A dynamic model for marginal cost pricing of port infrastructures

ABSTRACT

A dynamic model for marginal cost pricing of port infrastructures links costs to system performance by combining a power-law function with time-dependent queueing analysis. Additionally, the model incorporates the marginal cost of capacity, including the effects of economies of scale. This allows the calculation of the marginal cost price under a dynamic framework. The model accounts for nonlinear behaviour of port demand, which is sensitive to price and service levels. The effects over time of cost and service levels on the port’s operational performance are quantified. The proposed model allows determining the optimal timing for capacity investment. The model is a starting point for the application of marginal cost pricing to ports. However, for practical application of such pricing method it is necessary to apply a system’s approach, as productivity and costs must be assessed at the terminal’s component level. This should allow the derivation of a marginal cost function at the terminal’s component level.     

The economics of port pricing

This short paper is concerned with the problem of improving the methods currently used to price port facilities. It presents a simple economic model of how an optimal pricing policy may be arrived at, employing an adaptation of an interactive supply-demand framework initially developed in the context of allocating car-parking places in urban areas. The model demonstrates the basic economic tenet that charges should be set equal to the full marginal social opportunity cost (M.S.O.C.) of facilities used, with premiums added where capacity restrictions would otherwise lead to excessive queueing. The use of a probability demand curve shows that one of the main fears of the anti-pricing school, namely excessive resource misallocation due to miscalcuations of the marginal cost, tends to be exaggerated. Further, it is argued that many of the other arguments set out against marginal cost pricing of ports are either ill-founded or unlikely to be of practical importance—ports are little different to other goods and services consumed in the economy and standard economic policies apply to them.     

The economics of port pricing

This short paper is concerned with the problem of improving the methods currently used to price port facilities. It presents a simple economic model of how an optimal pricing policy may be arrived at, employing an adaptation of an interactive supply-demand framework initially developed in the context of allocating car-parking places in urban areas. The model demonstrates the basic economic tenet that charges should be set equal to the full marginal social opportunity cost (M.S.O.C.) of facilities used, with premiums added where capacity restrictions would otherwise lead to excessive queueing. The use of a probability demand curve shows that one of the main fears of the anti-pricing school, namely excessive resource misallocation due to miscalcuations of the marginal cost, tends to be exaggerated. Further, it is argued that many of the other arguments set out against marginal cost pricing of ports are either ill-founded or unlikely to be of practical importance—ports are little different to other goods and services consumed in the economy and standard economic policies apply to them.     

Pricing strategies for port competition and cooperation

This paper analyzes the effects of integration between two neighbor ports with a third port sharing the same overlapping hinterland. The merger (integrated port) can select either the price discrimination or uniform pricing strategy after integration. Our study reveals that port integration is always beneficial to the merger and the third port, but results in the reduction of consumer surplus and social welfare, regardless of the type of pricing strategy implemented. Further analysis shows that when the inland transportation cost to the ports is relatively low or sufficiently high, a better option is for the merger to adopt the price discrimination strategy. When port pollution is considered and has a relatively large impact, the integration of the two ports improves green social welfare for the region. This finding provides strong support for the ongoing port integration in China. In terms of pricing strategy, the uniform pricing strategy generates higher green social welfare when both inland transportation cost and pollution are relatively low, or both are significantly high. Otherwise, the price discrimination strategy generates the best result for the region.     

Revisiting port pricing; a proposal for seven port pricing principles

A review of seven large landlord port authorities around the world reveals a notable diversity of pricing structures. While port authorities increasingly act as commercial undertakings, port pricing often seems to be not driven by commercial considerations. In this paper, we argue that ports can be regarded as “business ecosystems” with multiple users. This provides a valuable perspective on pricing and raises the question of whether ports can be regarded as two-sided markets. We argue this is not the case. The business ecosystem perspective provides a basis for deducing seven pricing principles for port authorities that are detailed in the paper and illustrated with cases these principles. These pricing principles are broadly follow a direct user pays approach; capture value from “non-core” tenants; price aggressively for activities with a high strategic value; differentiate pricing based on price elasticity and connectivity improvements; maximize revenue from long-term lease agreements, price port dues competitively; critically consider differentiation of charges based on environmental performance; and finally use incentives to align interests of terminal operators and shipping lines. We conclude that the ecosystem perspective is central to the understanding of pricing decisions of port authorities and that various pricing issues deserve more attention.     

Influential factors in the design of port infrastructure tariffs

ABSTRACT

The main aim of this article is to examine the factors influential to the practical process of port infrastructure tariff design. The analysis is based on the survey data of 67 seaports representing the Australasian, East Asian, European, North American and South American regions. Exploratory factor analysis (EFA) was first carried out to identify the factors influential to the selection of the infrastructure tariff design model. Subsequently, confirmatory factor analysis (CFA) was used to confirm the relationship between the variables. The findings showed that demand, knowledge about pricing theories, the dynamics of port and shipping sectors (including competition and ship size), pricing objectives and port cost consideration are influential factors in infrastructure tariff design. Most ports use a mix of pricing approaches including price discrimination, cost-based pricing and market-based pricing. Ports are aware of the basic pricing approaches but have limited knowledge of their application. Based on the results of analysis, policy implications for port management in designing port infrastructure tariffs, limitations and recommendations for future research are discussed.     

Competition model of cruise home ports based on the cruise supply chain – based on China cruise market

This paper addresses issues of cruise home port competition based on the cruise supply chain. A pricing model of the cruise market is developed considering the competitive cooperation behaviors of the participants in the cruise supply chain. Furthermore, a model of cruise home port competition is developed to investigate the impacts of subsidy participants in the cruise supply chain on cruise home ports. The results indicate that subsidy policies change the market equilibrium, promote the upstream and downstream integration of cruise supply chain, and enhance cruise home port competitiveness. Subsidies to cruise line increase the payoffs of cruise supply chain and ports’ profit. Subsidies to travel agency decrease passenger costs and improve all ports’ profits. For the long-term development of cruise home port, the consequents can be used as policy suggestions.     

The Indian dry ports sector, pricing policies and opportunities for public-private partnerships

At the time of writing (2010), the world is witnessing the aftermath of the most severe financial sector meltdown in modern economic history caused by the real estate bubble in the United States. Its consequences on the real economy, especially in Europe, are yet to be fathomed, and this of course includes the longer-term impacts on international ocean transportation, ports and the distribution of global production.The economic recession has left the international shipping and port sectors with substantial overcapacity. This has resulted in drastic cost cutting measures on the one hand, and voluntary, often consensual, and coordinated reduction of supply on the other. These measures, together with a noticeable recovery in demand, are gradually leading again to improvement in prices charged by carriers and other transport service providers.In view of the country’s expanse; size of population; and regional inequalities, India’s dry ports (inland cargo consolidation and distribution centres) are seen by the government as a pivot of export-led growth and economic development (Haralambides & Gujar, 2011). Moreover, public and private sectors alike see the coordinated development of dry ports as the only way forward in terms of easing pressures at congested coastal ports, thus improving supply chain efficiency. In spite of this, dry port development and operations are still dominated by the public sector, under prices, capacity, land acquisition policies and other conditions that make private sector participation risky and comparatively unattractive. In order to rationalize dry port capacity and prices, this paper argues in favour of greater devolution through competition-enhancing Public-Private Partnerships (PPPs). The paper puts forward recommendations for the necessary legal, regulatory and general economic policy interventions based on international best practice, while keeping Indian specificities in the right perspective.     

全球供应链视角的东亚港口物流服务绩效与趋势分析*

东亚港口基于旺盛的贸易运输需求而在全球供应链体系中崛起,同时也因为港口拥挤等问题而存在降低贸易成本的空间。首先从全球供应链视角解析港口物流服务格局,突出了东亚地区、特别是中国港口的地位,评价港口物流的综合绩效和竞争状态,然后对发展趋势做出预测。研究发现：东亚港口将通过持续投资实现供给需求的动态平衡;日本地震引致的全球供应链重组将使港口物流服务发生结构性变化,东亚将加强跨国港口物流合作以满足区域经济一体化的要求。     

Development of port service network in OBOR via capacity sharing: an idea from Zhejiang province in China

The ‘Silk Road Economic Belt and the 21st-Century Maritime Silk Road’ (One Belt One Road, OBOR) strategy initiated by the Chinese government has a significant impact on the business and logistics modes which involves Asia, Europe, Africa, and their adjacent seas. Many countries and ports are developing new strategies that are suitable for this economic environment. Compared with many ports in the world, the ports in Zhejiang province of China have a novel property. In addition to Ningbo-Zhoushan port, there are several other sea ports and river ports in that province. In this paper, we propose a concept of port service network that consists of a huge hub and multiple ports. Ports of small and medium sizes can share their capacities of different types of port service with the hub when the service capacities are integrated into the network. We develop a mixed integer nonlinear programming model to determine the optimal decisions in such a network with constraints on the budget to conduct integration. An optimization algorithm incorporated with a genetic algorithm is developed to solve large size problems. We provide managerial insights on the policies of government, including expanding port capacity, reducing fixed integration cost, and providing better financial condition.     

A logistics and supply chain management approach to port performance measurement

Although there is widespread recognition of the potential of ports as logistics centres, widely accepted performance measurements for such centres have yet to be developed. The essence of logistics and supply chain management is an integrative approach to the interaction of different processes and functions within a firm extended to a network of organizations for the purpose of cost reduction and customer satisfaction []. The logistics approach often adopts a cost trade-off analysis between functions, processes and even supply chains []. This approach could be beneficial to port efficiency by directing port strategy towards relevant value-added logistics activities. This paper seeks to show that through conceptualizing ports from a logistics and supply chain management approach, it is possible to suggest a relevant framework of port performance. A proposed framework is tested in a survey of port managers and other international experts.     

A logistics and supply chain management approach to port performance measurement

Although there is widespread recognition of the potential of ports as logistics centres, widely accepted performance measurements for such centres have yet to be developed. The essence of logistics and supply chain management is an integrative approach to the interaction of different processes and functions within a firm extended to a network of organizations for the purpose of cost reduction and customer satisfaction [1]. The logistics approach often adopts a cost trade-off analysis between functions, processes and even supply chains [2]. This approach could be beneficial to port efficiency by directing port strategy towards relevant value-added logistics activities. This paper seeks to show that through conceptualizing ports from a logistics and supply chain management approach, it is possible to suggest a relevant framework of port performance. A proposed framework is tested in a survey of port managers and other international experts.     

Studying port selection on liner routes: An approach from logistics perspective

The research aims to study the port selection in liner shipping. The central work is to set up a model to deal with port choice decisions. The model solves three matters: ports on a ship’s route; the order of selected ports and loading/unloading ports for each shipment. Its objective is to minimize total cost including ship cost, port tariff, inland transport cost and inventory cost. The model has been applied in real data, with cargo flows between the USA and Northern Europe. Afterwards, two sensitive analyses are considered. The first assesses the impact of a number of port calls on the total cost which relates closely to the viability of two service patterns: multi ports and hub & spoke. The second analyzes the efficiency of large vessels in the scope of a logistics network. The overriding result of this research is to indicate the influence of logistics factors in the decision of port choice. The research emphasizes the necessity to combine different factors when dealing with this topic, or else a result can be one-sided.     

Port strategic planning: Canadian port reform

Recent port reform established major commercial ports as Canadian Port Authorities (CPAs) as federal non-profit, business corporations. Canadian port reform was aimed at allowing CPAs to compete effectively. Canada's major ports operate in an increasingly competitive business environment. To gain advantage over their competition, Canadian ports must develop business strategies dealing with their organizational cultures, institutional structures, operations, and facility provision. Developing appropriate strategies involves creating a strategic plan that considers external and internal port environments. This paper outlines the evolution of strategic planning and its applicability to Canadian ports. The initial literature review is followed by a brief review of Canadian port reform and an analysis of external and internal port environments. This analysis determines the resources available to exploit external opportunities and defend against threats, and considers the internal strengths and weaknesses of Canadian ports. A list of strategic issues facing Canadian ports and how the Canada Marine Act affected them is derived from the analysis.     

A conceptual framework for cooperation in hinterland development between neighbouring seaport authorities

The hinterland of a port is probably the most important aspect in the competition between gateway ports. This paper, starting with a literature overview, shows how the port authority can extend its hinterland with the aim of increasing its attractiveness and, eventually, its throughput. To achieve this, it can be advantageous to cooperate with adjacent port authorities. Together, through cooperation, economies of scale can be realised that facilitate a modal shift away from road to a more efficient and more sustainable transport. This would reduce the cost of transport to/from the hinterland region from/to these ports consequently increasing the attractiveness and the market share of the cooperating ports for this region. The paper describes a conceptual method to identify and quantify the opportunities for cooperation in the hinterland. The framework starts, after some basic transport economic concepts, from (theoretically available) hinterland data to locate regions that are at the edge of the contested hinterland of a port region and results in a methodology that can be used to generate a quantified list of regions where cooperation will make a difference. Using this methodology, port authorities (PAs), of any region where hinterland data are available, can list, together with their neighbours, the regions where to prioritise their efforts.     

The strategic role of ports in regional development: conceptualising the experience from Australia

Regional ports, as infrastructure in regions, influence transport and regional development policies and planning. The interaction and involvement of regional ports with their stakeholders in the region are pivotal. The conundrum on what constitutes a regional port and thus its region has further complicated this limited researched area. In the extant literature, port and region relationship mainly centres on major metropolitan ports, and pays little heed to regional ports. In this context, this study investigates on how the Australian regional ports can be better involved in regional development. The study adopts a qualitative methodology to explore the Australian regional port stakeholders’ perceptions on port’s role in regional development through 38 semi-structured telephone interviews. Thematic analysis of data assisted by a mixture of NVivo software and manual techniques proposes a conceptual model that may assist policy-making. The key findings suggest that symbiotic growths of ports and concerned regions accelerate regional development. To contribute to regional development, the Australian regional ports can be proactive in building collaboration with regional organisations. The findings have major implications for port managers and port policy-makers for developing a region-oriented long-term port planning and for creating environment for Australian regional ports for regional resource configuration.     

Smaller ports’ evolution towards catalysing sustainable hinterland development

ABSTRACT

From simple organizations as gateways for goods and passengers, ports have evolved and transformed into complex organizational systems with multiple functions. Besides providing cargo, logistics, and other kinds of services to its customers, modern ports engage in the development of their hinterlands. Sustainability, evolving from environmental actions over the years, has become the core of many modern ports’ approach towards hinterland development and port competitiveness. While the literature is concerned with and presents examples of large ports implementing sustainability initiatives, the literature is scarce on smaller ports. This article addresses this gap by exploring qualitatively the case of the Port of Aalborg, a medium-sized port in Denmark, and its evolution towards using sustainability for port and hinterland development. The research focuses on the actions behind environmental development at the port. Its evolution is mapped and explored using the analytical framework developed based on the (larger) ports’ development and their roles. The findings from the Port of Aalborg case exemplify how smaller ports can evolve to drive the sustainable development of their hinterlands and contribute to a better understanding of this kind of port.     

Norwegian port connectivity and its policy implications

The importance of a seaport depends on how well it is connected in a transportation network. A port’s connectivity is therefore one of the key issues in determining its competitiveness and developments in regions and countries. We construct a port connectivity index for major Norwegian ports based on a unique dataset derived from the automated identification system (AIS) for multiple vessel types over a 7-year period. Port connectivity is evaluated empirically by the number of unique vessel visits, vessel sizes, and cargo sizes. The research has implications for port authorities and policy makers in the areas of port planning, infrastructure investment, short sea shipping promotion, and environmental policies. The contributions of this research are twofold. First, the methodology linking the AIS vessel-tracking system with port connectivity is a pioneering empirical application of maritime big data. Second, the port connectivity index is constructed for multiple vessel types and regional port groups, which is an improvement from the current literature where conceptual measures are constructed based on hypothetical and usually too simple optimization rules. The methodology can be easily expanded to other regions in the world.     

Port e-Transformation,customer satisfaction and competitiveness

ABSTRACT

e-Transformation in container ports means port organization-wide innovative transformation encompassing internal and external value chains based on information and communication technology. There is a considerable theoretical literature on the impact of e-Transformation on business performance, but there is very little empirical study on its effectiveness in ports. The objective of this paper is to empirically investigate how e-Transformation in container port management can influence customer satisfaction and port competitiveness. The findings reveal that e-Transformation in container ports can affect customer satisfaction and port competitiveness through e-Workplace, customer relationship management and security, implying that container ports should make every effort to focus on e-transformation in these critical areas. Due to limited empirical studies in this area, the findings have provided an empirical support for the importance of e-Transformation in container terminal management and shed more light on how e-Transformation can affect customer satisfaction and port competitiveness.     

Port regionalization: towards a new phase in port development

Logistics integration and network orientation in the port and maritime industry have redefined the functional role of ports in value chains and have generated new patterns of freight distribution and new approaches to port hierarchy. Existing models on the spatial and functional evolution of ports and port systems only partially fit into the new freight distribution paradigm. This paper aims to add to existing literature by introducing a port regionalization phase in port and port system development. It is demonstrated that the regionalization phase and associated hinterland concepts demand new approaches to port governance and a functional focus that goes beyond the traditional port perimeter.