Labor Toolkit

Framework for Port Reform

The Port Business Environment

Three broad forces, detailed below, are generating momentum for port reform in developing and industrialized countries alike:

First is the need to restructure port operations to deal with the external factors that affect port viability, including national competition for global markets, changes in port and transport technology, and increased competition among ports. Port institutional models developed in the 19th and early 20th century 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. In planning how responsibility for future port development and operations will be divided between the private and public sectors, and in deciding on desired levels of investment to be funded or guaranteed from public sources, policy makers must increasingly regard the competitiveness of their port(s) in relation to other ports in their region, and compared to the supply chain alternatives available to their users. In general, these alternatives are more abundant today than they were 15 plus years ago. Consequently, the port business is more competitive today than it was when most port authorities were originally chartered. New institutional models are needed for this new era of increased competition.

The second force generating momentum for reform is private participation in infrastructure and superstructure. In recent years, world governments and lending agencies have come to acknowledge that private sector participation can be a powerful force for enhancing the performance of port assets, as with other infrastructure assets. National and regional seaports are realizing that they cannot compete effectively without the efficiencies offered by private operators and, equally importantly, without access to capital provided by private investors. In response, there has been a steady increase in recent years of private participation in port operations around the world. Countries with recent experience of port reform include Argentina, Brazil, Canada, Chile, China, Colombia, Egypt, Estonia, Germany, India, Indonesia, Japan, the Republic of Korea, Latvia, Lithuania, Malaysia, Mexico, Mozambique, Nigeria, Oman, Panama, the Philippines, Poland, Russia, Tanzania, Thailand, and the United Kingdom. Moreover, the pace of private investment in the sector is accelerating. As Box 4 demonstrates, private investment in the sector has increased progressively since 1990. Over this period, private sector investment in ports increased from $243 million in 1992 to $3.9 billion in 1997, and to a cumulative amount of more than $21 billion by the end of 2003.

The private sector, which has driven recent port development, has rapidly matured and has organized itself into distinct specialized subsectors. Today, the port services industry is a $50–55 billion global business that is expected to grow to $75–80 billion in 2009 and includes several distinct specialized segments.

The third force affecting reform is the development of a global market for port development services, with specialized niches each containing a number of international companies that offer specialized service capabilities. The market today broadly includes four groups of operators:

The top five global operators accounted for more than 28 percent of the total container handling market in 2005. The second wave includes 10 or so stevedoring groups mainly from the United States, Europe, and Asia, and is now challenging the first global stevedores on new development opportunities. The major shipping lines are reorganizing their terminal operations as separate corporate entities to also enter the market. The niche investors, a dozen identified so far, can be expected to continue to carve out specific market segments in the future.

But in this market, as well as in the shipping industry, consolidation has changed the competitive landscape, at least between the different groups above, and within the groups themselves. The consequences of consolidation for regional competitive conditions could be significant, and will require due attention from public authorities. The structure of this global industry should, therefore, be considered by policy makers when adopting specific reform models. Module 2 provides a detailed overview of prevailing trends in the global port and maritime industry.

The range of services ports offer differs widely. So, too, do the service reputation and established commercial relationships with carriers that global service operators can bring when they are selected as investors or operators. In general, modern ports offer two kinds of services: core and value-added services. The core services provided by most ports include, but are not limited to:

~ Access and protection.
~ Pilotage.
~ Towage.
~ Vessel traffic management.
~ Fire protection service.
~ Chandlering.

~ Vessel tie-up services.
~ Container handling and transfers.
~ Traditional breakbulk and neobulk cargo handling.
~ Dry and liquid bulk cargo handling.
~ Container stuffing and stripping.
~ Bagging and packaging.
~ Cargo storage, acceptance and delivery.

~ Dredging and maintaining channels and basins.
~ Equipment repair and maintenance.
~ (Dry dock) ship repairs.
~ Container and chassis repairs.

A number of these services can be outsourced to specialized private sector service providers via a number of different methods. In general, the appropriateness of specific methods is determined by two main factors:

For the purposes of defining asset “rights” of ownership, lease, rental, casual use, and so forth, it is helpful to differentiate port assets into three categories: 1) long-lived, high cost infrastructure (for example, breakwaters, channels, and turning basins) in which incremental benefit can only arbitrarily be assigned to individual port users; 2) long-lived, high cost infrastructure (for example, quays and terminals) for which incremental use and benefit can be apportioned in various ways and assigned to discrete service delivery systems; and 3) superstructure and equipment whose use is clearly associated with specific users and specific service delivery systems.

Much of the preparation for port institutional reform therefore involves:

Box 5 presents the most common options for transferring specific categories of rights to reposition specific categories of core port services from the public to the private sector. The different port models indicated in the table are defined and discussed in Module 3.

In addition to providing core port services, increasingly ports are delivering nontraditional services to their customers as well. These nontraditional services typically expand the role of port service providers in the supply chains of shippers. These services create value for shippers by expanding the scope of markets they can economically access by reducing the delivered cost of products they sell, or by reducing the cost to complete buy/sell transactions. These services allow ports to participate in specialized port service niches and to differentiate themselves from competing ports by means other than price and turnaround times.

Improving logistics is now a widely accepted means for companies to improve their competitiveness. Logistics, in short, is a procedure to coordinate all aspects of the manufacturing and distribution process to ensure the delivery of the right products to the right markets at the right time. The key elements to develop an advanced logistics strategy usually include:

There are a significant number of activities that can be classified as value-added services in the field of logistics. Generally, they fall into two categories:

VAL activities, in particular, are growing in importance as producers concentrate on meeting the demands of customers for high quality specialized products. New players in this field—third-party logistic services providers— have emerged to take over parts of the production chain (assembly, quality control, customizing, packaging, and so forth) and of the after-sales (repair, reuse) service.

Ports are in a natural position to participate in this logistics revolution, bringing together all modes of transport, information systems, and land for the construction of facilities. Undoubtedly, containerized and general cargo have the highest VAL potential.



Home

How To Use The Toolkit

Overview

Framework for Port Reform

Introduction and Objectives

Context for the Framework Module

The Port Business Enviroment

A Road Map for the Port Reform Process

Implementing Port Reform:
Pulling It All Together

The Evolution of Ports in a Competitive World

Alternative Port Management Structures and Ownership Models

Legal Tools for Port Reform

Financial Implications of Port Reform

Port Regulation:
Overseeing the Economic Public Interest in Ports

Labor Reform and Related Social Issues

Implementing Port Reform

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