ships has increased challenges for

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

THE EVOLUTION OF MARITIME ECONOMICS

private and public decision makers and contributed to the development of maritime economics. Building safe and efficient ships has remained a major challenge even though the engineering of ship design and shipbuilding has made great advances. The initial accumulation of knowledge and expertise in shipyards led to the development of naval architecture and marine engineering, especially with the advent of iron ships and the use of steam power. Reflecting this, the Royal Institution of Naval Architects (RINA) was formed in London in 1860 to “advance the art and science of ship design.”1 The Society of Naval Architects and Marine Engineers (SNAME) was formed in the US in 1893. The National Maritime Research Institute of Japan has its origin in 1916 and the Maritime Research Institute Netherlands was founded in 1926. The focus of these organizations was on technology. It was not until after World War II that the application of formal economic analysis to the selection of ships was encouraged. The reasons for this development are explored later. The second aspect of the marine challenge is the complexity and risks inherent in entering into contractual relationships for the conduct of trade and shipping businesses, which led to the development of specialized professionals. Ships and their cargoes are exposed to high and shared risks on the high seas while the parties entering into contractual arrangements are often far apart and from different cultures. Consequently, the roots of marine insurance and ship brokerage go back to the conduct of business in the coffee houses of London in the late seventeenth century. Lloyds of London for insurance and the Baltic Exchange for ship brokerage are now exam-

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ples of institutions around the world to facilitate global business. Various international organizations promote the development and acceptance of standard contracts. For example, the Baltic and International Maritime Council headquartered in Copenhagen has played a role in the acceptance of a number of standard charter parties and the International Chamber of Commerce based in Paris has issued the widely used Incoterms.2 Matters dealing with the insurance of ships and cargoes have stayed dominantly within the purview of insurance professionals and lawyers. They have not been subjects of study by maritime economists, although Goss (2003) argues that more attention from economists would have been beneficial. However, maritime economists have undertaken many studies of the businesses involving shipping finance and brokerage. The interests of economists in market behavior came to be reflected in studies of the near-perfectly competitive charter markets and of the cartelized liner markets. Developments in ships and the growth of trade have posed challenges for societies to provide suitable port facilities for the protection of ships, the handling of cargo and the movement of cargo to and from vessel berths. The challenges have magnified greatly over the last one hundred years, and especially over the last fifty years as ports have had to provide a wide array of specialized facilities and services for rapidly growing trade moving to and from greatly expanded hinterlands. The challenges have resulted in the development of new businesses, new port management structures and new approaches to logistics management to serve global supply chains.

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The special challenges have been approached differently by analysts as scientific methods and conditions of trade have evolved. A full appreciation of the development of maritime economics requires a brief review of developments up to World War II. This forms Section 2.3. After the war, there was a period of transition during which studies that warrant recognition as maritime economics were published but maritime economics was still not recognized as a defined field of study. This period of transition is the subject of Section 2.4. The selection of a date for the recognition of maritime economics as a field of study is somewhat arbitrary, as many events and studies over more than a decade contributed to its evolution, but we can settle on 1973, the first year of publication of the journal Maritime Studies and Management, changed in 1976 to Maritime Policy and Management (MPM) to reflect the public and private sector readership. The publication of the journal is indicative of a wide interest in the study of maritime issues. The chapter concludes with a review of the development of maritime economics since 1973. As a result of the various themes to be considered during the periods, developments are not always presented in chronological order.

2.3 Approaches to Maritime Issues to World War II The approaches taken to maritime issues are considered in the light of the scientific methods and the characteristics of the shipping and trade conditions of the time. The limited role of economics is considered first. During the development of economics in the nineteenth century scant attention was

given to the role of transport. Although J. H. von Thünen had recognized the effect of transport costs on land values in his treatise The Isolated State of 1826 (Thünen 1966), economists generally ignored the spatial costs. This is in spite of the importance of changes in transport technology to the economy, as noted by Alfred Marshall: “The striking economic factor of our age is the revolution – not in production – but in transport” (quoted in Strømme Svendsen 1958). The revolution in transport was based on new technologies; canals, the railways with their steam power and, later, the iron steampowered ships. The new technologies were associated with great attention to engineering studies including comparisons among alternate designs needed for commercial decisions.3 Among those writing on choices among engineering designs, A. M. Wellington stands out and is regarded as the father of engineering economy, now also known as engineering economics. His The Economic Theory of Railway Location, first published in 1887, had its final printing in 1914. Nevertheless, the focus of engineers remained on the physical properties as reflected in the statement of Eugene Grant, a twentiethcentury leader in engineering economy, who said about his undergraduate education in engineering completed in 1917, “The amazing thing to me was that in all my undergraduate days, nobody had ever mentioned to me that it made any difference how much anything cost.”4 Technological innovation resulted in a decrease in ocean transport costs and an increased reliability in transit times. Reduced tariff barriers further enhanced opportunities for trade (Irwin 2002; Lundgren 1996). Concomitant with these changes, communications cables, first across the Atlantic in

THE EVOLUTION OF MARITIME ECONOMICS

1866, followed by a link between England and India in 1870, made it possible for business information to be exchanged quickly. Increase in the volume of trade and the greater complexity and sophistication of the associated businesses led to the establishment of the first true shipping bourse: the Baltic Mercantile and Shipping Exchange Ltd. established as a public company in 1900 (Cufley 1972).5 Developments required in ports were either considered as private commercial decisions, as in the London docks, or undertaken by public enterprises for the public good, as was the case for North Sea ports (Palmer 1990, 1993). In both situations, general expectations about the prospects of trade were the main guides to port development. The literature on shipping matters expanded greatly as a result of commercial and public interests. The weekly trade magazine for the maritime industry, Fairplay International Shipping Weekly, has been published continuously since 1883. The need for current data on shipping freight rates was provided by the publications of brokerage firms such as the annual of Angier Bros. and by the Daily Freight Register distributed to subscribers from 1893 (Isserlis 1938).6 Public interest in the shipping industry also increased as trade became more important.7 The contributions of shipping to the national balance of payments were of particular interest. In liner shipping, companies formed themselves into the cartels known as conferences whose practices became the subject of periodic investigations, starting with the British 1909 Royal Commission on Shipping Rings, and still not completely over. The early investigations into the case for and against anti-competitive practices of liner

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companies were dominated by the solicitation of views from shippers, shipping companies and others. Interest in the study of liner conferences by economists did not emerge until later. The first thorough analysis of the shipping markets was by Isserlis (1938), the statistician at the British Chamber of Shipping from 1920 to 1942. His analysis of rates from 1869 to 1936 was based on a carefully constructed rate index. In particular, Isserlis documented the volatility of rates in the tramp shipping market. His conclusion on the predictability of rates remains true today and for more than the shipping industry: “The fact remains that it is comparatively easy to find explanations for the various stages of a trade cycle that is past, and that it is impossible to predict correctly the occurrence of the successive phases of a cycle which is in progress, and still more so in the case of a cycle that has yet to commence.” Interest in economic cycles led Jan Tinbergen, whose early career was in mathematics and physics, to conduct empirical work on shipping markets: an examination of shipbuilding cycles in 1933 and an analysis to explain the course of freight rates in 1934. (The papers were originally in Dutch; they are available in English in Klaassen, Koyck and Witteveen 1959.) Koopmans (1939), also a mathematician and physicist, studied mathematical economics under Tinbergen, which may account for his analysis of the relationship between tanker rates and the level of tanker buildings.8 Koopmans’s Nobel prize was for his contributions to the theory of optimum allocation of resources. In part, this grew out of his work during World War II for the British Merchant Shipping Mission based in the US. His work involved allocating shipments

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between sources and destinations so that total cost would be minimized. The result was the development of the transportation problem as a special case of linear programming. Although the methodology has been invaluable to analysts, he did not make other contributions to maritime economics. However, his work illustrates the leap that could be made in scientific methods after World War II. The expansion of trade and shipping businesses gave rise to a greatly enlarged market for information on shipping. This resulted in books offering descriptions of trade and shipping practices. Writing in 1914 in England, Owen notes that segments of the maritime industry have long been “the subject of important treatises” but “the whole, collectively, have apparently never been dealt with at all” (Owen 1914: v). Owen primarily intended his book to be instructive to naval and military officers because of the importance of sea transport in wartime. Books with similar broad coverage appeared in the US, for example those by Hough (1924), based on materials prepared for LaSalle Extension University in 1914, Berglund (1931) and Bryan (1939), a book intended as a text for college students. Berglund notes the changes in shipping, which he characterizes as having “up-to-date business technique . . . with an outlook distinctly archaic” (1931: 2). In particular, liner shipping companies have been secretive. The development of specialized institutions is an important part of the development of fields of study. They reflect the importance of the related activities in society and they contribute to the development of bodies of knowledge. The establishment of RINA and SNAME was noted previously. The Chamber of Shipping in

London was established in 1878 when more than thirty regional shipowners’ associations came together. The Norwegian Shipowners’ Association was founded in 1909; the Association and its members were to play an important part in the encouragement of maritime studies. In the US, the American Association of Port Authorities (AAPA) was formed in 1912 when nationwide issues associated with port administration were emerging.

2.4 The Period of Transition, 1945–1973 The post-war years commenced the third, dramatic period of technological change in shipping and the unprecedented growth of world trade (Lundgren 1996). They also soon witnessed the further growth of institutions related to maritime matters and the much wider application of economics to transport issues. Evidence of these developments is presented before contributions to the maritime literature are reviewed. The increased volume of trade and the increased size of ships ushered in the era of much greater public attention to shipping. Concerns about ship safety led to an international conference in Geneva in 1948 and the formation of the Inter-Governmental Maritime Consultative Organization (IMCO), renamed the International Maritime Organization (IMO) in 1982. In 1964, the UN Conference on Trade and Development (UNCTAD) was established to promote the development-friendly integration of developing countries into the world economy. For a number of years, UNCTAD’s Committee on Shipping had a number of well-known economists on staff, including S. G. Sturmey, formerly of the

THE EVOLUTION OF MARITIME ECONOMICS

University of Lancaster. The 1969 publication on freight markets (UNCTAD Secretariat 1969) was a welcome economic description of freight markets and their rates. UNCTAD has published an annual Review of Maritime Transport since 1968, now under the authorship of the Trade Logistics Branch of the Division of Technology and Logistics. The World Bank was also interested in the influence of shipping on economic development, as reflected in the books of Bennathan and Walters (1969, 1979). The expansion of trade and the increase in the size of ships resulted in congestion and related issues in ports. The growth of issues for ports is reflected in the founding of the not-for-profit International Cargo Handling Co-ordination Association (ICHCA) in 1952. The International Association of Ports and Harbours (IAPH) was founded in 1955. The attention of economists was drawn increasingly to challenges in transport such as costing and pricing in light of the competition between road and rail transport. W. Arthur Lewis dealt with this in the first essay in his Overhead Costs (1949). Chapter 4 in that book is an insightful but little-known essay on the interrelations of shipping freights, including a framework for the analysis of inbound and outbound rates that has had surprisingly little recognition. Meyer, Peck, Stenason and Zwick (1959) was a response to issues raised by competition in land transport. Issues associated with needed investments in infrastructure led to applications of project appraisal to transport, for example Mohring and Harwitz (1962), and Foster and Beesley (1963). The interest also led to the formation of the US Transportation Research Forum in 1958 and the Canadian

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Transportation Research Forum in 1965. These fostered the international conference organized by the College of Europe, in Bruges in 1972, which laid the foundation for the triennial World Conference on Transport Research, which became a Society in 1986 in Vancouver, Canada. The increased interest in transport issues reflected by these developments supported the launching of the Journal of Transport Economics and Policy in 1967. The great growth and change in shipping and trade is reflected in the books by practitioners and academics. First, a number of books were written by those working or formerly working in the industry, for example, King (1956) on tankers, Bes (1963, 1965) on tanker shipping and on bulk carriers and Cufley (1962) on ship chartering. A notable text with contributions from many practitioners is McDowell and Gibbs (1954), which served a need arising from university courses developing in the US. The books from academic writers reflect the emerging academic interest in maritime matters shown by the establishment a number of teaching and research programs on transport (Metaxas 1983). Marx (1953) is an excellent study of the liner shipping conferences. Strømme Svendsen’s Sea Transport and Shipping Economics (1958) was important as the first economicsoriented text. A translation of lecture notes at the Norwegian School of Economics and Business Administration (NHH), Bergen, it approaches shipping economics as simply the application to sea transport of the same methods and analytic means that are used in the general study of economics. The book describes and sets out algebraically the relationships of various inputs with outputs for shipping and for ports. The book does not have data for numeric examples.

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Strømme Svendsen and NHH have continued as important contributors to maritime economics. The need for texts is evidenced by the publication of Branch (1964) and O’Loughlin (1967). Research was active at universities, and publications from theses made important contributions to the literature. Thorburn (1960) examines pricing for sectors of the shipping and port services markets under different demand and supply conditions. His aim was to assess the influence of distance by clarifying the effects of the characteristics of ships and ports on the supply of and demand for water transport. Thorburn’s book was the first, and arguably remains, the most comprehensive theoretical treatment of maritime economics. However, the author’s and the book’s influence on the field have been restricted by the book’s limited circulation and the fact that Thorburn, unlike Strømme Svendsen, did not work subsequently in maritime economics. Zannetos worked on his thesis at the Massachusetts Institute of Technology between 1956 and 1959 and reworked the material for publication in 1966. He sought to build on Koopmans’s work and to contribute to the development of a theory of oil tankship rates. Veenstra and De La Fosse (2006) demonstrate that Zannetos’s work has provided a foundation on which many others have built. The post-war importance of the maritime industries and the changing conditions of these industries in the UK and the US led to a number of industry studies. The industry studies reflect a growing interest in the economic efficiency of maritime industries and the factors contributing to it. The industries studied are the British shipbuilding industry (Parkinson 1960), the United States

merchant marine (Ferguson, Lerner, McGee et al. 1961), and British shipping (Sturmey 1962). Also reflecting the concern with the status of maritime affairs was the UK Committee of Inquiry into Shipping (Rochdale 1970), for which the economic advisor was Richard Goss. Journal publications in maritime economics related to the economics of ships, of shipping markets and of ports also became more common. The topics are dealt with in turn. The application of economics to the selection of ship design was the result of general advances in the application of engineering economy, as reflected in Grant and Ireson (1960) (Thuesen 2005). The application to ships was advanced significantly by Benford through papers on general and specific applications of engineering economy (Benford 1957, 1963, 1967). Goss (1965) notes that, before Benford, studies of alternate ship designs, as in the transactions of associations such as RINA and SNAME, lacked explicit criteria for comparing ship designs. Goss and Benford recommended similar economic methods. Continuing increases in the size of bulk ships led to greater interest in the differences in ship costs with size, in part because ports were being called upon to invest in new facilities for larger ships. The general absence of published cost information led to studies of actual bulk ship costs (Heaver 1968, 1970). A similar study was completed by Goss and Jones (1970) for the Board of Trade. The development of container shipping following the establishment of international standards for containers in 1966 initiated decades of major changes in liner shipping. The changes and challenges associated with container shipping have been major sub-

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jects of studies by maritime economists after 1973, for example, Gilman (1975) on vessel size, and Gilman and Williams (1976) on network structure in container shipping. Consistent with increased interest in the application of cost–benefit analysis to public investments, Goss presented the methodology for ports and the likely results in two papers (1967a, 1967b). The importance of ship time and costs in port was reflected in a United Nations study (1967) and in a study of the conditions affecting the actual time that bulk ships spent in port (Heaver and Studer 1972). Recognition of the important effects of the changes in shipping on ports is evident in two books. Bird (1971), one of a number of geographers who have made contributions to port economics, showed how the competitive relationships among ports and their relationships with hinterlands were being changed by developments in shipping and freight handling. The theme of integrated logistics systems through specialized terminals was given even more prominence by Johnson and Garnett (1971). They considered the effects of containerization in advancing door-to-door transport services and changing port competition. This period does not see much advance in the study of freight markets. The dominance of liner markets by conferences led to a number of papers examining the economic rationale and apparent effects of conferences, for example Abrahamsson (1968). Heaver (1972, 1973) examines empirically the effects of various factors on rates on selected routes to and from North America. The proceedings of a seminar in Bergen (Lorange and Norman 1973) contain papers designed to shed light on decision-making processes in shipping management for bulk

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and tank ships. They reflect the approaches of the time, with chapters on market and cost structure, including one by Zannetos, on uncertainty and risk, and on planning models. The papers are all conceptual. While this is consistent with the purpose of the seminar, it is also a reflection of the limitations on data availability and computing capability at the time. Drewry Shipping Consultants, founded in 1970, was one of the first firms to appreciate that the changes in the maritime industry were associated with value in shipping market data and economic analyses. Many shipbrokers that previously had made data available freely began to charge for their reports. A market for maritime data and intelligence existed and is well developed today.

2.5 Maritime Economics since 1973 Developments evident in the maritime industry during the period of transition have continued and have reshaped maritime economics. The same issues of ships, port connections and market behavior exist as in former periods, but in more complex environments, as reflected in widely diverse paper topics. The consequences of these developments are captured in the following three trends. First, the analysis of alternate ship designs has demanded increased attention not just to the string of vessels to be used in a particular service but to the role of new vessels in the context of fleets often parts of global route networks. Increased specialization has also occurred in ships to serve particular trades more efficiently. The results are more complex choices among more alternatives

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and a greater number of markets to which economic studies may be directed. Second, the importance of port and inland transport economics, as espoused by Thorburn (1960), has come to the fore as the design of vessels, ports and inland transport as systems with compatible handling features has become essential to achieving the required capacity and cost capabilities. The importance of the effective coordination of logistics systems, first evident in bulk systems with their specialized terminals and unit trains or pipelines, has extended to manufactured goods through containerization. Third, market structures have changed significantly, raising new issues. A new industry sector has evolved as a result of the privatization of many port functions, leading to the growth of terminal operating companies, some as parts of shipping companies. Also, the span of control of shipping companies has changed as mergers, acquisitions and internal growth have resulted in global shipping firms with significant logistics service capabilities within the corporate group. In addition, the economics of container shipping markets has been changed by the slow demise of shipping conferences under the pressure of increasingly competitive markets and in response to greater legislative restrictions.9 The characteristics of the industry result in many types of economic studies being conducted. Heaver (1993) grouped papers in journals into eleven topics. Pallis, Vitsounis and De Langen (2010), in a much more sophisticated content analysis of published research in port economics, policy and management, break papers into categories, for example terminal studies and port governance, and the categories into themes; for example, terminal studies

includes the themes of terminal efficiency and strategies of terminal operating companies. As this chapter deals with maritime economics as a whole, studies are first grouped by “segment,” for example studies related to the liner market as distinct from the bulk shipping market. Within the segments, “categories” and “themes” could be recognized, but this is not done systematically here. For the period from 1960 to 1987, Heaver (1993) identified 69 articles on maritime economic topics that had appeared in eight of 42 economics journals. This excluded articles that appeared from 1973 to 1987 in MPM, a total of 309 articles. The review by Pallis, Vitsounis and De Langen (2010) of 51 economic and non-economic journals for the period 1997–2008 found 395 articles related just to ports. It may be safely inferred that the amount of research and writing on maritime economics has increased significantly. It has been sufficient to support publication of a second specialized journal since 1999: the International Journal of Maritime Economics became Maritime Economics and Logistics (MEL) in 2003. While the addition of a second specialized journal would itself induce more research to be published, a number of other factors have resulted in an increase in maritime economics research. Five factors warrant recognition. First, the growth of shipping has continued as the expansion of international trade has outstripped national economic growth. A major contributor has been the development of containerization, which has reshaped the structure of liner shipping and reduced logistics costs. Containerization has contributed significantly to the wide recognition of globalization as a major force in the world economy.10 Second, there

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has been an increase in the number of universities offering maritime studies, especially for graduate students, which has more than compensated for the reduced visibility of maritime courses in some existing programs now structured around logistics or supply chain management studies. The growth of a literature base for such programs in texts and their equivalent (of which this book is now one) is the third important factor in the growth of maritime economics studies. Fourth, the data, tools and concepts available for the study of issues in maritime economics and in other fields have contributed to the greater quantity and sophistication of research. Fifth, the progress of maritime economics has been improved immeasurably by the formation of the International Association of Maritime Economists (IAME) in 1992. The importance of IAME warrants a brief review of its formation, as it was a process that took several years.11 In 1976, Strømme Svendsen noted that one purpose of the first International Maritime Economists Conference in Piraeus was to consider “a more formal way of organizing maritime economists in the world” (Goulielmos 1976: 167). A committee was established to help organize an international maritime economists group, but meetings continued to be ad hoc and dominantly involved economists from Europe with representatives from national institutions such as the Japan Maritime Research Institute ( JAMRI). After 1986, the World Conference on Transport Research Society (WCTRS) encouraged a maritime special interest group. Following a 1991 conference in Rotterdam which concluded that shipping “justified the recognition of a special, albeit catholic, academic and intellectual focus” (Gwilliam 1993), IAME held

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its inaugural meeting in 1992 as a part of that year’s WCTRS meeting. Subsequently, IAME has contributed greatly to the field of maritime economics by facilitating communication through its annual meetings and distribution of its associated journals, MPM and MEL. It is appropriate here to examine the broad nature of the changes in publications and in the orientation of research, without delving into details that may be included in later chapters. Papers appearing in MPM and MEL 2000–9 are examined. The 458 papers are placed into one of 13 segments plus an “other” segment (Table 2.1). A formal comparison with the “topics” identified in Heaver (1993) is not attempted because of qualitative differences. However, differences between the new and old groupings are noted. The most obvious change is the presence of new segments on the environment, safety and security, short-sea shipping, and intermodal and logistics. Surprisingly few papers (nine, or 2%) relate to environmental issues associated with maritime activities. Papers on safety and security are more numerous (37, or 8.1%). They include papers that examine the effects of measures to improve safety and security, for example the US Maritime Transportation Security Act, and papers that examine the causes of casualties and methods by which they might be reduced. The third added segment is on short-sea shipping. The public interest in the use of short-sea shipping accounts for a number of papers to support recognition as a segment (18, or 3.9%). The final added segment, on intermodal transport and logistics (40, or 8.7%), warrants a brief review. Although it can be argued, as Thorburn (1960) did, that shippers have always been

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Table 2.1 Segmentation profile of research 1982–1991a

Segment Number Environment Safety and security Short-sea shipping Intermodal and logistics Port Liner market Dry and tanker market Finance Policy Management Labor Passenger and ferry Shipbuilding Other Total a b

– – – – 68 28 6 5 25 10 13 4 15 27 201

2000–2009b

Percentage

Number

Percentage

33.8 13.9 3.0 2.5 12.4 5.0 6.5 2.0 7.5 13.4 100

9 37 18 40 125 44 35 16 43 41 20 8 8 14 458

2.0 8.1 3.9 8.7 27.3 9.6 7.6 3.5 9.4 9.0 4.4 1.7 1.7 3.1 100.0

Data from Maritime Policy and Management, 1982–91, in Heaver (1993). Data from Maritime Policy and Management and Maritime Economics and Logistics, 2000–9.

concerned with the total cost and service of moving goods between origins and destinations, critical attention to the design and operation of international transport services to achieve a well-coordinated service is a phenomenon only of the last forty years. It has evolved with the development of new international trades in commodities such as coal and with the growth of containerization. It has had implications for freight forwarders, inland carriers, port enterprises, shipping lines and, of course, shippers. The attention to better coordination of services in logistics means that research may relate to one or more of the other segments of research, such as ports or liner economics. Pallis, Vitsounis and De Langen (2010) identify 56 papers in the category of “ports in transport and supply chains.” However, for this examination of all maritime economics

research, intermodal and logistics papers are recognized as a separate segment of maritime economics research. Two conclusions of Pallis, Vitsounis and De Langen (2010) on the papers they reviewed are appropriate here. First, the papers relate to container flows in general without differentiation by commodities. The point can also be made that studies have ignored bulk commodity flows, perhaps because coordination has been achieved effectively except where congestion affects operations. Second, the papers have a strong descriptive element, which led Panayides (2006a) to advance the shift evident in research methodology to test empirically the effectiveness of selected attributes in measuring the level of integration in supply chains. These conclusions have relevance for other segments.

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The port segment has papers that reflect the need for greater coordination among port activities and the increase of competition among logistics chains and, therefore, among ports. There are four results from this. First, the port segment is by far the largest segment of papers (125, or 27.3%). Second, a theme of several papers is assessment of port attributes that affect the attractiveness of their services to shippers and shipping lines (Nir, Lin and Liang 2003). These studies use data collected through stated and revealed preference methods and apply various analytic methods to examine the data. Third, the studies apply to a wide array of ports beyond Europe and North America, for example Saeed (2009) for Pakistan, Wu, Yan and Liu (2009) for Asian ports, and Lirn, Thanopoulou, Beynon and Beresford (2004) on a global scale. Fourth, the interest in competitiveness has been associated with assessments of port efficiency and performance, increasingly using quantitative methods, for example Park and De’s (2004) analysis of Korean ports. The port papers also reflect the radical shift in port policies to greater reliance on market forces, with private financing and operation of terminals. Research into governance models is reflected in Brooks and Pallis (2008), while tendering and concession agreements are prominent in Pallis, Notteboom and De Langen (2008) and Brooks and Cullinane (2007). Port pricing continues to attract periodic research, in part because prices generally deviate significantly from an efficient level according to economic theory (Heggie 1974; Haralambides 2002). The literature on liner shipping (44, or 9.6%) is still a distinct segment of the literature, but it has undergone some significant changes. The slow demise of the confer-

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ence system has meant that conference pricing (Shneerson 1976) has given way to reliance on confidential contracts (Gardner, Marlow and Nair 2002). The new pricing regime has not yet attracted much research, although Sánchez, Hoffmann, Micco et al. (2003) and Wilmsmeier and Hoffmann (2008) examine the effects of route attributes on rates. The fundamental issues of liner service optimization for ship size and network structure ( Jansson and Shneerson 1987) remain, although ships are now larger and networks more extensive (Gilman 1975, 1999). The importance of service levels now commands more attention (Notteboom 2006) and greater attention is given to network methodologies (Song, Zhang, Carter et al. 2005). A growing feature of liner shipping since 1970 has been the extension of ownership by lines into logistics and port operations, which has raised issues for the strategies of the lines and others in the supply chain (Heaver, Meersman, Moglia and Van de Voorde 2000; Panayides 2006b; Song and Panyides 2008). The papers on the dry bulk and tanker markets (35, or 7.6%) are placed in a single segment even though the substitutability of ships between the markets has diminished. The number of papers in these journals is significant but not substantial. It belies the importance of the area because of many publications in other journals and in business journals and consulting reports. The segment appears to be more prominent today than previously. The research provides a better understanding of the market dynamics, including the changing relationship among market segments. A feature of the research is the greater use of modeling, as reflected in Glen (2006). There has been continuity from earlier works (Veenstra and De La Fosse 2006), with

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notable contributions in books – Shimojo 1979 and Beenstock and Vergottis 1993, the latter based on four articles. Also of note is the continuity of modeling-based research for charter markets at NHH in Norway (Norman and Wergeland 1981; Strandenes 1986, 1999). Research into the charter markets is closely related to research on financial issues in shipping, in part because financial risks are closely tied to market volatility. There has been an increase in finance-related research (16, or 3.5%) but, again, papers are found in a wide array of journals. The research has contributed to and benefited from the increased interest of banks in financing ships and the improved range of hedging strategies available. The leader in this research, through his own work and through encouraging others, is Costas Grammenos (2002b). The development of instruments for hedging in shipping and the increase in the number of public shipping companies is reflected in the research of, for example, Merikas, Gounopoulos and Nounis (2009) and Kavussanos and Visvikisz (2006). The policy papers (43, or 9.4%) include works on shipping and ports. The appearance of a number of papers on port policy reflects issues associated with privatization and the harmonization of policies among governments, particularly in the EU (Verhoeven 2009). Issues concerning the effects of government policies on the competitiveness of ports and flag shipping remain the dominant theme. The remaining segments of the research make important but eclectic contributions. The largest of the segments is management and corporate organization (41, or 9.0%); the papers deal with research related to shipping, ports and logistics topics. The

labor segment is also significant (20, or 4.4%), with the role of crewing and management in safety and security contributing to the number of papers. The segment on passenger and ferry services (8, or 1.7%) is also diverse; it includes papers on the cruise industry and ferries. The papers on ferries relate to an aspect of short-sea services, but with an emphasis on passengers, not freight. The shipbuilding segment also includes a variety of subjects, some papers, for example Dikos (2004), relating shipbuilding cycles to those of charter markets. It is appropriate to conclude this characterization of the segments of maritime research with two observations. First, the research of maritime economists remains diverse. Second, subdivisions of the field can be useful, because of the need to reflect the purpose for which they are made, but, at the margin, the classification of work in one compartment or another is arbitrary.

2.6

Summary

The current state of maritime economics is far removed from its historic roots. The maritime industries have become more complex and sophisticated, supported by commercial and consulting businesses that bear little resemblance to their forebears. Yet, the core of the field remains the choice of ships, the analysis of shipping markets and the interconnections of shipping through ports with supply chains. The quantity and quality of research is now higher than ever before, supported by numerous university programs with excellent journals, texts and related readings available, to say nothing of the information on the internet. The improved availability of data and the application of new analytic

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methods have contributed to more insightful empirical analyses, with contributions to theory as well as to practice. Finally, participation in maritime economics has become truly global in both the residency of participants and the locus of studies. There is good sailing ahead!

Notes 1

This is 200 years after the founding of the Royal Society (350 years old in 2010!) but only 13 years after Fellows began to be elected solely on the merit of their scientific work. 2 Incoterms are a series of international sales terms, published by the International Chamber of Commerce, widely used in international commercial transactions because they help traders avoid misunderstandings by clarifying the costs, risks and responsibilities of both buyers and sellers. 3 John Grantham, a founding member of RINA, writing in 1859 on iron shipbuilding included a chapter headed “Iron vessels considered as a commercial question.” Among the eight subjects covered were capacity, speed and cost; on all subjects Grantham concludes “iron vessels [are] . . . superior to wooden vessels” (McCarthy 1988). 4 Quoted in a Memorial Resolution to Eugene L. Grant. http://histsoc.stanford. edu/pdfmem/GrantE.pdf (accessed January 20, 2010). 5 The late twentieth-century improvements in communications technologies have meant that individual locations such as the Baltic Exchange no longer play a significant role in the fixing (chartering) of ships. 6 Published and printed by John Jones; the British Library Newspapers holds copies from 1897 to 1980. 7 Isserlis (1938) notes that a 1903 Memorandum VIII of the British Board of

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Trade to Parliament was on “The Course of Ocean Freights during the Past Twenty Years,” a subject warranting attention because of the importance of rates to “many questions relating to foreign trade . . . and the entire lack of existing data on the subject.” 8 Tinbergen (with R. Frisch) and Koopmans (with L. V. Kantorovich) went on to win the Nobel Prize in Economics in 1969 and 1975 respectively. 9 The regulation of conferences is national. The first significant step toward requiring greater competition under a conference regime was in the US Ocean Shipping Act, 1980. The final step of disallowing price fixing by a country was achieved by the European Union, effective October 2008; see IP/05/1586 and MEMO/05/480, adopted by the European Commission December 14, 2005. 10 Interestingly, one result has been the common use of the Baltic Dry Index as an indicator of the state of the world economy. 11 The term “maritime economics” had been adopted in the 1960s by an informal discussion group in London. The title was the suggestion of Eric Price, Chief Economist of the London Port Authority, to reflect the group’s interests in ports as well as ships (Goss 2002).

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Palmer, S. (1990) Book review of Akveld, L. M. and Bruijn, J. R. (eds.) Shipping Companies and Port Authorities in the Nineteenth and Twentieth Centuries: Their Common Interests in the Development of Port Facilities. The Hague: Nederlandse Vereniging voor Zeegeschiedenis, 1989. International Journal of Maritime History 2(2): 266–9. Palmer, S. (2003) Port economics in an historical context: the nineteenth century Port of London. International Journal of Maritime History 15(1): 27–67. Panayides, P. M. (2006a) Maritime policy, management and research: role and potential. Maritime Policy and Management 33(2): 95–105. Panayides, P. M. (2006b) Maritime logistics and global supply chains: towards a research agenda. Maritime Economics and Logistics 8(1): 3–18. Park, R. K. and P. De (2004) An alternative approach to efficiency measurement of seaports. Maritime Economics and Logistics 6(1): 53–69. Parkinson, J. R. (1960) The Economics of Shipbuilding in the United Kingdom. Cambridge: Cambridge University Press. Rochdale, The Rt. Hon. the Viscount (chair) (1970) Report of the Committee of Inquiry into Shipping. London: HMSO. Saeed, N. (2009) An analysis of carriers’ selection criteria when choosing container terminals in Pakistan. Maritime Economics and Logistics 11(3): 270–88. Sánchez, R. J., J. Hoffmann, A. Micco, G. V. Pizzolitto, M. Sgut and G. Wilmsmeier (2003) Port efficiency and international trade: port efficiency as a determinant of maritime transport costs. Maritime Economics and Logistics 5(2): 199–218. Shimojo, T. (1979) Economic analysis of shipping freights. Kobe Economic & Business Research Series 7. Research Institute for Economics and Business Administration, Kobe University. Shneerson, D. (1976) The structure of liner freight rates: a comparative route study.

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Journal of Transport Economics and Policy 10(1): 52–67. Song, D.-P., J. Zhang, J. Carter, T. Field, J. Marshall, J. Polak, K. Schumacher, P. SinhaRay and J. Woods (2005) On cost-efficiency of the global container shipping network. Maritime Policy and Management 32(1): 15–30. Song, D.-W. and Panayides, P. M. (2008) Global supply chain and port/terminal: integration and competitiveness. Maritime Policy and Management 35(1): 73–87. Strandenes, S. P. (1986) Norship: a simulation model of markets in bulk shipping. Discussion paper 11. Bergen: Norwegian School of Economics and Business Administration. Strandenes, S. P. (1999) Is there potential for a two-tier tanker market? Maritime Policy and Management 26(3): 249–64. Strømme Svendsen, A. (1958) Sea Transport and Shipping Economics. Bremen: Institute for Shipping Research. (Editor for Contributions in International Shipping Research, Gustav A Theel). Sturmey, S. G. (1962) British Shipping and World Competition. London: Athlone Press. Thorburn, T. (1960) Supply and Demand of Water Transport. Stockholm: Business Research Institute, Stockholm School of Economics. Thuesen, G. (2005) A fifty-year editorial history of The Engineering Economist. Engineering Economist 50(1): 17–23. Thünen, J. H. von (1966) Isolated State: An English Edition of Der isolierte Staat (trans. C. M.

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Wartenberg). Oxford: Pergamon Press. (Original published 1826.) UNCTAD Secretariat (1969) Level and Structure of Freight Rates, Conference Practices and Adequacy of Shipping Services. TD/B/C.4/38/ Rev.1. New York: United Nations. United Nations (1967) The Turn-around Time of Ships in Port. ST/ECA/67. New York: United Nations. Veenstra, A. W. and S. De La Fosse (2006) Contributions to maritime economics: Zennon S. Zannetos, the theory of oil tankship rates. Maritime Policy and Management 33(1): 61–73. Verhoeven, P. (2009) European ports policy: meeting contemporary governance challenges. Maritime Policy and Management 36(1): 79–101. Wellington, A. M. (1887) The Economic Theory of the Location of Railways. New York: John Wiley & Sons. (Sixth edition 1914.) Wilmsmeier, G. and J. Hoffmann (2008) Liner shipping connectivity and port infrastructure as determinants of freight rates in the Caribbean. Maritime Economics and Logistics 10(1): 130–51. Wu, J., H. Yan and J. Liu (2009) Groups in DEA based cross-evaluation: an application to Asian container ports. Maritime Policy and Management 36(6): 545–58. Zannetos, Z. S. (1966) The Theory of Tankship Rates: An Economic Analysis of Tankship Operations. Cambridge, MA: MIT Press.

3

The Business of Shipping: An Historical Perspective Ingo Heidbrink

3.1

Introduction

Shipping is without any doubt the oldest transportation method for larger quantities of any cargo. From prehistoric times, human beings living along coastlines, rivers or lakes have used various watercraft for the transportation of their goods, as the waterways provided natural corridors that could be used for the transportation of larger quantities without complex engineering activities. While early use of watercraft often happened in conjunction with primary production and was done by the same entrepreneurs as the primary production itself, the business of shipping started with the separation of the transportation industry from the primary and secondary production, and to a certain degree from the trade. This development did not occur contemporaneously worldwide, but followed the patterns of development from primitive to developed societies all over the globe in the respective time frames. For example, the ancient cultures of

Mesopotamia, Egypt, Greece and Rome, as well as early developed Asian cultures, definitely knew a business of shipping, while much younger cultures in Northern Europe, the Americas or Africa did not develop such a business independently of primary and secondary production for a long time. From a theoretical point of view the historical emergence of the business of shipping is characterized by the following: •

use, to a certain extent, of specialized watercraft for cargo transportation, rather than of all-purpose vessels for occasional cargo transportation; • owners and operators of such vessels that focus their activities mainly on shipping, rather than on operating ships only in conjunction with other activities; • crews of the vessels that are primarily seamen for at least some part of the year; • trade routes that are used regularly and not only once or occasionally.

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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The most important point of these characteristics seems to be the development of specialized cargo vessels instead of allpurpose watercraft. Such cargo vessels normally had a large cargo capacity in relation to their total size, required only a small crew in comparison with naval vessels, used less sophisticated sailing or propulsion technology, and generally required less investment.

3.2 The Business of Shipping: Up to the Medieval Period A typical ancient Roman cargo vessel of the Mediterranean had a length between 15 and 37 meters, giving a cargo capacity of 100 to 150 tons (Greene 1986), while some of the state-owned grain transport ships already reached capacities of more than a thousand tons. The state-owned grain transporters can be categorized without any doubt as cargo vessels; nevertheless they are not really a part of the development of the business of shipping, as their development and operation were by no means governed by a market but by direct political control. Much later the same pattern can be found in many other seafaring cultures, for example the Scandinavian Vikings. The ocean-going trader Skuldelev I, an archaeological find in Denmark, had a total length of 16.3 meters and a breadth of 4.6 meters, while Skudelev II, a longship used for naval purposes, had a length of 28 meters and a breadth of only 4.5 meters (GrahamCampbell 2001). Skuldelev I required an estimated crew of only twelve sailors, while the crew estimate for Skuldelev II is fifty to sixty (Graham-Campbell 2001). While for a naval vessel speed was generally an important issue, for most cargoes of pre-modern

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shipping speed mattered less than transportation costs, as there was hardly any competition with other transportation carriers for long-distance trade. The general patterns that characterized ocean-going trade also determined riverine traffic, although the maximum size of vessels here was mainly determined by the navigation conditions of the rivers. In addition land transport was, at least to a certain degree, an alternative to cargo shipping, although without an established road system inland waterway navigation continued for a long period as the only transportation system with the capacity to carry greater volumes or weights (Teubert 1912). As outlined above, the business of shipping started principally in prehistoric or at least ancient times, but today’s shipping business has its roots mainly in the medieval European shipping of the Hanseatic League and, more important, in development since the Age of Exploration.

3.3 The Business of Shipping: the Medieval Period The Hanseatic League, an empire of merchant guilds and merchant cities that spanned the whole of the north of Europe and reached out to Iceland and the Atlantic coasts mainly between the twelfth and fifteenth centuries, based its commercial and political dominance on the superiority of maritime trade. Merchants from all around the Baltic and the North Sea traded salt, herring, timber, furs, tar, flax, honey, beer, dried cod, metal ore (copper and iron), grain and, increasingly, manufactured goods like rolls of cloth (Dollinger 1970). The most important factor of Hanseatic shipping for the development of a business of

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shipping was the development as the main type of ocean-going cargo vessel of the Hanseatic cog, a multi-purpose cargo ship which can be classified as the box ship of the medieval period (Kiedel, Schnall and Ellmers 1985). A typical Hanseatic cog of the fourteenth century had a total length of up to 30 meters, a single mast and a cargo capacity of 40–100 Last (= ca. 80–200 tons), and could be used as a multi-purpose cargo vessel. Although Hanseatic cogs were used as naval vessels during the various maritime conflicts of the medieval period, most cogs were owned by private merchants and used for trade only. Beside the building up of a fleet of cargo vessels, the Hanseatic shipping business was characterized by the establishment of major Kontore with port facilities all over Europe (Bryggen in Bergen, Steelyard in London, Hansekontor in Brugge and the Hansekontor in Novgorod), in addition to a widespread network of warehouses which could be used by Hanseatic merchants, for example in Boston, Bristol, Bishop’s Lynn, Hull, Ipswich, Norwich, Yarmouth and York, to name only those in England (Dollinger 1970). A high level of cooperation between the individual shipowners and merchants, at least with respect to the actual shipping operations, was typical of the Hanseatic trade, as is shown by the introduction of convoy shipping, especially during periods of war or increased pirate activities in the Baltic and the North Sea at the end of the fourteenth century (Meier 2006). However, the medieval shipping business of Hanseatic merchants was different to most modern shipping businesses in that shipping and trade were not completely separated, but the cargo ships were owned and operated

by the merchants rather than by independent companies specializing solely in the transportation of cargo. In addition, the Hanseatic trade did not adopt the method of negotiable instruments/promissory notes for financial transactions, but stuck to the old-fashioned exchange of cash. This finally contributed to the decline of the trade empire in the sixteenth century (Dollinger 1970), which directly proves that even in historical periods financial instruments have been of vital relevance to the development of the business of shipping. A great deal of knowledge about this particularly important period for the development of shipping was gathered as a consequence of wreck finds of Hanseatic cogs since the 1960s. Especially the Bremen cog, today preserved at the German Maritime Museum in Bremerhaven, clearly showed that merchant vessels, which were the backbone of the shipping business, were by no means at the cutting edge of contemporary technological development, but used standard technology and even comparatively cheap materials. For example, some of the timber used to build this particular vessel is of mediocre quality at best (Kiedel, Schnall and Ellmers 1985). Nevertheless, the cogs were reliable carriers of nearly all kinds of cargo throughout the operational area of the Hanseatic League, which was mainly limited to the North Sea and the Baltic, and for nearly three centuries served as the main ship type for the shipping business.

3.4 The Age of Exploration and the Early Modern Period Only the Age of Exploration finally brought the breakthrough for a globally oriented

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shipping business. The exploration since the late fifteenth century of new parts of the globe, especially the Americas, would have made no sense without a parallel development of the shipping industry. While there was of course a strong political colonial element in the exploration and exploitation of the New World, that it was mainly a commercial endeavor should not be overlooked (Benjamin 2009). Such exploitation of the resources of the newly explored areas of the globe only became possible in conjunction with the development of a shipping business which could provide a reliable permanent connection between the old and new worlds. While state-owned companies like the British East India Company used highly sophisticated armed vessels which often carried nearly as much armament as naval vessels, the average cargo ship was of much simpler design and much more flexible in its operational area. In particular the Dutchstyle Fleute became the most important cargo vessel between the sixteenth and eighteenth centuries (Kellenbenz 1976). These ships could operate all around Europe and were especially adapted to the trade in the North Sea and the Baltic region. With respect to the development of shipping as an industry, it seems relevant to look at the owners of the vessels. Although ships of the Fleute type and other standard commercial sailing ships were comparatively simple constructions, they were normally too expensive to be owned by a single private owner. Therefore it was common practice to use an ownership model comparable to the modern share system: the vessel was owned by a group of shareholders, one of whom served as the main owner and operator of the vessel, while the silent shareholders were often at the same time

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the main owners of other vessels or otherwise linked with the shipping industry (Gaastra 2008). This ownership structure, which became typical in the shipping business during the eighteenth and nineteenth centuries, provided at the same time an important tool for risk sharing, that is, a mutual insurance system. Generally, it can be stated that the business of commercial shipping developed to a certain extent in the shadow of the navies of the world’s leading naval powers, despite the fact that the merchant navies provided the vessels which brought the riches of the new worlds to the colonial mother nations. Consequently, the operational area of the merchant navies expanded, and soon after the whole globe was explored cargo vessels could also be found sailing all the oceans of the world. Shipping had become an international business, or the first globalized industry. Despite the fact that the maritime industries were often heavily regulated in their home countries, an important element of this period in the development of the business of shipping was the fact that shipping operations on the oceans themselves were almost completely unregulated. Following the ideas of the Dutch lawyer Hugo Grotius, the main operational areas of international trade, the open seas, were not only openaccess but, more important, outside the control of any nation (Grotius 2004). While on the one hand the principle of the Freedom of the Seas opened economic opportunities to anybody interested in the business of shipping, on the other hand it set the stage for piracy, privateering, blockades and all kinds of other obstacles to the development of international trade, because of a lack of international law and related enforcement (Heidbrink 2008).

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While trans-ocean trade was definitely the most important branch of the shipping business, and ocean-going cargo vessels were the most sophisticated sailing ships, in the respective periods, the vast majority of commercial shipping did not sail the open seas but coastal waters or even inland waterways. An almost limitless number of small to medium-sized craft provided the backbone of the whole transportation systems of almost every nation in the world. While most of the commercial shipping fleets of the world continued to be made up of multi- (or even all-)purpose vessels, some cargoes fostered the development of special ship types exclusively designed for the transport of one particular type of cargo. While overseas trade shipped mainly packaged goods (sacks, barrels, etc.) coastal trade and inland waterway trade used bulk transport from the late medieval period on, and some sources even mention bulk-tankers being used on Chinese waterways in pre-modern times (Brennecke 1975). One of the most lucrative trades of the Early Modern period that required specialized ships would become the slave trade between Africa and the Americas. While at first slaves were transported on standard cargo ships, these vessels proved less than ideal for this type of business as they were too slow, and ships with additional decks could accommodate more slaves and consequently provide better economic results for their owners. The so-called triangular trade between Europe, Africa and the Americas became one of the most successful parts of the shipping business between the late seventeenth century and the end of the British slave trade in 1807. The triangle started by sailing from Europe to Africa with cargoes of weapons, steel, copper, manufactured

goods, etc. These cargoes were unloaded on the West African coast, and slaves were loaded for the middle passage to the Americas. The cargoes for the final leg of the journey from the Americas back to Europe were cotton, tobacco, sugar, rum and other products of the plantations in the Caribbean and on the American mainland (Findlay 1980). French, Dutch, German and British trading companies participated in the triangular trade; in particular the British Royal African Company became famous for this trade. As happened in many other trades the Royal African Company and their international competitors became especially successful during the Early Modern period because they operated under a royal charter which provided a monopoly for that particular company. In other words the shipping business was often not a free enterprise but a heavily stateregulated and state-influenced one, and many of the major shipping companies were state-subsidized, privileged or in other ways state-supported. From an analytical point of view, the most important characteristic of the triangular trade was the combination of new cargoes like slaves or colonial products with the development of new shipping routes. Once a new cargo offered opportunities for successful operations for commercial shipping, it did not take long for shipping companies to establish new shipping routes and develop the required types of vessels. While this pattern could be generally observed during the whole history of the business of shipping, it was particularly relevant for the development of transatlantic trade (Benjamin 2009). The trade between the Americas and Europe became the basis of the whole modern development of the global shipping industries, and especially of

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the development of the world’s largest shipping companies during the nineteenth century. Nevertheless, the change from typical Early Modern shipping companies, which often operated only a single vessel, to the shipping empires of the nineteenth and twentieth centuries was a protracted one, and for most of it traditional and modern types of the business of shipping existed side by side.

3.5 The Emergence of Steam-Powered Vessels 3.5.1

The first steam ships

The most notable change during the whole history of the shipping business was the introduction of the steam engine. While all shipping before the introduction of steam was dependent on natural forces for propulsion, and was consequently an unpredictable business, the introduction of steam enabled shipping companies to set up shipping lines that operated to reliable schedules and therefore made the whole business an industry that operated according to distinct operational agendas. However, the new technology was not adopted by the shipping industries immediately after Robert Fulton built the first successful steam-powered ship in 1803 (Rebman 2008). Like earlier steamships, for example the steamboat designed by John Fitch which had a successful trial run on the Delaware River in 1787, Fulton’s boat was comparatively small and could by no means immediately replace the larger cargo-carrying sailing ships of the trans-ocean trades. Beside the size and the limited cargo capacity, it was mainly the problem of fuel that prohibited an immediate introduction of

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steam to the commercial shipping industries, at least to freight shipping. However, once Fulton’s North River Steamboat, later known as the Clermont, started to operate in 1807 as a passenger vessel between New York City and Albany, NY, the era of steam had begun for the shipping business – a change like none before. The Clermont was a passenger vessel; it started an era in which passenger transport would become one of the main parts of the shipping business. While it was obvious that trans-oceanic passenger transport could only be done with sailing ships, steampowered coastal and inland waterway vessels provided a speed and comfort for passenger transport that had never been seen before. Regardless of the success of inland waterway passenger transport, in most regions the shipping industries lost this particular market to the railways after a short period, and could only continue in areas with particularly good shipping conditions (Heidbrink 1996).

3.5.2

The transatlantic shipping lines

The trans-oceanic trade continued to use sailing ships for passenger and cargo transport, but the political changes around 1800 provided new opportunities for the shipping business that resulted in an almost complete change for the industry. The independence of the US created not only a demand for new shipping lines between Europe and the US but opened this trade to non-British shipping enterprises, for example from North German states like Hamburg and Bremen. The end of the Napoleonic period and the British blockade of continental European ports created opportunities for entrepreneurs who had been almost completely excluded from trans-oceanic trade

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during the previous decades (Marzagalli 2008). The settlement of the West Coast of the US created a demand for transport between the East and West Coasts which could not be satisfied by the underdeveloped overland transportation system (Roland, Bolster and Keyssar 2008). In particular the trade between the East Coast of the US and continental Europe brought a breakthrough for a modern business of shipping. Beside various cargoes the business of mass migration became a cornerstone for this particular trade. While the state of Bremen built a new port area near the mouth of the river Weser in the 1820s, today the city and port of Bremerhaven, the shipping operations themselves became a purely private business. The era of state-owned shipping companies was gone and the shipping business had become part of the private commercial sector. While this trend could be observed in most nations of the world, the region of Bremen/Bremerhaven seems to be particularly typical of this early period of the modern history of the shipping business. As already mentioned, the state of Bremen with its newly built port provided the infrastructure for the new business but did not engage in the shipping operations (Heidbrink 2005a). The ships that used the new port were privately owned cargo and passenger vessels, mostly owned by smaller shipping companies or even single shipowners. As the US trade became a solid staple, especially once mass emigration from Europe to the US started in the 1830s, influential financial circles became interested in the trade. Heinrich Hermann Meyer and Eduard Crüsemann, two well-established Bremen merchants with some experience in the shipping industries, realized the opportunity and founded the Norddeutscher

Lloyd AG as a shipping company of a new style in 1857. Despite severe obstacles due to the bad world economy in the late 1850s, they started a service between the Weser region and England in the same year, and as early as the following year one between the Weser and Baltimore in the US (Thiel 2001). Why did the foundations of companies like the Norddeutscher Lloyd, the Hamburgbased HAPAG (founded in 1847), the British White Star Line (1867), and the French Compagnie Générale Transatlantique (1861) constitute such a major breakthrough for the shipping business? One reason was of course that these companies established trans-ocean shipping in the North Atlantic area which was based on regular scheduled steamship services, but more important seems the fact that these companies were fully integrated businesses that combined every single aspect of the whole shipping operation within one company, rather than only operating a number of ships. Beside owning and operating the vessels themselves these companies operated ship repair facilities, port infrastructure like warehouses, and sometimes even inland waterway traffic systems as a hinterland connection for their transatlantic trade. The shipping business had developed from the mere operation of ships into a business that dealt with the whole logistics of transporting passengers and goods from one side of the ocean to the other. The main staple for these shipping lines was often passengers, and the passenger transport of these shipping lines was at least the most visible part of their operations. Passenger transport across the North Atlantic not only reached hitherto unknown dimensions during the second half of the nineteenth century but at the same time turned into a business of a totally new

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quality. While up to now the commercial shipping industries used ships of comparatively simple design and low technology, the new shipping companies of the second half of the nineteenth century built ships which could easily keep pace with the most advanced naval vessels of the respective period. Vessels like the Britannic (built 1874) for the White Star Line and her sister-ship Germanic not only competed for the Blue Riband as the unofficial trophy for the fastest crossing of the Atlantic, but also brought the final breakthrough for the screw steamer instead of the paddle steamer (Kludas 2000). Competing for the Blue Riband was not only a sport for the shipping companies but, more important, a relevant marketing tool within this particular business and especially for the new category of wealthy passengers willing and able to pay for highly priced first-class cabins and passage.

3.5.3 Combined services and cargo shipping Of course, passenger transport across the North Atlantic was only one element of the shipping business during the second half of the nineteenth century and the early decades of the twentieth. Other destinations were often served by combined passenger/cargo vessels, and cargo-only traffics continued to be a vital part of the business. While the overseas cargo transport of previous times was characterized by multior all-purpose vessels, the second half of the nineteenth century was a period in which many shipping companies went in for specialization in certain cargoes, and consequently for specialized vessels. A typical example of this trend was the petroleum transport. While early petroleum

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shipping, in particular before the 1880s, often consisted of small cargoes of petroleum on board vessels with mixed cargoes, specialized petroleum vessels were developed as soon as the amount of petroleum shipped on certain routes reached a critical volume. Once this volume was reached it became much more economic to build ships especially designed for this transport than to continue the use of multi-purpose vessels. Of course, these ships, such as the first real tanker for bulk transport of petroleum, the Glückauf (built in 1886), could no longer be used for transport of other goods and even needed to sail the return journey with ballast, but as they were highly efficient means of transport such specialized vessels took over the transport of petroleum more or less completely in a very short period of time (Brennecke 1975). The shipping of petroleum was particularly significant in the development of the shipping business for a number of reasons: first, it introduced tankers that carried the cargo in bulk instead of in wooden barrels; second, petroleum shipping was the first specialized shipping industry that dealt with a dangerous cargo on a large scale; and third, and maybe most important, most petroleum vessels were operated by shipping companies that no longer dealt with all types of cargo but only with petroleum, and were often linked to the petroleum industry itself or even a part of the petroleum companies. Finally, the petroleum shipping industry was one of the first parts of the whole shipping business to establish complete transport chains from the oilfields to the final consumer by utilizing inland waterway shipping in addition to ocean-going tankers and company-owned port facilities (Heidbrink 2000).

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While there was a clear trend towards specialized ships and services using steamships at the end of the nineteenth century, the age of sail was not over yet. Owneroperated small-scale vessels in coastal trades all around the globe continued to use traditional sailing vessels and traditional operational schemes, and, more important, on some long-distance services sailing ships remained the main means of transport for another couple of decades. In particular, the long-distance services between Australia, Europe and the west coast of the Americas continued with sailing vessels (Roland, Bolster and Keyssar 2008). The main reasons for this use of a technology that seemed to a certain degree outdated were the limited operational range of steamships and, more important, cost efficiency, as sailing vessels were not only cheaper to build but cheaper to operate: they required basically no fuel supplies. In particular for bulk cargoes of grain (Australia) or guano the length of time required for transportation between the ports was more or less irrelevant, in contrast with the North Atlantic services, for which speed of transportation became one of the most influential factors in the development of the trade. These highly specialized shipping operations were normally owned and operated by a comparatively small number of larger shipping companies and depended heavily on the financial markets of their countries: for example, a single passenger liner for the North Atlantic route could be considered a mega-investment which could only be operated by complex use of all available financing mechanisms. In parallel with this development, the shipping business continued also as a small-scale family business. In the coastal trade all around the globe, small to medium-sized sailing vessels with or

without auxiliary engines continued to be the backbone of transportation. In contrast with the trans-ocean services, technical innovation only reached the coastal trade in a comparatively small segment of the business, because of the lack of available capital for modernization and the local character of the business. In addition, ships normally served much longer in the coastal trade than on the open seas as the structural stress to the hull of a vessel is less in coastal waters.

3.5.4 The state of the shipping business around 1900 The shipping business around 1900 can be summarized as follows. The scheduled trans-ocean passenger (or combined passenger/cargo) services of a small number of major shipping companies on the main routes across the North Atlantic and between other hubs around the world used the most sophisticated vessels available, and competed not only for the Blue Riband and first-class passengers, but also in the mass migration market. The same major shipping companies normally operated combined passenger/ cargo vessels of slightly smaller size on routes between, for example, Europe and South America or the West Coast of the US and Australia that still operated on a regular schedule but often with departures only once in several months. Often these services were not purely commercial enterprises but also played a part in the administration of the overseas colonies of European nations and/or in national postal services. In particular the system of the Reichspostdampferlinien in Germany was a typical example of how shipping companies and national governments cooperated in

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the wider field of the shipping business,1 and colonial interests provided the background for the development of a global network of scheduled steamship services all around the world (Norddeutscher Lloyd 1908). On long-distance routes, specialized large sailing vessels operated with (bulk) cargoes of comparatively low commercial value on fixed routes but without fixed schedules. Some of the most sophisticated and largest sailing vessels ever built operated in these trades; the so-called Flying P-Liners of the shipping company Ferdinand Laeisz in Hamburg might serve as the best-known example internationally. The four- or even five-masted barques, including the Peking, the Passat, the Potosi and the Preussen, were the technological climax of the development of the sailing vessel, and today still are considered the archetype of the windjammer2 (Rohrbach, Piening and Schmidt 1957). Beside the vessels operating on fixed routes, a very large segment of the shipping business consisted of multi-purpose cargo vessels (sail, sail with auxiliary engine, or engine only) that operated as tramp-ships and as such serviced all those ports that were not part of the global network of regular shipping services. While some of these vessels were owned by the same companies that operated the services mentioned above, the majority of the tramp fleet was owned and operated by smaller companies which often used second-hand or elderly tonnage. Ships for special cargoes, particularly tankers, operated on fixed routes, and often were not only used by a single customer but owned and operated by the oil companies themselves or by shipping companies closely related to the oil companies. As these ships could be used for one particular cargo only

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they normally returned in ballast (Brennecke 1975). Beside all the subtypes of the shipping business mentioned so far, it should be mentioned that ferries and shorter-distance combined passenger/cargo lines were another major part of the shipping business, often operated by the railway companies that used these ships as an extension of their network in areas where natural waterways were available, for example the Chesapeake Bay area in the eastern US or European rivers such as the Rhine, the Danube and the Elbe. Finally it should be mentioned that the shipping business did not consist only of trans-ocean traffic: inland waterway traffics were a major part of the business around 1900, as other means of transport such as the truck had not yet taken over domestic transportation (Teubert 1912).

3.6 The Great War and the Interwar Period During the Great War, 1914–18, the shipping business was seriously affected by the war itself and many services could not be continued. The end of the Great War with its Paris peace treaties brought a change to the further development of the business as few developments had before. The demise of the colonial empires brought with it the end of many of the state-subsidized services, and the business of shipping turned into an almost purely commercial endeavor. In addition, new shipping companies entered the scene, and while the business of global shipping before the Great War was dominated by only a few nations, now they were joined by new nations like Norway (Tenold 2008). In particular this became

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possible as Germany, one of the world’s leading shipping nations, had to surrender most of its trans-ocean fleet, which opened an opportunity for new players. In addition, the Great War had fostered technological development in the maritime context and sailing vessels finally became outdated. Nevertheless the Ǻland-based Finnish merchant Gustav Erikson, who bought some of the Flying P-Liners from F. Laeisz, continued the operation of large sailing vessels in the grain trade and became famous for being the last owner of a shipping company with a fleet that consisted almost completely of sailing vessels (K åhre and Greenhill 1978). The shipping business experienced a period of severe crisis during the interwar period despite major technological innovations. Many of these innovations were the direct consequences of the development of naval technology during the Great War which afterwards could be utilized for civil purposes. The global economic downturn that ended in the Great Depression brought a decrease in international cargo and passenger transport, while at the same time in the domestic markets land transport with trucks and railways took over great shares of the cargo volumes previously transported by shipping companies. However, it would be an oversimplification to say that the interwar period was a period only of crisis for the international shipping business, as at least some nations, such as Norway, were able to utilize the special conditions of the period to establish new and successful shipping companies (Tenold 2008). Maybe the interwar period is better characterized as a period in which some of the traditional shipping nations, such as Germany, lost a lot of their relevance to the global shipping business, while other nations

which previously had not really been part of the business successfully entered the market. Some other notable changes happened in the passenger trade: for trans-ocean passenger transport, ships were still the only available means of transport. In particular the shipping companies involved in the North Atlantic routes built passenger liners that can be numbered among the most sophisticated and luxurious vessels ever made for civilian purposes. At the same time the domestic, and in particular the inland waterway, shipping companies had to face increasing competition from other transport carriers (Heidbrink 1996). While those shipping companies were used to competing with the railroads even before the Great War, the interwar period brought the automobile as a new competitor. Consequently, many shipping companies ceased their passenger lines on the inland waterways or reduced the number of ships involved in that particular trade. As mentioned earlier, this development does not apply to oceangoing passenger transport, but as early as the interwar period, before the war gained more significance, another development started, namely the cruise industry. While initiated for employing vessels outside the peak of passenger transport seasons, cruise line operations developed into an independent and increasingly important sub-branch of the shipping business. While the director of the Hamburg-based HAPAG, with the support of the German Emperor Wilhelm II, initiated the first cruises as early as in 1891 as a way of using passenger liners outside the season, it was also before the Great War that the first ships exclusively for cruises were built. Again it was HAPAG that pioneered the business, with the Prinzessin Victoria Louise built in

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1900 (Shaw 2007). Despite the economic turmoil of the interwar period, cruise shipping became a success, especially in the Mediterranean region and off Scandinavia, and became available even for lower- to medium-income groups at the end of the interwar period when the Nazi-German Kraft durch Freude organization started to operate its first cruise liners (Schön 2000). Of course, an organization like the NaziGerman Kraft durch Freude should not be confused with the development of an economy-driven industry, but it can be considered the beginning of an element of the business of shipping that started during the fascistic regimes of the 1930s and continued in a slightly different way in the socialistic economies of the post-war period: the statecontrolled or state-owned shipping companies of the twentieth century. Like the colonial empires of the previous centuries, the fascist regimes with their strong political influence on economic developments needed the shipping business for their economic policy and in particular for their international trade. Which services continued or were newly established was often no longer a question of market demand but of direct or indirect political intervention in the industry, as in the case of fascistic Italy, which needed shipping connections to its dependencies, for example Ethiopia which became an Italian colony under the Mussolini regime (Mallett 1998).

3.7 World War II and Post-War Reconstruction The outbreak of World War II was the final catastrophe for the entire global shipping business. As the whole of the North Atlantic, and large parts of the Pacific and the other

45

world oceans, turned into theaters of war within a short time, nearly all international shipping came under the direct influence of the war. As wartime shipping was by no means part of the regular development of the shipping business and can be considered as a kind of extension of naval warfare, there is no need for a detailed description as part of this survey of the development of the shipping business. However, some developments do need to be mentioned because of their relevance to the post-war development of the shipping business. Of course, World War II caused greater losses of cargo and passenger vessels than had any previous event in a comparably short time. The losses were to trans-ocean shipping and, at least in Europe, to inland waterway shipping. The US alone lost more than 1700 ships, of which more than 700 were above 1000 gross tons, during the war (Horodysky 1998–2007). Other nations suffered comparable losses, and by the end of World War II major parts of the pre-war commercial shipping fleets no longer existed. On the other hand, some of the largest shipbuilding programs ever were undertaken during the war. In particular US shipyards became famous for their LibertyClass vessels – a standard-design ship type of ca. 7200 Brutto Register Tonnage (BRT) that was optimized for extremely short production time. The average construction time of the ca. 2700 Liberty Ships built was 40 days, with a record of only one week for the Robert E. Peary. The basic idea for the Liberty Class was to build ships faster than the enemy could sink them (Bourneuf 2008). Although nearly two hundred of the ships were sunk during World War II, the remaining fleet of this ship type would turn into a cornerstone for the post-war rebuilding period of the shipping business

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(Bourneuf 2008). The vessels served all around the world for the shipping companies of nearly all shipping nations, and many of them remained in service as multipurpose tramp vessels for decades after the end of the war. The reconstruction of the shipping business after World War II was influenced by a number of other factors which would become crucial for the entire further development of the industry. On the one hand the wartime technological improvement of airplanes allowed them for the first time to compete with ships for trans-ocean passenger transport. Although it took until the 1960s for the airline industry to really be able to take over the majority of transoceanic passenger transport, the main period of trans-ocean liners was over at the end of the war. The shipping business had lost one of its core elements to a new competitor because of technological innovation in a branch outside the shipping industry. On the other hand the separation of the world into the West and the Sovietcontrolled socialistic economies brought state-owned shipping companies into being in numbers unknown to the market so far. As these state-owned shipping lines of the Eastern world were often established without the shadows of tradition, they often introduced new technology such as diesel engines faster than the rebuilt shipping companies of traditional shipping nations like the UK. In any case, as the socialistic state-owned shipping companies normally did not directly compete with the shipping companies of Western nations, they had no direct effect on them. Beside these two factors and the final demise of the commercial use of sailing vessels, the rebuilding of the shipping business followed basically the same lines as the

shipping business before World War II. Bulk cargoes like petroleum and ore were transported on specialized vessels owned by specialized shipping companies, often owned by or connected to the respective industrial branch, while other cargoes were transported as mixed freights on multi-purpose or even combined passenger/cargo vessels on fixed routes or in tramp operations.

3.8 Towards Today’s Business of Shipping The next big change came a little unexpectedly in the late 1950s and was in the end more influential than the two world wars together. The US transport company of Malcom McLean introduced the container for transports at the US East Coast. McLean’s basic idea was the use of a standardized large box, the container, that could be transported, on trucks as well as on railroads or ships, for the whole transport chain. Once packed at the origin of the cargo, goods of all kinds could remain in the box until they reached their final destination without unloading the transport goods for a change of carrier. Although most people in the business of shipping were not convinced by McLean’s concept and nicknamed the first vessels box ships, the idea became a great success within a short period of time and today the great majority of cargoes outside the bulk market are transported in containers. Although the first box ships crossed the Atlantic in the 1960s, and the first containeronly vessels were built in Australia as early as 1964, traditional shipping companies often continued to build traditional multipurpose cargo vessels (Cudahy 2006). Even experimental vessels for the use of atomic

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energy, like the Savannah and the Otto Hahn, were still designed as conventional multipurpose freighters. Eventually those shipping companies who had realized that the box ship was the vessel of the future gained market shares with enormous speed, while many of the traditional shipping companies sailed into a severe crisis. While traditional major global players of the global shipping business such as the Hamburgbased HAPAG hesitated to introduce the new technology, formerly almost unknown companies like the Danish Maersk Line recognized the possibilities of the new technology. The crisis for those shipping lines that did not participate in the container business became even more severe as it coincided with the final take-over of international, and in particular trans-oceanic, passenger transport by jet-propelled aircraft. McLean’s idea of containerized ocean transport with box ships and shipping companies like SeaLand Service, Inc., which he founded, revolutionized not only the whole world of shipping but also the wider field of longdistance transportation and even military supply logistics; for example, during the Vietnam conflict Sea-Land delivered 1200 containers per month to the Indochina peninsula for the US military. At the same time as the first box ships sailed the oceans the world saw an enormous increase in the demand for petroleum, and several political crises such as the closure of the Suez Canal brought about new traffic patterns for petroleum transports between the Middle East and Europe or the US eastern seaboard. New tanker designs reached dimensions never seen before and within a couple of years supertankers of more than 100,000 deadweight tonnage (dwt) were being built. Every tanker generation was larger than the previ-

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ous one, and ships of up to 500,000 dwt became the leviathans of the oceans. Beside the simple fact that only a very small number of shipping companies were able to finance super-tankers, the enormous draft of these ships caused another radical change for the business of shipping as only a very limited number of ports were able to accommodate super-tankers (Brennecke 1975). In consequence, petroleum shipping focused on a small number of deep-water ports, such as Rotterdam or Wilhelmshaven, while most ports could not participate in this trade. A similar trend could be observed some years later for the container transport when box ships for round-the-world services also reached dimensions too large for many ports around the world (Cudahy 2006). In combination these trends resulted in an intense concentration for the shipping business, with only a few large multinational companies and ports dominating world shipping, while other companies and ports served as a kind of hinterland traffic for the round-the-world services. However, the trend towards unrestricted growth ended as quickly as it had begun. The reopening of the Suez Canal made smaller tankers economic again, and many of the super-tankers were laid up after only a few years of service. For the container shipping it was a little longer before the limits of growths were reached, or at least seemed to be reached. The 2009–10 crisis of international container shipping clearly showed that all sub-branches of the shipping business are affected by some limits of growth, and that the international shipping business is vulnerable to political and economical events today as it has been in the past. The breakdown of the majority of socialistic economies, and in particular the

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political and economical changes in China, caused other major changes in the development of the shipping business which are still going on and consequently should not be part of an historical survey of the development of shipping.

3.9

Recent Trends

Despite the fact that the following developments are not yet complete, they should be mentioned at least briefly at the end of an historical survey before they are discussed in depth in some of the following chapters of the book. While for centuries it was a basic standard of the shipping business that vessels flew the flag of the state in which their shipping company was located, and consequently safety regimes, manning requirements and all other elements of the actual operation of the ship were governed by the regulations of that state, in the decades after World War II shipping companies moved towards a separation of the flag state of a vessel from the state of the actual ownership of the vessel. The use of flags of convenience became standard in the international shipping business. Comparatively small nations like Malta, Greece and Liberia became world-leading shipping nations as major shipping companies used their flags to avoid the high standards and related costs of their home flags and related regulations. The home country of the shipping company and the flag state of the individual vessel were no longer automatically the same. The governments of flag-of-convenience states often became more influential in the development of international regulations for the shipping business than the traditional leading shipping nations of the world.

In a second step of this development, many traditional shipping nations introduced second registers for vessels, which enabled them to fly the flag of their nation, but to use different standards for the vessels and, in particular, international crews. From the point of view of the maritime historian this is a particularly interesting development, as flags of convenience and second registers brought back a situation that could be found throughout the whole pre-modern and Early Modern periods: the business of shipping as a globalized or at least internationalized economic activity with an international workforce and low relevance of the nation state. Ships were and are financed on international markets, and actual financial ownership often did not reflect the location of the shipping company or the flag of the vessel. Furthermore, while from the Early Modern period shipping companies focused their business on the shipping itself, and during the medieval period shipping was often combined with trade, modern shipping companies have often widened their portfolio of services and are no longer offering only pure transportation services but a wide range of logistic services. Other recent developments within the shipping business, which will be discussed in detail throughout the other chapters of the book, often also have roots deep in history, although they returned only some decades ago. For example, alliances in the liner trade or pools in bulk trades resemble structures already used at the beginning of the twentieth century, when passenger lines set up combined services in order to guarantee scheduled services on certain routes which would not have been possible with the ships of one company alone. Modern single-vessel companies mirror, to a certain degree, the Early

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Modern model of ownership, as each company operates only a single vessel, while the actual ownership of the vessels is spread among a group of shareholders that often is involved in a large number of such single-vessel companies. Altogether these recent developments mainly demonstrate that the business of shipping is still an economic sector which is highly adaptable to its surrounding economic conditions. As throughout its entire history, the shipping business has reacted to global economical developments while at the same time it has fostered permanent change in international or global economy.

3.10

Summary

Altogether it can be stated that the development of the shipping business throughout history has always been affected by a number of factors and mechanisms that have repeated themselves in the same manner. First, the development of the shipping business was influenced by geopolitical factors that determined the demand for transport of passengers and/or goods on certain routes. Once these political factors changed, the shipping business needed to readjust and to develop new economic patterns. Second, the shipping business was always directly influenced by the development of maritime technology. Although new technology was often introduced in other maritime contexts, such as the navies, the shipping business normally adopted new technologies within a couple of years, or at least once the technology was no longer experimental. Third, the shipping business distinguished, in several historical periods, developments towards specialized ship types for certain cargoes, but in the end

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the multi-purpose vessel for cargoes of all kind remained the most successful concept for all cargoes except bulk-cargoes such as oil, ore or grains; principally a modern box ship is very similar to a medieval cog that used the barrel as a kind of container. Finally, the business of shipping was used to heavy internal competition, but to only limited competition with other means of transport. Once other transport carriers, like the railways, trucks, pipelines and international air traffic were able to compete with shipping on certain routes, it was normally only a short time before the shipping business gave up that particular field of the business. In any case, as shipping is today still the only possibility for transporting larger volumes of cargoes across the oceans, the shipping business can normally replace its lost markets within a short period of time by new cargoes or increased cargo volume in the remaining fields. Altogether shipping is still the most relevant transport carrier for international trade, as it has been throughout the whole period of trade between many nations. Without the shipping business, the development of the modern industrialized world would have been not only impossible, but even unthinkable. One major difference between the shipping business as it is today and as it has been throughout history should be stated at the end of this chapter. Before passenger transport was taken over by the international air traffic, the railways and the automobile, nearly all international travelers experienced the shipping business at first hand, at least sometimes, as a passenger on board a vessel. Today the shipping business is normally a closed world without contact with the average population, and beside short-distance ferry traffic or cruise

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liners there are very few opportunities for anybody outside the industry to experience the shipping business. In any case, the shipping business has lost nothing of its fascination, and the few opportunities to get on board ocean-going vessels are normally real crowd-pullers. Maybe that is the explanation of why a new and unexpected sub-branch of the shipping business has developed very successfully over the last decades: traditional ships operated for the purpose of demonstrating the history of the business of shipping itself and providing again an opportunity for average people to go on board cargo ships (Heidbrink 2005b). Although certainly a niche branch, it is an interesting observation that in the twenty-first century the history of the business of shipping has itself become a part of the current industry of shipping.

Notes 1

The German Empire subsidized the major shipping companies for scheduled steamship services to regions like Australia and Southeast Asia. 2 The former Flying P-Liner Padua is still sailing today under the Russian flag with the name Kruzenshtern.

References Benjamin, Thomas (2009) The Atlantic World: Europeans, Africans and Their Shared History, 1400–1900. New York: Cambridge University Press. Bourneuf, Gus (2008) Workhorse of the Fleet: A History of the Design and Experiences of the Liberty Ships Built by American Shipbuilders during WWII. Houston, TX: American Bureau of Shipping.

Brennecke, Jochen (1975) Tanker: Vom Petroleumklipper zum Supertanker. Herford: Koehler. Cudahy, Brian J. (2006) Box Boats: How Container Ships Changed the World. New York: Fordham University Press. Dollinger, Philippe (1970) The German Hansa. London: Macmillan. Findlay, Ronald (1990) The “Triangular Trade” and the Atlantic Economy of the 18th Century. Princeton: Princeton University Press. Gaastra, Femme S. (2008) From crisis to prosperity: Dutch shipping 1860–1913. In Lars U. Scholl and David M. Williams (eds.), Crisis and Transition: Maritime Sectors in the North Sea Region 1790–1940, pp. 75–88. Bremen: Hauschild Verlag. Graham-Campbell, James (2001) The Viking World. London: F. Lincoln. Greene, Kevin (1986) The Archaeology of the Roman Economy. Berkeley: University of California Press. Grotius, Hugo (2004) The Free Sea. Indianapolis: Liberty Fund. Heidbrink, Ingo (1996) Raddampfer “Kaiser Wilhelm.” Hamburg: Maximilian Verlag. Heidbrink, Ingo (2000) Deutsche Binnentankschiffahrt. Hamburg: Convent Verlag. Heidbrink, Ingo (2005a) Bremen und die Häfen. In Konrad Elmshäuser and Hans Kloft (eds.), Der Stadtstaat – Bremen als Paradigma. Geschichte – Gegenwart – Perspektiven, pp. 129–54. Bremen: Hauschild Verlag. Heidbrink, Ingo (2005b) Historic ship safety. In David J. Starkey and Morten Hahn-Pedersen (eds.), Bridging Troubled Waters: Conflict and Co-operation in the North Sea Region since 1550, pp. 221–5. 7th North Sea History Conference, Dunkirk 2002. Esbjerg. Heidbrink, Ingo (2008) The oceans as the common property of mankind from Early Modern period to today. History Compass 6: 659–72. Horodysky, T. (1998–2007) U.S. Merchant Ships Sunk or Damaged in World War II. www.usmm.org/shipsunkdamaged.html (accessed February 19, 2010).

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K åhre, Georg and Basil Greenhill (1978) The Last Tall Ships: Gustaf Erikson and the ÅLand Sailing Fleets, 1872–1947. London: Conway Maritime Press. Kellenbenz, Hermann (1976) The Rise of the European Economy: An Economic History of Continental Europe from the Fifteenth to the Eighteenth Century. New York: Holms & Meier. Kiedel, Klaus, Uwe Schnall and Detlev Ellmers (1985) The Hanse Cog of 1380. Bremerhaven: Förderverein Deutsches Schiffahrtsmuseum. Kludas, Arnold (2000): Record Breakers of the North Atlantic: Blue Riband Liners 18381952. Brassey’s, Washington. Mallett, Robert (1998) The Italian Navy and Fascist Expansionism, 1935–40. London, and Portland, OR: Frank Cass. Marzagalli, Silvia (2008) The French Wars and the North Sea trade: the case of Hamburg. In Lars U. Scholl and David M. Williams (eds.), Crisis and Transition: Maritime Sectors in the North Sea Region 1790–1940, pp. 20–31. Bremen: Hauschild Verlag. Meier, Dirk (2006) Seafarers, Merchants and Pirates in the Middle Ages. Woodbridge, Suff., and Rochester, NY: Boydell Press. Norddeutscher Lloyd (1908) Handbuch der Reichspostdampfer – Linien nach Ostasien und Australien. Bremen: Norddeutscher Lloyd. Rebman, Renée (2008) Robert Fulton’s Steamboat. Minneapolis: Compass Point.

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Rohrbach, H. C. P., J. H. Piening and F. Schmidt (1957). F.L.: A Century and a Quarter of Reederei F. Laeisz (Owners of the “Flying P” Nitrate Clippers): An Account of the Founding and History of Reederei F Laeisz . . . (trans. Antoinette Greene Smith). Flagstaff, AZ: Colton. Roland, Alex, W. Jeffrey Bolster and Alexander Keyssar (2008) The Way of the Ship: America’s Maritime History Reenvisioned, 1600–2000. Hoboken, NJ: John Wiley & Sons. Schön, Heinz (2000) Hitlers Traumschiffe: Die “Kraft durch Freude” Flotte 1934–1939. Kiel: Arndt. Shaw, J. (2007) German giant: a look back at the 160-year history of the German firm HapagLloyd and its development into one of the world’s largest shipowners. In Ships Monthly 42(4): 52–5. Tenold, Stig (2008) Crisis? What crisis? The expansion of Norwegian shipping in the interwar period. In Lars U. Scholl and David M. Williams (eds.), Crisis and Transition: Maritime Sectors in the North Sea Region 1790–1940, pp. 117–33. Bremen: Hauschild Verlag. Teubert, Oskar (1912) Die Binnenschiffahrt. Ein Handbuch für alle Beteiligten, vol. 1. Leipzig: Verlag von Wilhelm Engelmann. Thiel, Reinhold (2001) Die Geschichte des Norddeutschen Lloyd 1857–1970. Volume 1: 1857– 1883. Bremen: Hauschild Verlag.

4

International Seaborne Trade Michael Tamvakis

4.1

Introduction

The student of maritime economics knows well that the demand for shipping services is a derived one. The driver behind this derived demand is world merchandise trade, whose complexity and fine detail are considerable. The UN trade classification system has one hundred major categories of commodities, each of which contains several sub-categories, providing an overwhelmingly detailed picture of what is a very complex international commodity trade system. Given the limitations of capturing and presenting such granularity of information, this chapter aims to provide an overview of the major commodity trade flows which provide the majority of ship employment. Even so, the intent of the chapter is not to explicitly link trade flows with freight rates. In fact, there is a dearth of literature on this particular subject, although plenty of authors have looked at trade flows and freight rates on their own. What this chapter attempts to do is build a broad-brush picture

of key commodities, by looking primarily at the main export and import flows in recent years, in the context of the underlying factors driving each commodity. The chapter has two major divisions. The first, and longer, comprising sections 4.2– 4.9, looks at the major (by volume) cargo flows, the so-called major bulk commodities. The second, section 4.10, looks at general cargo, and containerized trade flows in particular. Figure 4.1 paints a very broad picture of these major commodities and the contribution they make to total seaborne demand. The difficulty of the task at hand is already visible: a third of total demand is generated by “other” cargo. But let’s start at the beginning. At the beginning of the twenty-first century, Douglas Fleming stated that “nearly five and a third billion metric tons of goods were shipped in commercial ocean-borne trade. . . . roughly 60% of the total cargo volume moved in bulk” (Fleming 2002). We focus on the major patterns of trade flows in three major groups, energy commodities, metallic minerals and agricultural

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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Total estimate in 2008: 32.3 billion ton-miles Other 32%

Crude oil 29% Grain 6%

Coal 12% Iron ore 15%

Oil products 6%

Figure 4.1 World seaborne trade shares, in billion ton-miles. Source: UNCTAD Review of Maritime Transport 2009, P. 14, based on data from Fearnleys Review, various issues.

crops, and look at some of the minor bulk commodities which make up bulk trades. Figure 4.2 expands across time the information given in the previous figure, but uses tons, rather than ton-miles, to show the long-term seaborne commodity flows. Figure 4.3 combines the information in the two previous figures to give an idea of the distance (average haul) over which commodities have been carried, from the 1980s until recently.

4.2

Crude Oil

Standing head and shoulders above all other commodities is oil. From a total of nearly 3.8 billion metric tons,1 or 80 million barrels per day (bpd) of oil produced in 2009, some 2.6 billion tons (53 million bpd),2 or two-

thirds, was traded internationally. Of this, 70% was carried by sea. Looked at from a different perspective, crude oil and refined products account for over a third of total seaborne trade in that year.3 Throughout oil’s turbulent history, international trade has played an important role. However, the paths of crude oil and refined products have been quite diverse, albeit interrelated. Trade in oil was initiated in the early days of the industry, near the end of the nineteenth century. Before World War I, international trade was almost exclusively in products. Carrying crude was quite uneconomical, due to its low value in comparison with its transport cost. Refineries were also located at the production sites, so that only the final products were shipped to the endusers. Most of the world trade in oil products was structured around the United

Crude oil

Oil products

Iron ore

Coal

Grain

Other

9,000 8,000 7,000

Million tons

6,000 5,000 4,000 3,000 2,000

0

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

1,000

Figure 4.2 World seaborne trade development by major commodity, in million tons. Source: UNCTAD Review of Maritime Transport 2009; ISL Shipping Statistics Yearbook 2009, compiled from Fearnleys World Bulk Trades and Fearnleys Review (various issues). Average haul (R-axis)

9,000

4,700

6,750

4,525

4,500

4,350

2,250

4,175

0

Nautical miles

Million tone

Seaborne trade (L-axis)

4,000 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 4.3 World seaborne trade development, in million tons, and average haul. Source: Author, based on UNCTAD Review of Maritime Transport 2009; ISL Shipping Statistics Yearbook 2009, compiled from Fearnleys World Bulk Trades and Fearnleys Review (various issues).

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States, which was the leading producer and exporter of oil. Around the 1920s, crude oil started being traded internationally, even though it was carried on short-haul routes. The main crude oil exporters were Mexico and later Venezuela, with United States being the recipient. With the gradual expansion of Middle Eastern and Southeast Asian oil production, crude oil trade increased in importance; there was little scope for local refining, and most refining capacity was now located in the consuming markets. World oil production and exports from 1939 to 1945 reflected closely the energy needs of World War II. As the flow of oil and oil products from the US to its European allies increased, the Middle East proved of strategic significance, especially with the construction of the big oil refinery and terminal in Ras Tanura. At the end of World War II, Europe was largely destitute. To rebuild itself, it required substantial natural resources, many of which had to be imported. A large part of these were energy resources, primarily oil and oil products, and a large part of those needs were met by the Middle East, which became the world’s leading oil-exporting region, especially after production of the large Kuwaiti fields came on stream. During the same period, the United States turned into a net oil importer, with most of its imports coming from Venezuela, although some crude imports had already originated from the Middle East in the late 1940s. Soviet Union resumed exports in the late 1940s, most of them being directed to other countries in the communist bloc. At the same time, Japan embarked on its own reconstruction program. With energy resources virtually non-existent domestically, Japan had to turn to oil imports, in

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order to fuel its rapidly growing economy. The 1960s was an era of growth: of the oil trade, and crude oil in particular; of the export expansion of the Middle East; and of the size of tankers used to carry oil internationally. Western Europe, Japan and the United States experienced high levels of growth during the decade, with a resultant augmentation of their energy requirements. It was this period that saw the establishment of the first few major flows of crude oil, which remain dominant in the trade today: AG–West and AG–East, i.e. Arabian Gulf4 to Western Europe and the US, and Arabian Gulf to the Far East. At the same time, refinery capacity and throughputs increased immensely in all the major importing regions. Within the span of ten years, world refining throughputs increased from 21,000 bpd to almost 45,000 bpd. Most were accounted for by Western Europe and Japan. This expansion has very much defined the broad patterns of the trade in oil products which are in place today, which are quite distinct to those of crude oil. At the beginning of the 1970s the US weighed in the world scene as a major importer, owing to a combination of a fall in domestic production and a surge in demand. But just as economic growth and energy demand looked unstoppable, the Yom Kippur War and the subsequent Arab oil embargo brought about a sea change in the way oil prices were set and put OPEC right at its heart. Despite the big initial shock, however, economic growth resumed in 1974, although at lower levels; so did oil consumption and the demand for oil imports. In fact, during the 1970s dependence on the Middle East increased. As OPEC countries rose to prominence, with the Middle East at the forefront,

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MICHAEL TAMVAKIS

Western producers sought new secure sources of oil and, at the same time, stability in their relationship with the Middle East. The USSR edged its way into the international oil market, taking advantage of the high prices to replenish its hard currency reserves. High energy consumption and broad dependence on oil, however, meant increased production costs and inevitable inflationary pressures. In fact, most of the oil producers’ incomes were being severely eroded by the explosive world inflation of the late 1970s. The bubble was again ready to burst; the Iranian Revolution kindly obliged. The reaction to the second oil price shock was markedly different from that to the first. A number of important adjustments changed the structure of energy consumption. More specifically, renewed emphasis was put on energy conservation and oil substitution, with the result that the noncommunist world’s oil consumption went into steady decline after 1979. There was a switch to politically safer sources of oil, boosting the production of non-OPEC countries, while dependence on OPEC oil fell considerably during the first half of the 1980s. The switch to new supply sources resulted in higher utilization of heavier and sourer crudes; this urged many refiners to upgrade an increasing proportion of their facilities in order to improve the yield of lighter products from heavier crudes. The new price increase boosted immensely the fortunes of new, high-cost suppliers, like the UK, Alaska and Canada. The combination of changed demand and supply patterns resulted in a radical structural readjustment of the international oil trade. The share of OPEC in oil production fell dramatically between 1979 and 1985, to the gain of non-OPEC producers.

Faced with decreasing world demand for oil, and increasing competition from non-OPEC producers, OPEC countries attempted to redress market conditions by reducing official prices, and by introducing quotas with a view to establishing some order among member countries. Following the radical change of the fortunes of OPEC producers, many of them had to compete for market share, resorting all too often to price undercutting all too often. It was this turn of events that also brought about a major shake-up of the way oil was priced. Just as for several other commodities and financial markets, oil pricing moved to the spot market and then very quickly to the futures exchanges. Oil cargoes were, and still are, priced on a differential basis from the forward month on the futures markets for WTI (West Texas Intermediate) crude in New York and Brent crude in London, with Dubai crude only recently emerging as a pricing benchmark, particularly for cargoes flowing to the Far Eastern markets. After the initial shock of the first Gulf War in 1990, the rest of the decade saw relatively depressed prices, with a barrel of oil never again reaching US$30, and dipping as low as US$11 in 1999. Oil flows, however, showed a steady increase through the decade; in fact, from 1990 to 1999 trade increased by approximately one-third. It was not until the new millennium, particularly from 2004 until the financial crisis in 2008, that the oil trade, indeed trade in all commodities, saw a tremendous boom in prices and volumes globally, but particularly with a focus on the waking giant that China became. Figure 4.4 shows the development of crude oil imports in the twenty-first century. The increasing role of China is obvious, as is that of India in the last few

57

INTERNATIONAL SEABORNE TRADE

2,000 1,800 1,600

Million tons

1,400 Rest of world Other Asia Pacific Japan Indiaa China Europe US

1,200 1,000 800 600 400 a

Data for India before 2008 are included under Other Asia Pacific.

200 0

2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 4.4 Crude oil import development, 2001–2009. Source: BP Statistical Review of World Energy, 2002–2010.

years. On the other hand, one can also notice the important role still played by the more traditional importers, such as the United States, Japan and Europe (excluding the former Soviet states (FSU)). On the supply side, exports are dominated by the Middle East, with former Soviet republics rising to prominence during the same period (see Figure 4.5). So today’s crude oil flows are a combination of established trade routes, but with the addition of a few important new players. Table 4.1 uses the oil-trade matrix from the BP Statistical Review of World Energy, which gives an excellent snapshot of the current situation. Crude oil has two main hubs: Russia with a few former Soviet republics such as Kazakhstan and Azerbaijan; and the Middle East, from Suez to the Persian Gulf. The key destinations are to the major consumption hubs: Western Europe,

the US, China and Japan. However, the complexity is increasing. Although flows from the Persian Gulf remain relatively straightforward and provide the bulk of business to the very large crude carrier (VLCC) fleet, flows from Russia and its fellow CIS members are more involved. A combination of pipelines and vessels makes the logistics of this trade quite intriguing and its future quite complicated. Russian crude oil flows out of the Baltic Sea, through the Druzhba pipeline and the Black Sea. Kazakhstan and Azerbaijan also channel their exports through the Black Sea through a number of pipelines.5 In addition, Azeri crude flows from Baku, through Tbilisi in Georgia, to the Turkish port of Ceyhan, from where it is lifted for its final destinations.6 A number of additional pipelines are being proposed and are in various stages of development at the time of writing, which

58

MICHAEL TAMVAKIS

2,000 1,800 1,600

Million tons

1,400 Rest of world N Americaa S & C Ameria N Africa W Africa FSU M East

1,200 1,000 800 600 400 200 0

a N America includes USA, Canada and Mexico

2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 4.5 Crude oil export development, 2001–2009. Source: BP Statistical Review of World Energy, 2002–2010.

will undoubtedly continue to make the FSU–Europe oil flow interesting from a geopolitical and economic viewpoint. A number of smaller but still substantial flows supplement the major ones: Canada to US (via pipeline); North Sea (from the UK, but now mostly from Norway) to Western Europe and the US Gulf, or even to the Far East if the price is right; West Africa (still dominated by Nigeria, but with Angola increasing in importance) to the US, Europe and the Far East; Venezuela to the US; and a few short-haul flows within Pacific Rim countries.

4.3

Oil Products

As mentioned above, the trade flows of products are different from, but intertwined with, those of crude cargoes. The supply of oil products is very much dependent on two

factors, or limitations: the available refining capacity in different regions around the world; and the complexity of this refining capacity, often known as barrel yield, which determines the supply of individual products (say unleaded gasoline, versus fuel oil, versus diesel) and which is quite diverse from region to region. As far as refining capacity is concerned, three regions remain dominant: North America, Europe and the CIS, and the Far East. More specifically, the US is the single most important refiner, having a lot of its most sophisticated capacity in the US Gulf area. China has ascended quite rapidly to become the second-largest refiner in terms of installed capacity. It is followed by Russia and Japan, although the collective refining capacity of Northwest Europe puts this region at the heart of the trade in oil products. However, the Middle East is also an important refiner, especially as most of the

21.6

4.0 5.0

–

0.1 0.1

8.7 54.6

28.7

86.9

28.2

79.2

–

0.8

0.5

0.7

–

–

5.1

–

564.9

Former Soviet Union

Middle East

North Africa

West Africa

East & Southern Africa

Australasia

China

India

Japan

Singapore

Other Asia Pacific

Unidentifieda Total imports

14.8

0.2 –

3.9 –

0.2

–

0.1

0.2

0.1

0.1

–

0.1

–

4.3

66.4

0, ∂Rs/∂Vessels > 0 and ∂Rs/∂Vehicles > 0.

24.3 Port Interchange Service Costs A port will be cost-efficient in the provision of port interchange service if it provides the service at the least cost, given the prices it pays for the resources employed. In order for a port to be cost-efficient in the provision of port interchange service, it is necessary that the port be technically efficient in the provision of this interchange service. If a port is technically inefficient, it could provide the same amount of interchange service with a lesser amount of at least one resource and thereby incur lower cost in providing this interchange service (for given resource prices).

24.3.1 Long run cost: a single-service port To be cost-efficient in the provision of port freight interchange service (PFIS), a port will minimize the cost that it incurs in the provision of the technically efficient PFIS

service; that is, it will minimize its cost (C) subject to production function (1) and resource function for the sth type of resource Rs (5) considering only cargoes: Minimize C = PLp L p + PEp E p + PWp Wp + PBp B p + PIp I p + PEQp EQp subject to PFIS = g f (L p, E p, Wp, B p, Ip, EQp; Cargoes) (6) R s = R s (OPTION n; Cargoes) s = 1, 2, … S; n = 1, 2, … N where, PLp, PEp, PWp, PBp, PIp and PEQp are the prices of the resources Lp, Ep, Wp, Bp, Ip and EQp, respectively. If the port were producing a physical product as opposed to providing a service, the port would select and employ those amounts of the resources for which C is minimized subject to the production function constraint. That is to say, the resource variables would be the choice variables for the optimization of equation (6). However, the port is providing a service. As a consequence, the port’s operating options will be the choice variables for the optimization of equation (6). That is to say, the port will select values of its operating options which in turn, via its Rs resource function, will determine the amounts of resources to be employed for which C is minimized subject to the production function constraint. Consequently, to determine the amounts of resources to be employed by the port in providing a given quality of interchange service for the amounts of cargoes received, the resource function (5) for each resource (where only cargoes are considered) is included in equation (6). In the optimization of equation (6), where the amounts of all resources

PORTS IN THEORY

employed can be varied, i.e., in the long-run time period, the port’s long-run cost function for freight interchange service can be derived, where the port’s long-run cost (LTCfp) is a function of its resource prices, cargoes received for interchange service and freight interchange service provided by the port; that is, LTCfp = LTCfp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, Cargoes)

(7)

Since the levels of all resources can be varied in the long run, no fixed costs appear in long-run cost function (7). The long-run average total cost (LATCfp) for a port in the provision of PFIS amount of interchange service is found by dividing LTCfp by PFIS, i.e., LATCfp = LTCfp/PFIS. The port’s long-run marginal cost is the addition to the port’s long-run total cost in providing an additional unit of PFIS, i.e., LMCfp = ∂LTCfp/∂PFIS. If LATCfp decreases as PFIS increases, then the port exhibits “economies of scale” in the provision of PFIS interchange service; that is, the percentage increase in PFIS will result in a smaller percentage increase in the port’s long-run total cost. If LATCfp increases as PFIS increases, then the port exhibits “diseconomies of scale” in the provision of PFIS interchange service; that is, the percentage increase in PFIS will result in a greater percentage increase in the port’s long-run total cost. If the port exhibits “constant returns to scale,” then a percentage increase in PFIS will result in the same percentage increase in the port’s long-run total cost. Alternatively, economies of scale exist if S = LATCfp/ LMCfp = LTCfp/PFIS*LMCfp > 1; if S < 1, diseconomies of scale; and if S = 1, constant returns to scale.

481

In order for a single-service port to be cost-efficient in the provision of passenger interchange service (PPIS), the port will minimize cost that it incurs in the provision of technically efficient PPIS service; that is, it will minimize its cost (C) subject to production function (2) and resource function for the sth type of resource Rs (5) considering only passengers: Minimize C = PLp L p + PEp E p + PWp Wp + PBp Bp + PIp Ip + PEQp EQp subject to PPIS = g pa (L p, E p, Wp, B p, Ip, EQp; Passengers) (8) R s = R s (OPTION n; Passengers) s = 1, 2, … S; n = 1, 2, … N where PLp, PEp, PWp, PBp, PIp and PEQp are the prices of the resources Lp, Ep, Wp, Bp, Ip and EQp, respectively. To ensure that minimum amounts of resources are employed by the port in providing a given quality of interchange service for the number of passengers received, the resource function (5) for each resource (where only passengers are considered) is included in equation (8) prior to its optimization. In the optimization of equation (8), where the amounts of all resources employed can be varied and for which the port’s operating options are the choice variables, it follows that the port’s long-run total cost (LTCpap) function in the provision of PPIS can be derived as: LTCpap = LTCpap (PLp, PEp, PWp, PBp, PIp, PEQp, PPIS, Passengers) (9) The port’s long-run average total cost (LATCpap) in the provision of PPIS amount of interchange service is LATCpap = LTCpap/

482

WAYNE K. TALLEY

PPIS and its marginal cost in providing an additional unit of PPIS is LMCpap = ∂LTCpap/∂PPIS. In using the procedure that was used in deriving long-run total cost functions (7) and (9) in the provision of port freight and passenger interchange services, respectively, the following port long-run cost functions in the provision of port vessel and port vehicle interchange services, respectively, can be derived: LTCvp = LTCvp (PLp, PEp, PWp, PBp, PIp, PEQp, PVIS, Vessels) (10) LTChp = LTChp (PLp, PEp, PWp, PBp, PIp, PEQp, PHIS, Vehicles) (11) The port’s long-run average total costs LATCvp and LATChp in the provision of PVIS and PHIS are LATCvp = LTCvp/ PVIS and LATChp = LTChp/PHIS, respectively. The corresponding marginal costs are LMCvp = ∂LTCvp/∂PVIS and LMChp = ∂LTChp/∂PHIS.

24.3.2 Long run cost: a multi-service port To be cost-efficient in the provision of PFIS, PPIS, PVIS and PHIS services in the long run, a multi-service port will seek to minimize its long-run cost in the provision of PFIS, PPIS, PVIS and PHIS technically efficient interchange services (subject to resource function 5) in deriving its long-run multi-service total cost function: LTCfpavhp = LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles) (12)

The four-interchange-service port’s longrun marginal cost for freight interchange service is the addition to the port’s long-run total cost LTCfpavhp in providing an additional unit of PFIS; i.e., LMCffpavhp = ∂LTCfpavhp/∂PFIS. The port’s additional long-run total cost LTCfpavhp in providing an additional unit of PPIS passenger interchange service is LMCpafpavhp = ∂LTCfpavhp/∂PPIS. Similarly, the long-run marginal costs for PVIS and PHIS are LMCvfpavhp = ∂LTCfpavhp/∂PVIS and LMChfpavhp = ∂LTCfpavhp/∂PHIS, respectively. A four-interchange-service port will exhibit “economies of scale” (“diseconomies of scale”) in the provision of PFIS, PPIS, PVIS and PHIS if the percentage increase in PFIS, PPIS, PVIS and PHIS will result in a smaller (greater) percentage increase in the port’s long-run total cost LTCfpavhp. Alternatively, “economies of scale” are exhibited if Sfpavhp = LTCfpavhp/[PF IS*LMCffpavhp + PPIS*LMCpafpavhp + PVIS*L MCvfpavhp + PHIS*LMChfpavhp] > 1 and “diseconomies of scale” if Sfpavhp < 1. If Sfpavhp = 1, the four-interchange-service port will exhibit constant returns to scale. The long-run average total cost for interchange service for the four-interchangeservice port cannot be determined by dividing the port’s long-run total cost by the amount of this service, since some of the long-run cost is shared among the four interchange services. However, the unit cost for each service of the four-interchangeservice port can be computed as the longrun average incremental total cost (LAITC) for each service (Talley 1988). The long-run average incremental total cost (LAITCffpavhp) for PFIS freight interchange service provided by the four-interchange-service port may be expressed as:

483

PORTS IN THEORY

LAITCf fpavhp = [ LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles) − LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, 0, PPIS, PVIS, PHIS, 0, Passengers, Vessels, (13) Vehicles)]/PFIS where LTCfpavhp(PLp, PEp, PWp, PBp, PIp, PEQp , PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles) – LTCfpavhp(PLp, PEp, PWp, PBp, PIp, PEQp , 0 , PPIS, PVIS, PHIS, 0 , Passengers, Vessels, Vehicles) is the longrun incremental cost for PFIS, given the amount of interchange services PPIS, PVIS and PHIS and the number of Passengers, Vessels and Vehicles. The long-run average incremental total cost (LAITCpafpavhp) for PPIS passenger interchange service provided by the fourinterchange-service port may be expressed as: LAITCpa fpavhp = [ LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles) − LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, 0, PVIS, PHIS, Cargoes, 0, Vessels, Vehicles)]/PPIS (14) Similarly, the LAITCs for PVIS and PHIS can be derived.

Economies of scope will exist for the four-interchange-service port if it can provide its interchange services at less cost than the sum of the costs of each service (at the same level) being provided by singleinterchange service ports. That is to say, the four-interchange-service port will exhibit economies of scope if: LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles) < LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, PFIS, 0, 0, 0, Cargoes, 0, 0, 0) + LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, 0, PPIS, 0, 0, 0, Passengers, 0, 0) + LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, 0, 0, PVIS, 0, 0, 0, Vessels, 0) + LTCfpavhp (PLp, PEp, PWp, PBp, PIp, PEQp, 0, 0, 0, PHIS, 0, 0, 0, Vehicles) (15) If the inequality sign is reversed, i.e., “>,” then diseconomies of scope exist. That is to say, the four-interchange-service port provides its interchange services at greater cost than the sum of the costs of each service (at the same level) provided by singleinterchange service ports.

24.3.3

Short-run cost

The short-run time period is a period of time that is sufficiently short in duration to prevent a port from being able to vary the amount of every resource (unlike the longrun time period). Consequently, the port will incur fixed costs for those resources for which it is unable to vary their amounts within the short-run time period. Suppose a freight single-service port incurs fixed costs related to the resource,

484

WAYNE K. TALLEY

infrastructure (Ip), in the provision of freight interchange service PFIS. Hence, in the optimization of function (6) for which Ip is the fixed resource, it can be shown that the port’s short-run total cost (STCfp) function, representing cost efficiency in the provision of PFIS by the port in the short run, can be derived as follows: STCfp = SFCfp + SVCfp (PLp, PEp, PWp, PBp, PEQp, PFIS, Cargoes, Ip ) (16) where SFCfp is the port’s short-run total fixed cost, i.e., SFCfp = PIpIp, that does not vary with the amount of freight interchange service PFIS provided by the port. SVCfp is the port’s short-run variable cost that does vary with the amount of PFIS provided. SVCfp is a function of the prices of the port’s resources (except for the price of the fixed resource Ip), PFIS, Cargoes, and the amount of the fixed resource Ip. The port’s short-unit costs are obtained by dividing STCfp = SFCfp + SVCfp by the amount of freight interchange service provided (PFIS) to obtain SATCfp = SAFCfp + SAVCfp, i.e., the port’s short-run average total cost SATCf in the provision of PFIS is STCfp/PFIS, the shortrun average fixed cost SAFCfp is SFCfp/PFIS, and the short-run average variable cost SAVCfp is SVCfp/PFIS. The additional shortrun variable cost incurred by the port in providing an additional unit of PFIS service is the port’s short-run marginal cost SMCfp, i.e., SMCfp = ∂SVCfp/∂PFIS. Similarly, the short-run cost function for a passenger single-service port (STCpap) that denotes cost efficiency in the provision of PPIS by the port in the short run can be expressed as: STCpap = SFCpap + SVCpap (PLp, PEp, PWp, PBp, PEQp, PPIS, Passengers, I p ) (17)

where SFCpap is the port’s short-run total fixed cost, i.e., SFCpap = PIpIp, and SVCpap is the port’s short-run variable cost that is a function of the prices of the port’s resources (except for the price of the fixed resource Ip), PPIS, Passengers, and the amount of the fixed resource Ip. Suppose a four-interchange-service port exists that has the same fixed resource (as in the above discussion) and provides freight, passenger, vessel and vehicle interchange services in the amounts of PFIS, PPIS, PVIS and PHIS, respectively. It can be shown that the port’s short-run total cost function can be expressed as: STCfpavhp = SFCfpavhp + SVCfpavhp (PLp, PEp, PWp, PBp, PEQp, PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, (18) Vessels, Vehicles, I p ) where SFCfpavhp is the port’s short-run fixed cost, i.e., SFCfpavhp = PIpIp, and SVCfpavhp is the port’s short-run variable cost that is a function of the prices of the port’s resources (except for the price of the fixed resource Ip), PFIS, PPIS, PVIS, PHIS, Cargoes, Passengers, Vessels, Vehicles and the amount of the fixed resource Ip.

24.3.4

Other types of costs

As for maritime carriers (see chapter 5), the costs incurred by ports in the provision of interchange service, in addition to long-run versus short-run costs, may be classified as non-shared versus shared costs and internal versus external costs (Talley 2001). Port costs that can be traced to a particular port interchange service are its non-shared costs, e.g., the cost incurred by the port in checking in a container at its entrance gate. Costs

485

PORTS IN THEORY

that cannot be traced to a particular port freight or passenger interchange service and thus are borne (or shared) by two or more port freight or passenger interchange services are port shared costs. A port incurs a joint (common) shared cost when one port interchange service unavoidably results (does not unavoidably result) in the creation of another port interchange service. Suppose a container is moved from a container port’s storage area to its apron (the area of the quay where containers are staged, i.e., assembled before loading on a ship or after their unloading from a ship) by a straddle carrier, but then the straddle carrier must return to the storage area. The straddle carrier’s roundtrip cost is a joint cost to be shared between the straddle carrier’s front-haul and backhaul trips. The cost of a container port’s apron that is shared by containers is a common cost, since the use of the apron by one container does not unavoidably result in the use of the apron by another container. Port internal (external) costs are costs generated by the port in the provision of interchange service; they are borne (not borne) by the port and enter (do not enter) into the port’s decision-making processes. Examples of port internal costs include those incurred by the port in the hiring and purchasing of resources for the provision of interchange services. Examples of port external costs incurred in the provision of interchange services include water, air, noise and esthetic (appearance) pollution costs.

24.4

Port Demand

Ports provide interchange services to their users – shippers, passengers and carriers. Thus, port interchange services are

demanded by shippers, passengers and carriers.

24.4.1

Port shipper demand

In order for a port freight interchange service to occur, the shipper must be willing to provide cargo to the port and the port must be willing to receive and interchange this cargo. Since the shipper and the port are involved in creating port freight interchange service, there will be two prices for this service – a money price (per unit of port freight interchange service) that is charged by the port to the shipper for the freight interchange service and a time price (per unit of port freight interchange service) that is incurred by the shipper’s cargo while in port (Talley 2006). This time price is the product of the cargo’s value (or cost) of time per unit of time in port and the time that the cargo was involved in the provision of a unit of port freight interchange service. An example of cargo value of time in port is the inventory cost incurred by port cargo. Examples of port freight interchange services include the stuffing and stripping (to and from) containers of shippers’ cargoes. In Figure 24.1, shipper demand for port freight interchange service is represented by demand curve DFIS. The full (or total) price PPFIS per unit of port freight interchange service for a shipper is the sum of the port money price PSH and the shipper time price PSHT per unit of port freight interchange service. At higher full prices, less port freight interchange service is demanded by shippers, and at lower prices more service, all else held constant.

24.4.2

Port passenger demand

In order for a port passenger service to occur, an individual must be willing to

486

WAYNE K. TALLEY

PPPIS = PPA + PPAT

PPFIS = PSH + PSHT

DPIS

DFIS

PPIS Port passenger interchange service

PFIS Port freight interchange service

Figure 24.1 Shipper demand for port freight interchange service at full prices.

Figure 24.2 Passenger demand for port passenger interchange service at full prices.

provide herself/himself as a passenger at the port and the port must be willing to provide passenger interchange service to this individual. Since the individual and the port are involved in creating port passenger interchange service, there will be two prices for this service – a money price (per unit of port passenger interchange service) that is charged by the port to the individual for the port passenger interchange service, and a time price (per unit of port passenger interchange service) that is incurred by the passenger while in port (Talley 2009). This time price is the product of the passenger’s value of time per unit of time in port and the time that the individual was involved in the provision of a unit of port passenger interchange service. A passenger’s value of time per unit of time in port is the passenger’s opportunity cost minus the money equivalent of her/his direct level of satisfaction while in port per unit of time in port. Examples of port passenger interchange services include the loading to and unloading from passenger vessels of passenger baggage.

In Figure 24.2, passenger demand for port passenger interchange service is represented by demand curve DPIS. The full (or total) price PPPIS per unit of port passenger interchange service for a passenger is the sum of the port money price PPA and the passenger time price PPAT per unit of port passenger interchange service. At lower full prices, more port passenger interchange service is demanded by passengers, and at higher prices less service, all else held constant.

24.4.3

Port carrier demand

In order for a port carrier service to occur, the maritime (surface) carrier must be willing to have one of its vessels (vehicles) call at the port and the port must be willing to receive and service these vessels (vehicles). Since the carrier and the port are involved in creating a port carrier service, there will be two prices for this service – a money price and a time price. For the cost that the port incurs in providing port carrier service, the port will charge a money price

487

PORTS IN THEORY

PPVIS = PMC + PMCT

PPHIS = PSC + PSCT

DHIS

DVIS

PHIS Port vehicle interchange service

PVIS Port vessel interchange service

Figure 24.3 Maritime-carrier demand for port vessel interchange service at full prices.

Figure 24.4 Surface-carrier demand for port vehicle interchange service at full prices.

(per unit of port carrier service) to the carrier (Talley 2006). The carrier will also incur a time price (per unit of port carrier service) related to its vessel or vehicle that was involved in the provision of the port carrier service. This time price is the product of the vessel’s (vehicle’s) value or cost of time per unit of time in port and the time that the vessel (vehicle) was involved in the provision of a unit of port carrier service. Examples of vessel (vehicle) time costs include vessel (vehicle) insurance and depreciation costs. Examples of port carrier services include loading and unloading cargo to and from vessels and vehicles and vessel berthing and unberthing. In Figure 24.3, maritime-carrier demand for port vessel interchange service is represented by demand curve DVIS. The full (or total) price PPVIS per unit of port vessel interchange service is the sum of the port money price PMC and the maritime-carrier time price PMCT per unit of port vessel interchange service. At higher full prices, less port vessel interchange service is demanded

by maritime carriers, and at lower prices more service, all else held constant. In Figure 24.4, surface-carrier demand for port vehicle interchange service is represented by demand curve DHIS. The full (or total) price PPHIS per unit of port vehicle interchange service is the sum of the port money price PSC and the surface-carrier time price PSCT per unit of port vehicle interchange service. At lower full prices, more port vehicle interchange service is demanded by surface carriers, and at higher prices less service, all else held constant.

24.5

Port Effectiveness

A port, especially facing competition, is concerned not only with whether it is technically and cost-efficient, but also with whether it is able to optimize its overall operating objective, e.g., to maximize profits, maximize throughput subject to a minimum profit constraint, or minimize losses subject to a government subsidy

488

WAYNE K. TALLEY

constraint (in order to increase market share). If a port is able to optimize its overall operating objective, it will be described as effective. Thus, a port has efficiency and effectiveness operating objectives. Port efficiency operating objectives include the technical efficiency objective of maximizing port interchange service in the employment of a given level of resources (exhibited by the port’s production function) and the cost efficiency objective of minimizing cost in the provision of a given level of port interchange service (exhibited by the port’s cost function). Port effectiveness is concerned with how well the port provides service to its users – shippers, passengers and carriers. In order for a port to be effective, it must be efficient. Specifically, it must be cost-efficient, which in turn requires that it must be technically efficient. That is to say, a necessary condition for a port to be cost-efficient is that it be technically efficient. A necessary condition for a port to be effective is that it be costefficient. A cargo port’s profit function with respect to the port providing freight, vessel and vehicle interchange services may be specified as: Profit fvhp = PSH PFIS + PMC PVIS + PSC PHIS − STCfvhp

(19)

where PSHPFIS (PMCPVIS) represents the total revenue received by the cargo port in providing PFIS (PVIS) port freight (vessel) interchange service at a money price of PSH (PMC) per unit of port freight (vessel) interchange service. PSCPHIS represents the total revenue received by the cargo port in providing port vehicle interchange service at a money price of (PSC) per unit of port vehicle interchange service. STCfvhp is the short-run

total cost incurred by the port in providing freight, vessel and vehicle interchange services. Necessary conditions for the port to maximize profits in the provision of freight, vessel and vehicle interchange services are that the levels of these services provided by the port be such that their marginal profits equal to zero, i.e., ∂ Profitfvhp/∂PFIS = 0, ∂Profit fvhp/∂PVIS = 0 and ∂Profit fvhp/∂PHIS = 0.

24.6

Summary

A port is a place where cargoes and passengers transfer to and from vessels and to and from shores and waterways. A port may have one or more marine terminals and may be common-user or dedicated. Ports are also nodes in transportation networks and thus are used by transportation carriers in the provision of transportation services. The resources used by a port operator in the provision of port interchange services may be classified as: (1) labor, (2) energy (fuel), (3) harbor waterway, (4) berth, (5) infrastructure and (6) mobile equipment. Port production functions relate the maximum amounts of interchange services that ports can provide, given the amounts of resources utilized and the amounts of cargoes, number of passengers, number of vessels and number of vehicles received by the port. If a port adheres to its production function in providing interchange service, it is technically efficient. Measures of port interchange services that reflect the role of the port in interchanging cargoes, passengers, vessels and vehicles are the amounts of cargoes and numbers of passengers, vessels and vehicles that pass through the port per unit of time in port.

PORTS IN THEORY

A port’s operating options are the means by which it can differentiate the quality of its interchange services. A port’s resource function for a given resource relates the minimum amount of the resource to be employed by the port to the levels of its operating options and the amounts of cargoes and numbers of passengers, vessels and vehicles received. The long-run total cost function for a multi-service port relates the minimum costs incurred by the port over the long run to the resource prices paid by the port, the amounts of freight, passenger, vessel and vehicle interchange services provided by the port, and the amounts of cargoes and number of passengers, vessels and vehicles received by the port. Shippers, passengers and carriers incur two prices for port interchange service. Shippers and passengers incur a money price that is charged by the port for the service and a time price related to their cargoes and themselves while in port. Carriers incur a money price that is charged by the port for the carrier interchange service and a time price related to their vessels and vehicles while in port. In order for a port to be effective with respect to its overall operating objective, namely maximizing profits, it must be cost-efficient. A necessary condition for a port to be costefficient is that it be technically efficient.

Notes 1

For a discussion of technical efficiency and ports, see Cheon, Dowall and Song (2010), Cullinane (2002), Song, Cullinane and Roe (2001), Talley (2006, 2009), Wang, Cullinane and Song (2005), Rodriguez-Alvarez, Tovar and Trujillo (2007), and Yan, Sun and Liu (2009).

2

3

489

Port cargo throughput as a measure of port output is found in empirical port economic production studies by Chang (1978), Kim and Sachish (1986), Bendall and Stent (1987), Dowd and Leschine (1990), Liu(1995), Tongzon (2001), Cullinane, Song, Ji and Wang (2004) and Cullinane and Song (2006). Port cargo throughput as a measure of port output is found in empirical port economic cost studies by Jara-Diaz, Martinez-Budria, Cortes and Basso (2002), Jara-Diaz, Tovar and Trujillo (2005) and Tovar, Jara-Diaz and Trujillo (2007).

References Bendall, H. and A. Stent (1987) On measuring cargo handling productivity. Maritime Policy and Management 14: 337–43. Chang, S. (1978) Production function, productivities and capacity utilization of the Port of Mobile. Maritime Policy and Management 5: 297–305. Cheon, S., D. E. Dowall and D.-W. Song (2010) Evaluating impacts of institutional reforms on port efficiency changes: ownership, corporate structure, and total factor productivity changes of world container ports. Transportation Research Part E 46: 546–61. Cullinane, K. (2002) The productivity and efficiency of ports and terminals: methods and applications. In The Handbook of Maritime Economics and Business, ed. C. Grammenos, pp. 426–42. London: Lloyds of London Press. Cullinane, K., D.-W. Song, P. Ji and T.-F. Wang (2004) An application of DEA windows analysis to container port production efficiency. Review of Network Economics 3(2): 186–208. (Special issue on The Industrial Organization of Shipping and Ports, ed. W. K. Talley.) Cullinane, K. and Song, D.-W. (2006) Estimating the relative efficiency of European container ports: a stochastic frontier analysis. In K. Cullinane and W. K. Talley (eds.), Port

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Economics, pp. 85–115. Research in Transportation Economics, 16. Amsterdam: Elsevier. Dowd, T. and T. Leschine (1990) Container terminal productivity: a perspective. Maritime Policy and Management 17: 107–12. Jara-Diaz, S., E. Martinez-Budria, C. Cortes and L. Basso (2002) A multioutput cost function for the services of Spanish ports’ infrastructure. Transportation 29: 419–37. Jara-Diaz, S., B. Tovar and L. Trujillo (2005) Marginal costs, scale and scope for cargo handling firms in Spain. Transportation 32: 275–91. Kim, M. and A. Sachish (1986) The structure of production, technical change and productivity in a port. Journal of Industrial Economics 35: 209–23. Liu, Z. (1995) The comparative performance of public and private enterprises: the case of British ports. Journal of Transport Economics and Policy 29: 263–74. Rodriguez-Alvarez, A., B. Tovar and L. Trujillo (2007) Firm and time varying technical and allocative efficiency: an application to port cargo handling firms. International Journal of Production Economics 109: 149–61. Song, D.-W., K. Cullinane and M. Roe (2001) The Productive Efficiency of Container Terminals: An Application to Korea and the UK. London: Ashgate. Talley, W. K. (1988) Transport Carrier Costing. New York: Gordon and Breach Science Publishers.

Talley, W. K. (2001) Costing theory and processes. In A. M. Brewer, K. J. Button and D. A. Hensher (eds.), Handbook of Logistics and Supply Chain Management, pp. 313–23. Amsterdam: Elsevier. Talley, W. K. (2006) An economic theory of the port. In K. Cullinane and W. K. Talley (eds.), Port Economics, pp. 43–65. Research in Transportation Economics, 16. Amsterdam: Elsevier. Talley, W. K. (2009) Port Economics. Abingdon, Oxon: Routledge. Talley, W. K. (forthcoming) Is port throughput a port output? In E. P. Chew, L. H. Lee and L. C. Tang (eds.), Advances in Maritime Logistics and Supply Chain Systems. Singapore: World Scientific. Tongzon, J. (2001) Efficiency measurement of selected Australian and other international ports using data envelopment analysis. Transportation Research Part A 34: 107–22. Tovar, B., S. Jara-Diaz and L. Trujillo (2007) Econometric estimation of scale and scope economies within the port sector. Maritime Policy and Management 34: 203–23. Wang, T.-F., K. Cullinane and D.-W. Song (2005) Container Port Production and Economic Efficiency. Basingstoke: Palgrave Macmillan. Yan, J., S. Sun and J. Liu (2009) Assessing container operator efficiency with heterogeneous and time-varying production frontiers. Transportation Research Part B 43: 172–85.

25

Port Governance Mary R. Brooks and Athanasios A. Pallis

25.1

Introduction

Over the last thirty years, port governance issues have became central to the agendas of many governments. A changing economic environment produced by the globalization of production and distribution, changing forms of cargo transportation, technological breakthroughs, and many more issues, ended a long period of stable, state-controlled (public) port governance models in most countries. To adapt to the new context, many governments entered a period of port reform, changing applicable governance structures. Most reforms devolved management responsibilities and, to a lesser extent, transferred responsibilities associated with port ownership to newly created or existing corporate entities. However, the absence of consensus on appropriate governance models led to varied outcomes. Those endorsing new public management principles (e.g., Manning 2000; Osborne and Gaebler 1992) identified that there was no “one best way” and that governments should not be both

“rowing and steering.” Practice also confirmed the seminal work of Caves, Christensen, Swanson and Tretheway (1982) and Boardman and Vining (1989), who had already demonstrated that private sector involvement in public transportation operations does not necessarily provide a better performance outcome. This is not to say that generic governance models have not been advanced. The World Bank undertook to address this interest and focused on the development of a generic port model, the Port Reform Tool Kit ([2005]),1 building on the work of Goss (1990), de Monie (1994) and others. Concurrently, the debate about what were the appropriate models for port governance, and in particular the issue about public goods and their delivery by private corporations, stimulated the interest of the academic community. Studies aimed at understanding the endorsed models, and more importantly at evaluating their effectiveness in achieving governments’ intentions, followed. One example of this scholarly effort to examine governance

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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structures (i.e., to not only document the experiences of ports in fourteen different countries but to also evaluate the initial effectiveness of the reform programs) culminated in the publication by Brooks and Cullinane (2007a). They concluded that there was considerably more work to do the fully understand what models are in place, and which of them are the most effective in delivering the objectives sought. This chapter discusses the most recent wave of port governance developments, providing an update on what has taken place in the last two decades. Using the findings of a survey sent to the 125 largest ports, we examine the state of practice in port governance and discuss what it means for future port governance research. Throughout the chapter we use port governance terminology in a very specific way; we encourage the reader to review the definitions found in the Appendix.

25.2 The Evolution of Port Reform In the 1990s, port reform was the trend of the day, as the “new public management” philosophy swept the world. Port reform was really a response to a broader agenda of streamlining government (as a means of dealing with burgeoning deficits) and the result of a shift in macroeconomic thinking towards greater private sector involvement in public goods delivery. The reform process gained strength in the late 1980s and early 1990s, and when the full impact of the 1980s public sector reform in the UK and the US reached transport departments elsewhere, changing how bureaucrats and politicians saw the way forward on the governance of most transport activities, ports included.

The British experience has informed current thinking in port privatization. Port devolution in the UK often involved outright sale, even of regulatory functions; transfers were often at discounted prices and today there is no port regulator per se. Baird and Valentine (2007) concluded that there were two phases of port privatization in the United Kingdom, the first involving the sale of state-owned ports and railway ports in 1979–83, and the second disposal of the major trust ports. The privatization of the British Transport Docks Board (BTDB), subsequently renamed Associated British Ports (ABP), came at the end of the first wave of privatizations with a 51.8 percent listing on the stock exchange; the remainder of ABP was sold in the second wave, which occurred after the passage of the 1991 Ports Act. The deregulation of the port labor market, with the abolition of the National Dock Labour Scheme, was, Baird and Valentine argue, a critical factor in allowing UK ports to become more competitive. Furthermore, Baird and Valentine (2007) identified that privatization was used to unwind many nationalizations that had taken place during World War II, and that reform in the UK was really as much about reversing this hallmark of a government socialist philosophy as it was about selling companies that should not belong, under capitalist philosophy, in public hands. What made the UK reform model unique was that the privatizations of UK ports were the only true ones, because they included the sale of port land. The British case was all about selling ports (removing public ownership and accountability) rather than about creating new and improved port infrastructure and facilities, which was the goal in most other countries.

PORT GOVERNANCE

Does the fully privatized model work? According to Thomas (1994) and Saundry and Turnbull (1997), it is flawed from a public interest/taxpayer perspective and, for a long time after, there was less investment than might have otherwise occurred (Baird 2000). Furthermore, when private interests responded to improved trade, and financial institutions began to acquire infrastructure holdings, the loss of an oversight or monitoring role for government created discontent in the UK port industry, which proved unpalatable to other governments considering such an approach. As a result, no other government has copied the UK model in its entirety. Scholarly research over the past two decades has attempted to review port reform and “privatization” efforts in the 1990s (e.g., Cullinane and Song 2001; Everett and Robinson 1998; Hoffmann 2001), and developed specialized matrices for describing these activities (Baird 2000). Ex post assessments of these reforms have questioned the effectiveness of the actual developments; such criticism includes earlier models such as UNCTAD’s “port generation model” formed in 1990 (e.g., Beresford, Gardner, Pettit et al. 2004), the details of the relevant legislation that accompanied reforms (Everett 2007; Everett and Pettitt 2006), and empirical evidence that corporatization does not a priori result in improved financial performance (Pallis and Syriopoulos 2007). Academic research has followed field developments while the search for a perfect model has led to the continuation of reform activities by governments. The most illustrative example of this continuation is the case of the World Bank and its phenomenal effort in developing its World Bank Port Reform Tool Kit (WBPRTK) for developing

493

countries. The WBPRTK remains the most widely mentioned, and the most widely reviewed by governments. Beyond the process of reform, the WBPRTK focuses on the role (landlord, tool, service or private) and activities of port authorities (PAs) as a core theme of port governance, but not on the lines of accountability, appropriate governance structures or fiduciary responsibilities. Neither does the WBPRTK provide any evidence as to what governance models result in better performance outcomes or how ports themselves may respond to a government-imposed governance reform, and so its use is limited by its content. With the passage of time since the publication of the early taxonomies of port governance (e.g., Baird 2000; World Bank [2005]), the usefulness of these has eroded. These early approaches discussed the extent to which public and private actors were involved in the port sector, without examining whether the balance of responsibilities between them was right, for example whether it resulted in an effective performance in delivering the objectives sought by government. While such taxonomies might be useful to regulators, they provide little guidance for those who need it most for effective port operations – port managers (Brooks 2004). In other words, they served the public master poorly and the port authority not at all. Today, the restructuring of national port systems continues, as does the quest to identify the most appropriate allocation of responsibilities and governance structures. Current issues in port governance include (1) appropriate models for optimum performance outcomes within the port confines, (2) how best to execute such models to lower entry barriers in order to acquire the benefits of intra-port competition (see

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de Langen and Pallis 2006, 2007), (3) how to reform port labor to improve performance outcomes, and (4) how best to engage local stakeholders in efforts to improve port hinterland access. Given these interests, an update on contemporary port governance structures is undoubtedly warranted.

25.3 Port Governance Structures: Update and a Survey 25.3.1 Port reform purpose and port objectives How well ports perform and the governance structures in place have been discussed widely and the findings consolidated in a book on the topic (Brooks and Cullinane 2007). Following up on this work, Brooks and Pallis (2008) proposed that models imposed be revisited, in order to fix any misalignment in the framework imposed or to fit to changing economic circumstances, but also to incorporate feedback from the port itself or perhaps its political masters as experience with port reform unfolds. It is now more than ten years since the major reform agenda of the 1990s was implemented, and many governments, as part of their review of the impact of the global economic crisis, are taking a second look at the results of those reform experiments and the models we see today. Some countries have attempted to streamline the governance models they impose. For example, in Europe the reforms that took place in all four Mediterranean European countries (Spain and Italy in the 1990s, France and Greece in the 2000s) followed distinctive approaches for “ports of national interest” (e.g., corporatization) and for “peripheral ports” (for example, they

were granted a certain degree of autonomy but within a public framework). The devolution of smaller ports involves very different conditions and challenges than those that confront the major international ports, so that the models are not directly comparable; even in the case of the secondary or peripheral ports, the extent of devolution is not similar (Debrie, Gouvernal and Slack 2007). Canada streamlined its models to three, developing a divestiture program to privatize one group (local and regional ports), commercializing the major ports important to the national economy, and retaining its public service obligations to the third group (remote ports); the outcome varied considerably between ports as the negotiation process for divestiture was lengthy and each port had its own peculiarities; the reality is that each model type has its variants. The “perfect model” is a myth, unable to address the variety of public service obligations, geographical constraints and economic development aspirations of citizens. The 1990s were marked by the desire to involve private actors more than before but there were almost as many models as there were ports (Cullinane and Brooks (2007), and implementation of port reform proved to be excessively challenging for most governments. Evidence ranging from Singapore (Airriess 2001) and Dubai ( Jacobs and Hall 2007) to Baltimore (Hall 2003) and Los Angeles/Long Beach ( Jacobs 2007) suggests that institutional conditions restrict port governance choices and lead to diversified outcomes and development trajectories. Investigating some recent port corporatization processes in Asia (Busan) and Europe (Rotterdam, Piraeus), Ng and Pallis (2010) conclude that the newly established seaport governance structures follow a path largely

PORT GOVERNANCE

affected by the characteristics of local/ national institutional frameworks and the political traditions in place; path-dependent decisions preserve the system as much as possible, resulting in implementation asymmetries, even when different governments seek the same generic port governance solution. The problems with port reform are most evident in the objectives of the port: should the governance model serve the aims and purposes of the national government, the local community or the port itself and its customers? Brooks (2005) noted that every port in a post-reform environment faces an identity crisis in determining its objectives, given the conflicts between its government regulators (or owners), its customers, its local community stakeholders, and its managers (or shareholders). She argued that strategic objectives drive the port governance model chosen. Strategic objectives that ports may follow include: maximizing profits for shareholders; maximizing return on investment for government; maximizing traffic throughput; maximizing traffic throughput subject to a maximum allowable operating deficit; and optimizing economic development prospects, be they local or national. The last objective is the one most frequently chosen (Baltazar and Brooks 2007); it is also frequently chosen by small ports with ambitions to grow and by US public ports which see local interests as paramount. In considering reform options, national governments, for example, may limit the reform to decentralization when they seek local responsiveness, as it means no loss of ownership. Seeking to understand the current state of port reform, we have undertaken a study to examine port reform and port governance approaches today. We approached the

495

largest 125 ports around the world, based on 2007 data, and requested information on their existing governance practices and their port reform history. We have collected empirical evidence from fifteen ports, of which two are from Asia, nine from Europe, and three from the Americas (all from the US). Three of the European replies were from UK ports. In addition, we evaluated the websites and annual reports of the remaining 110, seeking answers to the survey questions. In total, we found 57 relevant port websites available in English, with these websites containing some but not all the information required; hence, the data reported in this chapter are a subset of the maximum possible, i.e. 72. A summary of the ports approached and the response rate appears in Table 25.1. We collected mission statements and objectives as seen by the ports themselves. A content analysis of these reveals that ports are still as much interested in economic development as they are in serving commercial and trading interests, confirming the findings of Baltazar and Brooks (2007). The full gamut of objectives, from commercial profitability and customer satisfaction to strategic national interest to sustainable, local economic development, can be found. It is not surprising that ports owned and managed by government may seek “to the enhance the contribution of the port and shipping related activities to Hong Kong’s economy” or “to advance and safeguard Singapore’s strategic maritime interests.” Neither is it unexpected that private ports will focus “on sale and development opportunities” or “financial value for our shareholders,” but it is surprising when even private ports consider the “economic value” they may generate for their local community. As Baltazar and Brooks

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Table 25.1

Responses and other sources

Location Asia Europe North America Australia Africa N=

Number in the top 125 portsa

Questionnaire replies

Ports for which website information is usedb

53 34 28 5 4 124

2 9 3 1 0 15

8 23 19 4 3 57

a

The total is only 124 as two ports on the list merged between the data year and the time of the survey. The relevant websites contain some but not all the information searched; thus the total of data available in each question is a subtotal of the maximum 72. b

(2007) found, most ports see their roles as complex, with multiple objectives, and as having not only national but also regional and local impacts. They serve more than just their customers, or their communities, and are in the business of balancing multiple roles and expectations. How are they structured to do this is therefore generally not simple.

•

•

25.3.2 model

Ownership in the governance

Baltazar and Brooks (2007) identified that there are, generally speaking, five types of port governance associated with port reform approaches, moving from most centralized public ownership and management to most private sector-oriented (the following examples are our choice to illustrate the types): •

•

Central government-owned with central government management and control (examples: National Harbours Board ports in Canada pre-1982; Spain pre1992; Italy pre-1994; Greece pre-1999) Government-owned but management and control decentralized to a local

•

government body (examples: many US ports; Spanish ports in Europe) Government-owned (national, regional or municipal) but managed and controlled by a corporatized entity (examples: Melbourne, Sydney and Newcastle in Australia; Rotterdam, Antwerp, Hamburg, Amsterdam and Zeebrugge in Europe) Government-owned but managed by a private sector entity via a concession or lease arrangement, or owned and managed via a public–private partnership agreement (examples: many ports in developing countries; Long Beach) Fully privately owned, managed and controlled (examples: many UK ports).

We sought to assess ports’ governance according to the Baltazar and Brooks (2007) typology of ownership and management combinations. Our findings are rather inconclusive as we have data from only 44 ports for this assessment. The regional groupings using that typology appear in Table 25.2. What can we conclude? Very few ports are fully privatized and listed on stock exchanges. In Europe, among the top 125

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PORT GOVERNANCE

Table 25.2 Current governance structure Objective and region Central government-owned; central government management and control Government-owned; management and control decentralized to a local government body Government-owned (federal, regional or municipal); managed and controlled by a corporatized entity Government-owned; managed by a private sector entity via a concession or lease arrangement, or owned and managed via a public–private partnership agreement Fully privately owned, managed and controlled N=

Europe

Africa

2

3

North America

10

1

11

1

1

1

6 31

3

3

Asia

Australia

n=

4

9

11

1

13

2

4

1

7

3

5

44

The total of 44 includes the 15 ports that answered the survey and 29 that were allocated to categories according to information on their websites. One from which no reply was received is not included.

ports, we found that only UK ports have indicated stock exchange listings. One of the UK ports, currently owned by a portrelated financial institution, is still listed, while three others were listed from 1983 to 2006, but delisted in 2006 because of acquisitions by new owners who took them private (discussed in more detail below). In a number of cases, corporatization has taken place, with the issuance of share capital, but the government has retained a majority of the shares, and the issuance has not been accompanied by public listing. The corporatization of some ports not in the top 125 has been accompanied by a listing on a stock exchange (e.g., Piraeus and Thessaloniki), but these are few and far between. In some cases, government own-

ership means that there is no port authority per se but a government department with responsibility for the port. In contrast, the Government of South Africa has created a single port authority – the South African National Ports Authority – as custodian of eight major seaports, and there is no portlevel port authority. A case of a single private entity governing several ports is also observed in Romania. In conclusion, government ownership is still a dominant feature of port governance, with few fully privatized ports amongst the world’s largest. As a result, the majority of the largest ports have commercialized or corporatized governance structures, or have found other ways to increase the participation of the private sector via the provision

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MARY R. BROOKS AND ATHANASIOS A. PALLIS

of these public activities, for example infrastructure development through buildoperate-transfer schemes, or the operation of terminal facilities through concession agreements. Mixed governance models incorporating contracted management of this type are readily found and are discussed in subsection 25.3.6, “Injecting private sector management into public governance: the use of concessions.” Many ports, however, remain government-owned and -managed, although they may have been decentralized.

25.3.3 The US approach to port governance: a special case One model that spurs the interest of port authorities with financial challenges is the US model. From a distance, ports in the US appear to have access to funds not available to ports in other countries. It is important to have context here – the only federal role for ports in the US is channel and navigational aid maintenance; the Department of Homeland Security governs security rule setting. US ports have access to funds through a variety of means, but we must remember that they are primarily public ports and did not participate in the reform movement that raced through the rest of the world. The framework of port governance in the US is “complex and fragmented” with a web of public and private organizations involved in management at national, regional and local levels, each with differing priorities, requirements and procedures (Newman and Walder 2003). The multitude of jurisdictional forms has led to intense competition among ports and within ports in the US – not what is needed in many small ports, who may be better off using

cooperative strategies. US ports are heavily dependent on government (loans, grants and taxes) and tax-exempt revenue bonds for their revenue. Tax-exempt revenue bonds are not allowed in many other jurisdictions. Furthermore, the US model is considered highly inefficient (Helling and Poister 2000). Many US ports do not easily fit our governance classification approach (based on Baltazar and Brooks 2007), and so require special mention and their own discussion. As noted by Fawcett (2007), there is no national US ports policy, and the majority of US ports are publicly owned and managed in a myriad of ways that is more an accident of local history than a planned outcome. For reasons well detailed by Fawcett, the US port system has evolved unlike any other internationally, although Australia’s “statesled” approach to port governance may be considered a close approximation. Sherman (2002) has provided a description of the US port governance system for those unfamiliar with its complexity. For those with a strong interest in US port governance, his summary plus Fawcett’s history provides the clearest analysis. In an attempt to simplify it further here, we use the US Department of Transportation Maritime Administration (2008) typology and summarize the current level of responsibilities the largest US public ports provide in two tables (25.3 and 25.4). Table 25.3 presents the Maritime Administration’s typology of US public ports as one of three categories: non-operating, operating, or limited operating. In an effort to collect data on US public port expenditures, they noted that these public ports do not even have common financial years of data collection for consistency in their planning activities, which are detailed in Table 25.4. (Table 25.4

Table 25.3 US Port governance and management definitions Category Non-operating ports (Non-Op) Operating ports (Op)

Limited-operating ports (Ltd Op)

Definition Basically landlord ports with all port facilities generally leased or preferentially assigned with the lessee or assignee responsible for operating the facilities. Generally provide all port services except stevedoring with their own employees including, but not limited to, loading and unloading of rail cars and trucks and the operation of container terminals, grain elevators, and other bulk terminal operations. Lease facilities to others, but continue to operate one or more facilities with port employees. These operated facilities may be specialized terminals, such as grain elevators, bulk terminals, container terminals, etc.

Source: US Department of Transportation Maritime Administration (2008), p. 3.

Table 25.4 US public seaports governance and responsibilities Port

Planning activities

Category

Type

Strategic planning

Marketing

Finance

Development

Maryland Port Administration (Baltimore) Virginia Ports Authority Alabama State Port Authority Greater Baton Rouge Port Commission Lake Charles Harbor & Terminal District Port of Corpus Christi Authority Port of Houston Authority Port of New Orleans Port of South Louisiana

Op

X

X

X

X

State

Ltd Op Ltd Op

X X

X

X

X X

State State

Non-Op

X

X

Op

X

X

X

X

State

Ltd Op

X

X

X

X

Ltd Op

X

X

X

X

Non-Op Ltd Op

X

X

X X

X

Port of Long Beach Port of Los Angeles

Non-Op Non-Op

X

X

X

X

Special purpose Special purpose State Special purpose Municipal Municipal

State

Source: US Department of Transportation Maritime Administration (2008), extracted from the tables.

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MARY R. BROOKS AND ATHANASIOS A. PALLIS

contains only those ports that responded to the Maritime Administration survey on financing arrangements for the fiscal year ending in 2006 and that also appear on the list of top 125 ports in the world by tonnage in 2007.) While US ports are predominantly publicly owned, the public authority is often not involved in operating activities (Table 25.4). The governance type is predominantly nonoperating or limited-operating, and most restrict their activities to planning. For some, even planning is not part of their mandate. In addition to those presented in Table 25.4, our survey can report on two more. The authorities of the ports of Tampa and Plaquemines did not respond to the Maritime Administration survey but did reply to us. As the role of the former includes both planning supporting infrastructure through “customer-driven, strategic business focus in working with stakeholders” and terminal management and operations, and the role of the latter is limited to the planning and regulation of Lower Mississippi traffic, these additional data confirm the complex and fragmented character of US port governance. Furthermore, although public ownership is the primary governance mechanism for the US port system, private sector involvement is significant. Many US ports are non-operating landlords and all terminal activities in these ports are arranged through management leases or other contractual arrangements. For example, while the Port of Long Beach is a municipal port, as illustrated in Table 25.4, and takes responsibility for the management activities of the port on behalf of its municipal masters, its offering on container services is clearly undertaken by private companies. This pattern of private sector activity is common; global

container terminal operating companies (GTOs) dominate the management of container terminals. In terms of 2003 TEU throughput, for example, Drewry Shipping Consultants reported that GTOs held a market share of 61.7 percent of North American throughput, compared with a 56.9 percent share globally. Furthermore, they identified that the 2003 top 10 private sector container terminal operators in the US and Canada managed terminals accounting for 72.1 percent of terminal throughput. To summarize, while port ownership and governance in North America is firmly of the public ownership type, there is strong participation by the private sector in delivering port services. The US never had a port reform movement on the scale seen elsewhere, but when DP World sought to purchase the US terminal operating activities of P&O Ports, US congressmen argued that ports could not be allowed to fall into foreign hands, as if ownership and not operating activity was at stake. Ports in the United States firmly remain public entities, private ports playing a limited role in the economic activity of the nation.

25.3.4 European governance models: a complex picture A more complex port governance picture exists in Europe. The presence of different traditions, ranging from privatized ports in the UK to the landlord ports in Northern Europe and the state-owned,-governed andoperated ports in Southern and Eastern Europe, has resulted in distinctive port governance regions. Progress in separating the governance of the port from operations (services provision) was discussed over the period 2001–6 within the EU but was never

PORT GOVERNANCE

endorsed (Pallis and Verhoeven 2009). In most of the recent port governance reforms (Sweden, 2009; France, 2008; Greece, ongoing), this target has been evident. In Northern Europe, the core of the model commonly called “Hanseatic” or “landlord” has remained untouched. Reform of the corporate structures of port authorities has taken place, leading the PAs well beyond the landlord function. The most illustrative case is that of the biggest port in Europe, Rotterdam. In 2004, the Rotterdam Port Authority was formally detached from the Rotterdam’s Municipal Port Management to form a public corporation, with major responsibilities for commercial and financial affairs, investments in new development projects, mid-term business planning and implementation, and autonomous setting of long-term objectives. The Rotterdam municipal government became its largest shareholder and the owner of its land. The purpose is to formalize substantial changes to the landlord function to enable adjustments to globalization, such as the need for further investment capital mobilization or the accommodation of increased traffic via the coordination of different supply chain actors. Issues of land scarcity, the oligopoly in terminal operations, and negative externalities of port development projects (whose benefits often extend far beyond the port-city perimeter), led to the need for a more active coordinating role by the previously “passive” landlord port (Verhoeven 2009). A second example is another of the 125 major ports, Göteborg. Its new corporate structure divides operations previously managed by the City of Göteborg between a port authority that acts as landlord (assuming responsibility for the infrastructure) and

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three terminal companies run by private operators. The fact that the port authority remains an entity controlled by the City Council, but assumes similar responsibilities to those held by Rotterdam, highlights the continuing interest in new public management principles without the loss of ownership. The truly privatized ports of the UK did not remain as originally planned. In particular, the “financialization” trend that emerged in the decade that preceded the 2008 economic crisis (Rodrigue, Notteboom and Pallis 2010) resulted in ownership transfer rather than model change. Over a period of three years (2003–6), the ownership of a number of UK ports moved into the hands of foreign finance and investment companies. PD Ports, the owner of the Tees and Hartlepool ports, was purchased by an Australian investment fund, Babcock & Brown Infrastructure, in 2005. A consortium of four partners (Americanbased Goldman Sachs; GIC, the Singapore Government investment company; Canadian pension fund Borealis; and the infrastructure arm of the UK’s Prudential) acquired Associated British Ports Holdings plc in August 2006. Simon Group, the owner of two UK ports, was acquired by Montauban SA (a financial company based in Belgium), and the property company, Peel Holdings, bought Mersey Docks & Harbour Company in June 2005. Major governance changes also happened in Southern Europe. In the 1990s, Spain (1992), Italy (1994) and Greece (1999) abandoned the “Latin tradition” and devolved power to newly established, autonomous public entities. In all cases, an umbrella organization was created as a platform for collective action of port governors, with varying degrees of success. The

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Spanish organization, Puertos del Estados, remains active, but the Italian one plays a less important role in port planning than projected, while the Greek organization has been subject to three restructurings, each with limited success. In 2008, the French government transferred responsibility for terminal operations from the public to the private sector; the larger ports of France (Grands Ports Maritimes) now too subscribe to the landlord port governance model. Finally, the introduction of concessions in Greece in October 2009 marked the end of an era when the state-appointed and -controlled public port authorities owned and maintained the infrastructure and superstructure, and provided all port services.

25.3.5

Other governance models

The global economic crisis has made funds for port investment more difficult to find, and port traffic itself has declined in doubledigit terms. This forces those rethinking their governance model to contemplate a more collaborative approach, as one option, or increasing the participation of users, as another. As an example of the latter, one of the more interesting models of governance, which has been debated widely in the airline industry and those interested in privatization, is the NavCanada model for the governance of air navigation services (ANS). (Under our definition, this is not a true privatization, but it illustrates a broader user participation model.) Sometimes touted as one of the best in the world, as it is more responsive to the interests of users, e.g. those who pay for its services, NavCanada was created primarily through the collaborative efforts of employees, unions, pilots,

airlines, government officials, and other members of the aviation sector who shared concerns over the ability of Canada’s air navigation system to meet the challenges of the next decades. Service charges recover all costs but users do not pay more than their representatives agree they should pay; while this can mean that charges go up when traffic is down (and therefore at what is possibly the worst time), the Board has a fiduciary responsibility for safety to meet but the users have a means of influencing the charging mechanism for services. To illustrate its user focus, NavCanada is governed by a fifteen-member board of directors, structured as follows: five directors appointed by airlines, business and general aviation; three directors appointed by government; two directors appointed by the unions; four independent, unrelated directors chosen by the board; and the Chief Executive Officer. It therefore represents a high degree of user participation on the board but only one management director, the CEO. What is perhaps more interesting is that it has a second governance structure, the Advisory Committee, which can identify and research pertinent issues at the request of the board or of its own initiative. What makes this model of interest to governance watchers is that it is a hybrid of capitalist and socialist thinking. The directors have all of the fiduciary responsibilities of a corporate board, but are user-dominant with labor participation. Here, the users who pay for ANS get to make the corporate decisions that affect them, albeit through appointed representatives. Today, a world-class governance model is one that is open and transparent, has key decision makers in the room, practices community consultation, is responsive and inclusive, and plans to deal with environ-

503

PORT GOVERNANCE

The world beyond

Stakeholders

Local community

Governance

Landside access and suppliers

Operations

Port

Figure 25.1 A broader view of governance.

mental concerns and social and economic sustainability in the future, all to the benefit of the community. The key to achieving such world-class governance is the structures set in motion to conduct activities within these guidelines. A governance model for a port seeking to optimize economic development prospects indicates that a broader stakeholder engagement model is appropriate (see Figure 25.1) and may be achieved by thinking about those who need to be engaged, particularly where the groups overlap, as illustrated in Figure 25.2. This may lead to an even broader governance structure, where the port has more formal governance connectivity with regional infrastructure interests or a regional transportation authority (see Figure 25.3). Such an approach to port governance is often proposed when reform models are discussed; those interested in reform often present the multimodal model seen in Boston at Massport or at the Port of New York New Jersey (PNYNJ). Both of these entities are very much governmentcontrolled, and incorporate into the port governance structure much more than just

Figure 25.2 The multi-modal governance vision.

Port

Regional authority

Airport

Industrial parks

Figure 25.3 The local infrastructure or transportation governance structure.

port operations; PNYNJ, for example, includes many bridges and tunnels, three airports, and the site of the ill-fated World Trade Center towers. In these cases, the port is only one player among several and

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may not have the undivided attention to its own activities that would be seen in a more port-focused authority structure. A second critical problem with such a broader governance approach is that it is so amorphous that it often has challenges with community engagement and becomes more political. So while these types of models may appeal superficially, in that they include many, if not all, regional transport assets, their decision-making processes often become entirely political and the model degrades to a nineteenth-century approach to governance.

25.3.6 Injecting private sector management into public governance: the use of concessions Reform of port governance via concessions is a trend that has been accelerated by the advent of containerization and the development of container terminals (Olivier, Parola, Slack and Wang 2007). In most cases, concessions are granted for specific terminals. Public port authorities (or occasionally other public agencies) generally develop a port master plan (detailing the layout of port development, such as breakwaters and terminal areas) and invest in general port infrastructure (port land, access roads and rail tracks). These port authorities grant private terminal-operating companies concessions to operate a terminal, and receive a concession fee. The responsibility for investment differs between concessions: in some cases, the public PA invests in quays and terminal area, while in other cases the private terminal operator has to make these investments. In such cases, the government usually still determines the main terminal characteristics, such as size, location, and waterside and landside access. Consequently,

modern port authorities face a dilemma: “the delivery of local benefits desired of the authorities by government may not match the objectives of those who win terminal concession rights” (Brooks and Cullinane 2007b: 637). It is worth considering that this dilemma has become more acute, as consolidation of terminal operations has continued unabated since those words were written. Financial infrastructure funds continued, until the global financial crisis, to acquire terminal operations not already purchased by the largest of the global terminal-operating companies; such financial focus on the business of terminal operations set the interests of governments and of private sector managers of terminaloperating companies in divergent directions. Ownership by global financial interests divorced terminal operations from the local/regional community and focused their interests on delivering returns (Rodrigue, Notteboom and Pallis 2010) at a time when governments were seeking even greater social returns. It is clear that the future research frontier is the topic of concessions – how they are structured and the governance mechanisms that their public sector overseers put in place to ensure that local interests or national interests, as may be appropriate, are met. Existing port governance practices of terminal concessioning have boosted rather than limited the consolidation and dominance of a few private interests in terminal operations (Pallis, Notteboom and de Langen 2008). Our conclusion – that most ports in the world are of a mixed nature, neither fully public nor fully private – raises the need to discuss how government-owned ports can improve participation of the private sector in port planning and delivery of services. Even those port authorities where there is

PORT GOVERNANCE

strong government control have moved towards a mixed approach, recognizing that local economic development agendas may require a publicly controlled model to deliver the economic development benefits sought from the public good part of a port but that a private sector management model may deliver the best from concession strategies. The extent of concessioning differs according to the type of traffic; it is most common for the management of container terminals. This is perhaps a result of the fact that bulk terminals often serve captive users, and competition policy concerns are in play. Looking in more detail in European ports, we find that empirical data from 125 container ports in 33 European countries (i.e., all those reported in Containerisation International 2009) demonstrate that in 18 different countries operation is undertaken by terminal-operating companies (TOCs) only. In most of the ports where PAs are involved in container terminal operations (a total of 39 terminals in 29 ports), they do that without any TOC being present at the port. It is only occasionally (five cases) that the port has mixed provision and the PAs operate a port terminal in competition with a TOC (see Table 25.5). In the remaining 91 ports, private TOCs operate 157 terminals, the authorities restricting themselves to the role of the overseer that initiates and/or monitors the operator’s activities. The picture in North America is rather different (Table 25.6). In Canada, PAs have embraced the landlord role, whereas in the 38 US ports for which data are available, the PAs have a remarkably active role: they provide operations in 20 ports, and in five more they operate in competition with at least one TOC; in the remaining 13 ports only TOCs are involved in terminal operations.

505

Port authorities themselves, in many cases, no longer feel bound to engage only in developmental activities within their port boundaries but are engaging in a variety of coordination or cooperation activities within their geographic regions, or even beyond (Brooks, McCalla, Pallis and Vanderlugt 2009). Investment and financing issues impose limits on the best options available to ports in any community; with cost recovery, port users almost always want to be involved in port development. This raises the questions of whether ports are governed by boards of directors in an arm’s-length manner, and whether user participation in such boards occurs.

25.3.7 Board composition and accountability In other industries, there is considerable debate about the relationship between board of director composition and organizational success in reaching reform objectives, but that debate has not really occurred within the port reform movement. In fact, it has only been previously noted, albeit obliquely, by Brooks (2005: 116–17): It can only be concluded that governments, by the way they establish boards, set them up for success or failure. If a board appointment is seen as a plum or reward, as happens in cases of political patronage (government-appointed boards), effectiveness will be compromised. The board member who is more interested in fees than outcomes, in ego than results, and in political gain than community service or improving shareholder value, can derail a community-driven board quite effectively. There is no place for political patronage if boards are to be effective.

Table 25.5

Entities operating container terminals in non-UK European seaports

Country

Ports

Ports where the PA operates the terminal(s)

Where only TOC operates terminal

Mixed provision (both the PA and one or more TOCs operate terminal(s))

Number of container terminals

Number of terminals by TOC

Azores Belgium Bulgaria Canary Is. Croatia Cyprus Denmark Estonia Finland France Georgia Germany Greece Hungary Iceland Ireland Italy Latvia Lithuania Malta Montenegro Netherlands Norway Poland Portugal Romania Russia Slovakia Slovenia Spain Sweden Turkey Ukraine TOTAL

1 2 2 5 1 1 3 1 4 8 2 11 4 1 1 4 14 2 1 2 1 4 3 3 3 1 7 1 1 13 6 9 3 125

1 0 2 1 1 1 1 0 0 2 0 2 3 0 0 1 0 0 0 0 1 0 0 0 0 0 0 0 0 4 5 3 1 29

0 2 0 3 0 0 2 1 3 6 2 8 0 1 1 3 14 2 1 2 0 4 3 3 3 1 7 1 1 9 1 5 2 91

0 0 0 1 0 0 0 0 1 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 5

1 7 2 6 1 1 5 1 6 14 2 22 5 1 1 5 19 2 2 2 1 14 4 5 6 4 13 1 1 20 6 13 3 196

0 7 0 4 0 0 3 1 5 10 2 19 1 1 1 4 19 2 2 2 0 14 4 5 6 4 13 0 0 16 1 9 2 157

Source: Authors’ compilation from data included in Containerisation International Yearbook 2009, with changes that took place in 2009 added by the authors.

507

PORT GOVERNANCE

Table 25.6

Entities operating container terminals in North America

Country

Ports

Ports where the PA operates the terminal(s)

Where only TOC operates terminal

Mixed provision (both the PA and one or more TOCs operate terminal(s)

Number of container terminals

Number of terminals by TOC

Canada US Total

7 38 45

0 20 20

7 13 20

0 5 5

14 85 99

14 58 72

Source: Authors’ compilation from data included in Containerisation International Yearbook 2009, with changes that took place in 2009 added by the authors.

From the perspective of this chapter, it is important to identify if ports today, with their focus on a myriad of objectives, have been structured for success; do they have a preponderance of political appointees on the board of directors, or, at the other extreme, is management itself excessively present? Boards tend to be at their most effective if directors do not feel that they must present the interests of those who appoint them but are free to serve the best interests of the entity itself. The issues of fiduciary responsibility and accountability are at the core of board effectiveness, whether the board manages a port or some other entity. A review of the recent literature on board composition and corporate performance provides very little guidance on what port board structures would work best. One of the areas of focus of this literature is the issue of director independence. For example, in Australia, the ASX Corporate Governance Council’s March 2003 recommendations on principles of good corporate governance and best practice included the recommendation that the majority of the board should be independent directors,2 and Kang, Cheng and Gray (2007) have found this to be so in their study of leading Australian compa-

nies. A meta-analysis by Kiel and Nicholson (2003) found, however, a general lack of consistent evidence of any significant relationship between board composition and corporate performance. Prevost, Rao and Hossain (2002) noted that most research on optimal governance structures, board composition and organizational performance is primarily US-based and generally inconclusive. Since then, there has been no shortage of research across a large number of countries, but we are no closer to definitive conclusions, by groups of countries or by industries, on the linkage between board composition and performance. Furthermore, there is the question of board size. Smaller boards are the norm in the Continental European model of governance, while larger boards are the AngloAmerican practice. Since board size became an issue in the 1990s, there has been a trend towards smaller boards in both of these governance types, along with a greater independence of directors (Chhaochharia and Grinstein 2007; Ooghe and Langhe 2002). More important, Kiel and Nicholson (2003) concluded that no single theory offers a complete explanation of the corporate governance–corporate performance relationship, but their findings suggested that a

508 Table 25.7 Region Americas Africa Asia Australia Europe Total

MARY R. BROOKS AND ATHANASIOS A. PALLIS

Board structure Data available for n ports

Has a board of directors

17 4 12 5 31 69

17 1 11 5 29 63

balance of independent and management directors is supported. This leads us to consider the question: what is the board structure we see in the largest PAs? How large are the boards and do we see independence of directors or greater presence of management directors? To start, the majority of ports we examined appear to have adopted the board model of governance and accountability. However, although 63 of 69 ports (Table 25.7) had “boards,” what these boards do is not entirely clear. They may be classic boards of directors, as found in commercial corporate governance, or they may be boards of advice, with no fiduciary responsibilities for the management and strategy of the port entity but whose purpose is to provide advice to the day-to-day port authority “managers” who guide and direct the operations. More telling is the absence of information on the board composition. One would expect a small number of management directors to be on commercial boards, as key officers of the corporation attend meetings in either voting or ex officio roles to ensure a connection between the creation of the mission and vision for the port and its execution. The presence of management directors on European boards (Table 25.8)

and not on North American boards is surprising, as this is a feature of North American-style corporate governance. Given that port website information has been extensively used, it may have something to do with the fact that many of the columns containing independents, management directors and political appointees do not add to the total number of directors when they should. It is not unexpected that local political appointments should feature so prominently in the US model (as that is its very nature). The small number of independent directors is discouraging: it is often argued that independents on boards are a key to success, as their presence encourages critical thinking and innovation by directors. Likewise, given that Continental European governance models favor smaller boards, the large number of directors in Spanish ports is also discouraging; why are so many required when the norm is closer to eight? Do the high numbers result in excessive debate and hamper consensus building? These questions cannot be answered without speculation. A governance model (1) identifies the strategic objectives of the entity (for profit, not for profit, and so on), and (2) denotes who assumes the risks of the enterprise and the lines of accountability. Furthermore, most governance models identify the particular set of operating principles for the entity, and how transparent the entity is required to be to those with an interest in its activities. (Brooks 2005 detailed the many differences in corporate governance of ports and the accountability mechanisms of such boards.) While many of these principles may be detailed in regulations applicable to the ports, practice varies considerably from one country to the next. For example, in locales

Table 25.8 Board composition Region and port Directors Independent National governmentLocal/regional Management appointed government-appointed directors Europe Estonia_1 France_1 France_2 Germany_1 Germany_2 Germany_3 Italy_1 Netherlands_1 Romania_1 Russia_1 Spain_1 Spain_2 Spain_3 Spain_4 Sweden_1 UK_1 UK_2 UK_3 UK_4 UK_5 North America Canada_1 US_1 US_2 US_3 US_4 US_5 US_6 US_7 US_8 US_9 US_10 US_11 US_12 US_13 US_14 US_15 Asia China_1 China_2

8 6

13 7 5 10 7 25 26 26 26 22 8 13 11 13 6 1 7 7 9 5 7 7 5 9 8 9 12 15 7 7 7 9 9

5 2 5

4

4 2

7 9 4 5

7

3 3

6 3 3 9

4 2 2 1

6 7 7 12 1

7 3 10 1 7

1

2

1

3 2

3 7 7 8 7 5

5

3 3

9 12 15 2 5 6 3

(Continued)

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MARY R. BROOKS AND ATHANASIOS A. PALLIS

Table 25.8 (Continued) Region and port Directors Independent National governmentLocal/regional Management appointed government-appointed directors India_1 India_2 Malaysia_1 Malaysia_2 Sinapore_1 Sri Lanka_1 UAE_1 Australia Australia_1 Australia_2 Australia_3 Australia_4 Australia_5 Average

15 10 11 8 12 9 7 8 5 7 6 5 10.9

0

10

11

1 1

5

6

0

0

7 0

4.7

4.6

6.1

4.3

where ports are publicly owned but terminals are operated by concession, the port authority may be required to publish an annual report on the volume of traffic handled, by facility, the basic terms of any concessions granted or its tendering practices, but its financial accounts could be hidden from public scrutiny in the general revenue statements of the government. The level of transparency in public ports is set by the government of the day; it is neither subject to the rules about reporting that apply to publicly traded shareholding enterprises, nor always free from complaints about political patronage or process management. Conflict of interest guidelines may be strict or loose, and stakeholders may be less than satisfied with the decisions they see. As an additional layer, corporatized ports are usually required to be compliant with legislation applicable to companies operating in the country and with the by-laws or letters patent governing their establishment, and possibly even to consult regularly

with community stakeholders about capital plans, charging mechanisms, environmental practices, and so on. They may have the right to borrow money from financial institutions or, as corporatized entities, be able to apply for a bond rating for the issuance of debt. Our research has indicated that, of 15 ports examined, 13 have the right to borrow funds from commercial financial sources and eight have been granted a bond rating from a bond-rating agency. Over the past twenty years, there has been considerable interest, in countries where Anglo-American models of governance dominate, in the concept of wider stakeholder management, even if users are not consulted about charging mechanisms or rates. As a result, ports may choose to hold regular meetings with the community or its stakeholders, and report on performance metrics or their environmental practices. Again, our research has found that, of the ports we examined, most indicate that they do hold such meetings; this suggests

PORT GOVERNANCE

that stakeholder management has been quite widely adopted, in particular by ports in Europe, North America and Australia.

25.4

Summary

The widespread move towards devolution of ports observed in the1990s continues, but not in a uniform way. Our research documents the “myth of the perfect model.” Governance approaches have been more about national or regional approaches than continental or global ones. The privatization that is touted to have happened is, in many cases, “smoke and mirrors.” Ownership by government remains firmly entrenched in many countries, but there has been widespread adoption of concessions to bring greater private sector management into the provision of port services. Corporatization has continued to be a solidly acceptable governance option for governments to consider. More recently, investment and financing issues have imposed limits on options available to government, and institutional traditions and political practices continue to contribute to the local/national/regional variance in port governance models observed. By focusing on the major international ports, however, this study revealed that some general trends exist, responding to the core elements of the dynamic economic environment. First, there is a common denominator in many cases, namely the involvement of private interests in terminal operations and the implementation of new public management principles that see the separation of regulatory oversight from operating activities by PAs. This is a step towards more effective and efficient management which also enables the injection of

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private capital into the sector. However, this is not observed in all port regions. Second, there is a trend for port authorities to go beyond their traditional functions. Third, policy makers’ efforts to streamline the governance models they impose recognize that the economic context has not had the same influence in all ports. Fourth, a “normalization” of the corporate structures of port governing bodies is taking place, the newly established corporatized port entities increasingly being required to comply with the legislation that applies to any company operating in the country, such as the regulations that apply to boards’ fiduciary responsibilities. Notably, all models, including the rare true privatization, have evolved as the wave of reform begun in the 1980s continues to play out. In the case of the privatized UK ports, financial markets have driven the port industry into heavy consolidation, closer than ever to being able to impose monopolistic practices, and without a port policy in place to harness or redirect the outcome. As ports have evolved under the various approaches to governance implemented via port reform, governments have witnessed the difficulty ports face in addressing issues with their hinterlands, such as congestion and infrastructure investment beyond the traditional boundaries of the port. This has spurred, in some cases, interest in broader and more community-based governance models. It has not yet spurred a policy reversal that would return ports to public management. With the globalization of trade flows, shipping lines and cargo customers have become more concerned about the performance of the entire logistics supply chain ( Joint Transport Research Centre 2008). This includes the performance of

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MARY R. BROOKS AND ATHANASIOS A. PALLIS

ports, which can no longer be seen as isolated from their supply chain partners. Port governance must be structured to optimize port performance within a supply chain. The future also requires greater cooperation and community consultation. As those seeking to use waterfronts for community purposes or privately owned housing gain a louder voice, ports have come under pressure to justify their current uses and business models. With cost recovery, however, users want to be involved in port development or port adaptation. There continues to be little consensus on what governance models are most appropriate. The allocation of responsibilities for “public goods” and what ports should provide to all those who seek their services remain unclear, and a ripe area for future research. As well, we conclude that while there are numerous studies on board composition and performance, there is little guidance available from them. It seems to us that there is considerable scope for a research agenda looking at board structure and port performance as measured by more than just port throughput. These two areas for future research deserve the attention of the scholarly community.

Appendix: Key Definitions

between governments and their voters and taxpayers, between public/private agencies and their stakeholders, or between organizations and those who establish them to undertake activities on their behalf. In the case of ports, governments, or other relevant policy makers, usually impose governance structures with particular national or regional policy objectives in mind. As economic circumstances changed, so changes were made, albeit lagged, to port governance structures (Brooks and Pallis 2008). The scope of governance change is to adjust strategies and corporate goals in order to align with the contextual economic environment.

Privatization This governance change might go as far as privatization. True privatization is the full transfer of ownership of assets (including land and harbor bed) to a publicly traded or privately owned for-profit entity. Privatization is not just a transfer of temporal management rights, however long-lived. The retained government role is to regulate the transferred entity. In the case of ports and port reform, the term “privatization” is commonly used, but seldom understood. This chapter confirms that few countries have a truly privatized port governance system.

Governance Governance is the adoption and enforcement of rules governing conduct and property rights. It may be imposed by governments or adopted voluntarily by groups or associations. While governance principles are applicable to all relationships between businesses and their shareholders, they can also be applied to relationships

Commercialization Commercialization means that government withdraws from the operation of transportation infrastructure while retaining ownership of it. It may include transfer of the ownership to a local government entity. In the course of this chapter, we demonstrate that a few countries have

PORT GOVERNANCE

chosen to either commercialize or decentralize their port infrastructure; many, however, have moved towards more commercial approaches by adopting concessions to manage stevedoring operations for container terminals. Concessions are a form of commercialization.

513

in acquiring the data is much appreciated. The research assistance of Aimilia Papachristou, doctoral student at the Department of Shipping, Trade and Transport, University of the Aegean, in acquiring the data and press reports is much appreciated.

Decentralization Commercialization may be accompanied by the decentralization of oversight responsibility from the national to the local level, increasing local responsiveness and flexibility. Decentralization is merely a reallocation of responsibility within the public sector and not a form of privatization.

Notes 1

2

Corporatization Corporatization is a particular form of commercialization that involves the creation of a separate legal entity – a corporate form, which takes on legal responsibility to provide the functions or activities mandated in its charter or by-laws. The distinguishing feature of corporatization is the creation of a legal entity with share capital. Corporatization was a key governance model imposed in a number of countries. In the scholarly literature, there is already considerable debate about whether corporatization, through either the issuance of share capital (as in some UK privatizations) or the creation of purpose-driven entities for the state (as in Australia; see Everett 2007), has been particularly successful.

Acknowledgments The research assistance of Stephen MacNeil, Dalhousie University MBA candidate 2010,

The World Bank originally posted the Port Reform Toolkit to its website well in advance of 2003 as a work in progress; while the first edition was continuously being revised and so is undated, the site currently notes that it is in its second edition (2005). They adopt the ASX definition of independence of directors as “being independent of management and free of any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement.”

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Baltazar, R. and M. R. Brooks (2007) Port governance, devolution and the matching framework: a configuration theory approach. In M. R. Brooks and K. Cullinane (eds.), Devolution, Port Performance and Port Governance, pp. 379– 404. Research in Transport Economics, 17. Oxford: Elsevier. Beresford, A. K. C., B. M. Gardner, S. J. Pettit, A. Naniopoulos and C. F. Wooldridge (2004) The UNCTAD and WORKPORT models of port development: evolution or revolution? Maritime Policy and Management 31: 93–107. Boardman, A. E. and A. R. Vining (1989) Ownership and performance in competitive environments: a comparison of the performance of private, mixed and state owned enterprises. Journal of Law and Economics 32: 3–33. Brooks, M. R. (2004) The governance structure of ports. Review of Network Economics 3: 168–83. Brooks, M. R. (2005) Good governance and ports as tools of economic development: are they compatible? In Tae-Woo Lee and K. Cullinane (eds.), World Shipping and Port Development, pp. 104–24. London: Palgrave Macmillan. Brooks, M. R. and K. Cullinane (2007a) Devolution, Port Performance and Port Governance. Research in Transport Economics, 17. Oxford: Elsevier. Brooks, M. R. and Cullinane, K. (2007b) Conclusions and research agenda. In M. R. Brooks and K. Cullinane (eds.), Devolution, Port Performance and Port Governance, pp. 631– 60. Research in Transport Economics, 17. Oxford: Elsevier. Brooks, M. R. and A. A. Pallis (2008) Assessing port governance models: process and performance components. Maritime Policy and Management 35: 411–32. Caves, D. W., L. R. Christensen, J. A. Swanson and M. W. Tretheway (1982) Economic performance of US and Canadian railroads: the significance of ownership and the regulatory environment. In W. T. Stanbury and F. Thompson (eds.), Managing Public Enterprises, pp. 123–51. New York: Praeger.

Chhaochharia, V. and Y. Grinstein (2007) The changing structure of US corporate boards 1997–2003. Corporate Governance 15: 1215–23. Containerisation International (2009) Containerisation International Yearbook 2009, ed. J. Degerlund. London: Containerisation International. Cullinane, K. and M. R. Brooks (2007) Governance models defined. In M. R. Brooks and K. Cullinane (eds.), Devolution, Port Performance and Port Governance, pp. 405–36. Research in Transport Economics, 17. Oxford: Elsevier. Cullinane, K. and D. W. Song (2001) The administrative and ownership structure of Asian container ports. Journal of Maritime Economics and Logistics 3: 175–97. De Langen, P. W. and A. A. Pallis (2006) Analysis of the benefits of intra-port competition. International Journal of Transport Economics 33: 69–85. De Langen, P. W. and A. A. Pallis (2007) Entry barriers in seaports. Maritime Policy and Management 34(5): 427–40. De Monie, G. (1994) Mission and role of port authorities. Proceedings of the World Port Privatisation Conference, London, 27–8 September. Debrie, J., E. Gouvernal and B. Slack (2007) Port devolution revisited: the case of regional ports and the role of lower tier governments. Journal of Transport Geography 15: 455–64. Everett, S. (2007) Port reform in Australia: regulation constraints on efficiency. Maritime Policy and Management 34: 107–19. Everett, S. and R. Robinson (1998) Port reform in Australia: issues in the ownership debate. Maritime Policy and Management 25: 41–62. Everett, S. and T. Pettitt (2006) Effective corporatization of ports is a function of effective legislation: legal issues in the existing paradigm. Maritime Policy and Management 33: 219–32. Fawcett, J. A. (2007) Port governance and privatization in the United States: public ownership and private operation. In M. R. Brooks and K. Cullinane (eds.), Devolution, Port

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Performance and Port Governance, pp. 207–36. Research in Transport Economics, 17. Oxford: Elsevier. Goss, R. (1990) Economic policies and seaports, part 3: Are port authorities necessary? Maritime Policy and Management 17: 257–71. Hall, P. V. (2003) Regional institutional convergence? Reflections from the Baltimore Waterfront. Economic Geography 79, 347–63. Helling, A. and T. H. Poister (2000) US maritime ports: trends, policy implications, and research needs. Economic Development Quarterly 14: 300–17. Hoffmann, J. (2001) Latin American ports: results and determinants of private sector participation. Journal of Maritime Economics and Logistics 3: 221–41. Jacobs, W. (2007) Port competition between Los Angeles and Long Beach: an institutional analysis. Tijdschrift voor Economische en Sociale Geografie 98: 360–72. Jacobs, W. and P. V. Hall (2007) What conditions supply chain strategies of ports? The case of Dubai. GeoJournal 68: 327–42. Joint Transport Research Centre (2008) Port competition and hinterland connections: summary and conclusions. Discussion Paper No. 2008–19. Paris: OECD/ International Transport Forum. www. internationaltransportforum.org/jtrc/ DiscussionPapers/DP200819.pdf. Kang, H., M. Cheng and S. J. Gray (2007) Corporate governance and board composition: diversity and independence of Australian boards. Corporate Governance 15: 194–207. Kiel, G. C. and G. J. Nicholson (2003) Board composition and corporate performance: how the Australian experience informs contrasting theories of corporate governance. Corporate Governance 11: 189–205. Manning, N. (2000) The New Public Management and Its Legacy. Washington, D.C.: World Bank. Newman, D. and J. H. Walder (2003) Federal ports policy. Maritime Policy and Management 30: 151–63. Ng, A. K. Y. and A. A. Pallis (2010) Port governance reforms in diversified institutional

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frameworks: generic solutions, implementation asymmetries. Environment and Planning A 42(9): 2147–67. Olivier, D. F., F. Parola, B. Slack and J. J. Wang (2007) The time scale of internationalisation: the case of the container port industry. Maritime Economics and Logistics 9: 1–34. Ooghe, H. and T. de Langhe (2002) The AngloAmerican versus the continental European corporate governance model: empirical evidence of board composition in Belgium. European Business Review 14: 437–49. Osborne, D. and T. Gaebler (1992) Introduction: an American perestroika. In Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, pp. 1–24. Reading, MA: Addison-Wesley. Pallis, A. A., T. E. Notteboom and P. W. de Langen (2008) Concession agreements and market entry in the container terminal industry. Maritime Economics and Logistics 10: 209–28. Pallis, A. A. and T. Syriopoulos (2007) Port governance models: financial evaluation of Greek port restructuring. Transport Policy 14(3): 232–46. Pallis, A. A. and P. Verhoeven (2009) Does the EU port policy strategy encompass “proximity”? In T. E. Notteboom, P. W. de Langen and C. B. Ducruet (eds.), Ports in Proximity: Essays on Competition and Coordination among Adjacent Seaports, pp. 99–112. Aldershot: Ashgate. Prevost, A. K., R. P. Rao and M. Hossain (2002) Board composition in New Zealand: an agency perspective. Journal of Business Finance and Accounting 29: 731–60. Rodrigue, J.-P., T. E. Notteboom and A. A. Pallis (2010) The financialization of the terminal and port industry: rediscovering risk. Paper presented at the annual conference of the International Association of Maritime Economists (IAME), Lisbon, July 7–9, 2010. Saundry, R. and P. Turnbull (1997) Private profit, public loss: the financial and economic performance of UK ports. Maritime Policy and Management 24: 319–34.

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Sherman, R. B. (2002) Seaport governance in the United States and Canada. American Association of Port Authorities. www.aapaports.org/files/PDFs/governance%5Fuscan. pdf (accessed February 10, 2010). Thomas, B. J. (1994) The privatization of United Kingdom seaports. Maritime Policy and Management 21: 135–48. US Department of Transportation Maritime Administration (2008) FY 2006 Public Port Finance Survey, December. www.marad. dot.gov/documents/REVISED_1-13-09

___2006_Port_Finance_Survey_(final)_-_ PRINT_ON_LEGAL_PAPER.pdf (accessed February 10, 2010). Verhoeven, P. (2009) A review of port authority functions: towards a renaissance? Paper presented at the annual conference of the International Association of Maritime Economists (IAME), Copenhagen, June 24–6, 2009. World Bank ([2005]) World Bank Port Reform Toolkit, http://go.worldbank.org/ MYGIJOHTE0 (accessed June 3, 2011).

26

Port Labor Peter Turnbull

26.1

Introduction

Who works on the waterfront in the twentyfirst century? How and why has the employment of port labor changed over the past century or more? What are the implications of these changes for the efficiency of port operations and the competitive performance of different ports? Today in the port of Valencia (Spain), more than one in ten dockworkers are women. As the director of the Estiba, the port labor pool, observed, the focus of the job has changed “from the sack to the machine” and women can drive equipment just as well as men (Turnbull, Fairbrother, Heery et al., 2009). When three thousand longshore workers were recently hired at the West Coast ports of Los Angeles–Long Beach, they mirrored the gender and ethnic composition of the local population. Instead of “sons following fathers,” workers were selected through a lottery to avoid any claims of nepotism or discrimination. In other ports, in contrast, there no longer appears to be any labor at all. At the

Altenwerder Container Terminal in Hamburg, for example, automated guided vehicles glide across the terminal moving boxes from the gantry crane to the stack with not a dockworker in sight, unless the eye is cast high towards the cabin of shipto-shore gantry cranes that reach out across the decks of massive 12,000 TEU (twentyfoot equivalent unit) container vessels. At the Pasir Panjang terminal in Singapore, the cabins of the gantry cranes are equipped with air conditioning, a mini-fridge, microwave and toilet. The drivers even eat their lunch in the cabin during a continuous eight-hour shift. Their only communication with other workers is via a radio or the computer screen that flashes instructions throughout the shift. The modern-day port is a far cry from the days when dock work was a labor-intensive and almost exclusively male occupation, where unions often controlled entry to the industry and ports teemed with workers in cramped and seemingly chaotic conditions, both on ship and on shore. Typical dock labor, wrote Charles Booth (1889: 16), was

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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“work that any mortal possessed of will and sinew can undertake,” often attracting the “dispossessed” from other industries. As Sir James Sexton (1936: 226) noted in his autobiography, many of the world’s great cityports resembled a “Saragossa Sea of all the flotsam and jetsam of industry, so congested with debris that when work was slack, the genuine docker’s chance of getting work was small indeed.” The casual hiring system that defined port employment from the mid-nineteenth century until well into the twentieth century carried with it “a whole train of evils which demoralize the worker and ruin his domestic life” (Hamilton Whyte 1934: 11). Where there was a constant influx of excess labor, ports became a breeding ground for corruption and crime, none more so than the port of New York where the ignominious “shape-up” system of hiring was exploited by gangsters and union bosses (Davis 2003; Kimeldorf 1988). As Daniel Bell (1965: 175) observed, Rimmed off from the rest of the city by a steel-ribbed highway and a wall of bulkhead sheds is the New York waterfront, an atavistic world more redolent of the brawling moneygrubbing of the nineteenth century than the smooth-mannered business transactions of the twentieth. Cross the shadow line and you are in a rough, racket-ridden frontier domain, ruled by the bull-like figure of the “shaping boss.” Here brawn and muscle, sustained where necessary by baling hook and knife, enforce discipline among a motley group of Italian immigrant, Slavic, and Negro workers and a restless and grumbling group of Irish. Here one finds kickbacks, loan-sharking, petty extortion, theft and pilferage – and murder – a commonplace of longshore life.

With or without organized crime, working conditions on the waterfront were “notori-

ous in all countries” ( Jensen 1964: xi) and “it seemed almost incredible that the ‘degraded dockers,’ recruited as they were from the failures and off-scouring of other industries, would ever be capable of united action” (Lascelles and Bullock 1924: 65). But capable they were, and still are. In fact, it was precisely the intense competition for work, and the uncertainty of their working lives, that fostered strong bonds of solidarity between dockworkers, especially within work gangs. These bonds were bolstered by communal, kinship, ethnic and other sources of allegiance. Herein lay both the cause and the capacity for strike action on the waterfront: “The common adage ‘one out, all out’ was no ideological invention; it was a product of necessity if the men were to hold any standards or preserve even the meagerest conditions of work. That they seized and exploited opportunities whenever they arose, or forced a hard bargain whenever they found a vulnerable employer, is understandable” ( Jensen 1964: xi). Far more than in most industries, union organization and industrial conflict have shaped the contours of waterfront labor markets, as well as the organization and efficiency of work. If casual employment defined port work as recently as the mid-twentieth century, containerization transformed it thereafter. The simple metal container box “made shipping cheap, and by doing so changed the shape of the world economy . . . almost everyone save the dockworkers’ unions thought that putting freight into containers was a brilliant concept” (Levinson 2006: 2, 274). Just as ports around the world realized the necessity to restructure and regulate the dockland labor market to minimize the demoralizing impact of casual labor, by the late 1960s they increasingly recognized

PORT LABOR

that containerization implied new forms of work organization, very different skills, and a massive reduction in labor requirements (Betcherman and Rebne 1987; Couper 1986; Evans 1969; Ross 1970). For dockworkers, the prospect of occasional underemployment was replaced by the far more pernicious threat of permanent unemployment, which led to heightened tensions between management and labor and prolonged industrial disputes in many countries (Turnbull and Sapsford 2001). In the USA, on both the Atlantic and Pacific coasts, the outcome was some of “the most unusual, and most controversial, labor arrangements in the history of American business” (Levinson 2006: 124). But for all its revolutionary potential, containerization did not negate all the labor agreements of the past, nor would dockworkers allow it to do so. History has a tendency to “cast its shadow forward” on the waterfront (AldingtonJones 1974: 8) and the “occupational inheritance” passed from father to son gave dockworkers an historical perspective that went back two generations or more (Dash 1969; Hill 1976). Fear of the future and resistance to change are commonplace in the world’s ports – “Dockers, it has often been said, dislike change, even for the better” (Devlin 1965: 106) – creating a rich texture of old and new. Women might work in the ports of Valencia and Long Beach, but they are engaged through a “labor pool” or “hiring hall” that owes its conception to the evils of casual employment and the birth of militant trade unionism on the waterfront. If the latter part of the twentieth century was dominated by containerization, the contemporary era is marked by the commercialization of port activities, creating new challenges for port labor. In particular,

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cargo handling and the employment of port labor are increasingly concentrated in the hands of just a handful of global terminal operators (GTOs) such as PSA International, Hutchison Port Holdings, APM Terminals, DP World and Eurogate. In Europe, the six leading operators handled nearly 70 percent of total European throughput in 2002, compared to 53 percent in 1998 (ESPO & ITMMA 2004). As a result, conflict between capital and labor is no longer confined to the port or even the nation-state, but now extends to the global economy. In some situations, such as the 1998 “waterfront war” in Australia or the 2002 lock-out on the West Coast of the United States, industrial action by dockworkers has taken the form of international solidarity action (e.g. blacking vessels diverted from strike-bound ports). More recently, during 2001–3 and 2004–6, port workers in Europe organized coordinated campaigns of industrial and political action to defeat two attempts by the European Commission, strongly backed by international shipping lines and shippers, to open up the market to greater competition through a proposed directive that stipulated a minimum of two service providers for each category of cargo-handling and other port services such as pilotage, stowage, mooring and passenger services (Turnbull 2006b, 2007, 2010; Van Hooydonk 2005). A key proposal in the “ports package” was to liberalize the dockland labor market through provisions for “self-handling,” defined as “a situation in which a port user provides for itself one or more categories of port services” (CEC 2001: 28), which implied “the right to employ personnel of his own choice to carry out the service” (ibid.: 29, emphasis added). This would allow shipping lines, for example, to employ seafarers on cargo-handling activities while the ship

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is in port (e.g. to (un)lash containers on deep-sea services or (un)lash roll-on/rolloff vehicles on short-sea services) or allow shipping lines and terminal operators to hire non-recognized dockworkers from employment agencies or other sources of labor supply. Once again, collective action by port workers has diverted the course of industrial reorganization. To fully explain the transformation of port work and the employment of port labor during each of these historical and spatial (r)evolutions – casualism, containerization and commercialization – demands attention to social, political and cultural factors (e.g. ethnicity and race), as well as the battlegrounds where the regulation of employment was contested, such as the workplace, the organizations of employers and trade unions, the communities in which dockers worked and lived, and the agencies of the state (Davies, Davis, de Vries et al. 2000; Turnbull 2001). While these factors are certainly not overlooked in this chapter, the principal focus is on the socioeconomics of port labor and the regulation of the dockland labor market, which proved to be “the most contested terrain in the ports all over the world. It became the main theatre for employers’ and governmental social policy and a test case for the quality of corporate ways to solve industrial conflicts” (Weinhauer 2000: 602). It is no coincidence that ports with the most effective forms of labor market regulation are also those with the lowest strike incidence and the highest productivity rates (Turnbull and Sapsford 2001). In what follows, we consider how conflict on the waterfront has shaped the historical development of the industry. The chapter is organized in three parts in order to identify the ways in which commercialization overlays the employment arrange-

ments and agreements negotiated during the process of containerization, and how technological developments in their turn transformed the casual system of employment. While each of the three transformations of port labor overlap and interact, they are considered separately and sequentially for ease of exposition.

26.2

Casualism

On the Melbourne waterfront in the 1930s, men assembled in the “Compound” – a huge galvanized-iron shed with a concrete floor – waiting for work. The Compound was divided into four parts – one for members of the Waterside Workers’ Federation (WWF), one for the “Jacks,”1 one for “Second Preference” men, and one for the “Blanks.” Anyone could register for a Blank License to work at the Waterside Workers’ Labour Bureau (the Compound). Jobs were allocated first to the Federation men and the Jacks, in a ratio of 60:40, before any work was offered to Seconds and finally the Blanks. John Morrison, who worked on the Melbourne docks in the late 1930s and 1940s, likened hiring in the Compound to “feeding-time in a zoo as the keeper goes from one cage to another with his truckload of meat” (Morrison 1984: 9). On his first day in the Compound, standing with the Blanks, all desperate for work as a solitary foreman approached with only a handful of jobs, Morrison recalled his [d]ark Italian eyes, smiling patiently at your anxiety, pityingly. You feel he wishes he had more to offer. He seems embarassed . . . You’ve got your Licence out, but you just can’t hold it up. You just can’t. Not that. And not because it would look so new among all

PORT LABOR

these battle scarred veterans. There is something else. A point beyond which human dignity refuses to be driven. A sickening of the heart. A shame that makes you want to run away and hide yourself. You put your hands in your pockets. You keep your head down. And not even the thought of an anxious woman’s face will make you look that man in the eyes. (Morrison 1984: 10–11)2

Dockworkers from around the world have similar stories to tell, as the contributions to Davies, Davis, de Vries et al. (2000) from ports in Canada, China, Denmark, Finland, France, Germany, India, Israel, Kenya, the Netherlands, New Zealand, Tanzania, the UK and the USA serve to testify. The one fact that dominated employment on the waterfront around the world at the beginning of the twentieth century was the unpredictability of work. This was perhaps inevitable, given the marked fluctuations in shipping attributable to the business cycle, seasonal trades, and the daily ebb and flow of traffic that was regularly disrupted by “wind and wave.” Some labor might be hired for the duration of the vessel’s stay in port, others would be hired on a daily or even an hourly basis as the workload dictated. Some workers had specialist skills that ensured more regular work, others might be friends with the foreman or hiring boss, although favoritism usually “gave a man an edge over his equals but not over his superiors” (Hill 1976: 23). The work itself was “rarely anything but strenuous, always dirty, often unhealthy, and sometimes decidedly dangerous” (Morrison 1984: viii). Despite all this, basic amenities were rarely provided.3 In his study of the Economics of Casual Labor, Morewedge (1970) notes that port

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transport is the only industry that embraces, at one and the same time, the three main elements that together characterize casual employment: (1) the continuity of irregular demand as vessels come and go, (2) the attachment of both employer and worker to the market, because work is always possible, if not always likely, and (3) the frequency of short-term engagements. This led to chronic unemployment amongst the group of “casuals by birth” (who typically displayed “an unconquerable distaste or incapacity for regular work”) and underemployment amongst the “casuals by necessity” (who usually sought more regular work with a particular foreman or firm) and the “casuals by inclination” (whose skills and/or membership of a highly productive gang often enabled them to “play the market” and boost their wages through a process of “spot contracting”) (ibid.: 17). As Morewedge (1970) and many other observers before him have noted, decasualization in the strict sense of the word was seen to be impossible: “If ships are to be ‘turned’ without delay, as they arrive, employment must fluctuate, and there must be a margin of labour available to meet all requirements . . . The problem then is not how to abolish casual labour, but how to remedy the evils of underemployment” (Lascelles and Bullock 1924: 120). Left unchecked, excess labor supply will become chronic, which may in turn “produce labor unrest and force public control of the free market system” (Morewedge 1970: 75; Ross 1970). Such controls focused on the many different manifestations of insecurity on the waterfront, namely: •

labor market insecurity caused by surplus labor;

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•

•

•

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employment insecurity arising from the employer’s ability to dismiss/lay off workers with impunity or at least with no great cost to the company; job insecurity where an employer can shift employees from one job or task to another at will, or where the content of the job can be changed with ease; work insecurity or “working at risk” in an unregulated environment that is polluted, unhealthy or dangerous; income insecurity where earnings are unstable or when transfer or contingency pay is not guaranteed (Standing 1986).

Measures to limit total labor supply are “the beginning and sine qua non of all controls of dock industry labor markets” ( Jensen 1964: 294), thereby mitigating labor market insecurity. These might take the form of work being restricted to union members or the instigation of a state registration scheme to identify bona fide dockworkers. Employment and job insecurity might be countered through statutory employment rights, either nationally based or industry-specific, and a union-controlled hiring hall or staterun employment center, combined with relevant provisions in collective labor agreements. Statutory health and safety legislation might also address work insecurity, and it was not uncommon for collective agreements to place restrictions on “onerous workloads” or unsafe working practices. Finally, a system of “work or maintenance” would address the issue of income insecurity by guaranteeing the dockworker either gainful employment or financial compensation when he was available for work but no job was on offer. This might take the form of “attendance payments” and/or a minimum weekly wage if any earnings

(plus attendance pay) fell below an agreed level of subsistence. Table 26.1 provides a summary of different controls on the free market system, typically referred to as “dock labor schemes,” developed to ameliorate the deleterious effects of casual employment. Different systems for controlling labor supply are reported in the first column, ranging from union hiring halls (e.g. US West Coast) to worker cooperatives (e.g. Italy) and statemandated registration schemes (e.g. Belgium). In the early 1950s, the longshore labor force in New York was over 40,000, far in excess of daily employment, which seldom reached 20,000 (the average labor requirement was around 15,000 longshoremen). The Waterfront Industry Commission, established in 1953, reduced the total labor force by first setting minimum attendance/ work periods (many “occasional” longshoremen worked less than 700 hours per annum) and then progressively tightening the qualifying period. After twenty-one successive revisions to the qualifying period, the total workforce had been reduced to less than 24,000 by 1965. The second column summarizes labor market regulations designed to minimize both structural and frictional unemployment. In a geographically dispersed port, such as London, it is possible, indeed probable, that some employers will have a shortage of labor while others, elsewhere in the port, have a surplus. Even where there are sufficient general laborers available, certain skills may be in short supply. Measures to improve the availability and mobility of labor include centralized hiring from a single or limited number of designated hiring centers, as well as the (collective) provision of training to extend the skills of the workforce. By the early 1960s there were

“Dock work,” as legally defined, is restricted to “dock workers” in the “port zone,” under the joint control of employers and the unions.

All dockers are registered and permanently employed. Legislation provides a national framework for the industry, with extensive joint regulatory bodies at the port level. Dockers have no special legal or other status, but are covered by terms and conditions similar to other port workers’. Joint supervisory boards at the local level.

“Dock work” was legally defined and restricted to registered dockers. De jure control of labor supply by the BCMO (state labor office), de facto control by the union. Dock work is restricted to workers on the registers of the port companies. These companies are associations of workers (cooperatives), which are set up, merged or liquidated by the port authority.

Belgium

Netherlandsa

Franceb

Italyc

Germany

Control of labor supply

Country

Dockers are employed either directly by port operators or by the labor pool (SHB), which is used to accommodate fluctuations in demand. Extensive training to ensure flexibility. Most dockers (84%) are permanently employed, while the rest are employed by the port labor pool (GHB) on similar pay and conditions. The pool is financed by the employers, with the allocation of men on a numerical (rota) basis. Extensive training to ensure flexibility. All dockers were casuals with preference given to “professionnel” over “occasionnel.” Labor was allocated through the BCMO in each port. Some ports used a rota, others a “free call” system of hiring. Labor is provided by the worker cooperatives, which either provide labor to port undertakings or carry out un/loading operations directly.

All dockers are “casuals,” but many work on a regular basis for the same employer. Extensive training to ensure flexibility.

Availability and mobility of labor

Table 26.1 Dock labor schemes in Europe, North America and Australasia

(Continued)

Professional dockers were guaranteed 300 half-day shifts (4 hours) per annum, financed by a levy on the employers’ wage bill. Dockers receive a daily guarantee of up to 80% of their pay, which is financed via a levy added to port charges.

Guaranteed monthly income, based on guaranteed payment for the first shift of any day, financed by employers and port users.

Not less than 65% of basic salary (usually 70–80%), paid from state benefits (75%) and employer contributions (25%) financed via a levy on gross wages. Full pay at all times, financed by state benefits (55%) and employer contributions (45%).

Maintenance/guaranteed income

USA – West Coast

Britaine

Only union (ILWU) members can perform dock work. Class A (fully registered) men are given preference over Class B (registered casuals).

Dockers are registered with the Port Workers’ Organization (PWO), an autonomous state agency working under the Ministry of Labor. Dock work is restricted to port workers who hold a “carteira professional” and are registered with either the port work coordinating center, a port-based joint management organization, or the port authority. The NDLS provided a legal definition of dock work and dockers (and employers) were registered with the NDLB. The National and Local Boards were jointly controlled by the employers and the unions.

Spaind

Portugal

Control of labor supply

Country

Table 26.1 (Continued)

Labor is allocated through the union hiring hall on the basis of “low-man-out” hiring (the man with the lowest accumulated number of hours has first choice of work), except in the ports of San Francisco and Los Angeles where “steady” men are employed by most operators.

Before 1967, dockers were casuals. Most were allocated by the Port Labour Office, but London retained a “free” call. After 1967 all registered dockers were permanently employed by operating companies.

Private companies can employ dockers on either a permanent or a casual basis. Dockers are allocated on a rota basis by the PWO. Dockers are employed either directly by port companies or by a labor pool (the size of which is determined by the Minister).

Availability and mobility of labor

Attendance payments and a guaranteed weekly wage (set nationally) applied until 1980 (replaced by port or company guarantees). Payments were financed by a levy on the employers’ wage bill. Pay Guarantee Plan (under the 1960 Mechanization and Modernization Agreement) provided 35 hours pay per week, financed via an assessment on hours (paid by the operational employers) and tonnage (paid by the shipping companies).

Pool workers have a guaranteed salary of 75% of the basic monthly salary, financed by the employers and, in the case of any shortfall of funds, the state.

Casual dockers receive a guaranteed wage.

Maintenance/guaranteed income

Dock work is restricted to members of the Waterside Workers’ Federation (WWF) (a pre-entry closed shop). Employment is jointly regulated by the union and the employers. Dock work was defined by statute and was under the control of the Waterfront Industry Commission (WIC). The size of the register was determined by joint agreement between employers and the union.

Australiaf

Labor was allocated by the WIC on a casual basis, with “low-man-out” hiring to equalize hours. Dockers on container terminals could be allocated for up to 5 months.

All dockers are permanent employees of the companies, with provisions for intercompany transfers in the event of surpluses/shortages.

Most dockers are employed as “list” (regular) workers with a particular company. The rest are allocated from a hiring hall, which is regulated by the Waterfront Commission. Allocation is based on seniority.

Availability and mobility of labor

Idle-time payments were paid from a National Administration Fund, financed by a levy on the employers’ wage bill and a supplementary charge on container traffic. Guaranteed weekly wage equal to 40 hours (time rate).

A Guaranteed Annual Income (GAI) scheme (introduced in 1964) provided up to 1,900 hours per annum guaranteed pay (at the straight time rate), financed via a levy on cargo. Idle-time payments are financed by a levy on all employers.

Maintenance/guaranteed income

b

In the wake of the global financial crisis, SHB was declared bankrupt in January 2009. The 1947 Act which established the French dock labor scheme was abolished in 1992, allowing employers to enter direct contracted arrangements (permanent employment) with dockers. Some dockers retained their casual status. c Following a ruling in the European Court on competition and monopoly in Italian ports, dockers are increasingly employed by the operating companies, rather than by worker cooperatives. d The Spanish dock labor scheme was reformed in the mid-1980s (see section 26.3). e The NDLS was abolished in 1989 and these regulations no longer apply. Employers now use direct employment and casual labor. f This was the situation prior to the implementation of extensive reforms between 1989 and 1992. Wharfies are now covered by Enterprise Based Agreements. g These arrangements were terminated in 1989 in favor of direct employment by the operative companies.

a

New Zealandg

Dockers are registered with the Waterfront Commission, and only registered dockers can perform dock work.

Control of labor supply

USA – New York

Country

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seven training schools operating in UK ports, which had the desired effect of “bringing into the docks men with a general knowledge of the industry and some technical ability in safe and efficient methods of cargo handling and the operation of mechanical equipment” (NDLB 1961: para. 44). These men were allocated to work from a limited number of designated “control centers” in each port. The final column in Table 26.1 outlines provisions for maintenance or guaranteed payments. These payments were financed through a variety of mechanisms (e.g. an additional charge on the cargo, a levy on the employer’s wage bill, or state unemployment benefits) and differed markedly in terms of the level of payments to dockworkers. In Antwerp, for example, the indemnité de sécurité d’existence (livelihood indemnity) provided a generous supplement to unemployment benefits, giving the typical dockworker around two-thirds of his salary when no work was available. In the UK, in contrast, the guaranteed weekly wage was typically less than 50 per cent of average earnings and for much of the postWorld War II period was below the level of state unemployment benefits. In France, the guarantee was paid only to “professionnel” and not to “occasionnel” dockers, making it relatively inexpensive for employers and the state to maintain a reserve of extra men. The effectiveness of these different labor market regulations can be judged in terms of their impact on worker (in)security and the extent to which they meet the needs of operating employers, who must provide an efficient and cost-effective service to port users. In addition, the state has a keen commercial interest in the peaceful and efficient working of the nation’s ports, “perhaps more so than any other industry” (Devlin

1956: 48), because “dockers largely regulate the pulse of external trade on the steadiness of which the country’s health, in terms of competitive power and living standards, so much depends” (Knowles 1951: 266; see also Hudson 1981; Oram and Baker 1971; Phillips and Whiteside 1985). When the Port of New York stopped work for nineteen days in October–November 1951, it was without hyperbole that the State of New York (1952: ii) proclaimed that the dispute “not only endangered the welfare of this State, but also posed a threat to the economy of the whole free world.” Just three years earlier, a 95-day strike had paralyzed the US West Coast ports. Between 1934, when the union hiring hall was established (see Table 26.1), and 1948, there were more than twenty major port strikes on the West Coast, more than three hundred days of coast-wide strikes, around 1,300 local “job action” disputes, and approximately 250 arbitration awards. This period was “among the stormiest in US labor history” (Kossoris 1961: 1), but thereafter the West Coast acquired a reputation for responsibility and stability, in marked contrast to the US East and Gulf Coast ports where the “turbulence of labor relations . . . had no industrial counterpart” (Ross 1970: 397). Conflict on the American waterfront, and indeed in ports around the world, depended ultimately on the propriety of labor market regulation, most notably the operation of the different dock labor schemes summarized in Table 26.1 (Turnbull and Sapsford 2001). Take, for example, the statutory National Dock Labour Scheme (NDLS) 1947, which initially covered eighty-four British ports. Both employers and dockworkers were registered under the Scheme and only registered employers were allowed to hire

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registered dockworkers to perform “dock work” (as defined by the Scheme). The NDLS was administered by a National and twenty-two local Dock Labour Boards, with equal representation of employers and unions.4 The size of the registered labor force was reviewed every six months by the National and Local Boards in order to minimize any surplus/shortage of labor, hiring took place at designated “controls” managed by the relevant Local Dock Labour Board in each port, basic and increasingly more advanced training was provided by the Board, and dockers received attendance payments and a guaranteed weekly wage if their earnings (wages plus attendance pay) fell below an agreed minimum.5 To outside observers it appeared that the Scheme “confers upon dock workers remarkable benefits. From being among the least secure of occupations dock work becomes among the most secure” (The Times, Editorial, June 21, 1947). Commenting on the employment conditions of dockworkers, The Economist (May 1950) proclaimed that “the curse of casual labour has been lifted from them.” In reality, however, the 1947 Scheme constituted only a measure of decasualization (Devlin 1965). It had certainly not eradicated insecurity on the waterfront. First and foremost, there was still a surplus of labor. Nationally, the surplus labor rate6 fluctuated between 5 and 15 per cent from one year to the next, but aggregate figures concealed more than they revealed. In the Wash ports of Eastern England, for example, the (mean) average surplus labor rate was around 20 per cent during the first six months of 1959, fell to just 2 percent in the third quarter, and then increased to 7 percent in the final three months of the year. As the National Dock Labour Board (NDLB) noted, “it happened

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frequently that just when on a long term view it would appear that labour was redundant, the port experienced a busy period. Such a reversal of expectations is not unusual in the industry, and cannot usually be foretold with any certainty” (NDLB 1950: 19). Moreover, labor market insecurity was not equally felt by all. In 1947 around 14 per cent of all registered dockworkers were hired on a weekly basis by the same employer, a proportion that increased steadily to around 25 per cent by the mid1960s. All other dockers were hired on a daily basis for the “turn” (8 a.m.–12 noon and 1–5 p.m.) and had to report for eleven of the twelve “turns” each week (Monday to Saturday) in order to qualify for attendance pay and the guaranteed weekly wage. Employment insecurity for these dockworkers was heightened by the practice of allowing a “free call” at the control centers in each port, whereby foremen would hire their preferred workers before any allocation of the remaining jobs by officials of the Dock Labour Board.7 The foreman’s “top six,” or “blue-eyed boys,” enjoyed more regular work than the “drifters” who were usually only selected to make up a gang when labor was short. In contrast, the “floaters” would seek out the foreman with the most attractive jobs on offer, confident that their physical strength, skills and membership of a regular gang would allow them an element of choice. Income (in)security varied accordingly, as did the insecurity of work. A study of Manchester dockers in the mid-1950s, for example, found that the foreman’s “top six” could earn double the wage of the “drifters,” who also endured much greater variation in their pay from one week to the next (Liverpool University 1954). In the mid-1960s, the earnings ratio of the “blue-eyed boys” compared to the “drifters”

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was four-to-one (£40 versus £10) in the port of London (Devlin 1965). Whereas the floaters would typically refuse dirty or dangerous jobs, or alternatively drive a hard (spot) bargain in the form of extra compensation for work insecurity, regular workers were usually prepared to accept occasional bad jobs in order to retain the favor of their foreman. The drifters usually had no choice if they were to secure any work at all. As the NDLS could not completely alleviate all the different forms of insecurity on the waterfront, dockworkers imposed their own controls on the job. One example was the “continuity rule,” which stipulated that any workers assigned to a particular job should work continuously until the cargo was un/loaded (rather than report to the Board’s control center for the next turn). Initially, this was a “protective practice” to combat job insecurity, but over time the continuity rule became increasingly “restrictive.” For example, the “job” was drawn ever tighter until transfers between hatches on the same ship were banned in the same work period. These restrictions on labor mobility were estimated to cost around 5–6 percent of the employers’ wage bill by the mid-1960s (Wilson 1972). Another form of (counter-)control exercised by dockers was the refusal to replace any man placed on a disciplinary charge by the employer. For example, if a dockworker refused to handle a dirty or dangerous cargo, or no agreement could be reached on a compensating payment (e.g. “dirt money” or a higher piece rate), then the employer might “dismiss” the worker (i.e. return the docker to the Board’s control) and request alternative labor to be allocated by the Local Dock Labour Board. Almost regardless of the original cause, if dockers were placed on a disciplinary charge by the Board then

all other men would refuse the job (see McKelvey 1953; NDLB 1950). By the early 1950s, around 15,000 registered dockworkers (18 percent of the total workforce) appeared annually before joint disciplinary committees (Devlin 1956) and it was not uncommon for “individual insubordination” to escalate into a collective (mass) dispute if the Board tried to insist on replacement labor (Turnbull and Sapsford 1992). Soon after the introduction of the NDLS 1947, dockworkers became Britain’s most “strike-prone” workers, prompting a succession of official government inquiries into both specific disputes and more general causes of dissension. The most important of these inquiries, chaired by Lord Devlin (1965), attributed conflict in the industry to the casual system of employment, or more precisely a lack of security and “irresponsibility” on the part of dockworkers.8 This explanation was consistent with earlier (e.g. Kerr and Siegel 1954) and contemporaneous (e.g. Miller 1969) accounts that attributed conflict on the waterfront to industry-specific (within country) but universal (across country) characteristics of port labor. Kerr and Siegel (1954), for example, classified longshoremen alongside miners, sailors and loggers, as one of the “isolated masses” of society, workers with an “independent spirit” who perform dangerous, dirty and unpleasant work that inclines them to be more vigorous and combative. Miller (1969: 304–5) identified seven “widely prevalent conditions of dock work” that “combine to produce a universal dockworker subculture”: • •

the casual nature of employment the exceptional arduousness, danger and variability of work

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• • • • •

the absence of an occupationally stratified hierarchy and mobility outlets the lack of regular association with one employer continuous contact with foreign goods, seamen and ideas the necessity of living near the docks, and the belief shared by dockers that others in the society consider them a low status group.

But if these features were indeed universal, why was the port of London hit by more than two strikes per month between 1947 and 1955, and almost weekly strikes between 1956 and 1967 (Turnbull, Morris and Sapsford 1996), whereas Antwerp experienced a series of wildcat strikes between 1946 and 1950 but then only one more strike (in 1961) over the same period (Turnbull and Sapsford 2001)? Comparative international analysis reveals that casualism did not cause strikes, rather it created a context in which strike action was more likely. In practice, where the dock labor schemes summarized in Table 26.1 “challenged established (casual) work practices without compensating benefits for longshoremen or where (outmoded) work rules were preserved or extended to the detriment of operational efficiency and the consequent vexation of employers, then conflict was more prevalent” (ibid.: 239, original emphasis). By the 1960s, operational efficiency was driving a new agenda of modernization in ports around the world, epitomized by the ground-breaking agreements (1960 and 1966) negotiated by the International Longshoremen and Warehousemen’s Union (ILWU) and the Pacific Maritime Association (PMA) on the US West Coast.

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Few industries have ever developed as comprehensive a set of restrictive work rules as were enforced in West Coast longshoring by the 1950s (Burke 1972; Killingsworth 1962). The origin of union control was the hiring hall, which enabled the ILWU to “transform West Coast longshoring from a secondary job market (characterized by low wages, poor working conditions, little job security, and the absence of due process for settling worker grievances) into a primary market” (Finlay 1987: 54). In 1948, the Waterfront Employers’ Association (WEA) challenged union operation of the hiring hall, sparking a 95-day strike that led to the reorganization of the employers9 and the negotiation of an unprecedented two-and-a-half year labor contract. Under the agreement, employers finally ceded full control of the hiring halls to the ILWU, while in return the union (formally) ceded control of the work process to employers without hindrance (except in cases of health and safety concerns). While economic conditions were certainly driving change on the West Coast – traffic and employment had declined significantly in the immediate post-World War II period – the leadership of both the ILWU and the PMA played a crucial role in the 1948 and subsequent negotiations. Under the new rapprochement, Harry Bridges, President of the ILWU, persuaded his members to focus on those who would be left in the industry, rather than “those who are, you might say, dispensable under the new order of things,” which he accepted would make him “awfully unpopular” (quoted by Hartman 1969: 82). The employers, who at last “discovered personnel administration” (Kerr and Fisher 1949: 20), were persuaded by Paul St. Sure, President of the PMA 1952–65, to concede to union demands

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rather than try to “bull through” as long as any concessions did not affect basic managerial prerogatives (Finlay 1988; Killingsworth 1962; Ross 1970). The importance of the 1948 agreement was that it paved the way for the Mechanization and Modernization (M&M) Agreement, which facilitated the subsequent introduction of new technology. Attempts to eliminate non-contract-based work rules10 through “conformance and performance” programs in the early 1950s had failed, and employers faced growing competition and the specter of government intervention if the industry did not improve. The ILWU was well aware that these restrictive work rules increased costs and drove away traffic. Having discussed the problem, the leadership determined that it should “give up its holding actions and guerilla warfare provided it could participate in the resulting gains to the industry” (Kossoris 1961: 3). Negotiations on the M&M Agreement began informally in 1957, based on the principle of “exchanging concessions” rather than demanding moral or similar rights (Hartman 1969: 194). The Agreement was eventually signed in October 1960, effective from 1961 and to run for a period of five years. The ILWU agreed to give up all work rules that required multiple handling or the employment of “unnecessary men.”11 In return, the employers agreed to contribute $5 million per annum for five-and-a-half years (1961–6) into a fund for retirement at 65 years (with an option for early retirement at 62 years) and a minimum wage (Pay Guarantee Plan) of 35 hours per week at the basic straight time rate.12 This investment by the employers represented less than 5 percent of the total labor cost per worker-hour (Fairley 1979). After being stagnant for twenty to

thirty years, productivity began to increase year on year and by 1965 was 40 percent higher than in 1960 (Burke 1972; Hartman 1969). In practice, however, the M&M Agreement (1960) was more about the modernization of work rules (Hartman 1969) and the labor market (Betcherman and Rebne 1987) than about mechanization, although the Agreement was certainly prophetic as it opened the way for a technological revolution on the West Coast (Fairley 1979), and arguably in ports around the world (Levinson 2006), in the form of containerization.

26.3

Containerization

Although mechanization signaled a shift from labor-intensive to capital-intensive operations on the waterfront, the human element was still the basic, and decisive, factor that determines the speed, quality and cost of cargo handling (Evans 1969). By the mid- to late 1960s it was widely recognized that “there was no way that casual employment could provide the adequate, responsible and skilled workforce necessary to move cargo through a modern port using advanced equipment” (Couper 1986: 63). Opinions differed on the skill content of container versus break-bulk operations, with many dockworkers complaining that “stowing containers is only marginally more imaginative than stacking bricks of equal size,” whereas the stowage of general cargo “takes the form of a conceptual frame within which the dockworker weaves a fabric of cargo” (Connolly 1972: 560; see also Mills 1980). To be sure, container work could be repetitive and at times appear “sterile,” but it must always be performed with speed, dexterity, precision and delicacy

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under conditions not so uniform as they may at first appear (Finlay 1988). “Like musicians playing to the beat of a metronome, longshoremen working modern technology improvise on and around the tempo of the hook” (Wellman 1995: 165). Familiarity with the work, and regular employment with the same company, enhances the worker’s skill, knowledge and other attributes necessary to do the job, such as the ability to improvise and adapt to changing circumstances. Ceteris paribus, dockworkers who are familiar with the equipment, vessels, terminal layout, and standard operating procedures of the company in question record much higher productivity (Dally 1981). Even during the casual era, many employers recognized the advantages of engaging some men on a more permanent (weekly) basis. In some ports, such as Rotterdam, permanent employment was “forced” on the employers as a result of a severe labor shortage – by 1952 the number of permanently employed men in Rotterdam exceeded the number of casuals, and by the mid-1960s over 80 percent were “regular” men (Nijhof 2000) – and this encouraged firms to raise the status and invest in the training of their fixed (as opposed to variable) human capital.13 With the onset of containerization, the massive investments needed in new terminals and equipment turned the advantages of permanent employment into an imperative. As Evans (1969: 41) discovered, “One of the essential features of any attempt to meet the situation arising from the introduction of new methods of cargo handling is . . . the provision of full-time regular employment.” In the absence of employment or income guarantees, “[l]ittle progress can be made in securing the workers’ consent to new

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methods, and therefore making the best use of them” (ibid.; see also Couper 1986). Under casual employment arrangements, dockers “saw themselves as servants of the industry rather than of this or that employer” (Connolly 1972: 547), which suited most employers, who were happy to draw on a pool of general laborers as demand dictated. With containerization and the specialization of skills and terminal operating procedures, employers wanted “company men” not “servants of the industry,” consummate cooperation rather than perfunctory consent. On the US West Coast, employers initially used the M&M Agreement (1960) to speed up work, rather than innovate via the introduction of new technology or major new investments (Fairley 1979; Hartman 1969), but as containerization took hold the key contract issues shifted from restrictive work rules to the employment of “steady men.” While preferential hiring by employers was permitted under some port labor arrangements, such as the New York “shapeup” or the daily “call” in London, West Coast longshoremen were allocated on the principle of “low-man-out hiring,” whereby the worker with the lowest number of accumulated hours worked would be hired first (via the union hiring hall) and those with the highest number of hours were hired last (see Table 26.1). As a result, all longshoremen shared in the good times as well as the bad. However, crane drivers belonging to the Union of Independent Engineers, who were absorbed by the ILWU in 1956, were permanently employed, creating a precedent for direct employment by the operating companies.14 The possibility of steady employment was explicitly recognized in the M&M Agreement negotiated in 1966, which also ran for five years, under clause

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9.43. Under the new contract, steady men reported directly to the job, rather than the union hiring hall, and they were guaranteed a monthly minimum of 173 hours’ paid employment. As containerization advanced, and the number of steady men increased, conflict within the Union15 and between the ILWU and the PMA intensified, erupting into a nine-month coastwise strike in 1971–2, the longest maritime strike in US history. Job security and greatly diminished work opportunities were at the heart of the dispute – longshore hours worked were only 80 percent of those worked five years earlier – as was the employment of steady men.16 The key to resolving the dispute was a new Pay Guarantee Plan (PGP) that guaranteed 36 hours’ pay per week for A class (fully registered) longshoremen and 18 hours’ for B class men (registered casuals who were only hired when all A class men had been allocated to work). The steady man issue was set aside for resolution through the grievance and arbitration procedure and was formally settled in 1978 with a formula to equalize work for crane drivers – for every steady man the employer must also hire a crane driver from the hall, and these special equipment operators (9.43 men) must cycle in/ out of the hall (two months steady, one month on dispatch from the union hiring hall) (Wellman 1995).17 Even today, the employment of steady men still irks many West Coast longshoremen, and some ports still preclude the employment of 9.43 men (e.g. Seattle). Nonetheless, the compromise between, or combination of, steady employment and daily employment allowed employers to draw on the skills and expertise of workers familiar with the company’s core operations – the key points of interchange between

ship and shore, quay and gate – and the flexibility provided by the hiring hall to meet a constantly fluctuating workload. In this respect, at least, it provides the “best of both worlds” (i.e. the casual and container worlds of port labor). Moreover, the PGP minimizes shirking as all longshoremen must work 50 per cent of average working hours and be available for any five of seven days each week in order to qualify for the guarantee. If longshoremen refuse a job or stop work they are disqualified from the guarantee during the week in question. In combination, the introduction of steady men and the PGP ensured the availability and higher productivity of labor on the West Coast, while at the same time minimizing the costs of financing the Guarantee by placing the onus on longshoremen to be available for and not to refuse work. In addition, with attractive pension and early retirement benefits on offer, accumulated and continued from the very first M&M agreement, low-man-out hiring and the PGP acted to “encourage” older workers to leave the industry, thus ensuring a broad equilibrium between labor supply and (rapidly declining) labor demand (through a process of voluntary wastage). The contrast with New York is particularly instructive in this instance, as the introduction of a Guaranteed Annual Income (GAI) scheme, combined with the allocation of labor based on inverse seniority, so that older workers rarely had to work but could still draw the GAI, served to encourage older men to stay in the industry rather than retire.18 As the Chairman of the New York Shipping Association complained in 1971, “We are suffering from an unconscionable abuse of the guaranteed annual income and we will not be able to halt the flight of maritime business to other ports

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unless the malady is checked” (New York Times, April 3, 1971). In contrast to the “integrative” (win–win) bargaining that underpinned the M&M and subsequent agreements on the US West Coast, “distributive” (win–lose) bargaining in New York focused on the price of “buying out” excess labor from work gangs. Whereas the PGP cost the West Coast employers around $6–8 million per annum, the GAI cost over $20 million (Waters 1993). By the mid-1970s, surplus labor costs in the port of London were around £8 million (equivalent to approximately $16 million at the time), “which had no doubt to be reflected in port charges” (Couper 1986: 76). Like New York, the port of London experienced significant competition from other ports and was beset by more than its share of labor disputes (Turnbull, Morris and Sapsford 1996). There was in fact a ban on handling containers in the port of London from January 1968 to April 1970, although the dispute “was not due to opposition to technological change. Improvements were wanted but equally for all” ( Jensen 1971: 65). In September 1967, all registered dockworkers had been allocated to a registered employer on a permanent basis – employers chose men and vice versa, which in London matched almost two-thirds of the workforce to their preferred employer (ibid.). This followed the recommendations of Lord Devlin’s Committee of Inquiry, which did not suggest that “all the factors of dissension and inefficiency . . . will disappear with normal and regular employment. But it is thought that if conditions in the docks can be made similar to those in industry generally, a beginning can be made; and that the excessive trouble that is a feature of the industry could thus be removed” (Devlin 1965: 4). It soon became apparent, however,

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that the forecasts made by the Devlin Committee, “that labour force reform would secure industrial peace and revive the economic position of British ports”, were “over-optimistic” (Phillips and Whiteside 1985: 267). The Devlin Committee failed on at least two important counts. First, the Committee failed to understand the concerns and aspirations of registered dockworkers: “The desideratum . . . was not a workforce permanently employed, but a system of union controlled worksharing” (Phillips and Whiteside 1985: 65). There is a world of difference between employment/labor market security and being conferred the contractual status of a full-time worker. The latter does not guarantee the former. Consequently, Lord Devlin’s reforms did not bring industrial peace to the waterfront – in fact, they marked the start of the most intense period of industrial conflict ever witnessed in Britain’s ports (Turnbull and Sapsford 1991). Secondly, the Committee failed to provide a blueprint for the introduction of new cargo-handling technology (Turnbull, Woolfson and Kelly 1992), even though “[i]mminent containerisation was implicit in the timing of the inquiry” (Wilson 1972: 290, original emphasis). This made the Committee’s commitment to “no redundancy” (Devlin 1965: 90), reiterating an earlier pledge made by the National Association of Port Employers (NAPE), all the more remarkable (if not totally incomprehensible). At the time, studies of containerization indicated a potential reduction of 90 percent in the number of dockworkers handling general cargo (e.g. McKinsey & Co., 1967) but Lord Devlin (1965: 90) was convinced that a “no redundancy” pledge was “not an unreasonable or costly one for [employers] to give.”

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The first redundancy scheme was introduced in London in 1968, and was soon followed by a national severance scheme. Equally galling for Britain’s dockworkers was the employers’ ever-increasing resort to the Temporarily Unattached Register (TUR) as a “reserve pool” or “backdoor” method to dismiss surplus labor. Originally intended as a “transit park” for dockworkers changing employer, the TUR soon became “a permanent pasture for men who were offered little prospect of getting back into full-time employment” (Wilson 1972: 125). By mid1972, almost one in twenty registered dockworkers had been placed on the TUR, which precipitated a national strike that was only settled by the employers making a commitment to “no compulsory redundancies.” Henceforth, “[i]n the event of any port employer’s business failing . . . the men who would otherwise have been relegated to the TUR should be re-allocated to other employers” (Aldington-Jones 1972: 7). If port labor in Britain was an inherently variable cost in the casual era, it was now a decidedly fixed cost in the age of containerization. The inflexibility of personnel costs in a labor market with 100 percent permanent employment and a commitment to no compulsory redundancies led to a succession of company closures due to high (fixed) labor costs. Rather like a line of upright dominos, if one topples over the others soon follow. If a port company went out of business, any dockworkers who did not want to accept (voluntary) severance would be re-allocated to other port employers; this compounded their surplus labor costs created by containerization and other modern methods of cargo handling, more companies went out of business, any remaining labor was reallocated, the costs of surviving firms

increased, and so on. Following decasualization in 1967 there were 346 employers in the port of London; by 1970 there were just over two hundred, fewer than one hundred by 1975, less than fifty by the early 1980s, and just twenty-five in 1989 when the 1967 Dock Labour Scheme was finally abolished. Not surprisingly, company closures provoked a succession of strikes in London and other British ports, which in turn drove more shipping away to private ports such as Felixstowe that had always remained outside the remit of the NDLS. But the 1967 Scheme and subsequent industrial agreements had a more pernicious effect on port efficiency as shipping lines were now reluctant to invest in the port of London or engage in cargo handling as they too would be saddled with excess labor. In fact, all the major shipping lines withdrew from stevedoring in 1967, in marked contrast to developments on the US West Coast (Finlay 1988). Instead of shipping lines or specialist stevedoring companies investing in new technology and bringing their considerable expertise to bear, public port authorities in the UK assumed an ever-greater role in cargo handling. By the late 1970s they collectively employed almost half the registered dock labor force in the ports covered by the NDLS (Turnbull, Woolfson and Kelly 1992). In 1975, the Port of London Authority (PLA) became a major stevedore when it agreed to take over the business of Scruttons Maltby. The following year, the PLA agreed to become the “employer of last resort,” willing to take on the registered dock labor of any other employer in London who went out of business. This permitted the PLA to levy port charges over and above conservancy needs to meet the costs of surplus labor, but this merely compounded the cost disadvantage of London compared to ports

PORT LABOR

such as Felixstowe, where containerization was now proceeding apace. By January 1988, surplus labor costs amounted to more than 17 percent of the PLA’s revenue. As a senior PLA manager explained, “one either paid for surplus manpower or paid for new facilities. The former won hands down because the business had no choice under the law” (quoted by Barton and Turnbull 2002: 147). Whereas containerization ushered in a period of fully permanent employment in London and other British ports covered by the NDLS, in Le Havre and other French ports the Fédération Nationale des Ports et Docks CGT refused to accept any permanent employment. Although there was some scope for preferential hiring through the Bureau Central de la Main d’Oeuvre (BCMO) (see Table 26.1), the union sought to equalize work opportunities and French dockworkers continued to defend their “right” to work whenever, for whomever, and on whatever cargoes they chose. As one stevedoring company manager admitted, “we tried to develop a strong relationship with our dockers and hire the same men whenever we could. But the union was still the real master of the game” (quoted by Barton and Turnbull 2002: 148). As a result, employers were unable to maximize the productive potential of containerization, especially as crane drivers were employed by the public port authority. This created a “dual” labor force and inevitable problems for stevedoring companies in terms of the coordination and discipline of labor.19 As in London and other British ports, shipping lines were reluctant to invest in Le Havre and other French ports. While traffic levels stagnated in the ports of London and Le Havre in the 1970s and well into the 1980s, both total tonnage and

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especially containerized traffic grew exponentially in the port of Antwerp (Barton and Turnbull 2002). As in Le Havre and London pre-1967, dockworkers in Antwerp were predominantly (and de jure) casuals. By 1970, however, around one in six were (de facto) permanently employed by the major stevedoring companies. It is precisely because private operators have been able to employ specialist equipment operators on a permanent basis that they have been prepared to invest massive sums to equip the port of Antwerp (Suykens 1985). Additional dockworkers are hired from a statecontrolled labor pool, which gives employers the flexibility they need to meet fluctuating daily workloads. In practice, most of the port’s casual dockworkers are “quasi-permanent,” working for the same company on a regular basis and thereby developing a strong “psychological contract” with their preferred employer. Thus, although the port has four “calls” per day, held at a central hiring hall overseen by government officials, only around a third of the port’s casual dockers work out of the hiring hall each day. The vast majority work on “repeat hiring” with a regular employer who will only return them to the hiring hall in the event of a prolonged period of unemployment. Antwerp’s employers recognize, and utilize, the preference that many dockworkers display for some combination of the “freedom of the casual” and the “security of the perm.” As the operations manager of the port’s leading stevedoring firm acknowledged, casual dockers, including some of the company’s crane drivers, “like the ‘freedom’ to go back to the hiring hall, even though they never do. Knowing they can leave makes them want to stay. But only because we look after them properly. So you

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can see why they are all highly motivated” (quoted by Barton and Turnbull 2002: 151). Moreover, while there is keen competition between Antwerp’s employers in the product market, they have embraced a cooperative approach to the labor market and labor relations, both with each other and with the three trade unions that are recognized in the port. All employers belong to Centrale der Werkgevers aan de Haven van Antwerpen (CEPA), the port of Antwerp employers’ association, which pays all wages and other benefits, even for regular workers.20 If an employer breaks the Codex, a very detailed collective agreement negotiated by the unions and CEPA, the association imposes a fine. In the words of its President, “CEPA reduces the costs of employment for its members and allows them to focus on what they do best – cargo handling” (quoted by Barton and Turnbull 2002: 151). For example, CEPA takes responsibility for port-wide training, ensuring very high levels of competency across the entire labor force. A study of dockworkers’ skills in Melbourne and Antwerp undertaken by Patrick Stevedores of Australia, which un/ loads exactly the same vessels as Hessenatie NV in the port of Antwerp, found that Belgian dockers had a knack of anticipating, avoiding and recovering from delays, which maintained the “rhythm” and “integrity” of cargo-handling operations. Moreover, Hessenatie NV achieved much higher crane rates as a result of faster spreader positioning time (i.e. greater precision in locating and locking the crane spreader on top of the container box prior to lifting), which is predominantly a function of the operator’s skill and aptitude (Lloyd’s List, March 18, 1996). Antwerp’s dock labor scheme, like other port labor arrangements around the world,

clearly has its origins in the casual era (e.g. centralized hiring from the labor pool), was adapted to the demands of containerization (e.g. permanent and quasipermanent employment), and has proven to be well suited to the demands of a more commercial operating environment in the twenty-first century. To be sure, there are new (female) faces on Antwerp’s waterfront (Turnbull, Fairbrother, Heery et al. 2009), some of the “abuses” of the labor market have been addressed by a costconscious state,21 and the major employers in the port are now global terminal operators (PSA International and DP World) rather than the old (national) stevedoring firms. But in terms of its key features, Antwerp’s labor market remains relatively untouched by commercialization. The same cannot be said for other ports around the world.

26.4

Commercialization

According to the World Bank (2007: 7), “Port institutional models developed in the 19th and early 20th century today significantly constrain ports from competing effectively on a service quality basis, limit their agility and market responsiveness in mobilizing resources, and constrain their ability to share risks with private sector partners.” The essence, and objective, of commercialization, is therefore “to make the port responsive to the market and thus satisfy clients’ needs” (UNCTAD 1995: 2). Whatever the specific forms of commercialization (e.g. private sector participation, terminal concessions, service quality programs), labor market reform typically goes hand in hand with product market reform (World Bank 2007). For example, if the port

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is to be more responsive to the market, shift working (24/7), flexible start and finish times, variable gang composition and the like might be required. By the mid-1990s, over two-thirds of port unions worldwide reported the introduction of greater flexibility at work (Turnbull and Wass 1997).22 Once again, therefore, the dockland labor market has been at the heart of port developments. In most developed countries this has involved a further evolution of port labor arrangements, whereas in many newly industrialized economies commercialization has been a precursor or impetus to rapid containerization. When the Asian “tiger economies” roared to prominence in the latter part of the twentieth century, it was evident that port reform was vital to their economic prosperity and strategies of export-led growth. As these economies were ever more closely integrated into the new global economy, port investment opportunities arose for international shipping lines, global terminal operators and other transnational logistics companies to service the global commodity chains created by transnational producers (e.g. in the automotive and electronics industries) and transnational buyers (e.g. in the apparel and footwear industries). Shipping lines and port operators not only benefit from globalization – as world output expands the volume of world trade increases at a much faster rate (UNCTAD 2003) – they also “act as a catalyst for reduced restrictions on international trade, promote new technologies and market them on a global basis, seek both national and international policy measures to support expanded transport investments, and often discourage regulatory measures to internalize the negative social and environmental costs associated with transport activities” ( Janelle and

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Beuthe 1997: 200). Many of the regulatory measures they discourage, and the social costs they seek to avoid, originate in the dockland labor market. One of the earliest examples of commercialization in the developing world was at the Malaysian port of Klang. Following the introduction of a New Economic Policy (NEP) in 1971, with its emphasis on exportled growth, Port Klang failed to keep pace with Malaysia’s more rapid economic growth. As a result, the port suffered from congestion, low productivity, run-down infrastructure and a shortage of modern cargo-handling equipment, despite several attempts to reform the management of the port. In 1983, however, the Malaysian government embraced a policy of private sector participation, with Port Klang’s container terminal chosen as the first candidate for commercialization. Employees were understandably fearful of any change of ownership – there had never been any retrenchment under state ownership – despite the fact that new Guidelines on Privatization issued by the government’s Economic and Planning Unit in 1985 stated quite clearly that “privatization should not lead to any displacement of workers . . . Employees are to be employed in the privatized firms under conditions not less favourable than those they enjoyed while working for the Government.” Ultimately, only the intervention of the prime minister, who met personally with the different trade union leaders from the port, allayed the fears of organized labour (Turnbull 2006a). After protracted negotiations between the port authority, the unions, and the management of the new company called Kelang Container Terminal (KCT) (a joint venture between Kontena Nasional and P&O Ports

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Australia Ltd), the workers were offered three choices: (1) redundancy, (2) remaining an employee of Klang Port Authority (KPA), or (3) resigning from KPA to join KCT. Just over eight hundred workers joined KCT, which at the time was estimated to be around 15 percent more labor than was required, and each worker enjoyed guaranteed employment for the next five years (Tull and Reveley 2002). KCT also made a commitment to income security via the payment of a 21-day bonus at the end of the first year of operations, despite the company making a loss, in recognition of a significant improvement in performance. Incentive pay was one of the key elements of KCT’s human resource management strategy. Employment costs doubled during the company’s first ten years of operations, in large part as a result of improved performance and consequent incentive payments, but the company’s operating revenues increased by 130 percent over the same period. The most significant change for the workforce, however, in addition to extensive retraining to upgrade their skills and improve health and safety procedures, proved to be the change of management. P&O Ports held only a minor share in KCT, but P&O managers became the catalyst for change and a new corporate culture, which according to one of the company’s employees was now “[b]ased on the desire to succeed. Previously, the whole attitude was to prevent failure” (quoted by Turnbull 2006a: 9). Most workers reported the change of management to be “a change for the better,” resulting in a more cooperative relationship between the social partners and better two-way communications (ibid.). Not all workers in developed economies have fared so well in the age of commercialization, as the transfer from various

forms of public sector employment to the private sector is often accompanied by job losses and a marked deterioration in dockworkers’ terms and conditions (Turnbull and Wass 1997, 2007). In the port of Kaohsiung (Taiwan), for example, all dockworkers were registered with the port authority, Kaohsiung Harbour Bureau (KHB), and were members of a local (portbased) union, the Kaohsiung City Dock Workers’ Union. Before commercialization their wages were paid from stevedoring charges collected by the port authority (typically 65–72 per cent of the charges were paid to labor) but the workers did not have a direct contract of employment with KHB, despite enjoying many of the benefits of public sector employees. Understandably, this created supervisory and other problems, most notably a reluctance on the part of international shipping lines to commit significant future investments in the port. To commercialize the port and the labor market, KHB determined to transfer all dockworkers to the existing private terminal operators, who were either shipping lines (e.g. Evergreen and Sea Land) or local stevedores contracted to major lines such as Wan Hai Lines. Although the union was opposed to the transfer, it was ultimately powerless to oppose the restructuring program or indeed a 40 percent pay cut imposed by the Kaohsiung International Shipowners’ Association, a new and united employers’ association that enjoyed the support of KHB and the state. In addition, many dockworkers were “dissuaded” from retaining union membership when they took up employment with their new private sector employer. As a group, dockworkers were guaranteed only six months employment security ( January to June 1998). In the twelve months after the guarantee expired

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more than one thousand dockworkers were declared redundant, in many cases to be replaced by contract or casual labor (Turnbull 2006a). In the absence of strong national and increasingly international trade union organization, dockworkers have found it difficult to defend the labor market arrangements and collective agreements carried over from the days of casualism and containerization (Turnbull and Wass 2007). In the UK, for example, commercialization began with the Transport Act 1981, which brought about the privatization of the British Transport Docks Board (in 1983). Although this did not directly affect the system of employment regulation, which was still governed by the 1967 National Dock Labour Scheme (NDLS), Associated British Ports (ABP), the new private owner, introduced a more commercial (costconscious) approach to personnel management and vigorously renewed previous attempts to reform or abolish some of the “restrictive work practices” carried over from the past. For example, one of the first measures introduced by ABP was to extend the period of rotation for workers across different terminals in the port of Southampton from just one week to fifteen. Three-shift working (24/7) was introduced at Southampton Container Terminal (SCT) in 1985, and two years later SCT was “separated” from the rest of the port, employing a dedicated labor force and putting an end to job rotation (work sharing) across different terminals. Within specific terminals, dockworkers were now obliged to move from job to job and ship to ship as required during the course of any given shift (Turnbull 1993). When Mrs Thatcher’s government eventually abolished the NDLS in July 1989, ABP effectively withdrew

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from cargo handling (although the company retained a financial interest in some of the operators who took over different stevedoring contracts). ABP employed over 1,700 registered dockworkers immediately before the abolition of the NDLS but by the end of 1992 employed fewer than twenty. In total, almost 80 percent of the former registered dock labor force were dismissed following the abolition of the NDLS, under the provisions of a special redundancy program, the Dock Labour Compensation Scheme (DLCS), which ran from 1989 to 1992.23 Most port authorities in Britain, who collectively employed more than two-thirds of all registered dockworkers, simply dismissed their entire cargo-handling workforce and reverted to being landlords. In their haste to embrace a more commercial operating environment, and their determination to quell any organized resistance, many port authorities were prepared to pay dockworkers 12 weeks’ salary in lieu of notice, in addition to a £35,000 severance payment. Several port authorities subsequently paid further compensation to union activists and other dockworkers unfairly dismissed as part of their strategy to derecognize the union.24 The PLA, for example, paid out more than £1 million in compensation to union activists unfairly dismissed during the 1989 national dock strike that accompanied the abolition of the NDLS, as well as a further £3 million in legal costs in what proved to be the longest-running Industrial Tribunal case in British legal history.25 This was just one of many examples of the employers’ desire to destroy union organization and exorcise workers’ control over the labor process, whether by fair means or foul (Turnbull and Wass 1995).

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While the union movement has been marginalized in British ports as a result of commercialization – a fate that has befallen other formerly powerful port unions such as the Waterside Workers’ Union in New Zealand (Reveley 1997, 1999; Turnbull and Wass 2007) – many unions have worked in concert with management to adapt employment arrangements and collective agreements to modern-day requirements, most notably in the Hanseatic ports of Northern Europe. In Rotterdam, for example, commercialization signaled much greater competition for European Combined Terminals (ECT), formerly the port’s sole provider of container-handling services. For example, ECT now faces competition at its new Delta Terminals in the Maasvlakte where Maersk recently secured the lease to operate its own terminal. Likewise in Germany, the emergence of Eurokai as a major competitor to Hamburger Hafen und Lagerhausgesellschaft (HHLA), its subsequent merger with Bremer Lagerhaus Gesellschaft (BLG) to form Eurogate, and the company’s joint venture operation with Maersk (North Sea Terminal Bremerhaven) which led to the transfer of Maersk/Sealand traffic from Hamburg to Bremerhaven, have all served to intensify competition both within and between the country’s major ports. Global operators now dominate the North European container business, with Hutchison Port Holdings taking a controlling interest in ECT, PSA International buying a strategic stake in Hesse-Noordnatie in Antwerp, and DP World acquiring the P&O Ports network. These companies have brought to European ports not only new forms of work organization, but a much stronger commitment to investment in human resources than their predecessors. Trade unions certainly report that global

operators are more likely than port authorities, local stevedores or the state to regard port work as “skilled” or “professional” work, rather than as “general laboring” (Turnbull 2009). These developments have only been made possible through the “commercialization” of (semi-)state operating companies and the old Hanseatic port authorities. BLG, for example, was able to operate as a fully commercial company from 1998, while changes to the legal status of the port authority in Rotterdam (in 1997) granted the port greater autonomy from the local state and allowed it to participate in public– private partnerships, joint ventures and other commercial activities both inside and outside of the boundaries of the port. As part of this reorientation to the market and client needs, North European ports have embarked on extensive programs of multiskilling. ECT, for example, spent up to 10 percent of its annual turnover on training to ensure that all its port workers can now undertake up to four different jobs on the container terminal, and the company’s collective agreement provides for “functional combinations” of two or three jobs to be performed within the same shift. These changes, in conjunction with increasing automation and the phasing out of noncontainer operations, enabled ECT to reduce wage costs from over 60 percent of its operating costs in 1996 to just over 50 percent by 2000. Around the same time, Rotterdam’s labor pool (see Table 26.1) was “privatized” when the state discontinued financial support. By 1997, Stichting Samenwerkende Havenbedrijven (SHB), the new labor pool, was losing 1.2 million guilders per month and was effectively bankrupt. Port employers demanded largescale redundancies but SHB embarked

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on a major program of temporal and functional flexibility. In June 1998, four new shift patterns were introduced (incorporating various combinations of day, evening and night shifts, weekend work, and “on-call” shifts), higher-skilled workers were now required to perform lower-skilled tasks, and new training programs were introduced to ensure that all pool labor is multi-skilled. As a result, more than 75 percent of the pool was classified as “multi-functional” by the end of the 1990s compared to less than 20 percent in the mid-1980s. Other European labor pools have also been “privatized,” most notably the Port Workers’ Organization in Spain (see Table 26.1), which was reconstituted as a nonprofit-making company, Sociedad Estatal de Estiba, in 1986.26 Unlike the broadly cooperative approach to labor market reform that characterizes the union movement in North European ports, the Coordinadora, the principal dockers union in Spain, has displayed a more adversarial approach to commercialization. For example, the union fought hard to limit direct (permanent) employment to only 10–15 per cent of the workforce and thereby retain the system of work rotation through the Estiba (Saundry and Turnbull 1999). In this respect, the union’s militancy has frustrated international shipping lines, global terminal operators and the state (ibid.; Turnbull and Wass 2007). To this list can now be added the European Commission, as Spanish dockworkers were in the vanguard of recent campaigns by European port workers to defeat two proposed directives (CEC 2001, 2004) designed to open up the port services market, and the dockland labor market, to more competition. The Spanish government was in fact at the heart of these proposed directives: Layola de Palacio, the

European Transport Commissioner at the time, had been a minister in the Spanish conservative government, and during its presidency of the European Union (EU) (in 2002) the Spanish government brokered a deal between the transport ministers of EU Member States at a time when the European Council was still divided on the proposed directive. Less than twelve months after the defeat of the first ports package (CEC 2001) in the European Parliament, de Palacio issued a second ports package (CEC 2004) in what proved to be one of her last acts as European Transport Commissioner. But after the campaigns of industrial action that defeated the first ports package, which Bill Milligan, Chief Executive of the Strike Club,27 acknowledged had “opened a new chapter in labour activism” (Lloyd’s List, October 24, 2004), neither the port employers nor the shipping lines had the appetite for further pan-European strikes or other forms of disruption (Turnbull 2007, 2010). The women who now work in Valencia, Antwerp and other major European ports stood shoulder to shoulder with their workmates throughout the union campaigns against the further commercialization of the dockland labor market, as did longshoremen and -women from the United States.

26.5

Summary

The economics of port labor – the variable costs of labor under a casual system of employment, the need to invest in (fixed or quasi-fixed) human capital with the onset of containerization, and the flexibility demanded of port labor in a more commercial operating environment – have been at the very heart of port performance and the

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waves of industrial restructuring that have transformed the industry over the past century. Some ports have adapted their labor market far more effectively than others to the challenges of irregular traffic, new technology, and the modern-day demands of the customer. In all ports, however, the transition from casualism to containerization to commercialization has been marked by conflict and dissension both within and between the principal actors (management, labor and the state) and with third parties (e.g. local communities, direct customers and wider business interests). In myriad ways, the commercialized world of modern-day ports is a world away from the days of casual labor. In the port of Valencia, for example, there will soon come a day when entire dock gangs, maybe even the entire complement of dockers working a vessel, will be women. Several women already possess supervisory qualifications and the law of probability dictates that work equalization through the Estiba will sooner or later place these women in charge of an all-female gang driving straddle carriers and ship-to-shore gantry cranes. As globalization gathers pace, and as GTOs come to dominate the industry, port workers are increasingly recognized as highly skilled if not professional workers (Turnbull 2009). And yet despite these changes, port labor still bears the hallmarks, and carries the memories, of a labor market once riddled with insecurity and frequently ruptured by industrial conflict. If history is not to cast its shadow forward and cloud the future of the industry, ports must continue to minimize insecurity and manage industry conflict without disruption to shipping and other value-added service that the modern-day port provides to an increasing variety of customers.

Notes 1

2

3

4

5

The Jacks, or “Scabs,” were members of the Permanent and Casual Waterside Workers’ Union. When the WWF was defeated in a major strike in 1928, the Jacks formed a union from the “volunteers” who came to the rescue of the shipowners. Preferential (union-based) hiring was found in ports around the world. In the port of Belfast (Northern Ireland), for example, Protestants who were members of branch 11/10 of the Amalgamated Transport & General Workers’ Union handled any cargo that was “hooked and swung.” Cargo that was “bagged and shovelled” was allocated to Catholics who belonged to branch 11/9 of the same Union. Blue Union buttons worn on the lapel indicated whether the docker was a member of branch 11/10 or 11/9. When all the Union men had been assigned, jobs were opened to Second Preference men whose red lapel buttons bore the initials “SP.” Only during peak demand could “outsiders,” locally referred to as “Arabs,” hope to secure any work. Former docker and award-winning novelist John Campbell provides a vivid account of the life and work of Belfast dockers (Campbell 1999, 2006). For example, it was 1957 before a washing unit was provided for fish lumpers in the port of Grimsby (UK). Even then, the running costs (e.g. to pay the wages of staff employed at the washing unit) were paid by the dockworkers via a weekly contribution from their wages. The National Dock Labour Board (NDLB) also had an independent chairman and vice-chairman, appointed by the government’s Minister of Labour. The chair and vice-chair held casting votes if there was an equal division between worker and employer representatives on the Board. The Guaranteed Weekly Wage was negotiated by employers and trade unions under

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6

7

8

9

10

11

12

13

the auspices of the National Joint Council for the Port Transport Industry. The “surplus labor rate” was defined as the proportion of all registered dockworkers who “proved attendance” but were not gainfully employed. The exceptions to this practice were Southampton and the South Wales ports, where officials of the Board allocated all jobs on the principle of “work sharing.” At the other extreme, the “free call” in London took place “on the stones” outside the Board’s control centers, in some places even outside the dock gates. This allowed much greater scope for unscrupulous hiring practices. According to Lord Devlin (1965: 8), “Casual labour produces a casual attitude,” making dockworkers more willing to strike than their counterparts in other industries. The WEA subsequently merged with the Pacific American Shipowners’ Association to form the PMA. Thereafter, shipowners took a much keener interest in contract negotiations and restrictive work rules (the stevedores who constituted the WEA usually operated on a “cost-plus” contract and they often condoned, and were certainly complicit in, many restrictive work practices). For example, late starts/early finishes and “four on, four off,” where only half the gang works at any given time. The Agreement stated that employers were allowed to: (a) operate efficiently; (b) change methods of work; (c) utilize laborsaving devices; and (d) direct the work through Employer representatives. The ILWU also secured exclusive jurisdiction over all cargo handling in the West Coast ports and a guarantee of no dismissal except for just cause. Vocational training in the port of Rotterdam was introduced in 1949, and the 1962 contract recognized the function of stuwer (stevedore) as a skilled profession, which was

14

15

16

17

18

19

20

543 remunerated accordingly (Nijhof 2000: 419). A condition of these workers switching union was that their employment status remained unchanged. Moreover, employers were allowed to hire permanent replacements when necessary (e.g. in the event of retirement or voluntary quits) (Finlay 1987: 54–5). Steady employment for the few ran against the egalitarian principle of low-man-out hiring, causing bitter resentment within the Union’s ranks. Steady men were accused of being “company men” and not “working union” (i.e. they should think in terms of the group, rather than the individual), while steady men referred to longshoremen drawing the Pay Guarantee as being “on welfare” (Wellman 1995: 104, 305). The PMA sought “steady man rights” to guarantee the availability of trained workers to operate new technology (Betcherman and Rebne 1987: 84). In New Zealand the Waterside Workers’ Union (NZWWU) reached a similar agreement whereby watersiders were assigned to container terminals for a period of 3–5 months before returning to the Waterfront Industry Commission (see Table 26.1). Furthermore, as seniority was “pier-based” the GAI discouraged internal labor mobility as many older longshoremen preferred to draw the guarantee rather than transfer from declining berths to the new container terminals. This presented employers with both rising costs and labor shortages on some terminals (see Jensen 1974: 342–85). A similar situation prevailed on the New Zealand waterfront, where the parties agreed to “composite gangs” comprised of six watersiders (under the WIC) to every ship-to-shore gantry crane driver (public harbor board employees). A national law of July 17, 1985 obliges all port companies who employ dockworkers to join the relevant employers association

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(CEPA for the port of Antwerp, CEPG for the port of Ghent, CEWEZ for the port of Zeebrugge, and CWD for the port of Ostend). 21 For example, employers would previously “hoard” labor by recording workers as unemployed today, and therefore entitled to state benefits (see Table 26.1), in order to ensure that the company had sufficient (preferred) labor tomorrow. With a new electronic swipe card system it is now far more difficult for employers to record workers as unemployed. Likewise, dockers who swipe their card to gain access to the hiring hall can no longer avoid bad jobs by “sneaking out” (if they are recorded as unemployed but jobs are available they are no longer entitled to the guarantee and will be subject to disciplinary action). 22 This figure is based on a survey of thirty-six port unions affiliated to the International Transport Workers’ Federation (ITF), who collectively represented around two-thirds of all dockworkers affiliated to the Federation. Of these unions, more than half also reported a liberalization of competition in their nation’s ports and over 40 percent reported the privatization of various port services (Turnbull and Wass 1997: 133). 23 The DLCS provided severance payments of up to £35,000 for dockworkers with a minimum of 15 years service, financed jointly by the employer and the state (employers paid out £98 million under the DLCS and the state paid almost £132 million) (Turnbull and Wass 1995: 523). Although these payments attracted many “volunteers,” the vast majority of dockers reported being “forced” to leave the industry as the terms and conditions on offer in the commercialized world of port transport were “unacceptable” (Turnbull and Wass 1994: 496). 24 Immediately after the abolition of the NDLS the National Association of Port

Employers was dissolved, which at a stroke put paid to almost seventy years of national collective bargaining in the industry, and one in five former Scheme port employers derecognized the union (Turnbull and Weston 1993: 186). 25 Although the PLA was judged to have unfairly dismissed union activists, the Authority refused re-employment. In addition to its own legal costs, the PLA was ordered to pay the union’s costs, which amounted to more than £1 million. 26 The Spanish state retained a 51 percent share in the Estiba and continues to pay the dockworkers’ guaranteed wage if unemployment (idle time) exceeds 15 percent of available shifts. 27 The Strike Club is the insurer of shipowners, charterers and vessel operators against strikes and other causes of delay to shipping.

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Standing, G. (1986) Unemployment and Labour Market Flexibility. Geneva: International Labour Organization. State of New York (1952) Final Report to the Industrial Commissioner, State of New York from the Board of Inquiry on Longshore Industry Work Stoppage, October–November 1951. New York: State of New York. Suykens, F. (1985) Administration and management at the port of Antwerp. Maritime Policy and Management 12(3): 181–94. Tull, M. and J. Reveley (2002) Privatisation of ports – an evaluation of the Malaysian experience. Economic Papers 21(4): 63–79. Turnbull, P. (1993) Docks. In A. Pendleton and J. Winterton (eds.), Public Enterprise in Transition: Industrial Relations in State and Privatized Corporations, pp. 185–210. London: Routledge, Turnbull, P. (2001) Rethinking dock work. Labour History Review 66(6): 367–80. Turnbull, P. (2006a) Social dialogue in the process of structural adjustments and private sector participation in ports: a practical guidance manual. Geneva: International Labour Office. www.ilo.org/public/english/ dialogue/sector/papers/maritime/ports/ ports-socdialguidelines.pdf. Turnbull, P. (2006b) The war on Europe’s waterfront: repertoires of power in the port transport industry. British Journal of Industrial Relations 44(2): 305–26. Turnbull, P. (2007) Dockers versus the directives: battling port policy on the European waterfront. In K. Bronfenbrenner (ed.), Global Unionism: Challenging Global Capital through Cross-Border Campaigns, pp. 117–36. Ithaca, NY: Cornell University Press. Turnbull, P. (2009) Training and qualification systems in the EU port sector: setting the state of play and delineating an ETF vision. Brussels: European Transport Workers’ Federation. www.itfglobal.org/files/ extranet/-75/17739/Final%20 report%20EN.pdf.

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Wellman, D. (1995) The Union Makes Us Strong: Radical Unionism on the San Francisco Waterfront. Cambridge: Cambridge University Press. Weinhauer, K. (2000) Power and control on the waterfront: casual labour and decasualisation. In: S. Davies, C. J. Davis, D. de Vries, L. Heerma van Voss, L. Hesselink and K. Weinhauer (eds.), Dock Workers: International Explorations in Comparative Labour History, 1790–1970, pp. 580–603. Aldershot: Ashgate. Wilson, D. F. (1972) Dockers: The Impact of Industrial Change. London: Fontana. World Bank (2007) World Bank Port Reform Tool Kit, Washington, D.C.: World Bank.

27

Port Competition and Competitiveness Theo Notteboom and Wei Yim Yap

27.1

Introduction

Ports are dissimilar in their roles, assets, functions and institutional organizations (Bichou and Gray 2005). Thus, many definitions exist for the port. They can range from a small quay for berthing a ship to a largescale center with numerous terminals and a cluster of industries and services. For the purposes of this study, the definition of Notteboom (2001) is used: “a logistic and industrial center of an outspokenly maritime nature that plays an active role in the global transport system [for containerized cargoes] and that is characterised by a spatial and functional clustering of activities that are directly and indirectly involved in ‘seamless’ transportation and information processes in production chains.” Container ports serve as important nodes in facilitating the efficient flow of containerized cargoes. Specifically, they provide the primary interface for demand and supply forces to interact, and function as important marketplaces where the physical exchange between buyers and sellers of containerized

shipping capacity can be consolidated and realized. The container port can be further distinguished by its function, which consists of serving primarily as a gateway port that acts as an interface between hinterland and deep-sea routings of containerized cargoes, or of serving primarily as a transshipment port that acts as an interface for interchange between deep-sea routings of containerized cargoes. The influence of container ports on the demand for the transport of containers by sea is exerted mainly through improvements to productivity, especially in areas related to cargo handling, providing excellent maritime and hinterland access, and ensuring that the pace of capacity expansion is adequate to meet anticipated demand. However, actualization of demand is dependent on container shipping services, for the decision to call at a port can bring additional cargo and result in beneficial spin-offs for local as well as hinterland economies. In addition, the presence of inter-container port complementarity (see Notteboom 2009a) means

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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that such benefits will be extended to other ports which complement the port in question. Conversely, the decision by shipping services to stop calling at a port will result in reduced connectivity, choice of service providers and container throughput, which may have a negative impact on the competitive potential of its local and hinterland economies. The negative impact will also affect other ports which are complemented by services connected to the port. Hence, the decision by a container shipping service to switch from one port-of-call to another can lead to significant economic and commercial ramifications, for both ports and container ports which show less flexibility in accommodating to the requirements of shipping lines may be circumvented, while ports that are able to complement and add value to the objectives of liner shipping companies will become preferred channels of containerized traffic. Consequently, container ports that are competitive will become focal points for key arteries of trade in containerized cargoes. This means that ports may have to serve as collection and distribution points for hinterlands that extend far beyond their traditional boundaries, and deal with issues and challenges that are presented by the whole logistics chain. Furthermore, efficiency gains that are generated by container ports will have important implications for the comparative and competitive advantages of their hinterlands. In particular, container ports that are endowed with efficient and modern infrastructure, and supported by competitive and reliable transportation services, can raise the level of welfare benefits which extend beyond the container port community and transport users to the whole of society.

This chapter aims to unravel seaport competition and competitiveness by providing insight into the relations between container ports through the analysis of container shipping services. It will be demonstrated that the configuration of liner services exerts a direct and immediate effect on inter-container port competition. The first sections discuss definitions of and approaches to port competition and competitiveness. We then introduce a research methodology to analyze inter-container port competition and competitiveness by means of annualized slot capacity figures calling at container ports. The methodology is applied to the container ports along the Malacca Strait, the Pearl River Delta and the Antwerp–Hamburg range.

27.2

Defining Port Competition

Port competition is not a well-defined concept, partly because of its complex nature. Hence, the nature and characteristics of competition depend among other things upon the type of port involved (e.g. gateway port, local port, transshipment port) and the commodity (e.g. containers and liquid bulk). Heaver (1995) points out that terminals are the major focus of competitive strategy, not ports. In line with this perspective we argue that port competition essentially involves a competition for trades, with terminals as the competing physical units, transport concerns and/or industrial enterprises as the chain managers and representatives of the respective trades, and port authorities and port policy makers as representatives and defenders of the port sector at a higher level, engaged in offering good working conditions (e.g. infrastructure) to this sector. Following from Van de

PORT COMPETITION AND COMPETITIVENESS

Voorde and Winkelmans (2002), container port competition could unfold at three levels. At the first level, intra-port competition takes place between terminal operators located within the given port. The competitive arena includes all aspects of the containerized trade, such as the traffic routings, shippers and shipping lines concerned. For instance, competition could be focused on enticing major shipping lines and shippers to hub their operations at the terminal, or targeted at specific services operated by specific shipping lines in order to strengthen the level of connectivity on particular trade routes and to particular regions. Important shippers do not necessarily choose a port, but a logistics chain solution in which a port is merely a node. At the second level, terminal operators have to account for competition with terminal operators located in other ports. Termed “inter-port competition,” this can be played out at the national and regional levels. At the highest level, inter-port competition occurs between terminal operators located in different port ranges. The authors define a container port range to be a geographically defined area with a number of ports that possess largely overlapping hinterlands and thus serve mostly the same customers. Progressive changes in regional economic performance and overlapping hinterlands, made possible by improvements in intermodal technology and organization, prompt shipping lines and shippers to frequently review the service schedules, traffic routings and assets utilized in order to exploit changing traffic density and achieve greater economies. As a single node in global value-driven chain systems, a container port continuously strives to capitalize on the factors that contribute to its competitive advantage in order to entrench

551

and enlarge its captive hinterland, and at the same time to erode that of its competitors. Analyses of container port competition in various container-handling regions in the world showed that ports compete not only with their immediate neighbors but also with other ports located in the wider region. In particular, competition was found to be more intensive between major load centers located within certain regions (Gouvernal, Debrie and Slack 2005; Yap and Lam 2006a). Marcadon (1999) also highlighted the trend for fierce competition to cause ports to extend their hinterland into areas previously neglected; large hinterland coverage was thought to enhance container port attractiveness to shippers and carriers through the advantages of a larger choice of carriers, better connectivity and potential scale economies that can be reaped. However, Notteboom (2009b) suggested that the immediate hinterland continues to serve as the backbone of ports’ cargo base in interport rivalry.

27.3 Defining Port Competitiveness The competitive position of a container port is determined by its competitive offering to the host of shippers and shipping lines for specific trade routes, geographical regions and other ports to which the container port is connected. However, at the broader dimension, the competitiveness of a container port is determined by the range of competitive advantages that are acquired or created by the port over time (Haezendonck and Notteboom 2002). Consolidating the list of factors drawn from

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various perspectives showed that a container port is likely to be more competitive if the port: •

•

• •

•

• •

•

•

• •

enjoys proximity to key centers of production and consumption, and major trade lanes; possesses excellent maritime and hinterland access and offers superior connectivity to markets; is able to reduce port costs for users through higher productivity; is able to persuade and entrench carriers and shippers in relation to their cargo routings by adding value to the business pursuits of these entities; is able to expand capacity in time to meet demand and has sufficient space to cater to future development and capacity extensions; enables users to compete effectively with other transport modes; is able to cope with challenges posed by the new logistics business environment; is able to capitalize on the complementary and reinforcing effects of the port cluster; has greater involvement from the private sector at the level of terminal operations; is perceived to be a key driver of the local economy; and enjoys a long tradition of support from key stakeholders in the port area and the wider community.

The list of factors shown above reveals the complexity and difficulties inherent in defining competitiveness. Further complication is involved if the wide spectrum and great diversity of industry and community players with their various objectives, means and

possible impacts are included in the analysis; then well-balanced stakeholder relations management is demanded (Winkelmans and Notteboom 2007). Hence, the specific meaning, perception, interpretation, measurement and implication of these factors are bound to be different for the various parties involved in the port business. Furthermore, the competitive offering will have to depend on what is presented by the entire port community, not just the container terminal operator. A variety of methods have been used to ascertain the magnitude and characteristics of container port competitiveness. These studies can also be categorized into those that utilize quantitative techniques and those that are descriptive in nature. Quantitative methods employed included those using integer linear programming (Aversa, Botter, Haralambides and Yoshizaki 2005), dynamic programming (Zeng and Yang 2002), the analytical hierarchy process (Guy and Urli 2006; Lirn, Thanopoulou, Beynon and Beresford 2004), stochastic frontier analysis (Notteboom, Coeck and Van den Broeck 2000; Tongzon and Heng 2005), data envelopment analysis (GarciaAlonso and Martin-Bofarull 2007; Trujillo and Tovar 2007), the logit model (Veldman, Bückmann and Saitua 2005), the structural equation model (Bichou and Bell 2007), the cointegration test and error correction model (Yap and Lam 2006a), the transport cost model ( Jara-Díaz, Cortés and Ponce 2001), the transport demand model (Luo and Grigalunas 2003), cluster analysis (De Langen 2002), shipping networks (Yap, Lam and Notteboom 2006), and the oligopolistic model (Yap and Lam 2006b). These methods generally focused on investigating explicit aspects of competition that are measurable and comparable across

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selected samples of container ports and terminals. These aspects include various operational, financial and output indicators of container port performance which are related to efficiency of resource utilization, productivity achieved by assets employed, share of traffic handled, and overall level of satisfaction with service provided and costs incurred by shippers and shipping lines. However, these investigation techniques are dependent on the correct specification of the models, appropriate representation of variables and the adoption of a suitable unit of analysis. Although components that are quantifiable can potentially be used to ascertain competitiveness in an objective manner, the factors which determine competitiveness typically extend beyond these to include many that are qualitative in nature. These factors are generally covered by analyses which are descriptive in nature and associated with areas related to: •

•

•

•

container port development (Cullinane, Wang and Cullinane 2004; Notteboom and Rodrigue 2005; Slack and Frémont 2005); container port competition (Notteboom 2002; Robinson 2002; Van de Voorde and Winkelmans 2002; Yap and Lam 2004); container shipping lines (Heaver, Meersman, Moglia and Van de Voorde 2000; Slack, Comtois and McCalla 2002); and the supply chain (Notteboom and Winkelmans 2001).

As a whole, the variety of measurements and methodologies propagated show the extent and complexity of considerations related to container port competitiveness and competition.

27.4

Research Methodology

The preceding sections have shown that container shipping services are instrumental in influencing competitive relationships between container ports. Hence, the chapter examines the competitive relationships embedded within three major containerhandling regions of the world by analyzing the manner in which container shipping lines manage their container shipping fleet by implementing new or removing existing service routings.

27.4.1

Annualized slot capacity (ASC)

For this purpose, container port competition is determined by gains made or losses incurred as a result of changes in the annualized slot capacity (ASC) that calls at container ports. Specifically, ASC can be derived from the actual vessel capacity deployed in liner services; the corresponding computation for an individual port “X” for an individual service can be obtained by the formula: n

∑V

kh xt

Txtk = 2GkxtFxtk where T

G

F Vh

h =1

n

= 2GkxtFxtk Wxtk

(1)

is the annualized slot capacity, measured in TEU, that called at port “X” for a particular service “k” in time period “t”; is the number of calls made at port “X” for the whole service loop; is the frequency of call in a year; is the capacity of vessel h for n vessels deployed; and

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W is the average capacity of vessels n

∑V

kh xt

deployed for Wxtk =

h =1

. n Multiplication by a factor of 2 presumes that the vessels are fully loaded and that all the containers will be unloaded and the vessels subsequently reloaded to their maximum capacity. Nonetheless, container vessels will be carrying containers that are destined for other ports as well. Hence, Txtk denotes the theoretical ASC limit for containers which can be handled at port “X.” In actual fact, the proportion of ASC allocated for the port will be much lower as a percentage of the total ASC deployed. The actual number of containers handled at the port for a given two-way vessel capacity will also be dependent on factors such as: •

•

•

the number of ports of call on the relevant side of the trade route. The higher the number of ports, the lower will be the average share of containers handled as a percentage of the ASC deployed per port of call. the liner service network structure. A carrier may decide to route most of its cargo via one specific hub without abandoning the multiple-call system. In such a case, the hub will show a high share of containers handled as a percentage of the ASC deployed while other ports of call in the same service will have a low share. For example, the Mediterranean Shipping Company (MSC) concentrated most of its North European cargo at the MSC Home Terminal in Antwerp, but the liner services of MSC remain linebundling services with multiple calls in Northern Europe. the cargo-generating effect of the port calls. For example, Notteboom (2007)

demonstrated that upstream ports in Northern Europe such as Antwerp and Hamburg typically have a higher share than coastal ports of containers handled as a percentage of the ASC deployed. Upstream ports need an elevated cargogenerating effect and good terminal productivity partly to compensate for the time lost when the vessel sails up and down the river. Calling at coastal ports often involves only a little deviation. Consider the example of the EU1 service operated by the Grand Alliance comprising Hapag-Lloyd, Malaysia International Shipping Corporation (MISC), Nippon Yusen Kaisha Line (NYK) and Orient Overseas Container Line (OOCL) (Informa Plc 2007). The computed ASC deployed on this service with reference to equation (1) which turns around in Southampton for the European end of the voyage will be 645,600 TEU, based on the service attributes depicted in Table 27.1. However, the same service that calls at Singapore will generate twice the amount of ASC, at 1,291,200 TEU, because the service calls at the port on both the eastbound and westbound legs of the voyage.

27.4.2 Assessing inter-port competition and competitiveness by means of ASC information The information on ASC can be used to analyze container port competition and assess port competitiveness. The argument for this approach stems from the fact that commercially driven shipping lines are assumed to always choose the best bundle of decisions that they can afford. Specifically, the deployment pattern of container shipping services in a particular geographical

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Table 27.1 Service attributes of the EU1 service of the Grand Alliance Service attribute type Port rotation

Trade route Service partners Service frequency Vessels employed Total vessel capacity employed Annualized slot capacity

Service attribute value Southampton–Amsterdam–Hamburg–Le Havre–Singapore–Kobe–Nagoya–Tokyo–Shimizu– Singapore–Southampton Europe–Far East Hapag-Lloyd, MISC, NYK, OOCL Weekly 8 (by NYK) 49,660 TEU 645,600 TEU

region can serve as a rough indication of port competitiveness, because a port which is deemed by shipping lines to be less competitive will attract fewer services than another port located in the same area. Hence, the basic framework of analysis aims to identify changes in liner service routings, and to deduce their impact on container port competition. After that, analyses will be conducted for ASC deployed by liner services that call at each pair of ports in a particular region, in order to identify changes in their connectivity to other trade routes as shipping lines adjust their service schedules to meet changing market conditions. This method of analysis is depicted by the schematic shown in Figure 27.1. ASC which calls at the two ports can be divided into three categories: category A calls exclusively at port “X”; category B calls at both ports; and category C calls exclusively at port “Y.” The presence, extent and development of container port competition can be established by examining variations in the ASC

A Port X

B

C Port Y

Figure 27.1 Framework for analyzing inter-container port relationships for the case of two ports.

handled in each of the categories. This can be illustrated by the scenarios presented in Figure 27.2. In the case shown in Figure 27.2(a), new container services operated by the shipping line will lead to an improvement in the ASC deployed under category “A,” which is an indication of competition between the two ports. Figures 27.2(b) and 27.2(c) show other indications of scenarios with the presence of port competition which will lead to higher share of ASC for category “A” at the expense of categories “B” and “C.” As for Figure 27.2(d), the situation will lead to an increase in ASC deployed under category “B.” However, this development can be seen as a sign of competition, as cargo that was

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X

Y

(a) Competitive – new services initiated which call only at port “X”

X

Y

(c) Competitive – services consolidate to call excusively at port “X”

Figure 27.2

X

Y

(b) Competitive – services switch to calling at port “X”

X

Y

(d) Competitive – services call directly at port “Y”

Analysis of changes in container shipping services for the case of two ports.

previously handled for port “Y” in port “X” is now handled directly by the former. As a whole, the framework shows that evaluation of container port relationships has to account for absolute changes in ASC deployed as well as for changes in market share experienced for the three categories (“A,” “B” and “C”). Hence, competition between two container ports is likely to see the more competitive port gaining market share. Furthermore, analysis of container port competition using liner services presents an objective and direct way of ascertaining the nature of such relationships, where they exist. Moreover, the information is publicly available through service schedules publicized by carriers in a variety of industry publications such as Containerisation International yearbooks and magazines, and in other regular reports in various maritime-related publications. The information has been processed to obtain the following information for the time period considered in this study: (1) ASC that called at the ports; (2) number of liner services that called at the ports; (3) number of

carriers that called at the ports; (4) number of vessels that called at the ports; and (5) number of trade routes connected to the ports, differentiated by the ASC, services and shipping lines involved.

27.4.3 Coverage of research: geographical region and time period This chapter covers the following regions: the Strait of Malacca in Southeast Asia, consisting of the ports of Singapore, Port Klang and Tanjung Pelepas; the Pearl River Delta in East Asia, with a focus on Hong Kong and Shenzhen; and the Antwerp–Hamburg range in Northwest Europe, with a focus on the four largest ports (Rotterdam, Hamburg, Antwerp and Bremerhaven). These ports accounted for 23.8% of the world’s total container throughput handled in 2007 (Informa UK Ltd 2008). The aim is to examine the nature of competition embedded within these major container-handling regions and provide comparisons where the situation permits. The research also covers the 12-year period from 1995 to 2006, which

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includes the scene before the formation of shipping alliances up to the latest major developments in the liner shipping industry, namely the acquisitions of P&O Nedlloyd by Maersk, Delmas by CMA-CGM, and CP Ships by Hapag-Lloyd.

27.5

Research Findings

27.5.1 Port competition and competitiveness in the Strait of Malacca

Average annual growth in 1000 TEU (three-year periods)

Container ports in Southeast Asia handled 64.0 million TEU in 2007, of which 63.3% was accounted for by the three largest container ports in the region, Singapore, Port Klang and Tanjung Pelepas (Informa UK Ltd 2008). Singapore remains the market leader in the region, but saw its market share in the port sample decrease from about 90% in the mid-1990s to around 70% at the end of the observation period. The Malaysian ports increased their joint market share (Figure 27.3).

In 2006, the three ports were connected to 21 trade routes, which saw 105.8 million TEUs of ASC deployed by 96 shipping lines in 344 shipping services. Most of the ASC that called at the selected container ports consisted of capacity deployed on east–west trade routes connecting Europe and the Mediterranean with East Asia. This was followed by the ASC deployed within Southeast Asia and then by that which plied between East Asia and the Middle East. Analysis of container port competition in Southeast Asia revealed that the greatest intensity of competition occurred between Singapore and Port Klang, followed by Singapore and Tanjung Pelepas (Table 27.2). Specifically, container terminal operators in these ports sought to position themselves as important links within value chains that connect Southeast Asia to other parts of the world, primarily East Asia and Europe. This led to container port competition in three areas., The first focus was on attracting major carriers to hub their transshipment operations at the terminals, while the

2500 Singapore

2003-2006

Port Klang

2000

Tanjung Pelepas

1500 1995-1998

1000 500 2003-2006

0

1995-1998

1995-1998

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Average market share (three-year periods)

Figure 27.3 Evolution of market share and average annual growth based on annual throughput in TEU.

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Table 27.2 ASC affected by inter-port competition in the Malacca Strait Competing port pairsa SNG vs. PKL SNG vs. PTP PKL vs. PTP Total

Europe–Far East (’000 TEUs)

% share

Mediterranean–Far East (’000 TEUs)

% share

Intra-Southeast Asia (’000 TEUs)

% share

27,756 21,270 10,988 60,014

46.2 35.4 18.3 99.9

15,122 2,977 4,998 23,097

65.5 12.9 21.6 100.0

9,356 8,160 1,745 19,261

48.6 42.4 9.1 010.1

a

PKL denotes Port Klang, PTP Tanjung Pelepas and SNG Singapore. Source: Authors’ computation.

second was on targeting specific services, operated by specific carriers or alliances, that aimed at strengthening the level of connectivity to specific trade routes and regions. This development resulted in inter-container port dynamics being influenced to a large extent by the hubbing decisions of mainline operators of container shipping alliances, as well as those of independent carriers which included Maersk Line, MSC, CMA-CGM, Evergreen and CSCL. The third objective was to encourage shippers located in southern Malaya to handle their containers through either of the ports. On the whole, the main objective is to capture the largest possible share of the transshipment traffic, as such containers are seen to provide stronger growth opportunities than local containers. The impact of the emergence of Port Klang and Tanjung Pelepas as competitive alternatives to Singapore could also be seen in the share of ASC received by Singapore, which fell from almost 100% in the years before 2000 to 75.3% by 2006 (Figures 27.4(a) and 27.4(b)). In direct contrast to Singapore, Port Klang saw its share of ASC rise from 15.7% in 1995 to a peak of 36.8% in 2003, before declining to 33.3% in 2006. The rise in ASC was attributed to an increas-

ing number of shipping lines, such as members of the Grand Alliance, Hanjin, COSCO and Evergreen, which chose to schedule some of their capacity to call at both Port Klang and Singapore in the same service instead of calling exclusively at the latter. In addition, the decision by CMACGM and CSCL to relocate their operational hubs in Southeast Asia to Port Klang from Singapore contributed substantially to the increase in ASC received from 2001 onwards and helped to boost the port’s connectivity for the Europe–Far East and Mediterranean–Far East trade routes. As a whole, these developments had the effect of siphoning off cargo which would otherwise have been handled at Singapore. However, the decline experienced after 2003 was attributed to new services, initiated by MSC, PIL, the CHKY Alliance and New World Alliance, which chose to call only at Singapore. This development also caused the share of ASC that called at Tanjung Pelepas to dip in 2005. Nonetheless, the port quickly recovered and its share of ASC reached a new high at 18.1% in 2006 as the acquisition of P&O Nedlloyd by Maersk saw a majority of the former’s services reorganized to call at Tanjung Pelepas instead of Singapore.

(a) 120,000,000 Three ports

105.8m

Singapore Port Klang

100,000,000

98.3m 88.1m

Tanjung Pelepas 80,000,000

75.1m 67.7m 62.3m

60,000,000

40,000,000

20,000,000

79.7m 74.6m

68.5m 58.0m 54.3m 62.2m 51.2m 56.7m 54.8m 57.4m 46.6m 53.8m 41.2m 51.0m 36.6m 46.6m 35.2m 41.2m 31.4m 36.5m 27.6m 29.2m 21.0m 23.6m 19.1m 17.7m 15.2m 14.4m 14.6m 12.7m 12.3m 9.8m 9.8m 5.7m 8.0m 3.5m 4.8m

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (b) 1.000 0.900

99.8% 99.9% 99.9% 99.7% 99.0%

0.800

Singapore Port Klang

0.700

Tanjung Pelepas

97.7% 88.0% 84.9% 82.9% 77.1% 75.9% 75.3%

0.600 0.500 0.400 0.300 24.8% 28.9%

0.200 0.100 0.000

15.7%

30.5%

33.7% 34.9%

19.5% 21.1% 14.4% 6.0%

38.8%

33.2% 32.0% 33.3%

18.1% 16.4% 17.2% 14.7%

7.7%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure 27.4 (a) Development of ASC which called at Port Klang, Singapore and Tanjung Pelepas. (b) Development in share of ASC connected to the selected ports.

560

THEO NOTTEBOOM AND WEI YIM YAP

Average annual growth in 1000 TEU (three-year periods)

In the case of Tanjung Pelepas, the decision by Maersk to invest in a 30 percent stake in the port resulted in the relocation of its hub from Singapore to the port, and the shift in capacity, which began at the end of 2000, was largely completed by mid2001. As Maersk Line operated several services which connected Singapore to many of the major east–west trade routes, the move led to a permanent reduction in the share of capacity accounted for by Singapore from 2001 onwards. The decision by Evergreen to emulate Maersk in 2002 saw the gap in market share widen, especially for trade routes connecting the Far East to Europe and the Mediterranean. In addition, Evergreen’s move to Tanjung Pelepas resulted in most of its mainline services being rescheduled to call at that port instead of at Port Klang. This development led to the significant changes in ASC attributed to competition between Port Klang and Tanjung Pelepas. As a whole, hubbing decisions by mainline operators had a significant influence on competition dynamics between major ports

in the Malacca Strait. While the beginning of the period in 1995 saw Singapore the dominant player, the end of the period in 2006 witnessed Port Klang and Tanjung Pelepas gaining competitiveness and becoming competitive alternatives for transshipment operations in the region.

27.5.2 Port competition and competitiveness in the Pearl River Delta The major ports located in this region are Hong Kong and Shenzhen. They handled 45.1 million TEUs in 2007 and accounted for 81.3% of total container throughput handled in the Pearl River Delta (Informa UK Ltd 2008). Till the early 1990s Hong Kong served as the only gateway to the Pearl River Delta. In the mid-1990s Shenzhen emerged as a new gateway. The market share of Hong Kong dropped from nearly 98% in 1995 to 56% in 2006 (Figure 27.5). Shenzhen’s port traffic grew by 2.5 to 3 million TEUs per year in the last years of observation while Hong Kong’s growth reached “only” one million TEUs per year.

3500 3000

Hong Kong 2003-2006

2500

Shenzhen

2000 1500 1000 500

2003-2006 1995-1998

1995-1998

0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Average market share (three-year periods)

Figure 27.5 Evolution of market share and average annual growth based on annual throughput in TEU.

PORT COMPETITION AND COMPETITIVENESS

In 2006, the container ports of Hong Kong and Shenzhen saw 113.6 million TEUs of ASC deployed by 90 shipping lines in 314 shipping services. Unlike the scenario for Southeast Asia, which received a spread of ASC from east–west, north–south and intraregional services, the situation faced by Hong Kong and Shenzhen saw two-thirds of capacity that called at these ports accounted for by east–west trades. The largest of these was the transpacific trade with a share of 33.7%. This was followed by the Europe–Far East trade and Southeast Asia–Far East trade. As with the situation for the Strait of Malacca, Figures 27.6(a) and 27.6(b) also show that while the dominant port, Hong Kong, was able to attract 100% of the capacity at the beginning, its share began to decline from 1998 as more shipping lines chose to call direct at Shenzhen. This phenomenon was attributed to two major developments. First, the lack of investment in major container-handling facilities between the completion of Container Terminal 8 (CT8) in 1994 and that of CT9 in 2003 led to container terminals in Hong Kong becoming congested and expensive. For example, the terminal handling charge levied on a container by the Intra-Asian Discussion Agreement for Hong Kong rose from HK$600 in July 1992 to HK$1,200 in January 1995, and reached HK$1,800 by June 1998 (Drewry Shipping Consultants 2003). Capacity utilization for container terminals at the port also reached 95.8% in 2001 (Ocean Shipping Consultants Ltd 2003). Second, the presence of international terminal operators in Shenzhen contributed to improved confidence on the part of port users and persuaded an increasing number of shipping lines to route more of their services to call there. These developments

561

resulted in Hong Kong’s share of capacity falling to 85.1% by 2006. Nonetheless, the port continued to receive the bulk of capacity that called in the region, with many of the services making parallel calls at Shenzhen in the same schedule. This development also contributed significantly towards boosting the share of capacity received by Shenzhen from 5.3% in 1995 to 64.9% in 2006. Containers are handled mainly at six facilities, Kwai Tsing Container Terminals and River Trade Terminals in Hong Kong, and Yantian, Chiwan, Shekou and Mawan in Shenzhen. Examination of the terminals revealed several of the operators to be located in a number of facilities in both ports. For example, Modern Terminals Limited has a presence in Kwai Tsing, Shekou, Chiwan and Mawan, whereas Hutchison Port Holdings is simultaneously present in Kwai Tsing, River Trade Terminals and Yantian. The proximity of these terminals suggests the presence of a high level of inter- as well as intra-container port competition, where container terminal operators in the two ports actively sought to position themselves as important links for value chains that connect Southern China with major markets in other parts of the world. Table 27.3 shows that the amount of ASC affected by competition between the two ports was largest for the transpacific trade, followed by the Europe–Far East and Southeast Asia–Far East trades. Empirical evidence also showed that although Hong Kong dominated the container shipping scene by attracting, in most cases, more than 90% of ASC deployed to call exclusively at the port in 1995, the end of the period in 2006 saw the share of ASC received by Shenzhen for the transpacific and Mediterranean–Far East trade routes

(a) 120,000,000

113.6m 108.3m

Two ports Hong Kong

100,000,000

94.6m

Shenzhen

96.7m 95.5m 85.1% 88.2%

85.1m 76.8m

80,000,000

84.9m 81.2m 89.7% 95.3% 74.3m 73.8m 69.3m 96.7% 64.9% 56.7m 64.5m 52.1m 63.7m 99.4% 59.6% 46.6m 56.7m 99.3% 53.5m 52.1m 99.9% 56.5% 46.6m 100% 39.1m 100% 22.8m 45.9% 19.1m 32.6% 30.8m 12.3m 29.7% 40.0% 8.5m 21.7% 4.7m 16.3% 10.0% 69.7m

64.2m

60,000,000

40,000,000

39.4m

41.7m

41.7m 39.4m 100% 100%

20,000,000 2.1m 3.1m 5.3% 7.4%

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (b) 1.000 100%

100% 100% 100%

0.900

99.9% 99.3% 99.4% 96.7% 95.3% 89.7%

Hong Kong

0.800

88.2%

85.1%

Shenzhen 0.700

64.9% 56.5%

0.600 0.500

59.6%

45.9% 40.0%

0.400 29.7%

32.6%

0.300 21.7% 16.3%

0.200 0.100

7.4%

10.0%

5.3%

0.000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure 27.6 (a) Development of total ASC which called at Hong Kong and Shenzhen (in TEU). (b) Development in share of ASC connected to the selected ports.

563

PORT COMPETITION AND COMPETITIVENESS

exceeding that which called at Hong Kong. Specifically, Shenzhen was receiving more capacity than Hong Kong for two of the three largest east–west trades connected to the region. This is an important achievement given that two-thirds of capacity that called at the region was generated from such trades. The basis for Shenzhen’s strong performance was attributed to the period between 1996 and 2001, which saw many carriers beginning to include the port in their port rotation in addition to Hong Kong. The norm was to pair Hong Kong up with one of the terminals in Shenzhen. This would be considered a positive development for

Table 27.3 ASC affected by inter-port competition in the Pearl River Delta Major trade routes Transpacific Europe–Far East Southeast Asia–Far East

HKG vs. SEZ (’000 TEUs)a 57,898 27,329 25,328

a

HKG denotes Hong Kong and SEZ Shenzhen. Source: Authors’ computation.

Shenzhen, because users of the port would benefit in terms of improved connectivity and a larger choice of shipping lines to choose from. Economies of scale and scope generated from higher traffic volumes also led to lower cost per TEU handled, for both shippers and shipping lines. As a whole, a comparison of container shipping statistics for the two ports in Table 27.4 revealed that Hong Kong remained very much the focus of service schedules operated by major container shipping lines. While Shenzhen received calls from 153 container shipping services, operated by 41 shipping lines, comparative figures for Hong Kong were significantly higher. There are fewer services where carriers will call only at Shenzhen, and the norm was to pair Hong Kong up with one of the terminals in Shenzhen. In fact, only 24 services called exclusively at Shenzhen, the rest making parallel calls at Hong Kong as well. By comparison, 158 shipping services called exclusively at Hong Kong. Nonetheless, most of those which called at Shenzhen were mainline services and tended to involve bigger vessels, thereby generating higher ASC. In fact, Table 27.4 shows that the average size

Table 27.4 Comparison of container shipping statistics between Hong Kong and Shenzhen (2006) Statistic

Hong Kong

Shenzhen

Container throughput (TEUs) Shipping services Shipping lines Ports connected to Annualized slot capacity (TEUs) Vessel capacity (TEUs) Vessels Average vessel size (TEUs)

23,539,000 290 90 268 48,359,870 4,691,223 1,361 3,447

18,468,900 153 41 193 36,887,300 4,102,802 948 4,328

Source: Informa Plc (2007).

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THEO NOTTEBOOM AND WEI YIM YAP

of vessels received by Shenzhen was 25.6% larger than those calling at Hong Kong. However, empirical evidence had shown that Shenzhen was able to make strong gains on the major east–west trade routes. Specifically, the development of calling patterns at both container ports showed that most carriers called at both Shenzhen and Hong Kong in order to pick up direct cargo at the former, and direct with an increasing share of transshipment cargoes fed from surrounding regions at the latter. Hence, although Hong Kong was able to retain a sizable feeder network, which has supported its premier hub status in the Pearl River Delta thus far, it runs the risk of losing a significant share of the feeder business should these services follow their mainline counterparts by relocating to Shenzhen.

27.5.3 Port competition and competitiveness in the Antwerp–Hamburg range

Average annual growth in 1000 TEU (three-year periods)

The ports of Rotterdam, Hamburg, Antwerp and Bremerhaven handled 33.8

1000 900 800 700 600 500 400 300 200 100 0 0%

million TEUs, or 59.3% of all containers handled in Northwest Europe in 2007 (Informa UK Ltd 2008). The period 1995– 2006 was characterized by a gradual decrease in Rotterdam’s market share, mainly caused by poor traffic growth in the late 1990s (see Figure 27.7). Hamburg seems to have benefited most from this situation, while Antwerp also improved its market position vis-à-vis its neighboring rival. Despite the later traffic boom in Rotterdam of about 1 million TEUs per year, the main Dutch port was not able to increase its market share. In 2006, the four ports saw 64.1 million TEUs of ASC deployed by 162 shipping lines in 413 shipping services. The profile of ASC deployed consisted mainly of capacity operating on the major east–west trades. Such capacity accounted for 35.5 million TEUs, or 55.4% of all ASC supplied. The remaining capacity was made up of shipping services connecting to various regions within Western and Northern Europe. The largest of the trades that called at the selected container ports was the Europe–

2003-2006

Antwerp

2003-2006

Rotterdam Hamburg

2003-2006

Bremerhaven 2003-2006 1995-1998 1995-1998 1995-1998 1995-1998

5%

10%

15%

20%

25%

30%

35%

40% 45%

Average market share (three-year periods)

Figure 27.7 Evolution of market share and average annual growth based on annual throughput in TEU.

PORT COMPETITION AND COMPETITIVENESS

Far East trade. This was followed by the intra-Europe and transatlantic trades. A number of operators of container terminal facilities located in the selected ports operate terminals in other ports. For example, Eurogate has facilities in Bremerhaven and Hamburg while PSA International has operations in Antwerp (and Zeebrugge) and operates a small container facility in Rotterdam. APM Terminals of the Maersk group operates large dedicated facilities in Bremerhaven and Rotterdam (and also in Zeebrugge), whereas MSC operates the MSC Home Terminal in Antwerp (joint venture with PSA) and a similar facility in Bremerhaven. In addition, DP World operates several terminals in Antwerp and is expected to start operations at Rotterdam’s Maasvlakte 2 in 2013. If we include new projects scheduled to come on-stream by 2013, the sample includes CMA-CGM (Antwerp and Rotterdam). Furthermore, the four largest European container shipping lines (Maersk, MSC, CMA-CGM and Hapag-Lloyd) are also found to have shareholding interests in these ports. Hence, the proximity of these facilities and operators suggests the presence of a high level of inter- as well as intra-container-port competition, where container terminal operators in these ports actively sought to position their facilities as important links within value chains that connect Europe and major markets in Asia and North America. With reference to Figures 27.8(a) and 27.8(b), examination of ASC that called at the selected ports revealed that the largest amount of capacity was received by Rotterdam, followed by Hamburg, Antwerp and Bremerhaven. However, while the beginning of the period saw Rotterdam receiving 82.5% of all capacity that called at

565

the four ports, its share had declined to 61.7% by 2006. As for the other ports, the same period saw the share of ASC received by these ports remaining fairly constant with those of Hamburg and Antwerp, ranging between 40% and 50%, whereas those of Bremerhaven fluctuated between 27% and 34%. As a whole, Table 27.5 revealed that interport competition occurs mainly between Rotterdam and Hamburg and Rotterdam and Bremerhaven on the Europe–Far East trade, and between Rotterdam and Antwerp on both the Intra-Europe and transatlantic trades. The analyses also showed that leading carriers on the trades, which consist generally of the same entities that were Maersk, MSC, the Grand Alliance, CMACGM and Hamburg Sued, play an active part in shaping inter-port competition in the region. This was most evident because the majority of services operated by Maersk were deployed to call jointly at Rotterdam and Bremerhaven, where APM Terminals is present. The case for MSC also revealed that the carrier deployed most of its services to call at Antwerp, where the MSC has a 50 percent stake in the MSC Home Terminal. The carrier also scheduled a significant portion of its capacity to call at Bremerhaven, where it has a 50 percent share in the MSC Gate terminal.

27.6

Summary

The above analyses have shown that container shipping services exert a direct and immediate effect on inter-container port competition as measured from the perspective of shipping capacity deployed by shipping lines. In the case of Southeast Asia, empirical evidence found that most of the

(a) Four ports

70, 000, 000

64.1m

Rorrerdam

60.5m

Hamburg

60, 000, 000

57.8m

Antwerp 50, 000, 000

50.7m

Bremerhaven

45.3m 41.9m 38.8m

40, 000, 000 30, 000, 000 26.5m

28.6m

21.9m 22.4m

20, 000, 000 10, 000, 000

39.2m

35.2m 37.2m 30.7m

40.5m 39.6m

35.8m

27.9m 29.1m 29.4m

30.2m

31.8m

25.3m

29.7m 30.0m 24.2m

20.8m

27.2m 26.0m

28.2m 28.9m

18.8m 22.5m 15.7m 15.9m 16.1m 21.2m 19.6m 18.2m 13.1m 13.7m 18.2m 19.0m 12.1m 14.9m 15.6m 14.3m 14.5m 11.7m 12.9m 12.9m 12.4m 12.3m 12.5m 13.2m 9.7m 8.2m 8.5m 8.5m

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (b) 90.0 82.5%

82.3% 79.4% 78.1%

76.2%

80.0

75.8% 72.0%

Rotterdam 70.0

40.0 30.0

68.4% 67.0%

Hamourg

61.7%

Antwerp

60.0 50.0

70.1% 70.6%

Bremerhaven 45.7%

47.7% 42.7% 44.6%

44.2% 45.0% 42.9%

30.8% 29.5%

42.8%

44.8% 41.4% 43.3%

40.7%

27.5%

1997

1998

47.7%

43.3% 44.3%

47.6%

49.1% 46.8%

45.3% 48.7% 45.0%

40.0% 40.3% 33.3%

27.6%

46.0%

31.7%

29.7% 29.1% 28.6% 31.8% 31.4%

33.1%

20.0 1995

1996

1999

2000

2001

2002

2003

2004

2005

2006

Figure 27.8 (a) Development of ASC that called at the selected ports in Northwest Europe (in TEU). (b) Development in share of ASC connected to the selected ports.

567

PORT COMPETITION AND COMPETITIVENESS

Table 27.5 ASC affected by inter-port competition in the Antwerp–Hamburg range Competing port pairsa

Europe–Far East (’000 TEUs)

% share

Intra-Europe (’000 TEUs)

% share

Transatlantic (’000 TEUs)

% share

ROT vs. HMB ROT vs. ANT ROT vs. BMN HMB vs. ANT HMB vs. BMN ANT vs. BMN Total

13,677 8,982 12,790 6,938 3,297 6,965 52,650

26.0 17.1 24.3 13.2 6.3 13.2 100.1

6,174 7,209 5,006 2,769 5,304 3,276 29,738

20.8 24.2 16.8 9.3 17.8 11.0 99.9

6,096 11,550 7,017 8,186 4,863 6,431 44,143

13.8 26.2 15.9 18.5 11.0 14.6 100.0

a

ANT denotes Antwerp, BMN Bremen/Bremerhaven, HMB Hamburg and ROT Rotterdam. Source: Authors’ computation.

competition occurs between Singapore and Port Klang, followed by Singapore and Tanjung Pelepas. While Singapore was found to remain the port which received most of the shipping calls in the region, the increasing competitiveness of Port Klang and Tanjung Pelepas saw both ports slowly gaining on the incumbent’s market share. In the Pearl River Delta, port competition saw Shenzhen being included in an increasing number of services that used to call exclusively at Hong Kong, which resulted in container traffic being handled directly at the port. The presence of Hutchison Port Holdings and Modern Terminals Limited in a number of facilities in both ports could also contribute to interas well as intra-port competition, as these container terminal operators seek to position their facilities as important links in value chains that connect Southern China and major markets in the world. Turning to Northwest Europe, inter-port competition between Rotterdam, Hamburg, Antwerp and Bremerhaven caused the changes in ASC to be distributed fairly evenly rather than being concentrated on specific port pairs as in Southeast Asia (i.e.,

Singapore versus Port Klang, and Singapore versus Tanjung Pelepas). The analyses also showed that inter-port competition occurred mainly between different port pairs for different trades. Specifically, inter-port competition was found to occur mainly between Rotterdam and Hamburg and Rotterdam and Bremerhaven on the Europe–Far East trade, and Rotterdam and Antwerp on both the Intra-Europe and transatlantic trades. As a whole, although container port competition and competitiveness had formerly been analyzed from a variety of perspectives and in great detail, very few studies had attempted to integrate the liner shipping aspects of the business with the port. Hence, this chapter has attempted to address this by delving into the details of service schedules and port calls while investigating the competitive dynamics between container ports. Specifically, the research has shown that analyses of relationships between container ports should not be conducted at an aggregated level. As every market served by each port involves different decision makers, regions, routes, cargoes and shipping lines, it is unlikely that one port will compete with another across the

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whole spectrum of variables and sectors. Hence, the aim has been to draw decision makers’ attention to the need to identify the extensity and intensity of such relationships in order to craft and implement decisions with greater precision. The research findings presented were based primarily on evidence provided by container shipping services that called at the selected ports between 1995 and 2006. The merits of this approach have been discussed. However, the research findings can be complemented with other information and perspectives beyond the supply dimension to include capacity development and considerations from the demand side. Specifically, the analyses were conducted at the level of the container port. Thus, examination of inter-container port competition from the perspective of individual shipping lines and terminal operators for each container port may uncover greater insights into the market structure, the nature of relationships, and the level of competitiveness as differentiated by cost and price. Furthermore, future research could also take into account a larger sample size of ports. Hence, future research on this issue that is able to address these concerns should offer deeper insights into the dynamics of relationships between container ports and port competitiveness.

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28

Container Terminal Efficiency and Private Sector Participation Baris Demirel, Kevin Cullinane and Hercules Haralambides

28.1

Introduction

The capital-intensive nature of liner shipping, the continued development and growth in containerized transport, and the need for maximum capacity utilization in order to achieve adequate rates of return on investment, have all increased pressures on ports to further enhance productivity and operational efficiency (Haralambides 1997). Container shipping costs are fundamentally altered as the result of changes in port efficiency at both the global and the local levels. Decisions on the size, number and average speed of container ships deployed in liner services are, therefore, critically dependent on port productivity (Cullinane and Khanna 1999). The World Bank (2003) even suggests that the remarkable gains in productivity achieved in ocean transport over the past few decades have left ports as the last remaining component in improving the efficiency of logistics chains.

At a more macroeconomic level, the efficiency of ports has been found to be a critical factor for a country’s competitiveness and its trade prospects (Cullinane 2010; Park and De 2004; Tongzon 1995). Enhanced port efficiency is likely to bring about lower export prices, which, in turn, will help to ensure that a nation’s products are more competitive in global markets. As a result, governments are increasingly recognizing the importance of port efficiency to national economic well-being and are increasingly willing to take radical steps to improve the performance of their ports. In many parts of the world, governments have taken action, either direct or indirect, to ensure that new capacity and labor-saving cargohandling equipment has replaced outdated facilities, port worker training has been intensified, customs procedures have been simplified, information technology is more widely adopted, and management structures have been commercialized

The Blackwell Companion to Maritime Economics, First Edition. Edited by Wayne K. Talley. © 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd.

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(Haralambides 2002; Haralambides, Ma and Veenstra 1997). Public ports, as defined by Baird (2002), are widely perceived to be deficient because they are controlled by governmental hierarchies. They are deemed to suffer from, inter alia, any or all of: goal displacement, disincentivization, lack of clarity in corporate objectives and operational responsibility, and excessive ministerial intervention in operational decisions (Cullinane, Song and Wang 2005). While the role and contribution of public sector agencies do and will remain significant in the port sector, greater private sector participation provides an opportunity to remove traditional, bureaucratic operating procedures and controls and to renew port facilities and equipment by accessing new financing opportunities. In both theory and practice, greater private sector participation in the port sector is widely considered, therefore, an effective means of helping governments increase both port productivity and relative efficiency, so as to enhance the competitiveness of a nation’s port sector (Baird 2002; Tongzon and Heng 2005; World Bank 2003). The aim of this study is to assess the impact of private sector participation on container terminal efficiency by focusing on a case study of the Eastern Mediterranean region, with a particular emphasis on the situation in Turkey. Like many others, Turkey’s public port sector is perceived as highly inefficient, and this has prompted a call for the implementation of a more wideranging port privatization policy than currently exists. Despite Turkey’s strategic location at the nexus of Asia and Europe, both Gunaydın (2006) and Oral, Kisi, Cerit et al. (2007) argue that its public ports have not been able to take full advantage of the nation’s advantageous geographical posi-

tion. They attribute this to the lack of a national port strategy, the fact that a single port authority is responsible for preserving both national and regional economic interests, poor infrastructure and superstructure facilities, management by a publicly owned company whose core business and priorities do not specifically cover port operations, complex bureaucratic procedures, an inflexible tariff structure that does not adapt well to changing market conditions, insufficient draft in ports to accommodate increasingly large vessels, and generally inefficient port operations. By providing a larger sample size for empirical testing, an analysis of the Turkish situation within the context of the wider Eastern Mediterranean region (an area where economic and social similarities prevail) facilitates greater diversity in the efficiency estimates derived. Similarly, because of the proximity of all the container terminals in the Eastern Mediterranean region, this wider geographical context has the additional benefit of allowing the direct evaluation of the relative efficiency of Turkish terminals against those of its competitors. Efficiency estimation is performed using data envelopment analysis (DEA) and the impact of private sector involvement in container terminals is assessed by applying a Tobit regression model, with DEA efficiency estimates as the dependent variable. The main objective of this study is to investigate the relationship between private sector participation in container terminals and efficiency levels, specifically, to develop and assess the empirical evidence on whether or not public ports in Turkey and the Eastern Mediterranean region are less technically efficient than their privately operated counterparts. The primary

CONTAINER TERMINAL EFFICIENCY

573

research question to be answered by this study is: Does greater private sector involvement in container terminal operations have a positive impact on terminal efficiency in Turkey and the Eastern Mediterranean? In the search for the answer, a number of potentially intervening variables might complicate the analysis and obfuscate the nature of the relationship under investigation. In an effort to control for these other potentially influential factors, a number of subsidiary research questions have been formulated, as follows:

ables for which data was collected. The results of the empirical analysis are presented in Section 28.5 for the DEA and in Section 28.6 for the subsequent Tobit regression analysis. Both sets of results are then discussed in Section 28.7, with a particular focus on seeking answers to the research questions posed. Section 28.8 draws conclusions and makes recommendations for future work in this field.

1. Is the size or scale of a terminal positively related to its efficiency? 2. Are higher levels of technical efficiency associated with transshipment (hub) status for a terminal or port, as opposed to gateway status? 3. Do container terminals located at greater distances from trunk routes offer higher efficiency to compensate for the extra voyage time? 4. Does the efficiency of customs and border procedures have any positive relationship to terminal efficiency?

Since the turn of the century, many studies have applied DEA to the evaluation of port efficiency. One of the major reasons for doing so is to assess the existence, or absence, of any relationship between the efficiency of a port and the extent of private sector participation within it. These studies are predicated on the hypotheses embedded within property rights theory (as expounded by Coase 1937, De Alessi 1980 and Demsetz 1983) and public choice theory (see Downs 1967; Tullock 1976), namely that greater private sector participation in organizational ownership will lead to improvements in efficiency. Typically, such studies have utilized cross-sectional data to assess efficiency differences across ports or terminals where there is variation in the degree of private sector participation, or time series (panel) data to assess the impact of port reforms (invariably involving a move from less to more private sector participation) on dynamic changes in port or terminal efficiency. The findings of Liu (1995) in relation to the UK port sector suggest that there is no link between ownership structure and estimates of port efficiency. Notteboom, Coeck and van den Broeck (2000) also find

Following this introduction, which specifies the overall research objective and elaborates relevant research questions, Section 28.2 reviews the literature on the relationship between port efficiency and private sector participation. Section 28.3 outlines the methodology to be adopted in the analysis, comprising both data envelopment analysis (DEA) as the selected method for deriving efficiency estimates, and Tobit regression analysis as the basis for investigating the determinants of DEA efficiency estimates. Section 28.4 moves on to consider data collection issues such as sample size, sample specification and the definition of the vari-

28.2

Literature Review

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B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

no evidence that private sector participation is related to the efficiency of container terminals when they compare Asian and European ports. Similarly, Tongzon (2001) confirms that ownership structure is not a determinant of port efficiency in his study of mainly Australian container terminals. Valentine and Gray (2003) use DEA to analyze data relating to a sample of container ports from the world’s top one hundred container ports for the year 1998. The main objective of the study is to compare the efficiency ratings derived from the application of DEA to the categorization of the sample ports into different forms of ownership and organizational structure. The study finds that ownership structure does not seem to have any significant influence upon efficiency and that organizational structure is much more influential. In a similar study of a sample of 19 ports in North America and Europe, the same authors again find that ownership structure does not have any significant bearing on port efficiency (Valentine and Gray 2002). In their analysis of the relationship between efficiency and the ownership and administrative structures of Asian container terminals, Cullinane, Song and Gray (2002) find the opposite – that a significant relationship does indeed exist between greater private sector participation and higher levels of efficiency. This conclusion is also reached by Estache, Gonzalez and Trujillo (2002) in their time-series analysis of port reforms in Mexico. In contrast, Cullinane and Song (2002) find no evidence for any relationship between these two characteristics. Barros (2003a) applies DEA to the Portuguese port industry in 1999 and 2000. The motivation for the analysis is to determine what relationship exists between the governance structure that has been

established for the Portuguese port sector, the incentive regulation promulgated under this structure, and the ultimate impact on port efficiency. The author concludes that extant incentive regulation has been successful in promoting enhanced efficiency in the sector, but that this could be improved upon by the implementation of recommendations aimed at redefining the role of Portugal’s Maritime Port Agency, the regulatory body responsible for port matters. This time using data for 1990 and 2000, Barros (2003b) again applies DEA to the Portuguese port industry to derive estimates of efficiency that can then be utilized to determine the source of any inefficiency that may be identified. One of the results of the analysis is that while Portuguese ports have attained high levels of technical efficiency over the period covered by the analysis, the sector has generally not kept pace with technological change. The author concludes that the financial aids to investment that form part of the EU’s Single Market Program have stimulated greater efficiency in the port sector, particularly as the result of the greater competition that is faced, a feature especially relevant for Portuguese ports located near the border with Spain. Through the application of Tobit regression analysis, it is also found that container ports are more efficient than their multi-cargo counterparts (suggesting that there are diseconomies of scope in cargo handling), that efficiency is positively related to market share and, finally, that greater public sector involvement is negatively related to efficiency. This positive relationship between efficiency and private sector participation in container ports is also found by Cullinane and Song (2003) in their analysis of the Korean situation. Barros and Athanassiou (2004) apply DEA to the estimation of the relative effi-

CONTAINER TERMINAL EFFICIENCY

ciency of a sample of Portuguese and Greek seaports. The broad purpose of this exercise was to facilitate benchmarking so that areas for improvement to management practices and strategies could be identified and, within the context of European ports policy, improvements implemented within the seaport sectors of these two countries. The authors conclude that there are economic benefits from the implementation of this form of benchmarking, that economies of scale should be the principal target of adjustment for the sector, and that port privatization will facilitate productivity improvements in both countries. Estache, Tovar de la Fe and Trujillo (2004) support this last assertion by concluding from their analysis that Mexican port reforms have incentivized operators to innovate technologically and to increase efficiency. Cullinane, Ji and Wang (2005) empirically examine the relationship between privatization and relative efficiency within the container port industry. The sampling frame comprises the world’s leading container ports – ranked in the top thirty in 2001 – together with five other container ports from the Chinese mainland. DEA is applied in a variety of panel data configurations to eight years of annual data from 1992 to 1999, yielding a total of 240 observations. The analysis concludes that there is no evidence to support the hypothesis that greater private sector involvement leads to improved efficiency in the container port sector. In contrast, Tongzon and Heng (2005) deduce that there exists a positive relationship between technical efficiency and privatization and that the best ownership structure for container terminal efficiency is either a mixed public/ private organization or a purely private one. Cullinane, Wang, Song and Ji (2006) apply both DEA and SFA (stochastic fron-

575

tier analysis) to the same set of container port data for the world’s largest container ports and compare the results obtained. A high degree of correlation was found between the efficiency estimates derived from all the models applied, suggesting that results were relatively robust to the DEA models applied or the distributional assumptions under SFA. The results showed that high levels of technical efficiency were associated with scale, with greater private sector participation, and with transshipment, as opposed to gateway, ports. As is the case with applications to most economic sectors, the evidence on the relationship between private sector participation in ports and terminals and their observed levels of efficiency remains rather inconclusive. There appears to be only weak evidence that ports or terminals with greater private sector participation might perform better, or exhibit more competiveness, than their competitor ports. As a rather tentative general conclusion, however, it would seem that, at least for container terminals, there is an emerging body of evidence that port reforms which increase private sector participation do indeed lead to improved efficiency within the port(s) or terminal(s) affected. It is this fundamental hypothesis, therefore, which underpins the analysis of port efficiency in Turkey and the Eastern Mediterranean undertaken within this work.

28.3

Methodology

28.3.1 Data envelopment analysis (DEA) Data envelopment analysis (DEA) can be broadly defined as a non-parametric method

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B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

for measuring the relative efficiency of a decision-making unit (DMU), in this case a terminal. The method caters for multiple inputs to, and multiple outputs from, the DMU. It does this by constructing a single “virtual” output that is mapped onto a single “virtual” input, without reference to a predefined production function. There has been a phenomenal expansion of the theory underpinning DEA, the methodology itself and applications of the methodology over the past few decades (Charnes, Cooper, Lewin and Seiford 1994; Forsund and Sarafoglou 2002; Sarafoglou 1998; Seiford 1996). The fundamentals of the approach have been very widely disseminated and so, in the interests of brevity, readers are referred for more detailed expositions to Charnes, Cooper, Lewin and Seiford (1994), Cooper, Seiford and Tone (2000, 2006), Cooper, Seiford and Zhu (2004) and Zhu (2003). One assumption that underpins the early DEA approaches, including the CCR model (Charnes, Cooper and Rhodes 1978), is that the sample under study exhibits constant returns to scale. A voluminous body of evidence suggests that this assumption is particularly inappropriate to the ports sector where, it is commonly asserted, economies of scale are quite significant (Cullinane and Khanna 2000; Robinson 1978; Tabernacle 1995). In order to cater for such situations, where variable returns to scale may be more the norm, the CCR model has been modified so that scale efficiencies, for example, may be separated out from the pure productive (or technical) efficiency measure that the standard CCR model yields. The main modified forms of the CCR model that are utilized in practice are the Additive model and the BCC model (the

latter being named after its creators, Banker, Charnes and Cooper 1984). Accordingly, the efficient frontiers that are estimated by these models are different from that of the CCR model. However, the Additive and BCC models are identical in terms of the efficient frontiers that they estimate. The main difference between them is the projection path to the efficient frontier that is employed as the basis for estimating the levels of relative (in)efficiency for those DMUs in the sample that are not located on the efficient frontier. This different approach to projection determines the different relative efficiencies for different inefficient DMUs. This is because the level of (in)efficiency for inefficient observations is derived from the distance it is located from the efficient frontier, a measure that is, of course, dependent upon the projection path that is utilized. Irrespective of which model is selected for application, the main advantages of utilizing a DEA approach to efficiency estimation can be summarized as follows: 1.

2.

3.

4.

Multiple outputs and multiple inputs can be analyzed simultaneously (Cooper, Seiford and Tone 2000); More extraneous factors that have an impact on performance can be incorporated into the analysis (such as those relating to the commercial and competitive environment of port operations, as well as other qualitative factors; Cook, Kress and Seiford 1996); The possibility of different combinations of outputs and inputs being equally efficient is recognized and taken into account (Seiford and Thrall 1990); There is no necessity to pre-specify a functional form for the production

CONTAINER TERMINAL EFFICIENCY

function that links inputs to outputs, nor to give an a priori relationship (by pre-specifying the relative weights) between the different factors that the analysis accounts for (Cooper, Seiford and Tone 2000); 5. Rather than in comparison to some sample average or exogenous standard, efficiency is measured in relation to the highest level of performance within the sample under study (Cooper, Seiford and Tone 2000); 6. Specific sub-groups of those DMUs identified as efficient can be ring-fenced as benchmark references for the nonefficient DMUs (Homburg 2001). In the specific case of port efficiency, the ability to handle more than one output is a particularly appealing feature of the DEA technique. This is because there exist a number of different measures of port output that may be used in such an analysis, the selection depending upon what aspect of port operation constitutes the main focus of the evaluation. Surprisingly, however, this capability is rarely utilized in practice: there is a clear preference amongst empirical analyses for focusing on a single output, usually container throughput. In addition to providing relative efficiency measures and rankings for the DMUs under study, DEA provides results on the sources of input and output inefficiency, and identifies the benchmark DMUs that are utilized for the efficiency comparison. This ability to identify the sources of inefficiency could be useful to port or terminal managers in inefficient ports so that the problem areas might be addressed. For port authorities, too, they may provide a guide to focusing efforts on improving port performance.

28.3.2

577

Tobit regression analysis

An important shortcoming of DEA is that it does not identify the root causes of (in) efficiency, whereas the primary objective of this study is to establish the relationship between the possible factors or causes of inefficiency and the efficiency estimates derived from the application of DEA. In order to overcome the deficiency of DEA in this respect and to address each of the five research questions which this analysis seeks to answer, a positive relationship is hypothesized between DEA efficiency estimates and five explanatory variables: private sector participation (as evidenced in Cullinane, Ji and Wang 2005; Estache, Tovar de la Fe and Trujillo 2004; Gonzalez and Trujillo 2008); scale of operation (as evidenced in Cheon, Dowall and Song 2010; Cullinane, Song and Gray 2002; Tongzon and Heng 2005; Wang and Cullinane 2006); transshipment (hub) or gateway status (evidenced in Cullinane, Wang, Song and Ji 2006; Notteboom, Coeck and van den Broeck 2000; nautical distance from nearest trunk route (see Sanchez, Hoffmann, Micco et al. 2003; Yeo, Roe and Dinwoodie 2008, both of which imply that the negative consequences of deviation distance on transport costs and port competitiveness can be compensated for with a high level of port efficiency) and; the efficiency of customs and border procedures (as evidenced in Clark, Dollar and Micco 2004; Sanchez, Hoffmann, Micco et al. 2003). These hypothesized relationships are tested by using the Tobit regression model as a means of examining the determinants of efficiency in container terminals. A basic assumption of the ordinary linear regression model is that the dependent variable is normally distributed. The Tobit model, however, is applicable to situations

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B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

where the dependent variable is censored or constrained in some way, so that it actually conforms to a truncated normal distribution (i.e., it is constrained at one end). However, the dependent variable in this analysis – DEA efficiency estimates – is actually constrained at both ends (i.e., between 0 and 1). Therefore, it is necessary to transform DEA efficiency estimates into truncated data so that values are constrained only on one side and the range of feasible values lies between zero and positive infinity. This transformation is simply obtained by: Y=

( E1 ) −1

(1)

where E is the DEA efficiency estimate and Y is the newly transformed variable, possessing the characteristic that all observations are greater than or equal to zero (i.e., censored or truncated at zero). Following this transformation, there will exist a cluster of observations equal to zero, because efficient observations will now take a value of zero and inefficient observations have an unconstrained value which is greater than zero (up to infinity for DEA efficiency estimates of zero). This new variable meets the criteria for applying the Tobit model, which in this context is specified as follows:  y i* yi =  0

if y i* > 0 if y i* ≤ 0

(2)

where is a latent variable defined as: y i* = β x i + U i , U i ~ N ( 0, σ 2 )

28.4 28.4.1

(3)

Data Collection Sample size

In order to properly apply DEA, both the input and output variables, and the sample

of DMUs, should be appropriately specified and selected. As a necessary first step, the minimum sample size should be determined. As a rule of thumb, in order to avoid the convergence problems associated with overspecification, the minimum sample size should be at least twice the sum of the inputs and outputs. Some studies advise an even more conservative approach. For example, Cochrane (2008) suggests a minimum sample size for analysis of at least three, and preferably four, times the total number of input and output parameters. Cooper, Seifert and Tone (2000, 2006) provide a more formal recommendation regarding minimum sample size, as follows: N ≥ max [ m × s, 3 ( m + s )]

(4)

where N is the minimum sample size of DMUs, m is the number of inputs and s the number of outputs. As a general guide, because measures of technical efficiency are determined relatively, the use of as large a sample size as possible allows more meaningful generalization of the sample results to the population and also enhances the accuracy of the estimates derived for individual DMUs (Cullinane and Wang 2007).

28.4.2

Sample specification

Except for a few ports handling containers in very small shares together with other cargo (dry and liquid bulk, general cargo etc.), all the container terminals in Turkey are included in the sample for analysis. Seven of the most important container terminals from countries in the Eastern Mediterranean region are also included in the sample. From a simple pragmatic perspective, this larger sample overcomes the

CONTAINER TERMINAL EFFICIENCY

problem that the number of container terminals in Turkey is insufficient to allow meaningful DEA efficiency estimates to be derived; if DEA were applied to the Turkish sample alone, its small size would make it very likely that the majority of container terminals in the sample would be assessed as fully efficient. From a much more substantive perspective, however, the inclusion of other container terminals from countries in the Eastern Mediterranean region facilitates a direct comparison of the efficiency of container terminals in Turkey with their counterparts within the region. In addition, in the subsequent Tobit regression analysis, partitioning the sample between Turkish and non-Turkish observations enables such a comparison to be made with respect to the five hypothesized explanatory factors (private sector participation, scale, hub or gateway status, distance from trunk route, and efficiency of customs and border procedures) and their relationship to average estimated efficiency levels. This has the significant advantage of providing greater insight into the competitiveness of Turkish container terminals vis-à-vis competing ports in the region. Ultimately 16 container terminals were selected for inclusion in the sample as DMUs. They are: Izmir, Haydarpaşa, Mersin, Marport, Kumport, Gemport, Mardaş, Borusan and Evyapport in Turkey, Thessaloniki and Piraeus in Greece, Port Said SCCT and Damietta DCHC in Egypt, Haifa in Israel, Constanta CSCT in Romania, and Novorossisk in Russia. In order to minimize the impact on efficiency estimates of any port-specific occurrences within any given year (e.g. expansion, handover, labor strikes, etc.), the units under study should be observed over more than a single point of time. Therefore, data have been collected

579

for a period of analysis covering the three years 2006–8. The total number of observations for analysis is 47 (data for 2006 was not available for one small container terminal – Evyapport – but this requires no particular consideration as it has no effect on the analysis).

28.4.3

Variable specification

As in the majority of studies investigating the efficiency of container ports or terminals, cargo throughput has been selected as the appropriate output variable for the DEA. The issue of transshipment activity then arises as a potential problem in the calculation of total container traffic. According to Wang and Cullinane (2006), however, in the majority of cases this problem is largely mitigated because the amount of work associated with the handling of a transshipment container within a terminal does, in fact, equate very closely to that associated with an import or export container. In addition, the Tobit regression analysis which is performed within this work on the outputs from the DEA explicitly addresses the specific influence of transshipment on terminal efficiency estimates. Physical measures of port infrastructure are the most widely used input variables in applications of DEA to the container port sector. This is mainly for pragmatic reasons. In contrast to container throughput data, which is widely disseminated and easily accessible, it is not always possible to obtain all the terminal production inputs in terms of labor and capital factor endowments. In particular, data on labor is often restricted, not only because it is regarded as commercially confidential but also because, in certain circumstances, it can be politically sensitive. Thus, in common with virtually

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B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

all previous studies of port efficiency (as evidenced in the reviews by Cullinane 2010, Gonzalez and Trujillo 2009 and Panayides, Maxoulis, Wang and Ng 2009), the DEA conducted herein utilizes input variables that represent different aspects of the physical infrastructure within the container terminal. It should be noted, however, that some of the input variables, yard equipment for example, will be highly correlated with the size of the labor force working in the terminal (Cullinane and Wang 2006; De Neufville and Tsunokawa 1981; Notteboom, Coeck and van den Broek 2000). Thus, the omission of an input variable which relates specifically to labor is not so problematic, especially since the case study area is the Eastern Mediterranean, where the general level of technological sophistication in ports is largely comparable. The input variables for the DEA applied within this study cover most of the physical characteristics of a container terminal. The selected inputs are: quay length in meters, terminal area in square meters (a close

Table 28.1

proxy for yard capacity), the number of quay cranes (including both ship-to-shore and the mobile quay cranes used mainly by smaller container terminals), the number of pieces of yard equipment, and maximum draft in meters. Summary statistics for the data collected as input and output variables are provided in Table 28.1. Given that the analysis is based on a total of six variables, sample size can be deemed to comply with the earlier recommendations regarding minimum sample size. Together with the input and output variables for the DEA, in order to investigate the possible factors influencing the efficiency estimates produced as outputs from the DEA additional data are collected to facilitate the supplementary Tobit regression analysis. These data relate to: •

private sector participation in terminal operations – a dichotomous dummy variable simply defined as “public” or “private”;

Summary statistics of variables for efficiency analysis

Mean Standard error Median Mode Standard deviation Kurtosis Skewness Range Minimum Maximum Count

Throughput (TEU)

Quay length (m)

Terminal area (m2)

Quay cranes (no.)

Yard equipment (no.)

Draft (m)

771,775.91 96,625.00 649,000 N/A 662,427.62 3.68 1.67 3,141,970 60,030 3,202,000 47

1,076.32 82.38 1,020 1,200 564.75 3.41 1.66 2,574 200 2,774 47

371,561.30 37,264.48 310,000 400,000 255,472.43 0.05 0.96 868,753 33,247 902,000 47

8.91 0.76 8 12 5.21 −0.51 0.59 18 2 20 47

102.62 8.13 89 53 55.71 −0.59 0.50 205 18 223 47

13.45 0.27 13 14 1.84 1.02 0.53 8 10 18 47

CONTAINER TERMINAL EFFICIENCY

•

transshipment ratios to be used for determining the status of the terminal. The data have been collected through internet sources – again, a dichotomous dummy variable defining a terminal as “hub” or “gateway,” depending on a fairly arbitrary threshold value of 50 percent for the calculated transshipment ratio; • nautical deviation distance from the mainline east–west trunk route (as derived from proprietary nautical distance tables by taking the number of nautical miles from the geographical coordinates of the port to the geographical coordinates of the nearest access point to the mainline east–west route); and • the efficiency of customs and border procedures. Data have been sourced and filtered from the sub-indices of the Logistics Performance Index (LPI) of the World Bank. LPI and its indicators provide cross-country assessment of the logistics gap among countries. For the purposes of this study, the “customs” indicator of the LPI has been selected for its likely or potential relevance to port operations and container dwelltime in terminals. This is specifically defined by the World Bank as indicating the “efficiency of the clearance process (i.e. speed, simplicity and predictability of formalities) by border control agencies, including customs.”

28.5 28.5.1

Results Aggregate efficiency estimates

Both CCR and BCC models have been utilized to derive efficiency estimates for each

581

container terminal in the sample. Separating each of the three years contained within the panel data analyzed, the results are presented in Table 28.2. Summary statistics for the derived efficiency estimates are exhibited in Table 28.3. The mean efficiency score for the CCR model is 0.565, while the mean efficiency score for the BCC model is 0.788. The assumption of constant returns to scale that underpins the CCR model implies that efficiency estimates account for both technical and scale efficiency, while the variable returns to scale assumption of the BCC model identifies only technical efficiency. It is only to be expected, therefore, that the BCC model will yield a higher level of mean efficiency. Applying a t-test for the difference of means in a paired sample, the efficiency measures obtained from applying each model are, however, found to be significantly different. In contrast to some previous applications of DEA to port efficiency estimation (e.g. Cullinane and Wang 2007; Wang and Cullinane 2006), the correlation between the efficiency measures produced by the CCR and BCC models is found to be actually quite weak at 0.413. However, this is likely due to the limited sample size; while the BCC model produced many estimates of full efficiency, equivalent paired CCR estimates are often far from full efficiency. As one might expect, therefore, the two models also produce significantly different distributions. The distribution of BCC model estimates is skewed towards higher efficiency, while the distribution of the CCR model estimates resembles a bimodal distribution around 0.4 and 1.0. Once again, however, it is important to reiterate and recognize that this difference is likely due to the size of the sample

582 Table 28.2

B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

Efficiency estimates of the container terminals in the sample 2006

Izmir Haydarpaşa Mersin Marport Kumport Gemport Mardaş Evyapport Borusan Constanta CSCT Haifa Thessaloniki Piraeus Novorossiysk Damietta DCHC Port Said SCCT

Table 28.3 estimates

2007

CCR efficiency

BCC efficiency

CCR efficiency

BCC efficiency

CCR efficiency

BCC efficiency

0.460 0.542 0.444 1.000 0.484 0.543 0.313 – 0.832 0.922 0.784 0.476 0.732 0.151 1.000 1.000

0.612 1.000 0.467 1.000 0.625 1.000 0.475 – 1.000 1.000 0.854 1.000 0.757 1.000 1.000 1.000

0.392 0.435 0.445 0.763 0.504 0.547 0.359 0.217 0.828 0.842 0.703 0.508 0.577 0.205 0.887 1.000

0.522 0.778 0.503 0.802 0.649 1.000 0.592 1.000 1.000 0.851 0.728 1.000 0.585 1.000 0.899 1.000

0.319 0.322 0.390 0.747 0.330 0.445 0.386 0.250 0.841 0.662 0.692 0.224 0.140 0.341 0.579 1.000

0.430 0.702 0.391 0.794 0.405 1.000 0.467 1.000 1.000 0.668 0.716 1.000 0.142 1.000 0.637 1.000

Summary statistics for efficiency DEA-CCR

Mean Standard error Median Mode Standard deviation Kurtosis Skewness Minimum Maximum Count

2008

0.565 0.037 0.508 1.000 0.255 −1.032 0.260 0.140 1.000 47

DEA-BCC 0.788 0.034 0.851 1.000 0.232 −0.410 −0.740 0.142 1.000 47

analyzed; it is invariably the case that, in previous studies where a high correlation has been found between the estimates produced by the two models, sample size has been significantly larger.

28.5.2 Country-specific efficiency estimates The mean efficiency scores of 0.565 and 0.788 respectively from the CCR and BCC models imply that over the period of analysis, with the same inputs, the Eastern Mediterranean container terminals in the sample produced on average 77% and 27% less output (i.e. container throughput) than the level that was potentially possible. This provides a clear indication that there exists significant inefficiency in container terminal operations in the Eastern Mediterranean region. The average efficiency levels of container terminals located in different countries are found to be significantly different from each other. As can be seen in Table 28.4, the average efficiency of Turkish container terminals is found to be 0.495 and 0.749 for

CONTAINER TERMINAL EFFICIENCY

Table 28.4 Average efficiency estimates for each country in the sample Country

DEA-CCR

DEA-BCC

Turkey Greece Egypt Romania Russia Israel

0.50 0.44 0.91 0.81 0.23 0.73

0.75 0.75 0.92 0.84 1.00 0.77

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efficiency obtained from applying the CCR model is 0.65 for 2006, but reduces to 0.58 and 0.48 in 2007 and 2008 respectively. This observed decrease in mean efficiency level may be attributable to the decline in container throughput experienced in some ports as the result of a downturn in the global economy and reduced international trade, especially in Greece, where a labor strike reduced operational capability for a period of time in 2008.

Table 28.5 Average efficiency estimates for each year in the sample Year

DEA-CCR

DEA-BCC

2006 2007 2008

0.65 0.58 0.48

0.85 0.81 0.71

CCR and BCC models respectively. Irrespective of whether they are public or private, container terminals in Turkey are found to be less efficient than the average efficiency levels produced by CCR and BCC models. Greece is found to be the most similar country to Turkey in this respect, while the most efficient terminals on average are to be found in Egypt. It should be recognized, however, that not all the container terminals in each country are included in the sample analyzed. In the cases of Russia, Romania and Israel, for example, only the single most important container terminal is included in the sample.

28.5.3

Time effects

Interestingly, in terms of changes in efficiency estimates over time, the average level of estimated efficiency per year exhibited a slightly decreasing trend, as indicated in Table 28.5. It can be seen that the mean

28.6 Assessing the Determinants of Terminal Efficiency 28.6.1

Background

The DEA methodology identifies the slacks associated with the container terminals that have been measured as inefficient, and so provides a reference set of specific recommendations for each terminal to improve efficiency. It does not, however, identify any possible root causes of the estimated (in) efficiency. Apart from the level of private sector participation in container terminals that provides the primary hypothesis for testing within this analysis, numerous other potential influences on the efficiency of a container terminal could be posited. These include the scale and market share of the terminal, transshipment ratio, nautical deviation distance from mainline route, customs and border procedures, level of economic growth in the terminal region, extent of port competition, geographical location, hinterland connections, labor costs and level of automation. However, the most important and relevant factors within the context of this study are the level of private sector participation, scale (throughput),

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B. DEMIREL, K. CULLINANE AND H. HARALAMBIDES

hub or gateway status, nautical deviation distance and the efficiency of customs and border procedures at national level. The existence of a statistical relationship between efficiency and these five factors or potential influences is hypothesized, and an econometric methodology, Tobit regression analysis, is employed to examine them and to derive the determinants of container terminal efficiency. Efficiency estimates from the DEA-CCR model will be used as the dependent variable within the regression model.

28.6.2

Yij = β 0 + β1 ∗ PRINVij + β 2 ∗ SCALE ij + β 3 ∗ HUBij + β 4 ∗ DISTij (6) + β 5 ∗ CUSij + ε where: PRINVij

SCALEij HUBij

Tobit model specification

As described above but repeated here as an aide-memoire, the Tobit model is applied to data that are censored or constrained in some way, so that it assumes a truncated normal distribution (i.e., constrained at one end). DEA efficiency scores are constrained at both ends (0 and 1). Therefore, efficiency estimates need to be transformed into truncated data that are constrained at zero, but can take positive values up to infinity. The following transformation is applied to achieve this:  1  Yij =   −1  DEAij 

(5)

where i corresponds to the container terminal, j is the year of observation, DEAij is the DEA estimate of terminal i in year j and Yij is the newly transformed variable taking values for terminal i in year j. This new variable meets the criteria for applying the Tobit model. The Tobit regression model to be used to determine the extent of the relationship between efficiency estimates and the five potential causal factors is as follows:

DISTij CUSij

28.6.3

is a dummy variable. If terminal i in year j is operated by the private sector this is equal to unity (1), otherwise it is equal to zero (0); is the container throughput (TEU) of terminal i in year j; is a dummy variable. If the terminal is a hub port, this is equal to unity (1), otherwise it is equal to zero (0); is the nautical deviation distance of terminal i in year j; and is the efficiency of customs and other border procedures, expressed as a percentage in the World Bank’s Logistic Performance Index.

Tobit model estimation

Basic descriptive statistics of the data for the Tobit analysis are shown in Table 28.6 and the output from the Tobit regression analysis in Table 28.7. The likelihood ratio of 30.42 and associated p-value of zero suggest that, at the 5% level of significance, some form of statistically significant relationship exists between the set of input variables and the DEA-CCR efficiency estimates that constitute the dependent variable. It can be concluded, therefore, that at least one of the regression coefficients in the model is not equal to zero and that further analysis is justified as a consequence. The direction of the relationship between the hypothesized causal factors (the independent variables) and the transformed effi-

585

CONTAINER TERMINAL EFFICIENCY

Table 28.6

Summary statistics of variables for Tobit regression analysis

Mean Standard error Median Mode Standard deviation Kurtosis Skewness Range Minimum Maximum Count

Throughput (TEU)

Private sector (yes)

Hub port status (yes)

771,775.91 96,625.00 649,000 N/A 662,427.62 3.68 1.67 3,141,970 60,030 3,202,000 47

0.53 0.07 1.00 1.00 0.50 −2.07 −0.13 1.00 – 1.00 47

0.26 0.06 – – 0.44 −0.69 1.16 1.00 – 1.00 47

Deviation distance (nm)

Logistics performance (index value)

520.85 46.37 673 673 317.93 −0.59 −0.04 1,157 1 1,158 47

0.48 0.14 0.18 – 0.94 26.72 4.67 6.04 – 6.04 47

Table 28.7 Summary output for Tobit regression analysis Y PRINV SCALE HUB DIST CUS _cons /sigma

Coef.

Std. err.

t

P > |t|

−0.979599 −1.31e−06 −0.420981 0.000993 0.150386 2.10227 1.122628

0.413672 5.95e−07 0.679898 0.000822 2.391018 1.909761 0.122657

−2.37 −2.20 −0.62 1.21 0.06 1.10

0.023 0.033 0.539 0.233 0.950 0.277

[95% conf. interval] −1.814424 −2.51e−06 −1.793071 −0.000665 −4.674883 −1.751784 0.875097

−0.144775 −1.09e−07 0.951109 0.002652 4.975655 5.956324 1.37016

Number of observations = 47 LR χ2(5) = 30.42 Prob > χ2 = 0.0000 Pseudo R2 = 0.1863 Log likelihood = −66.424403 Observation summary 5 left-censored observations at Y Nt-1). Now, for a vessel with deficiencies in t, three possibilities exist in t-1: fewer (Nt < Nt-1), the same (Nt = Nt-1), or more (Nt > Nt-1) deficiencies. Vessels without deficiency in t were without deficiencies in t-1 for 55% of them, while for vessels with deficiencies in t, more than 60% had less, 10% the same number and 30% more in t-1. These results are evidence of improvements in vessels’ condition over time. We next perform an analysis by categories of deficiencies (see Figure 32.4). We again find evidence of a state dependence

General cargo/multi-purpose ship

60 Proportion (in %) 40 30 50 20

Proportion (in %) 40 30 50

10

20 No deficiency in t-1 NtNt-1

NtNt-1

Deficiencies in t-1 Nt=Nt-1

60

70 Proportion (in %) 30 40 50 20 10 0 Deficiencies in t-1 Nt=Nt-1

NtNt-1

0 No deficiency in t-1

Nt>Nt-1

Deficiencies in t-1 Nt=Nt-1

70

70 Proportion (in %) 30 40 50 20 10 0 Nt