It is in a country’s best interest to ensure that its ports operate efficiently and safely, that fair and competitive services are provided, and that ports support and encourage economic development locally and nationally.
The purpose of economic regulation is to ensure the efficient and competitive functioning of the port. Regulations often intervene in the functioning of markets, including the setting of controlling tariffs, revenues, or profits; controlling market entry or exit; and maintaining fair and competitive behavior and practices within the port sector.
Decisions about reform strategy, industry structure, and regulatory frameworks are intimately intertwined. Therefore, evaluation of regulatory issues, options, and their consequences should be conducted early in the reform process. As shown by the reform experience in port and other sectors, delay can add to the regulatory burden and cost, restrict the availability of options for the regulator, and risk incompatibility between regulatory requirements and institutional capacity.
Due to port sector reforms, many ports have evolved into a landlord port authority, with facilities leased to private operators, that directly provide their services to carriers and shippers. In this situation, private operators may provide services previously provided by the public port authority, such as pilotage, tug assist, vessel stevedoring, storage, and yard services. Private operators are typically motivated by profit and may not necessarily provide facilities or services that are of economical, environmental, or social value if they conflict with profit maximization. Therefore there is a need for regulatory oversight to ensure that the public interest is protected. The scope of regulation depends on the extent of existing competition.
Factors indicative of the extent of competitiveness within the port sector include:
The lack of transport options, congested facilities, relatively high prices, and high profits alone or together may encourage terminal operators and other port service providers to breach the threshold of what may be regarded as acceptable competitive behavior.
Port sector reformers can choose from two general strategies to increase port sector competition: structural remedies and regulatory remedies. Clearly, the ideal strategy is the one that results in increased competition. Therefore, when considering port privatization, reformers should strive toward structural improvements that increase the number of competitors before resorting to regulatory improvements. Regulatory enhancements (particularly economic regulation) are intended to improve efficiency by correcting various market imperfections; essentially, the regulations attempt to force ports to behave as if they were competing in a perfect market.
Structural remedies include:
Regulatory remedies include tariff filing and setting of tariffs and rate-of-return thresholds.
To help design an economic regulatory policy for the port sector, the following principles should be considered: