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.     

Port pricing: a cost axiomatic approach

The earlier port pricing literature argued that port prices should be based uponk marginal cost pricing. However, recent literature suggests that a conflicts would arise between marginal cost pricing and full cost recovery at ports. Further, problems arise in determining or estimating marginal costs. A price structure that addresses the problems of port marginal cost pricing is cost axiomatic pricing, given the goals, objectives and constraints of ports. Fairness and cost efficiency cost axioms for ports are considered. A methodology for determining cost axiomatic prices for a marine container terminal is presented.     

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 impact of ship size on ports’ nautical costs

ABSTRACT

Much is known about transport costs at sea and costs made at terminals in ports. About costs, made by ports to provide nautical facilities (incl. infrastructure) and services, not much research is done yet. This paper estimates the impact of increasing ship sizes on costs made by the Port Authority of Amsterdam when providing nautical facilities and services by using hedonic pricing techniques. We have rather unique data on ship’s sizes and harbour dues paid per ship for over 25 years for ships that visited the Port of Amsterdam. Harbour dues paid are used as a proxy for the costs of nautical facilities and services. We have found nearly constant returns to scale, when volume is used as a measure of a ships’ size. An increase in average ship size with 1,000 tonnes deadweight will result in approximately €2 million additional yearly costs (an increase of the average ship size of six percent results in an increase of nautical costs with nearly the same percentage). Our results can be used by Port Authorities and port operators (in case of landlord ports) to estimate costs to be made for providing nautical facilities and services in the near future.     

The regulatory function in public-private partnerships for the provision of transport infrastructure

A wide range of contractual arrangements are increasingly being used by the public sector to materialise the delegation of transport infrastructure provision tasks to the private sector, over long periods of time. This paper addresses the issue of transport infrastructure regulation in the specific context of public-private settings. Starting by the discussion on the concept of Public-Private Partnership (PPP) it is stressed that, despite the different meanings that can be found in the literature, it is possible to define a PPP by using a core group of characteristics, such as the bundling of services and the transference of a relevant part of the risks to the private sector on a long term basis. Regarding the action of the regulator, we look at three dimensions of efficiency that are expected to be pursued at the strategic level of regulatory action. However, it is acknowledged that the regulatory function is in practice rather complex since it requires balancing a multiplicity of other objectives or goals, which may vary according to specific economic conditions. In the domain of pricing, the review carried out suggests that since “first best” assumptions are not met in the “real world” it hardly seems possible that the short run marginal cost pricing “canon” could be directly used to shape pricing policies. Consequently, when considering the application of the standard neoclassical marginal cost pricing approach it is pertinent to ask whether the second best solutions can lead to efficient outcomes that might be accepted by the stakeholders. Bundling construction and maintenance tasks into a single long term contract, which is a typical characteristic of “standard” PPPs, could theoretically bring cost benefits since it allows for the possible internalization of any positive externalities that may be generated during the whole project life cycle. The economic rationale for the bundling of construction/maintenance with financing services is that it enhances the likelihood of submission of realistic bids at the procurement stage. In addition, the chances of the contractor sticking to the agreed contractual terms, after contract award, are potentially increased given the higher exposure to financial risk.     

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.     

Violation or strengthening of the self-financing doctrine at international airports by SMCP funded PPP schemes?

International airports are among the few examples of transport infrastructures which can well achieve self-financing. The growing interest of private companies in airport construction and operation is the visible testimony to this fact. However, the financing structures of airports are complex, involving not only traffic, passenger and goods handling, but also non-aviation services, such as retail, car parking or intermodal facilities. The integration of social marginal cost pricing schemes into this organizational structure according to the strategic plans of the European Commission, however, is challenging. This paper investigates whether they comply with a second strategic policy objective at European and national level, which is to foster public-private partnerships (PPPs) in transport financing in terms of full cost coverage, risks and incentives.The cases analysed in this paper deal with two sites with very different characteristics: Munich Airport which has been publicly operated since 1991 and the Bulgarian airports Varna and Burgas, which have been managed since 2007 by one concessionaire and whose planning and future development is being accomplished with private capital. The results of both cases showed that self-financing is possible in case congestion costs are considered in the SMCP schemes, and given that air traffic growth rates return to the significant levels prior to the economic crisis. The chapter will discuss the legal implications of congestion pricing at European airports which are violating current EC legislation, as well as the impact of alternative pricing schemes on the environmental performance and technological innovation in aviation.     

Factoring a real value of cargo in port investment and funding decisions

Ports are marine gateways to economic activities. Ports’ ability to perform services depends on their facilities, harbor conditions, and other factors. Generally, ports have control over their facilities but must compete for funding to improve them. As for waterways, in the U.S., a Harbor Maintenance Trust Fund was established to fund dredging, which levies a 0.125% cargo value tax on most shippers using U.S. coastal and Great Lakes harbors. Yet, commonly, a gross tonnage metric is used to allocate the fund’s resources, resulting in under-maintenance of some harbors. This, reportedly, deters additional port funding and hinders valuable commerce. Supplemental economic metrics, such as value of commerce or cargo, can improve port financing decisions, but such data is not readily available. Container ports collect cargo value data in nominal terms, but bulk ports do not. When making economic decisions, however, real values must be used. Further, when allocating resources, decision-makers must be able to assess ports over time and relative to each other. Conforming to these criteria, this paper develops three port financing indicators based on a real value of cargo and illustrates their calculations using the U.S. Port of Duluth-Superior as a case study.     

A break-even model for evaluating the cost of container ships waiting times and berth unproductive times in automated quayside operations

The planning, design and development of a container terminal with optimum size and capacity and with a minimum capital cost is fundamentally dependent upon the loading and discharging operations at the quayside. The quayside function of container terminals is dependent basically on the number of berths available to service the incoming container ships. The objective of the container terminals dealing and admitting the ongoing ship calls is to provide immediate berth and loading and discharging services to the container ships with a minimum costly waiting time and a maximum efficiency. Previously terminal planners used to build extra berths to provide service. During the last two decades the terminal operators have adopted automation technologies in loading and discharging operation of the container ships as an alternative to designing extra berths. Ship owners naturally expect least waiting times for their container ships. On the other hand, it is also natural for port operators in a container terminal with costly facilities to see a high berth occupancy and productivity at the quayside. This study uses queuing theory to find a break-even point as a way of evaluating the cost of container ship waiting times and the cost of berth unproductive service times for container terminals aiming to automate their quayside operation. The analysis illustrates that automation devices installed on conventional Quayside Cranes (QSCs) significantly reduce the turnaround time of the container ships calling at the ports. It argues, however, that there should be a balance between the cost of berth unproductive service times and the cost of vessel waiting times. The study introduces a break-even point to be considered as a benchmark for calculating such a balance. The analysis in this study can be used as a decision tool for the operators of container terminals in the medium to small ports to appraise the feasibility of an investment in automation or expansion of the quayside facilities.     

Sustainability at Spanish ports specialized in liquid bulk: evolution in times of crisis (2010–2015)

In Spain, 28 Port Authorities of general interest moved more than 168 thousand tonnes of liquid bulk (34% of overall traffic) in 2015. Almost 82% of this amount corresponded to eight ports (G-8) that have a refinery within their facilities. This unique degree of specialization and concentration makes this set of ports an ideal sample to analyse the evolution of their sustainability levels, particularly during the crisis started in 2008 and onwards. A proprietary methodology based on Multidimensional Synthetic Indices has been used. The comparison of the findings obtained for 2010 and 2015 allows a diagnosis of the evolution of port sustainability measured through the economic, institutional, environmental and social dimensions to be established, as well as a study of the patterns of behaviour that each port has followed in this issue.     

Marginal cost pricing of ferry transportation: a practical application

In this paper, in which the author attempts to redress the lack of attention by economists to ferry operation, a simple pricing model, based on marginal cost pricing, is developed.     

Marginal cost pricing of ferry transportation: a practical application ∗

In this paper, in which the author attempts to redress the lack of attention by economists to ferry operation, a simple pricing model, based on marginal cost pricing, is developed.     

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.     

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.     

Next generation mega container ports: implications of traffic composition on sea space demand

ABSTRACT

Demand for sea space brought about by increasing container-shipping traffic has important implications on how this space is managed and used. This is particularly important given the long-term nature, high-asset specificity, high- opportunity cost of investment, and significant economic impact of container port activity on a locality. The challenge is especially pressing for ports, which are facing constraints in seaside capacity where container traffic also has to co-exist with the needs of other types of ship traffic. This challenge is likely be multiplied for next generation container ports, which are expected to handle even larger traffic volumes. These ports are also likely to face competing sea space demands from other economic and social activities especially when they are concurrently major confluences of trade, logistics, and urban populations. This is the first research to investigate in detail the impact and importance of investigating sea space requirements from the perspective of cargo traffic composition and ship capacity. Results show that transshipment containers can generate much higher demand for sea space due to the higher volume of shipping capacity that accompanies such traffic. Sustainability issues and managerial and policy implications pertaining to the development of next generation container ports are provided.     

Dynamic programming of port position and scale in the hierarchized container ports network

A hierarchized container ports network, with several super hubs and many multilevel hub ports, will be established, mainly serving transshipment and carrying out most of its business in the hub-spoke mode. This paper sums up a programming model, in which the elementary statistic units, cost and expense of every phase of any shipment are the straight objects, and the minimum cost of the whole network is taken as the objective. This is established based on a dynamic system to make out the hierarchical structure of the container ports network, i.e. the trunk hub and feeder hubs can be planned in a economic zone, then the optimal scale vector can also be obtained for all container ports concerned with the network. The vector is a standard measurement to decide a port's position and their scale distribution in the whole network.     

Dynamic programming of port position and scale in the hierarchized container ports network

A hierarchized container ports network, with several super hubs and many multilevel hub ports, will be established, mainly serving transshipment and carrying out most of its business in the hub-spoke mode. This paper sums up a programming model, in which the elementary statistic units, cost and expense of every phase of any shipment are the straight objects, and the minimum cost of the whole network is taken as the objective. This is established based on a dynamic system to make out the hierarchical structure of the container ports network, i.e. the trunk hub and feeder hubs can be planned in a economic zone, then the optimal scale vector can also be obtained for all container ports concerned with the network. The vector is a standard measurement to decide a port's position and their scale distribution in the whole network.     

The implications of increased competition among ports for port policy and management

The increased competition faced by ports is more focused than previously on the performance of logistics systems of which the individual terminals in ports are critical hubs. The changes in competitive conditions raise issues about appropriate public port policies and strategies of port managements. This paper argucs that the port industry should (and is) moving in the direction of more harmonized policies based on economic principles. Port policies based on cost recovery from users of port facilities and services need to be adopted as the international standard. The competitive environment favours considerable local autonomy. Port management, in addition to possible direct responsibility for terminal management, needs to focus on activities with economies of scale or scope. Such activities, which span the requirements of terminals and may even warrant inter-port cooperation, enhance the services available for many port users.     

井口平台与单点一体化方案探讨

为了减少边际油田开发的成本,提出一种适用于开发边际油田的系泊塔开发方案,即将井口平台直接作为单点系泊系统的系泊塔。通过对方案的设计及论证,证明其技术上的可行性以及工程费用上的优越性,该方案的重点是修井作业方案的确定和实施。     

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.