In the 21st century, five forces will interact to shape the competitive landscape facing port authorities and port service providers:
1) The rivalry among existing competitors.
2) The threat of new competitors.
3) The potential for global substitutes.
4) The bargaining power of port users.
5) The bargaining power of port service providers (see Box 1).
These forces will impact ports of all sizes, driving requirements for port expansion, service improvement, pricing decisions, and other management actions. Winners and losers will emerge in the global port sector, largely dependent on how port managers strategically position themselves in the evolving competitive landscape (see Box 2).
The intensity of rivalry within the port and between ports is the first of five forces shaping the competitive landscape. In some ports, there will be little if any rivalry given the location of the port, the type of services being provided, the rules on number of companies able to operate within the port, and other factors. In other situations, rivalry among competitors will be intense and often result in pricing that strips the suppliers of profits. There are several factors, discussed in the following sections, that determine the intensity of port rivalry.
In some situations, only one port can logically provide access to hinterland markets. This may result from geographical features, lack of adequate transport infrastructure from all but one port, political issues, or other factors. The port of Djibouti currently has a virtual monopoly on access to the Ethiopian market as a result of the conflict between Ethiopia and Eritrea and the lack of transport infrastructure from neighboring Somalia. Dar es Salaam is the major entry point to Tanzania, as well as the neighboring landlocked countries of Zambia, Burundi, Rwanda, and Malawi. Little general cargo enters Madagascar without passing through Toamasina. There is obviously little, if any, rivalry between ports in such circumstances. In other situations, many ports may be able to provide access to a common hinterland, creating intense rivalry for market share. Numerous ports on the U.S. East, Gulf, and West Coasts compete for traffic to and from the Midwest. Likewise, a number of large ports in Northern Europe and the Mediterranean compete for the European hinterland. In Asia, Hong Kong, Shekou, Yantian, Fuzhou, and other ports compete for access to the Southern China market and numerous ports in Northern Asia are available to service the Japanese and Korean markets.
While rivalry for hinterland market access can sometimes be limited, rivalry for transshipment business is intense, even for ports that have established leading positions as load centers. Singapore established its role as the world’s largest transshipment center as a result of an advantageous location on the Asia–Europe trade route and proximity to regional origin and destination centers in Southeast Asia. Algeciras, Malta Freeport and Gioia Tauro established their positions in the Mediterranean transshipment market as a result of their location on the Asia–Europe trade route and proximity to the Southern Europe and Northern Africa markets. Colombo and Dubai have established themselves as regional hubs for traffic to and from the Gulf market and the Indian subcontinent. However, the strategic location of these ports has not precluded rivalry for business. Singapore is in an increasing rivalry with Port Klang, and more recently with Tanjung Pelepas. Several ports in the Mediterranean, such as Port Said East, Tangier, and Damieta, are increasingly competing with Algeciras, Malta Freeport and Gioia Tauro for regional transshipment trade. Salalah and Aden are now serious rivals to Colombo and Dubai for the Gulf and Indian subcontinent transshipment markets. These rivalries are often intense and create substantial pressure on transshipment pricing.
An imbalance of port capacity within a region will influence the level of rivalry between ports. Excess capacity will cause rival ports to aggressively compete for market share. Sometimes this can lead to destructive pricing. For example, the rapid growth in load center capacity in the Eastern Mediterranean has produced intense competition between hubs, and as a result ports such as Limassol and Damietta have been forced to aggressively compete to retain customers by pricing services so low that they may not be covering costs. Likewise, the inability within a region to generate sufficient traffic will increase rivalry for available business. The small hinterland of ports in the Caribbean constrains the market available to each port, creating the need to compete for all types of cargo rather than specialize in types of traffic for which the port might have comparative advantage.
The ability to segment operations in the port to create competition among service providers will often determine whether rivalry can exist within the port itself. Sometimes it is difficult or impossible to divide facilities in a way that enables more than one contractor to provide certain types of services within the port, particularly container terminal handling services, giving the contractor monopoly status. Much depends on the geographical layout of the port, the available traffic, and the minimum capacity additions (taking into account the lumpiness of port investments).
In Beirut, a 20-year concession for handling containers in the port has been given to one contractor, as the layout of the port was considered to preclude more than one container terminal operator. In other situations, such as Jeddah, it was possible to segment container terminal facilities in a way that enabled the port to award long-term container handling concessions to two contractors, each operating in a separate location within the port. Even more competition has been created among service providers in Hong Kong, where three container terminal operators compete with each other and a variety of other service providers also compete for business within the port. In Buenos Aires, the geographical layout of the port and available traffic volumes ultimately enable not more than four terminal operators to compete.
Rivalry will be influenced by the stakes at risk in preserving the market share of regional traffic. The greater the stakes, the more intense the rivalry to preserve market share. This takes on particular significance in modern container ports, considering the investment required to establish a new container terminal can easily exceed $100 million. Whoever assumes the risk for this investment will clearly have a big financial stake in ensuring that the new terminal captures and preserves market share. APM Terminals, with sister company Maersk Line, has invested heavily in a new container terminal in Salalah and clearly has a stake in ensuring that the facility is efficiently used as their regional transshipment hub (see Box 3). Stakes at risk also stem from the importance of the port to the local economy. The Port of Rotterdam, for example, is a major contributor to the local economy and preserving market share in regional traffic flows is of vital importance to the local and regional government. This has resulted in an intense rivalry with other Northern European ports and underpins the plan to invest more than $2 billion in a new deepwater container terminal and a new railway connection to Germany to maintain position in the future market.
The ability to absorb losses and cross-subsidize operations within the port impacts the balance and intensity of rivalry. Global terminal operators with strong financial balance sheets and multiple operations worldwide may be willing to absorb losses in a particular region, at least for a limited period of time, to eliminate competition. Ports with multifaceted operations may be able and willing to cross-subsidize services to lower charges on port activities where there is greater rivalry for business. Likewise, port authorities involved in non–seaport-related activities, such as the Port of New York and New Jersey, may be able and willing to crosssubsidize port-related services through higher charges on non–port-related services.
Rivalry is also impacted by the ability of port authorities and port service providers to control the efficiency of port services. There are situations where entities operating in the port are outside the control of the port manager or service provider, effectively limiting the ability of the port to compete with other ports for market share. In particular, procedures and requirements imposed by customs frequently constrain the port’s ability to compete for market share. In Jeddah, for example, clearance procedures have been the primary culprit, limiting the port’s ability to grow as a load center for the Red Sea and Middle East markets. In the West African Port of Cotonou, customs processes became such a hindrance that long dwell times for containers were suffocating the port.
Limits that ports set on the number of eligible service providers impact the degree of rivalry. Many port authorities have policies limiting the number of stevedores, tug companies, and so forth that can operate in the port. Sometimes these limits are set by entry criteria that effectively limit the number of competitors. In some situations, these limits are not due to port policy, but result from historical precedent limiting competition. Such a situation is difficult to change. Japanese ports, for example, are largely controlled by a number of small- and mediumsized stevedoring companies that have existed for many decades. Entry of new stevedores has been difficult, if not impossible, and the Japanese Minister of Transportation attributes this lack of rivalry to Japan’s ports inability to compete with its Asian rivals.
Rivalry between ports is sometimes influenced by the availability of public funds to offset losses, blurring the role of commercial forces. Governments sometimes subsidize ports on the basis that they are vehicles for economic growth. European ports have for many years been willing to subsidize port access and quays to achieve larger economic goals. At present, the European Commission is taking steps to improve the situation of port competition (see Box 4). The objective of these subsidies is to create artificial forces that influence the chance of rivals’ success. There are indications that government subsidies in the Mediterranean may be affecting the ability of transshipment centers to compete for business.
The second of five forces shaping port reform is the possibility of new port facilities or service providers within the port. This would include creation of new regional load centers that change the way cargo to and from a country’s hinterland is distributed. The significance of this threat will vary from port to port depending on a number of factors.
The capital cost required to build a new port facility frequently provides a barrier to new competitors. Large up-front expenditures are often required for dredging, quay construction, access roads, and port superstructure. These start-up costs provide an entrance barrier that can often deter all but the most aggressive players. But there are instances where new entrants will take the risk of major investments in new ports when they see an opportunity for market positioning. An example of new entrants taking a large risk occurred at the Port of Tanjung Pelepas on the southwest tip of Malaysia, where almost $745 million was invested to build a dedicated container port. The developers saw the opportunity to tap into the large and lucrative container market, which until then had been largely dominated by Singapore and to a smaller extent by Port Klang. Throughput increased from 0.4 million TEU (twenty-foot equivalent unit) in 2000 to 4 million TEU in 2004, and is expected to increase further.
Changes in distribution patterns can create new port competitors. This is particularly the case in containerized trades, where a newly created regional load center can siphon traffic from traditional ports in the region. In the Gulf, for example, the newly created load center in Salalah siphoned a substantial part of the fast growing transshipment business of the Gulf from ports such as Jeddah, the UAE ports, and Colombo. Since its start in 1998, the throughput increased to 2.2 million TEU in 2004. Based on this success, the investors have ambitious plans for further development of container, general cargo, and bulk handling facilities and also in free trade zone (FTZ) activities. Similar plans started also for the port of Aden. Another example includes the increase in All Water Express Services between Asia and the U.S. East Coast via the Panama Canal. As congestion in the U.S. West Coast ports increases with the strong growth in the Pacific Rim trades, shippers are adjusting supply chains to account for the longer transit time, but realizing the benefits of less delays and lower total costs. The result is creating pressure to develop alternative gateways to the U.S. hinterland market that may open opportunities for neighboring Canada and Mexico. There are also instances where a new port can provide access to a hinterland via overland transit, providing competition to a port more locally sited. The new Port of Ain Sukhna in Egypt at the northwestern end of the Red Sea became operational in 2002, and became, with a throughput volume of 238,000 TEU in 2004, a strong competitor to Egyptian ports in the Mediterranean.
Provisions in leases, concessions, and other agreements, particularly those involving investment by the operator, will often provide some degree of protection from new competitors starting up business in the port. In other situations, however, the port service provider can be threatened with new entrants. Nowhere is this better evidenced than in Northern Europe, with the success of the Dutch tug company Kotug in expanding its tug assist business in this region’s ports, which have traditionally been the realm of long established players. Since Kotug started its towage services in the Port of Rotterdam in 1988, a price war was triggered with prices of towage services being reduced about 25 percent. In 1996, Kotug expanded its services to the Port of Hamburg, and in 1999 to Bremerhaven. Concurrently, one of the players in Hamburg started operations in 1998 in the Port of Rotterdam.
Natural barriers that constrain port capacity can limit the threat of new port entrants, particularly those requiring land or fixed facilities to operate within the port. In many ports there simply isn’t space for additional berthing, storage, and other fixed facilities, providing some insulation from the entry of new competitors. However, these barriers can easily be overstated. In the long term, many of these barriers can be overcome by building in adjacent locations or extending out into the sea. There can also be new methods of operation introduced that do not require presence in the port. For example, an inland container depot could substitute for storage and other operations now performed in the port. The Italian port of La Spezia has a chronic lack of space and has constructed the Intermodal Center of San Stefano Magra for this purpose. In Western Europe, intermodal container depots situated along inland waterways are playing an increasing role to relieve congested ports and roads.
Existence of switching costs will often determine the ability of new entrants to start up competing operations, either within a port or between ports. Switching costs can come in several forms. They could be the capital expenditure required to switch from one port facility to another. In some cases, this can be a very small cost, especially for carriers that have little fixed investment in a facility. A pure transshipment facility for containers, such as Kingston, Jamaica, can be particularly vulnerable to switching as the carriers using the facility may incur little switching cost in shifting to a competing facility. In other cases, this cost can be substantial. Carriers can have a considerable amount of equipment positioned in a port that would need to be shifted to another port if they were to switch operations. Also, some carriers have heavily invested in port and terminal infrastructure. In instances where major bulk handling facilities have been created, switching is almost impossible. Another form of switching cost is the need to establish a service network in the new port, which could entail a considerable amount of learning and experience costs. Then there’s the switching cost incurred by the disruption in service during the transition period. Ports, and service providers within a port, can often protect their market position by ensuring that these switching costs are maximized.
Cost advantages of existing service providers and customer loyalties will affect the threat of new entrants. There may be economies of scale or experience that enable established players to retain the position of cost leaders if new entrants were to start up business in the port. This could result from a variety of factors, including having the better location in the port, having sunk investment in facilities and equipment, or employing experienced personnel. While customer loyalties can be ephemeral, quality of service (for example, responsiveness to customer needs, handling rates, clearance time, and so forth) can differentiate the service provider and limit the threat of new entrants. Sometimes these customer loyalties can result from the threat of reprisal should the customer shift to another service provider or another port.
The third force shaping the competitive landscape of port reform is the potential of port users to shift to other global sources, impacting the level of activity in the port. This force takes on greater importance as world trade is opened to competition, sourcing of supply becomes increasingly global, and vertical specialization becomes an increasingly important factor in global logistics chains. Several factors will determine the importance of this force on specific ports.
The extent to which there are other global sources available to customers now shipping through the port will determine the ability to source elsewhere. Various types of fruits and vegetables provide good examples of substitute global sources. Bananas, for example, can be sourced from West Africa, Central and South America, the Caribbean, or Asia. Manufacture of clothing is also globally footloose, with many potential source locations. The efficiency of port facilities in each of the export locations will impact the success of the product in the export market, which ultimately affects the level of activity moving through the port.
Foreign buyers may be able to substitute other products for the product they are now shipping through the port. For example, a power plant utilizing imported coal as feed may be able to switch to oil or gas as feed if the economics shift in favor of the latter. Port costs to handle coal are one of the factors that impact the economics of utilizing coal as feed, and exports of coal through the port could certainly be affected if the foreign buyer shifts to gas or oil as feed.
There may be significant cost in switching to other sources, products, or assembly sites that will impact the ability of port users to substitute globally. The greater this cost, the greater the port’s bargaining power. Ability to shift to other global sources can be limited by the port users’ reliance on value-adding services in or near the port, involving integration of imported intermediate goods with domestic produce for final sale to the domestic or export market. These valueadding services can be costly to replicate elsewhere and affect the ability to shift to other global sources. For example, the large free zone in Jebel Ali enables tenants to import and assemble intermediate products into final products, utilizing a large pool of inexpensive expatriate labor for the assembly process. While many of the value-adding activities performed in Jebel Ali can be performed elsewhere, the alternatives may involve significantly higher labor cost and a less friendly government environment. It may also entail walking away from a high sunk cost. Reebok, for example, has established a large final assembly and distribution center in the Port of Rotterdam to service the European market. While this valueadding activity could be shifted to another location, there is a sizable sunk cost associated with the existing facility (see Box 5).
Another factor determining the potential for global substitutes is the elasticity of demand for the country’s exports and imports. The greater the elasticity, the greater the possibility that buyers can do without the product. Doing without the product is a form of substitution by the buyer that will impact the volume of traffic for that product in the port.
Cutting through all of the above is the issue of how significant port-related costs are as a percentage of total delivered price. Many shippers consider port costs to be among the more controllable expenditures in the logistics chain. In general, the higher the percentage that port costs are of total delivered price, the more impact port costs will have on buyer behavior. For high value commodities, such as electronics, port costs can be less than 1 percent of the delivered market value. For low value commodities, such as bagged rice, port costs can be more than 15 percent of the delivered market value. Shippers of electronics may be less influenced by port costs in selecting ports than shippers of rice. However, small cost penalties may not be acceptable even when port costs are a small percentage of the total delivered price. These penalties may represent the difference between profit and loss in the marketplace and influence the selection of the port, depending on whether the port user has the option to ship through another port, not buy the product, or find another market.
Maritime transport costs have an important share in the landed price of bulk commodities such as coal, cement, and crude oil. An increase of the available draft enables the deployment of larger ships, the realization of economies of ship size, and a better access to world markets. The regional government of the state of Zulia in Venezuela has plans to deepen the Port of Maracaibo by shifting to a location nearer to the sea (see Box 6). As a result, shipments of coal and crude oil presently carried in consignments of about 60,000 tons can be shipped in consignments two to three times bigger, reducing shipping costs up to $3 per ton for exports of coal to Western Europe.
The bargaining power and control over port management exercised by carriers, shippers, and tenants in varying degrees are also significant forces shaping the competitive landscape of port reform. Bargaining power of port users is determined by a number of factors, which are outlined below.
The larger percentage of traffic in the port controlled by an individual user, the more bargaining power that user has in negotiations with port management and service providers. In some situations, the port user can be so powerful that the port literally cannot afford to lose its business. Even the largest ports must contend with extremely powerful carriers that have the option to take their business elsewhere. A major container carrier leveraged its size and market share to get concessions from the Port of New York and New Jersey as a condition of using the port as a load center on the U.S. East Coast. The port did not want to lose a carrier that commanded 20 percent of the port’s container volume. Given this control over a large port, consider the bargaining power that the carrier has in dealing with a small or midsize port where there are options for using other facilities.
In the Caribbean, large cruise lines such as Carnival, Royal Caribbean, and P&O have great bargaining power with the cruise ports that they serve. These three companies control more than 50 percent of industry capacity and their decisions on which ports to call can have major impact on a local economy. Some years ago, Carnival decided to reduce cruise ship visits to Grenada as a protest to the imposition of cruise taxes by the government, an action that seriously affected the economy of the small nation.
Business realignments and agreements among port users can result in powerful players that port managers and port service providers must contend with in contract negotiations. These can take the form of conferences, slot sharing arrangements, strategic alliances, mergers, and others. The result in each case can be greater concentration of port business among a smaller number of port users. When representatives of the Grand Alliance (comprising P&O, Nedlloyd, NYK, OOCL, and MISC) sit down with a port to negotiate future contract terms, the port is dealing with a formidable alliance of carriers that previously had been individual customers. Maersk’s acquisition of Royal P&O Nedlloyd in 2005 gave Maersk control of 18 percent of the total world container vessel capacity, which is not excessive in itself. The market share, however, varies per trade route and is around 22 percent on the Europe–Far East, 14 percent on the transpacific, and 19 percent on the transatlantic trade routes. On some North–South trade routes the market shares are higher, such as 26 percent on the Europe–India route and 28 percent on the Europe–East Coast South America trade routes. On the Europe–South Africa and Europe–Australia–New Zealand trade routes, however, the market shares became considerably higher and resulted in mandatory downsizing in these trades.
Bargaining power will be influenced by the existence of large value-adding tenants that the port wants to attract and retain. A major port tenant employing a large number of personnel and substantially contributing to the local economy is in a position to extract concessions that would not necessarily be available to smaller players. The Port Authority in Portland, Oregon, has targeted auto imports as a strategic business sector that it wants to retain and grow. Three car manufacturers (Hyundai, Honda, and Toyota) now lease several terminals from the port authority to process and accessorize imported cars. Keeping these three auto manufacturers in the port is a high priority objective, and the port authority provides favorable terms to these large users that may not be available to smaller tenants.
The more important the port to the national economy, the more pressure there will be on port managers to attract and retain valuable customers. Some ports can be extremely valuable players in the national economy and the loss of major customers could have a big ripple effect on employment and local income (see Box 7). For example, the Port of Rotterdam is a key element in the Dutch economy and development projects undertaken by the port over the past decade have created more than 45,000 man-years in temporary employment and 17,500 man-years in permanent employment in the Netherlands.
Current and prospective port users can employ the importance of the port to the local economy as a bargaining chip in negotiations over tariffs, service, or facilities. The larger the contribution of the port user to the local economy, the greater the user’s bargaining power with the port.
Port users will have strong bargaining power if the services provided by the port can be replicated elsewhere. Essentially this comes down to whether there are alternative facilities available to the port user. The more opportunity there is to use other facilities, the less bargaining power the facility owner has over the user. Nowhere is this better illustrated than in Northern Europe, where a number of large container handling ports are available for entry and exit in the European market. Carriers can react to tariff increases, efficiency issues, or problems by shifting or threatening to shift to other ports. Some years ago, the Grand Alliance decided to temporarily shift one of its five Europe–Asia services from Rotterdam to Antwerp on the basis that it was experiencing delays in Rotterdam. This decision shifted, on an annual basis, some 125,000 TEU from Rotterdam to Antwerp, until the delays in Rotterdam were corrected. In the mid Mediterranean, Malta Freeport and Gioia Tauro are equally situated to provide transshipment service to carriers. Each port must consider the potential actions of the others when negotiating with current or prospective customers because customers have the ability to take their business to the other port.
A carrier, shipper, or tenant who has a major investment in facilities in the port, or has structured its operations in a way that prevents easy transfer of operations to another facility, faces switching costs that limit bargaining power. For example, a joint venture of Saudi and U.S. interests began operating a rice processing plant in the port of Jeddah in October 1995. It is the largest rice handling facility of its type in the Middle East and the investment in the facility creates an exit barrier should the operator become dissatisfied with the service received from the port. Another example is the container load center in Salalah, where Maersk Line is a major investor in the terminal along with the government of Oman. It’s difficult to pack up and leave this facility if there is unhappiness with port policies. At the same time, sunk costs in facilities do not preclude leaving when things get too bad. International Container Terminal Services, Inc. (ICTSI) of the Philippines decided to pull out of the Port of Rosario in Brazil after having invested $27 million in a failed effort to operate the container terminal. Europe Container Terminals (ECT) left Trieste after a one-and-a-half-year effort to operate the Molo VII container terminal. Both contractors decided that future losses would be greater than the cost of pulling out. State-owned, Singapore-based operator, PSA International (PSA), met difficulties with its Aden terminal in 2002, and was, according to the contract, bought out by YemenInvest.
The final force shaping the competitive landscape of port reform is the bargaining power of port service providers. A variety of operators and groups often have the ability to exercise control over the port by threatening to curtail or cancel services. At present, more than half the world’s container terminal capacity is managed by a small number of companies, approximately 15, defined as global terminal operators. These companies have operations in more than one region in the world and handled an estimated 206 million TEU in 2004. It is expected that the market share of these companies will increase to 55–60 percent by 2010. These large players can tilt the scale in negotiations with port authorities. The extent of service provider bargaining power is determined by a number of issues.
Experience and the unique capabilities that the service provider brings to the port are a factor determining its bargaining position. The greater these capabilities, the more power the service provider has in dealing with the port. A contractor that has operated in a port for many years, has established a cadre of very experienced personnel, and has accumulated a large inventory of equipment needed to perform the job would more likely be able to extract favorable terms from the port than a start-up company.
Likewise, a contractor with unique skills, such as handling hazardous cargo or chemicals, is in a good bargaining position. Large global terminal operators are also in a good bargaining position because they are often perceived as bringing experience and unique capabilities based on their operations elsewhere, loyalties of a customer base, networking possibilities, and access to financing. The contract for Dubai Ports World (DPW) to manage the Port of Djibouti was largely based on the perception that DPW could transfer experience in port operations in Dubai and increase regional market access to Djibouti.
A service provider that participates in the financing of an activity is clearly in a better bargaining position than one who does not. Many port services that are privately operated as concessions involve some degree of financing by the operator and, in many cases, the contractor offering the best financing terms is in position to get the concession. The developer of the new container terminal in Aden chose PSA Corporation as the operator partially because PSA was willing to participate in financing the $200+ million infrastructure development.
Existence of Choke Points in the Port that facilitate slowdowns or stoppages of port operations provides a power that is often employed to extract concessions from port management. Sometimes the choke point can be an activity in the port, without which the port cannot function effectively. Tug service is an example; if tugs are not available for ship assist, the port may continue to function, but not necessarily at the normal level of efficiency. Sometimes the choke points can be personnel in the port; a labor stoppage in cargo handling or other strategic services can shut port operations down. The choke point can also be trucking to and from the port, warehousing operations, or other services where a slowdown for whatever reason can quickly stall operations in the port. Service providers in these types of activities have considerable bargaining power in dealing with port management.
The ability of service providers compared to port management to absorb downtime also affects the balance of bargaining power. Service providers with deep pockets may be willing to take a loss of revenue for a substantial period to get what they want from the port. Meanwhile, the port can be under substantial government and commercial pressure to resolve the conflict and get the port back into operation. Strikes in the Israeli ports of Ashdod, Haifa, and Eilat in 2005 created a backup of vessels in the ports and generated calls from many sides to reach a resolution as soon as possible. In addition, the management lock-outs in October 2002 during the labor contract negotiations (Pacific Maritime Association versus the International Longshore and Warehouse Union) caused havoc in the U.S. West Coast ports, taking months to process the backlog of vessels.
The existence of interrelationships between service providers and port users can influence the power structure in the port. These interrelationships can affect decisions regarding port operations, leases, berthing rights, and other issues. Uniglory, for example, is the feeder ship subsidiary of Evergreen, which in turn is one of the major line haul container carriers. A port that wants to attract line haul calls by Evergreen could be willing to extend berthing terms to Uniglory that are more favorable than would be given to a feeder ship operator who is independent. Uniglory can exploit this relationship to strengthen its bargaining position in negotiating terminal concessions.
Lease agreements and other contracts to use port facilities include provisions that convey legal rights and obligations to the port service provider. These contract terms will set boundaries on the port service provider and port in future negotiations. The rights can be extensive, giving the provider exclusive rights to operate in the port for 20 plus years with little if any control by port management. Or they can be very limited, giving the port the right to exercise a great deal of control over the performance of the service provider, including provisions in the contract specifying a minimum investment program that must be fulfilled by the contractor. As the contract between the port and service provider will set the boundaries for future bargaining, the need for a well-planned, careful negotiation to develop the contract can’t be overemphasized.
Ports no longer operate in an insulated environment. They face the same competitive forces that companies in other industries experience. There is rivalry among existing competitors, the continuing threat of new entrants, potential for global substitutes, and the presence of powerful customers and powerful suppliers. Dealing with these forces is a continuing challenge for the port manager. It requires that the port manager be keenly aware of port user requirements, know their constraints in the global market, and have a strategy for making the port a partner in business development.
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