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Port Planning as a Strategic Tool: A Typology

Thesis submitted in partial fulfilment of the requirements for the degree of Masters of Science in Transport and Maritime Economics

Prakash Gaur

Promotor: Prof. Dr. E. Van de Voorde Supervisor: Prof. Honor Paelinck

Institute of Transport and Maritime Management Antwerp University of Antwerp

April 2005

Port Planning as a strategic tool: A typology

Acknowledgements
I express my sincere gratitude to my Promoter, Professor Dr. Eddy Van de Voorde, who not only made this analysis possible by providing the necessary background but also supported me with his knowledge, experience, guidance and encouragement throughout the whole process of writing this thesis.

I would like to give special thanks to my supervisor, Prof. Honor Paelinck, for his advice and specific insights into port sector as well as for his support for micro level analysis of the thesis. Useful information was provided by Mr. Isabel Barclez of UNCTAD, Mr. Filip Merckx of ITMMA and Mr Peeter Roome of Halcrow Group. Special thanks to my friends Mr. Vijay Neekhra and Mr Rahul P Sharma for their cooperation and discussion during the thesis.

My friends and classmates of ITMMA have extended me their full moral and need based support during the writing of thesis. I would like to thank ITMMA for providing me with this opportunity and for supporting me to write this thesis.

I dedicate this thesis to my three months old daughter baby Yughanshee, who really inspired me to work hard during the course.

Port Planning as a strategic tool: A typology

Table of Contents INTRODUCTION .........................................................................................................5 1


1.1 1.2

Methodology for Port Planning .............................................................................8


Mission Statement and Objectives of Port .................................................................................8 Methodology Flow Chart for Port Planning.............................................................................11

2
2.1 2.2 2.3 2.4 2.5

Institutional Framework.......................................................................................17
Port Ownership Model .............................................................................................................17 Stakeholder Relationship..........................................................................................................19 Marketing Strategy...................................................................................................................23 Environmental Considerations .................................................................................................24 Institutional Structure as Strategic Tool...................................................................................25

3
3.1 3.2 3.3

Demand forecasting .............................................................................................27


Economic Functions of Port.....................................................................................................27 Objectives and techniques of demand forecasting ...................................................................30 Demand forecasting as strategic tool: ......................................................................................40

4
4.1 4.2 4.3 4.4

Supply forecasting ...............................................................................................42


Infrastructure and Superstructure of Port .................................................................................42 Technological Applicability .....................................................................................................48 Physical features of Port...........................................................................................................52 Supply forecasting as strategic tool..........................................................................................53

5
5.1 5.2 5.3 5.4 5.5

Capacity Planning ................................................................................................54


Definition of Capacity..............................................................................................................54 Vertical Segmentation of Capacity...........................................................................................56 Relationship of Factor of Production of Port and Capacity......................................................59 Optimum capacity based on cost and revenue .........................................................................62 Capacity planning as a strategic tool........................................................................................65

Project Evaluation................................................................................................67 2

Port Planning as a strategic tool: A typology


6.1 6.2 6.3 6.4 Financial Evaluation.................................................................................................................67 Cost-Benefit Analysis ..............................................................................................................72 Economic Impact Analysis.......................................................................................................78 Project Implementation ............................................................................................................82

Conclusion ...........................................................................................................84

Bibliography ................................................................................................................86

Port Planning as a strategic tool: A typology List of Figure Figure 1-1 Figure 1-2 Figure 2-1 Figure 2-2 Figure 2-3 Figure 2-4 Figure 3-1 Figure 3-2 Figure 3-3 Figure 3-4 Figure 3-5 Figure 4-1 Figure 4-2 Figure 5-1 Figure 5-2 Figure 5-3 Figure 5-4 Figure 5-5 Figure 5-6 Figure 6-1 Ashridge Model of Mission Statement ..................................................9 Methodology for Port Planning ...........................................................16 Stake Holder Relationship of Port .......................................................20 Equilibrium of Stake holder................................................................22 Port Success Model..............................................................................23 Institutional Structure of Port as Strategic Tool ..................................26 Traffic Forecasting...............................................................................30 Four Stages Urban Transport Model....................................................35 Network of Ports and Hinterland .........................................................38 Demand Forecasting as Strategic Tool ................................................40 Strategy for Demand Forecasting ........................................................41 Variation in total cost in port with increasing traffic...........................46 Supply forecasting as strategic tool .....................................................53 Example of Road Capacity in Port.......................................................56 Vertical Segmentation of Port Operations for cargo............................58 Factors of Production Affecting Capacity of Port ...............................60 Optimum Capacity of Port ...................................................................63 Capacity planning as ongoing process.................................................64 Boston Consulting Group Matrix.........................................................66 Flow of Economic Impact Generated by Port Activities .....................79

List of Table Table 1-1 Table 2-1 Table 3-1 Table 3-2 Table 4-1 Table 6-1 Table 6-2 Table 6-3 Port Player and their Objectives ..............................................................10 Basic Port Management Model................................................................19 Economic Functions of Port.....................................................................28 Tips for demand Forecasting ...................................................................39 Key Performance Indicators of Potential Benefits...................................49 Cash Flow Statement ...............................................................................70 Risk of Port Project..................................................................................71 Possible Benefits of Port Investment .......................................................74

Port Planning as a strategic tool: A typology

INTRODUCTION
Port always plays a strategic role in the development of domestic and international trade of a country whether it is a developing or developed country. However, in a globalised world where distances are becoming virtually squeezed, ports play an active role in sustaining the economic growth of a country. In the modern world of technological era, ports are playing the role of an industry not just a passive actor in transportation but also in complete supply chain management. That is why, it is called that Ports are more than piers, i.e. more than just infrastructure or a complex infrastructure.

Ports not only play as a chain in transportation for interchange, but they function as self-sustaining industry that is linked with domestic and international trade. At some places, they also act as foreign exchange earner not only in form of transhipment or hub port but as part of supply chain management by providing logistics services to the industry. That is why a port needs to be treated as an industry when it is being planned. The planning of a port should not only be concerned by simply demand and supply of throughput but more than that of institutional framework, application of technology, marketing strategy and ultimately economic impact analysis for the development and implementation of a project. It may be via expansion of an existing port or may be by a green field project.

It is very difficult to develop a single typology for all types of port but this thesis, tries to cover generic features of ports that apply to all classes of ports. This thesis will look in to the port planning issues from economics aspects. The main objectives of the thesis are to define the methodology for port planning from an economic point of view. This thesis will analyze following sections. : 1) institutional framework required for optimal condition of a port, 2) the techniques of demand forecasting, 3) building of supply side along with demand, 4) capacity planning to achieve equilibrium in demand and supply and finally 5) project evaluation (financial and economic analysis) to select the best viable option among alternate designs as outcome of the analysis. The structure of thesis is discussed further.

Port Planning as a strategic tool: A typology The thesis consists of seven chapters. The first chapter focuses on Methodology of port planning that is being develop for this thesis specially based on literature available and past experience of industry. Broadly speaking in the methodology that begins with the mission statement of a port, objectives of a port projects have to be determined. Objectives of a port determine its economic function that would lead us to demand factors. On the other side based on objectives and economic functions, the supply variables of ports should plan simultaneously. However, these two factors are interdependent on each other with limitation of institutional framework based on legal allowances. Finally, one should try to achieve equilibrium through capacity planning and should do financial and economic analysis of a port project for its final implementation.

The second chapter focuses on institutional framework reform required for a port. Institutional framework is very much necessary for port planning. This chapter is divided in two parts. First is ownership model and stakeholder relationship

management that will give us marketing strategy together with related legal issues. The second part covers environmental consideration based on rules and regulation in the region that will limit the efficiency of a ports and quality of life.

The third chapter focuses on demand forecasting for a port. The demand has been divided in two parts i. e., core competence and value added services. The core competencies of ports are interchange of throughput from one mode of transport to other modes for some period on the same mode for transhipments ports. But in the present economic world the economic functions of ports are changing and for its sustainability also, they need to offer more value added services than simply acting as a mooring facility. The demand forecasting can depend on four factors viz., Planning and Policies of economy, International trade and commerce, trend in shipping industry and logistics requirements in supply chain management. This chapter also discuss about various modelling techniques of demand forecasting.

The fourth chapter focuses on supply forecasting of a port. However, this is more of engineering part but no planning can be complete without analysing port engineering since that is always related to port economics. This chapter is divided in three parts begins with requirements of infrastructure and superstructure, physical aspects of a 6

Port Planning as a strategic tool: A typology port again divided in man made and natural factors. The Third part handles technology whereby availability begins with the marine technology that is the back bone of port planning, but in the modern world one always needs information technology for capacity enhancement. In the modern transport, intelligent transport has to be applied for competitive advantages.

The fifth chapter discusses capacity planning and its equilibrium of a port. This is a very important chapter from the port planning point of view. This chapter will try to define the limitations of port capacity based on trade off between supply and demand factors at micro level. It will try to achieve equilibrium between demand and supply with advantages and disadvantages of regulatory framework. Then port authority can get various alternatives/options of Planning.

The sixth chapter does the financial analysis, cost benefit analysis and ultimately focuses on the economic impact study of a port for development and implementation of a project. However, these options need to be analysed financially, based on the business plan of port investment. Generally, port projects are not financially viable in totality and they need some kind of support from government or international funding agencies. Hence, it not only needs to do cost benefit analyses but economic impact analysis too, to find the long term and ultimate impact of the project. Economic Impact analysis has become the key for successful implantation of port projects.

Finally, in seventh Concluding chapter, the thesis shall try to find some conclusion based on the study that will lead to further in depth research in port planning. In this study, several conceptual approaches and theoretical models on port planning shall be used and to analyze demand and supply variable estimation such as forecasting, transport pricing, economies of scale and cost-benefit analysis to develop and construct this thesis. Besides this, the various reports and data gathered from many sources such as World Bank, UNCTAD, European Union, ADB, maritime and port organizations. The books written by leading professors of port and maritime sector, journals and economics newspapers, websites especially consultancies from Professors, expertise, and leading experts in maritime and port economics are used to contribute to the content 7

Port Planning as a strategic tool: A typology

Methodology for Port Planning

This chapter focuses on Methodology for port planning. This Methodology has been specially developed for this thesis based on the literature available and past experience of industry. This chapter discuss the methodology that begins with a mission statement for a port and defines the objectives of a port. These objectives determine the economic functions of port. Based on these economic functions we can forecast the demand and supply variables of port. However, demand and supply are interdependent with dependence mainly on institutional framework of port.

Therefore the aim is to establish a balance through capacity planning and evaluate alternate options available based on financial and economic analysis of a port project for its final implementation. Figure 1-2 shows the methodology.

1.1

Mission Statement and Objectives of Port

The mission statement defines the direction and guidelines in terms of vision and objectives of port. As per the ashridge model, mission statement includes four elements purpose, strategy, behaviour standards and values. The purpose elements explains why the company exits, strategy explains the competitive position and distinctive competence of company, values suggests why the company exits and behaviour standards look in to the policies and behaviour patterns that underpins the distinctive competence and the value system of company. This has been shown in Figure 1-1.

Port Planning as a strategic tool: A typology

Figure 1-1

Ashridge Model of Mission Statement Purpose

Strategy

Value

Behaviour Standards
(Source: Campbell & Yeung (1998): "Creating a sense of mission", in De Wit & Meyer. Strategy. Process, content, context. An international perspective. Thomson, 1998)

Mission statement of some ports Mission statement of Singapore port authority: To develop and promote Singapore as a premier global hub port and an international maritime centre, and to safeguard Singapore's strategic maritime interests.
(Source: http://www.mpa.gov.sg/aboutmpa/mvv/mvv.htm)

The Port of Rotterdams mission is: "To develop in partnership the European port of world class".
(Source:http://www.portofrotterdam.com/organizations/UK/CompanyInformation/Mission Positioning/Index.asp)

Mission Statement of Jawaharlal Nehru Port Trust - JNPT: The port is committed to meeting the needs and expectations of it's customers

through : .
(Source: http://www.jnport.com/new_site/home.asp)

The analysis of the mission statement of two of the biggest ports of the world express that those ports want to be the premier ports of the world. Some way or the other they are successful in achieving their mission. Port of Singapores mission statement states, to make it a global hub port and international maritime centre. While the port of Rotterdam states that it wants to develop the partnership with the European port of world class.

Port Planning as a strategic tool: A typology The mission statement of JNPT, Mumbai of India has much narrow view or other way it wants to meet the needs and expectation of its customers only. For this particular port the satisfaction of the customer is a prime consideration.

Hence, mission statement itself is a strategic tool for any organisation that differentiates it from others. The typology of similar class of ports can be worked out with similar kind of mission statements.

Objectives of Ports The objectives of a port are dependent on the mission statement and differ from region to region and depend on the specific approach and attitude of that port. It is not only the mission statement and regional market that makes an impact on objectives of port but its player or in other words its institutional development also plays a key role in defining the objectives of a port. Some of the objectives and key players have been listed in Table 1-1

Table 1-1 Sl No. 1 2 3 4 5 6 7 Objectives

Port Player and their Objectives Player Rating

Maximise Throughput Maximise Net profit Operate at Least Cost Maximising Value Addition Reach Financial Autonomy Efficient management of assets Minimise required Capital Investment

Port Authority/Operator Port Authority/Operator Port Authority/Operator Port Authority Port Authority/Government Government/Port Authority Government/Port Authority

Maximise Employment level

Central Government/Trade Unions

Secure National Independence as Central Government regards maritime transport

10

Promote Regional Economic Development 10

Local Government

Port Planning as a strategic tool: A typology 11 12 Minimise Vessels time in Port Shipping Company

Minimise Total Cost of Maritime Shipper Transport

13

Maximise quality of service to Shipper

Shipper

14 15 16 17

Minimise Port user Cost Transparency of Charges Minimising Welfare Loss Maximise Return on Capital Investment

Users Users Economist Financial Company of Port

18

Ensure full Environment Protection

Pressure Groups

Source: Based on Lecture notes of Prof. Eddy Van de Voorde and Prof. Willy Winkelmans on Adv Port economics

Thus, objectives should be defined on the basis of a mission statement and more importantly the institutional structure of a port must be defined, too. It is also necessary in terms of stakeholder relationship management. For the sake of simplicity and general applicability, these objectives can be considered at different level of operations for the sustainability of port in long run. The other approach can be to do the rating of all these objectives with respect to the degree of involvement of each player for each activity but the problem in that case is conflict of interest of all the players.

It is always the better approach to analyse these objectives from the point of view of mission statement and the involvement of each player at different level. Thus, one can define its objectives in a broad way. But if some one is selecting port project on private sector participation basis then their objectives could be more commercial than social.

1.2

Methodology Flow Chart for Port Planning

The methodology flow chart as shown in Figure 1-2 begins with three variables after defining the objectives of port. On the basis of institutional framework of 11

Port Planning as a strategic tool: A typology port the ownership structure of the port can be determined. Hence, the institutional framework of port shall guide further to evaluate the demand and supply of port.

Institutional Framework Institutional framework plays a major role and needs to be considered at inception while defining the Port ownership model. It should be clearly defined in the beginning whether it is a private sector venture or wholly public service port. The ownership model will then define the objectives of port.

The institutional framework will also discuss the stakeholder relationship management (SRM). In the changing market environment the SRM shall play an important role in marketing strategy of port. Both these two factors will give the marketing strategy of port to assess the potential demand of port.

The third factor of institutional framework will create the limitations of a port in terms of environmental considerations. This depends on the rules and regulation of that specific region. These environmental factors play an important role in estimating the demand and supply and finally the capacity planning of port.

Demand Forecasting Prior to Demand forecasting, the economic function of port needs to be defined in changing market environment. These functions can be divided in two parts on the basis of resources of ports in core competencies and value added services. Core competencies are the basic traditional functions of port while value added services includes logistic services in the developed market. These two variables should be forecasted separately.

Various modelling techniques can be used for forecasting purposes and those are discussed in detail in next chapter of demand forecasting. The techniques such as qualitative or quantitative techniques are used for modelling, depending on the purpose of demand modelling. For the forecasting purpose the following four factors should be taken into consideration viz., shipping trend in world trade and technology, Plan and policies of central and local government, International trade & commerce and logistics requirements of market. During the conversion 12

Port Planning as a strategic tool: A typology of this demand to potential demand, marketing strategy of port authority should be considered. That marketing strategy will be developed based on ownership model and stakeholder relationship management of a port.

Supply Forecasting Along with the demand forecasting, proper estimation of the supply side of port should also be made. Accurate forecasting of the infrastructure and superstructure like berthing facilities, navigational aid, stevedoring services etc. should be done. The other main factors in supply estimation are physical aspects of port like geographic location of port, tidal condition of port etc, and some of them can be improved by ameliorating other facilities like deeper draught, hinterland connections etc.

In this modern era of science & technology, it is very important to consider the application of technology for capacity enhancement of port. These technologies can be in terms of marine technology e.g. navigational aid, information technology for EDI to web-enabled online data transfer and intelligent transport systems. These technologies should not be applied for capacity enhancement alone but also for cutting out competitive edge in application of Geographical Information System for yard planning, traffic lights, sensors, camera and smart card at the entry gate, tracking and tracing of goods in the port area etc.

Capacity Planning and Equilibrium This is very important part of port planning, as this needs to be evaluated on the basis of supply and demand factors. First of all, it requires defining the capacity of various parameters of port. Defining the capacity in terms of throughput alone is not sufficient. A trade off between various production factors of the port is also imperative. Based on the actual/intrinsic capacity of these parameters and their performances under dynamic conditions like peak and off peak, equilibrium between demand and supply, should be considered. This thesis shall try to address the various capacity modes of port parameters and shall look into the details of subjects. Based on capacity of port one should estimate the block cost of the supply variables.

13

Port Planning as a strategic tool: A typology Project Evaluation and Implementation Once the various options and alternatives of estimation of the cost and revenue of a port project based on different model and approaches is established, the project needs to be evaluated. Under project evaluation, the best option, based on different approaches and parameters, need to be selected. This analysis always begins with financial evaluation on the basis of a business plan. Regardless of it being a public or a private port, it has to recover some or all part of its cost so it must analyse the projects on the basis of financial indicators of port.

Ports projects in totality (including basic infrastructures like dredging, breakwater, shore protection etc.) are very complex and are not completely financially viable even in developed parts of the world. But as they play very important role in the economy of region and are necessary for the global trade they should be evaluated in much wider sense, which is generally called economic analysis or cost benefit analysis of project. There should be detailed analysis for the negative & positive externalities and internalities of the project.

Sometimes, port projects are delayed or rejected on the basis on environment conservation. The project should not only be evaluated economically or from the economic point of view but should also be analysed from the total economic welfare aspect and benefit to the society in long term. In modern world as port plays more important role in regional economic development, a detailed economic impact analysis to justify the port project must be carried out. But this needs to be done only in case where the port planner judge that these projects are very much a value addition to the economy and should be justified on those factors. Finally based on this, most viable option should be selected and implemented in the project.

Hence, port planning can be used as strategic tool by developing a port in different from other ports in the region through designing its mission statement. That gives the guidelines to selects the objectives of port. The comprehensive demand forecasting along with supply reduces the risks on the port and makes it more competitive in the region. The marketing strategy along with stakeholders relationship at planning level not only reduces the cost of port but also adds value

14

Port Planning as a strategic tool: A typology to the port. The typology of the port planning can be developed on the basis of port ownership that gives basic guidelines for port planning.

15

Port Planning as a strategic tool: A typology

Figure 1-2

Methodology for Port Planning


Port Planning
Mission/Objectives of Port

Demand Forecasting Functions of the Port Core Competencies Value Added Services Ownership Model

Institutional Framework Environmental Considerations

Supply Forecasting Technology Application Infrastructure &Superstructure Physical Aspects

SRM

Marketing Strategy

Marine Technology Information Technology Intelligent Transport System

Natural

Man Made

Forecasting Shipping Trend in World Plan & Policies International Trade & Commerce Logistics Requirements Capacity Planning & Equilibrium Alternative Options Financial Analysis Cost Benefit Analysis Project Development & Implementation

Economic Impact Analysis

Source: Developed by Author from various sources

16

Port Planning as a strategic tool: A typology

Institutional Framework

This chapter discusses the institutional framework required for a port. Knowledge of the Institutional framework is very much necessary for port planning. This chapter is divided in two parts. First, it considers the ownership model and stakeholder

relationship management that will decide the marketing strategy. The second part covers environmental considerations based on rules and regulations prevailing in the region that will limit the efficiency of ports and improve the quality of life.

2.1

Port Ownership Model

According to the Port Reform Tool Kit of the World Bank1, the ports have emerged on the basis of ownership structure in four types of model over a period of time. These four types of port structure models and the transformation of port structure in globalised economies are:

1. Public Service Port 2. Tool Port 3. Land Lord Port 4. Fully Privatised Port

1.

Public Service Port

Public Service Port has a predominantly public in character. The infrastructure and superstructure are owned by the public authorities may be central or local government in some countries. Services are provided by the government institutions under the bureaucratic control. The main functions of the ports are cargo-handling services, pilotage and tug services, sometimes agency and forwarding services, operated either by the same company or a separate government owned company. Ports are to be considered as strategic assets of
1

World Bank (2003): Alternative Port Structure and ownership model, Port reform tool kit, Public

Private Infrastructure advisory facility, pp16-19

17

Port Planning as a strategic tool: A typology a country and operated by a public authority. Many ports are still managed under this model in many developing countries like India, Sri Lanka etc. 2. Tool Port

Under this model, the Port authority owns, develops and maintains the port infrastructure and superstructure while the cargo handling services are carried by private companies. But the problem in this model is conflicting of interests of the port authority and cargo-handling companies who do not own fixed assets. This model minimizes the risk of the cargo handling company because it has only variable cost with negligible fixed cost. Port Autonomes in France is an example of a container terminal managed and operated as a tool port.

3.

Land Lord Port

This model is known as Public Private Partnership (PPP). Under this model the port authority acts as a regulatory body of port operations. The Port authority leases the infrastructure to the port operating companies or industries. The lease to be paid is a fixed amount of money based on time and area to port authority. The private port operating company maintains its own superstructure, including equipments and machinery required to operate the port and terminals. In this model labour is also employed by the private terminal operator. Examples of the landlord port model are Rotterdam, Antwerp and New York. Today most of the medium and large size ports are operated under this model.

4.

Private Service Port

These are fully privatized ports. All assets of ports including land, infrastructure, superstructure and services are owned and operated by private companies. They are operated on the commercial basis with the aim to maximize profits. Government only acts as monitoring agency to control the interests of public welfare in this model. Since they are self regulating there is high risk of converting the land use of port area to non-port activities. This kind of model can be seen in UK and New Zealand. Now

18

Port Planning as a strategic tool: A typology in the absence of state aid, this model is getting popular in many developing countries e.g. Pipava Port, Rewas Port and many others are coming on BOT basis in India.

Table 2-1 explains the ownership and management of port models under private and public responsibilities. These models have strengths and weaknesses as discussed in the port reform tool kit of the World Bank; it can be concluded that private service ports are a preferred choice with some restriction to control the abuse of market powers in the economy by the government or regulating agency. The most serious risk with private service ports are land use conversion from port activities to some other activities.

Table 2-1 Port Type

Basic Port Management Model Superstructure Port Labour Other function

Infrastructure

Public Service Port Public Public Public Majority Public

Tool Port

Public

Public

Private

Public/Private

Land Lord Port Public Private Private Public/Private

Fully Privatised Port Private Private Private Majority Private

Source: Port Reform Tool Kit, World Bank

2.2

Stakeholder Relationship

The stakeholder relationship has a major role in developing the port projects. It is very difficult to make a port project successful without trading off various stakeholders of port operation. Thus it is important for port planners to know about these 19

Port Planning as a strategic tool: A typology stakeholders value to plan port projects. These stakeholders can be classified in four groups based on their relationship as shown in Figure 2-1.

Internal Stake Holder: Internal Stakeholders are Board members, Shareholders, Financer, Port

Managers/executives, and Port Employees. The basic objectives of these stakeholders are the same as profits maximization in case of Public Private Port and Wholly Privatised Port model. Though individually, these stakeholders may have different objectives like board members seeking to maximize shareholders value, shareholders seeking to maximize yield, financer will provide long or short term capital only when the financial risk is minimised in the project, port managers seeking to target maximum port efficiency by cost reduction and revenue augmentation or throughput maximization. Finally, employees would always want higher salaries or compensations in terms of monetary or non-monetary terms. Figure 2-1 Stake Holder Relationship of Port

Internal

Regulators

Port Project

Community

External
Source: Based on lecture notes of Prof. Willy Winkelmans on Adv Port Economics

External Stake Holders: External stakeholders affect the port project either by providing services to port operation or as user of those services. They provide their services as stevedoring, hinterland connectivity, maritime navigation aid, logistics services in the port area or 20

Port Planning as a strategic tool: A typology industries, and the users are shippers and ship owners. In case of a tool port model these service providers want to increase the capacity of a port to maximise their efficiency and minimise the risk. In case of landlord port model they want to increase the concession in order to increase their handling capacity. In the wholly privatised model these service providers are the part of port projects some time as one company or hired by a private company so there is fierce competition among the operators. On the other hand port users (shipper/ship-owners) have as only objective of getting best quality of services at lowest cost.

Regulators The regulators have a very important role to play in all kinds of port models. In case of Public service model they are actors too. In port ownership model, when the degree of privatisation increases with private sector participation, their role becomes more as a monitoring agency. The regulators may be central or local government; a special body created for port and maritime sector, international organisations like IMO, UNCTAD, World Bank etc. and in some places super national organizations like European Union, ASEAN etc. But the objectives and functions of all of these organisations are similar to controlling and monitoring the monopolistic powers of private port operators in the market and strengthening the weaknesses of ports but sometimes their interests conflicts in case of regional and national organisations. Since, there are conflicts of interest between national and super national organisations.

Community The community groups include local population affected by port operations, local citizens who cross subsidize port activities in case of public service port or tool port model, environmental groups, pressure groups and some times political groups and even trade unions. From a purely economic point of view, they have a negative attitude towards port functions. But if it is analysed from the welfare point of view, these stakeholders should not be neglected as per International consensus like the Kyoto agreement.

Balancing the objectives of stakeholders It is very important to achieve balance in the objectives of these stakeholders, and then only there can be planning for an ideal port. On the other hand it is very difficult 21

Port Planning as a strategic tool: A typology to balance the objectives of these stakeholders. The ideal balance has been shown in Figure 2-2 among port operator/authority, users and safety & security. Basically, operators and authority want to abuse the market power in case of Public Private Partnership and in a wholly private port model the user wants to reduce the cost with best quality while the regulator and community want to protect the interests of the general public in some or the other way. Here, safety and security means not only from terrorist attack but safe economic and physical environment provided to the whole community.

But, it is very difficult to achieve this balance among various stakeholders through port planning. Anyway, it can always move towards that direction through planning process till it achieves the objectives. These variables always try to pull the equilibrium to their side.

Figure 2-2

Equilibrium of Stake holder Users

Port Authority/ Operators

Safety and Security

Source: Prof. Rosario Macario(2005) based on lecture notes of Air Transport Economics, ITMMA, Antwerp

22

Port Planning as a strategic tool: A typology

2.3

Marketing Strategy

Once the ownership model and stakeholder relationship is known, the marketing strategy for the port can be developed. Basically a marketing strategy depends on success of ports clients and can be developed on the basis of a classical four stage model of Bergen Brunswig: Cost effectiveness, market access, market extension and market creation as shown in Figure 2-3 and as discussed by Donald J. Bowersos2.

Gaining cost effectiveness means to ensure the basic services that could be provided at a consistently high level of performance and in a cost effective manner. Market access consists of port user and operators working together and sharing the information to facilitate joint operations. Market extension is based on moving towards six sigma3 and introducing value added services in an effort to consolidate and expand the business relations. Market creation means doing innovative work through research and development to gain a competitive edge.

Figure 2-3

Port Success Model


Stage IV Market Creation

Stage III Market Extension

Stage II Market Share

Stage I Gaining Cost Effectiveness

Source: Donald J. Bowersos 2

2 3

Donald J. Bowersos et. al. Supply Chain Logistics Management, McGraw-Hills 2002, pp-89 Six Sigma reflects a level of achievement having an error rate of 3.4 defects per million.

23

Port Planning as a strategic tool: A typology

2.4

Environmental Considerations

In the present world, it is very important to develop a sustainable port project, whether it is in a developed or underdeveloped part of the globe. Here, the environmental considerations would not be discussed in much detail. It can be considered from UNCTAD manual for Port Planner4 with some modifications and latest technology applications. The main considerations can be deducted from an environment point of view:

1. Handling of hazardous goods

Port should make special provision for handling hazardous goods like LPG, Crude, chemicals etc. The handling of these goods can be segregated by quay and terminal, so as to avoid any collision or accident. The traffic of these goods should be guided separately to avoid any accident.

2. Protection of the environment form Port projects

The regional environment should be protected from pollution of port projects under the guidance of local environment regulations and it should also consider the international maritime regulations for environment protections for developing the port projects. Port should try to minimise all kinds of pollutions noise, air and specially water by application of modern technologies.

3. Avoidance of natural risk

It is very difficult to avoid natural calamities. But even there ports should look for minimisation of these risks by controlling the physical barriers of a port project. Like managing of high and low tides, flood, storm and recently like tsunami in Asia by building strong infrastructure and applying modern technology.

UNCTAD(1985): Port Development, A handbook for Planners in developing countries, New York

24

Port Planning as a strategic tool: A typology 4. Port Industrial Area

After the development of Maritime Industrial Development Area (MIDAS), it is very important for port project to protect its area from industrial pollution. In a modern port area one can find chemical plants, refineries and other hazardous industries along with distribution centre of normal goods. So it is very important to implement the plan of MIDAS that can reduce the pollution effects of these industries.

5. Safety and Security of Port Area

After the 9/11 event in the United States, it is very important to protect the port area from terrorist elements as the ports plays the same role in freight transport as air ports play in freight and passenger transport. There is a constant need to apply modern safety devices to check the safety and security of the port area. It is very important to safeguard human life and valuable goods. But in the long term, the target is to minimise the risk in terms of economics and social values. Since these kinds of events not only affect a particular country but the entire world. It is the responsibility of the concerned government to protect the port from these kinds of risks. These are to be considered during the planning stages.

6. Concept of a green Port

In a nutshell to summarise the environment effects of port projects in the region and to make it more sustainable, one should go for the concept of Green Port. Mere application of technological methods to save the environment is not sufficient but also economic restrictions by internalising the externalities should be considered. Sometimes, it reduces the capacity of a port to protect the valuable environment. These aspects will be discussed later separately in project evaluation part

2.5

Institutional Structure as Strategic Tool

Institutional structure of port planning can be used as strategic tool as shown in Figure 2-4. As port ownership moves from a public service port model to a wholly 25

Port Planning as a strategic tool: A typology privatised port model, it is the evolution of port models from Ist generation to IVth generation, but from stakeholder point of view it transforms from regulation regime to partnership relation of stakeholder. This enables a port from operational activities to strategic position with competitive advantage of not only economies of scale but also economies of scope. Figure 2-4 Institutional Structure of Port as Strategic Tool

Port Ownership

Land Lord

Tactical Cooperation

Tool Port

Efficiency Competition

Public Service

Operation al Regulation

Ist Generation

IInd Generation IIIrd Generation

IVth Generation

Evolution of Port

Source: Based on Port Reform Tool Kit of World Bank, 2003 and UNCTAD Handbook for Port Planners 1985

26

Stakeholderrelationship

Private Service

Strategic al

Merger/Alliances

Port Planning as a strategic tool: A typology

Demand forecasting

This chapter focuses on demand forecasting for a port. Before discussing the demand forecasting, the port planner should analyse the changing economic function of a port in the competitive market environment. Further based on the economic function, the demand for the port can be divided in two parts i. e. core competence (transferring cargo from one mode to another/same mode of transport) and value added services. The core competencies of ports are interchange of throughput from one mode of transport to another mode or to same mode in case of transhipment cargo. As in the present economic world the economic functions of ports are changing and for its sustainability, it needs to do much more value added services then simply acting like piers. It must determine the objectives of demand forecasting and then lead for adequate modelling techniques. The demand forecasting can be based on four factors viz., plan and policies of economy, International trade and commerce, trend in shipping industry and logistics requirements in supply chain management. Since, these factors affect the trade and transport in the region is discussed further.

3.1

Economic Functions of Port

The economic functions of ports should be analysed before forecasting the demand since it gives the marketing strategy that helps in realising the potential demand. With the increase in competitiveness, globalisation and technological development, the port has changed its role form point of interchange up to port industrialization e.g. port of Rotterdam. Economies of scale are as important as economies of scope in the modern approach of economics in port selection. According to Prof. Enrico Muso5 current trend of port selection is shifting from prices( port dues/taxes, handling tariffs etc.) to product ( services time, reliability, service to ships, service to goods).Thus, over the period of time the ports undergo changes its function from traditional services to value added services.

Enrico Muso (2004), Lecture notes on Advance Port Economics at ITMMA, Antwerp

27

Port Planning as a strategic tool: A typology The role of value added services in port can be studied from UNESCAP paper6. The changing function of port has been explained in Table 3-1 Table 3-1 First Generation Start Period Principal Cargo Before 1960 Conventional Cargo Economic Functions of Port Second Generation After 1960 Conventional and Bulk Cargo Third Generation After 1980 Fourth Generation After 2000

Bulk and Unit Specialization in Cargo specific type of Containerization cargo like container handling ports

The port development position and Development Strategy

Conservative junction point of sea and inland transportation

Activity Scope

(1) Cargo handling, storage, navigation assistance

Industrial Principle international trade base chain connecting transportation system (1) + (2) (1) + (3) Cargo (2) Cargo Information, Type change ( Distribution Cargo distribution, processing ) logistics activity ship related Formation of industryterminal and enlargement of port region distribution centre Expansion transportation and production centre

Itself converting into the industry

(1) + (2)+(3) (4) Developed as Regional distribution and logistic centre e. g. Port of Rotterdam (5) Consultancy services on Port Projects e.g. APEC

Structure Formation and specifics

Every Body Relation act between individually port and its in the port user become Port and its

Formation of Port port Corporatization cooperation from port system Authority Trade and Changes from

UNESCAP (2002), Commercial development of regional ports as logistics centre,

United Nations, New York

28

Port Planning as a strategic tool: A typology user maintain informal relation more close Emergence of slight correction among port activities Negative cooperatio n relation between Port and Self governing community processing Cargo Complex Services Increase of the value added Monopoly Transportatio market to n chain Oligopoly concentration market structure in the port internally and Relation externally between port and self governing community become more close Extension of the port structure The flow of Trade off between cargo and Economies of information scale and Distribution of cargo and economies of information scope Combination of diversified services and distribution Value Added TechnicalInformation Know How Sharing

Character of Invention of the cargo productivity distribution Individual supply of the simple services

Core factor

Labour/Capital Capital

Source: Modified based on UNCTAD workport model and UNESCAP commercial development of regional ports as logistics centre

From Table 3-1, it can be deducted that the port functions have changed over the period of time and it needs to be evaluated for each and every port project in the dynamic world. UNCTAD explains three generations of ports but the fourth generation needs and should be analysed so that to estimate the market behaviour and the changing economic function in the future.

This study tries to predict the fourth generation of a port based on market behaviour. Principle cargo unit can still be containerization, but ports are themselves specialize in some form of cargo based on their market needs as Singapore and Hong Kong are specializing as container ports. (Singapore also handles a lot of bulk chemicals and oil)

In the development strategy, the ports are themselves developed as industry, as prior to it, they were considered as part of industry. The activity of scope has added to 29

Port Planning as a strategic tool: A typology regional logistic and distribution centre in the region e.g. European Container Terminal of Port of Rotterdam. In the port structure they are transforming from authority to corporate and inculcating the corporate culture. The character of

productivity is changing from economy of scale to economy of scope and it is the point where port needs to make trade off between these two variables. The core factor is changing from technology know how to information sharing as part of port cooperation.

It is a great confusion that transhipment ports do not need value added services since they only deal with throughput, but it depends on the region and industrial requirements of port influence area. A Transhipment port can also be developed as a regional distribution centre in the Hub and spoke system. In that case value added services can be added advantages for the port products depending on industry requirements.

Thus before adopting the demand forecasting model it is necessary to determine the functions of a port, based on its objectives, strategy and market conditions.

3.2

Objectives and techniques of demand forecasting

There are various modelling techniques for demand forecasting and those can be broadly classified in two groups: quantitative and qualitative. One needs to know about the details of port projects, before studying the details of modelling techniques, whether it requires short term planning or long term planning. So there is the need to define the objectives of demand forecasting in advance. Based on the project specific whether it is capacity expansion or it is green field project that determines the basis of modelling techniques of forecasting. The objectives of forecasting can be classified in two parts: 1. Short-term planning 2. Long Term planning The various modelling techniques have been given in. Figure 3-1. Those modelling techniques are discussed in detail as below: Figure 3-1 Traffic Forecasting

30

Port Planning as a strategic tool: A typology

Traffic Forecasting

Quantitative

Qualitative

Casual Trend Exterpolation Moving Avg.

Non-Casual Decomposition Analysis Exp. Smoothing Box Jenkins

OLS & ECM Elasticity Coefficients Origin & Destination Four Stage Model of UTPS Non-Linear Deterministic

Linear Trend Non-Linear Trend Logistic Curve

Source: Developed by author from various sources

1. Quantitative Models
Quantitative methods are analysis of various statistical techniques of historical data. The quantitative approach basically represents the pattern of traffic or other activities in future; the only difference between various techniques is that they use different statistical tests. The quantitative techniques further divided into casual and non casual methods.

I. Casual Model

Under this approach, it assumes that the traffic will depend on the behaviour of other variables like trade, GDP etc, called independent variables. The purpose of casual models is to find the relationship between the variables in the form of statistical equations or curves and then use them for forecast. These kinds of models are only appropriate up to medium term forecasting. They did not consider the various exogenous variables that affect the port demand.

31

Port Planning as a strategic tool: A typology II. Non-Casual Model

There are various non casual techniques available in the statistics and those can be applied on the basis of behaviour of past data. Those techniques shall not discuss in details here, as can be found in any handbook of statistics or forecasting. But these are discussed on the basis of its applicability. The non casual models are: A. Trend Extrapolation: This is simply a statistical method to forecast for particular year or day traffic based on the historical data available. In this case, it needs to heavily rely on past traffic data series. B. Moving Average: This estimate is based on available traffic data on daily, monthly or yearly basis for very short term on the basis of average predicted value for future. C. Linear Trend: If traffic data is based on linear pattern on time horizon, it can use the linear equation for predicting the future values of traffic. But the problem of this kind of forecasting is only limited for short period. D. Non Linear Trend: If the traffic data is curvilinear on time horizon then this particular technique can be applied to that model but the limitation is same as linear. E. Logistics Curve: This is more refined approach of forecasting as it looks the saturation of market, so in future it limits the over prediction of traffic. This is generally S shape curve often used for motorization of urban transport of city. F. Decomposition Analysis: These methods are applied when data can be broken in various components and a forecast can be obtained for each component. But this approach is also not statistically very reliable and only used for short term forecast. G. Exponential Smoothing: The exponential smoothing is to estimate the

average levels or slope components or seasonal components of the traffic by weighting some data points. E.g. Winter`s Method etc. H. Box Jenkins: This approach consists of extracting the predictable movements from the observed data through the series of iteration. This approach is better used when there is autocorrelation among the variables e.g. ARIMA models. I. Non Linear Deterministic: This model is basically based on probability models. 32

Port Planning as a strategic tool: A typology

2. Qualitative Models
Qualitative Models are also called subjective or judgemental models generally used for traffic forecasting for long term planning since it requires the policy and planning implication in forecasting. They are generally applied when either

historical data are not reliable or direct empirical relationship among dependent and independent variables are not fitted. To use this technique, one needs to apply some judgemental value for technology forecasting, policy and planning level decisions in the parameters. The qualitative models have been generally applied for long term planning and can be studied in the table 3.1 of Forecasting potential throughput, Port Competitiveness (H. Meersman, F. Moglia and E. Vande Voorde 2002: 39-41)7. Some of those models will discuss here that need to apply in various circumstances of demand forecasting are shown in Figure 3-1.

I.

ECM and OLS Models

Error Correction Models (ECM) and Ordinary Least Square (OLS) models are more or less statistical methods based on experts value judgement

These two types models have been used in Forecasting potential throughput, Port Competitiveness (H. Meersman, F. Monglia and E. Vande Voorde 2002)7 for demand forecasting of Port of Antwerp. Meersman, Monglia and Vande Voorde (2002)7 used ECM model for General and Bulk cargo for loading and unloading. The main benefits of this model are that it enables one to explain both the long term and short term relationship. Consequently, the forecast here as generated does not merely take account of the trend itself, but also of fluctuations. It gives the function for loading and unloading
7

Winkelmans, W., (Ed.) 2002, Port Competitiveness An economic and legal analysis of the

factors determining the competitiveness of seaports, Antwerp, Editions De Boeck Ltd, First Edition, pp 39-41

33

Port Planning as a strategic tool: A typology with exports and imports with t and t-1 period. On the basis of these equations alternate scenarios have been developed of 3 to 5 % growth rates. Meersman, Monglia and Vande Voorde (2002)7 also used OLS model for Iron ore throughput forecast in the port of Antwerp. The model was developed on the basis of consumption of iron ore in Belgium, Luxemburg, France and Germany and vessels size development in the range.

These are very appropriate and scientific models for demand forecasting but it also needs to consider the hinterland transportation, competitive environment of ports and better insight into the cost and supply aspect of port competition. These models can be applied with combination of other models as discussed further in application of four-stage model.

II.

Elasticitys Coefficients Models

This is very similar to the first approach of qualitative models. It developed elasticity coefficients based on dependent variables and past data taking log values of data. The same had been developed for short term and long term forecasting for general and bulk cargo by Meersman, Monglia and Vande Voorde (2002)7. But the problem with these models is that it needs to consider substitution effects not only of dependents variables, but of policy level decisions and technology trends. And those elasticity coefficients need to be updated for future use. The trades among the regions have to forecast and should consider the business cycle. Otherwise new opportunities of trade or lost market in particular region can not be estimated in the model e. g. in Antwerp there was an important grain trade from Canada and the US to Russia. This trade disappeared completely. But shift of market share among the port range can not be forecasted in this model. Thus, it is very much subjective approach and needs to be revised with dynamics of market behaviour.

III. Origin and Destination Models

34

Port Planning as a strategic tool: A typology This type of models covers regional aspects of demand. It should develop origin destination matrices for each type of throughput separately. Then based on weighted average influence factor of those regions in the throughput, ECM or OLS models can be developed. This is the combination of the first two models with dependent variables and its regional influence in the share of throughput. But again the problem with this model is that it did not consider the regional market of port competitiveness.

To over come of these problems of port demand forecasting it need to apply some combination of these models with transport planning modelling techniques.

IV. Four Stage Model of UTPS

This model shall be discussed here at conceptual level since this has not been applied in traffic forecasting of ports. Hence, one needs to do a scientific study before applying this model on live projects. Though, there is one study on the model of container port competition by Veldman and Buckman8. This is a very popular model for Urban Travel Demand forecasting. The Port of Rotterdam has also used a similar kind of approach but competition model for demand estimation for Vision 2020 projects and estimated 460 Millions ton of demand in the year 2020. The four stage model as shown in Figure 3-2 begins with throughput generation to Assignments. But it is necessary to modify this model to apply in port demand forecasting.

Figure 3-2

Four Stages Urban Transport Model Throughput Generation

Simme J. Veldman and Ewout H. Buckman (2003): A model on Container port competition: An Application for the east west European container Hub-Ports, Maritime Economics and Logistics, Vol. 5, pp 3-23.

35

Port Planning as a strategic tool: A typology

Throughput Distribution

Model Split

Assignment

1. Throughput generation In this study, the model will be based on some assumptions to develop at the conceptual stage. The regions or countries can be taken as zones similar to urban zones in urban transport study. The origin and destination matrices should be developed for each type of throughput based on present throughput in the port range with the rest of the world. Suppose there are five port A,B,C,D,E serving eight regions so it need to develop the throughput matrices for each type of throughput combining altogether for that region dividing among those zones. Afterwards, production and attraction models can be developed applying ECM or OLS models whichever is applicable. But at this stage it needs not to go for shipping technology forecasting.

During development of ECM or OLS models for production and attraction, it should consider the parameters that effects the trade development of both the regions e.g. to develop the production equation it should consider the exports of hinterland of all the ports and imports of destining zones of throughput and vice versa for attraction equation. 2. Throughput Distribution After developing OLS or ECM it should redistribute the estimated values of the model in the matrices based on the gravity model. But the problem is that output

36

Port Planning as a strategic tool: A typology matrices will be partially filled as producing zones shall not have any attraction from the same zones e.g. when region A is producing region for port then it will not have any interaction with its own region and intra-producing zones shall have zero values and vice versa in case of attraction zones. So it needs to apply doubly constrained gravity model for distribution of matrices with high friction factor for zero cells.

It should develop cost matrices for each type of throughput. But in these cost matrices it needs not to take complete cost of transportation. It should only take port user cost for each of OD pair with hinterland transportation cost. In this model, the link shall be ports in place of road network, thus it should develop the network based on location of ports in the region.

3. Modal Split At third stage of modelling it should forecast shipping technology in the regions and value added services in port specific depending on the functions of port. It can use any mode choice model for port call for a particular type of ship based on logit or probit model as already applied in various urban transport studies with modifications. But it also needs to include trend of shipping technology e.g. container ships in the model so it can predict share of different sizes of ships in the port based on its capacity and that is the most difficult part of forecasting. Or the increasing uses of short sea shipping bring cargo from one seaport to an inland port.

4. Assignment This is the most important part of this modelling approach in demand forecasting of ports. First of all, it needs to have a huge data base for the capacity of all the ports in region that are under the study area. Based on the capacity of those ports for cargo type and cost it needs to build the network and assign the throughput as shown in figure 1.3

Suppose ABC. are ports and R, T, U. are regions or countries to be served by the ports. Then the network need to be developed based on cost of port user, capacity of port, value added services if any available to that port. The capacity 37

Port Planning as a strategic tool: A typology definition shall be the strategic part in this model as that will ultimately define the marketing strategy of that port. In this model it can develop the positive or negative factor for additional service provided by the port but needs to be quantified.

Figure 3-3

Network of Ports and Hinterland R

Source: Based on application of this model in urban transportation

Advantages of four stage model This model can forecast for peak and off-peak period separately It covers the regional demand of throughput It covers the capacity of port range Potential demand can be estimated on the various parameters like regional and international trade, trend in shipping technology, port and hinterland

38

Port Planning as a strategic tool: A typology cost, value added services provided by the port. These parameters can be changed from port to port. The model can be reliable for long and short term both periods.

Source: Based on application of this model in urban transportation

Firstly, the model can be validated on the base year demand in port and then can be applied for time horizon. Though this model is at the very conceptual level and it requires a scientific study to apply in demand forecasting but as it has already seen the results of this model in Urban Travel demand forecasting. This can be assumed that it can give more accurate results with minimising the errors.

It should be very careful in demand forecasting and consider various parameters as discussed in Table 3-2 by Antonio Estache, Lourdes, and Emile9 for before and after demand forecasting. Table 3-2 Before Forecasting Past Trend Analysis National and International Economic Development Competition from Close Substitute Forecast by Transport services Companies Expectation of traffic published by complementary industries Forecast of Peak Periods Technical development of transport means Check out the budget constraints of demand study Check on data availability After the study Comparison with traffic experienced in similar situation Elasticities of traffic to prices Achieve sensitivity and risk analysis Source: Antonio Estache, Lourdes, and Emile 8
9

Tips for demand Forecasting

Antonio Estache, Lourdes, and Emile (draft, 2005), Forecasting the demand for privatized transport: What economic regulator should know and why. World Bank

39

Port Planning as a strategic tool: A typology

3.3

Demand forecasting as strategic tool:

Demand forecasting in port planning is a very important variable and it can be used as strategic tool as shown in Figure 3-4.

Figure 3-4

Demand Forecasting as Strategic Tool


Long Term

Qualitative

Strategic

Forecasting

Tactical Period Operational Quantitative Short Term Core Competence Port Function Value Added Services

Source: Developed by Author

When the port planning is being done for short term forecasting using quantitative models for core competencies it gives operational efficiencies to the port. The demand forecasting has three dimensions of approach, period and functions of port. Hence, when it is short term forecasting for core competences using quantitative models it has operational advantages. For long term forecasting one needs to include the value added services using qualitative models so as to provide strategic competitive advantages to the port. Thus, it can conclude that demand forecasting can be used as strategic tool in port planning.

Scenario Building of forecasting as part of strategy

40

Port Planning as a strategic tool: A typology The port should build scenarios for forecasting demand as explained in Figure 3-5. Generally, it can build n numbers of scenarios, but it should go for three scenarios of pessimistic, optimistic and neutral. If the port adopts proactive strategy then it should go for high demand forecasting while in case of reactive strategy it should adopt low demand forecasting.

Figure 3-5 Low

Strategy for Demand Forecasting Medium High

Reactive Strategy Status Quo ProActive

Source: Based on lecture notes of Frank Witlox (2005), in Air Transport Economics, ITMMA, Antwerp

41

Port Planning as a strategic tool: A typology

Supply forecasting

This chapter focuses on supply forecasting of a port. It includes both engineering and economic planning. This chapter is divided into three sections. First, Infrastructure and Superstructure, Second, Physical Aspects of a Port divided into man made and Natural Factors and the lastly, Technological Applicability in the Port Planning which includes information technology for capacity enhancement. In the modern transport, intelligent transport10 has to be applied for competitive advantages.

4.1

Infrastructure and Superstructure of Port

According to the Port Reform Tool Kit11 of World Bank, the total port assets have been classified into four parts: Basic Port infrastructure, Operational Port Infrastructure, Port Superstructure and Ports Equipments. This section will discuss the economic planning of infrastructure and superstructure on the basis of UNCTAD12. Port infrastructure needs a very long term investment and hence needs to be analysed for a specific project based on economic analysis of its infrastructure. Basic Port Infrastructure: Maritime access channel

It is very important to review the alternate designs of maritime access channels to the port whether it is a seaport or river port. It is not only important from the engineering point of view but also from the economic point of view. Maritime access channels have a huge economic advantage as a hinterland connection to the port. This needs to be reviewed considering the advantages to both the port and the shipper and then should do the cost benefit analysis of those alternate designs. From the port point of view, it leads to an efficient use of land in port area. As

10

Intelligent transportation systems provide the tools for skilled transportation professionals to collect, analyze, and archive data about the performance of the system during the hours of peak use. Having this data enhances traffic operators' ability to respond to incidents, adverse weather or other capacity constricting events. Source: http://www.itsa.org/subject.nsf/vLookupAboutITSA/What+is+ITS!OpenDocument
11

World Bank (2003): Alternative Port Structure and ownership model, Port reform tool kit, Public Private Infrastructure advisory facility. UNCTAD (1985): Port development A handbook for planners in developing countries, New York

12

42

Port Planning as a strategic tool: A typology discussed by UNCTAD12, there may be various designs of artificial harbour configuration of port and it may be a cut channel, Y cut, parallel cut channel (as given various figures in UNCTAD12) etc. depending on project specific requirements.

Port Entrance

This should also be analysed in a similar manner as maritime access channels. The depth, width, channel alignments should be forecasted in relation to shipping technology and total port cost as discussed in chapter 5 of capacity planning. Though there needs an economic analysis between ship user cost, its maintenance and economies of scale needed for the port.

Protective works including breakwaters, shore protection

Development of breakwater and shore protection is a very long-term investment. This needs to be built to protect the port from waves for safe shipping reception. According to UNCTAD12, the selection of breakwater should depend on the availability of resources like material, plant and labour. In regions where ample supply of rock strata (construction material) is available, it can prefer a rubble mound breakwater since it mainly requires a large crane so the capital cost will be very high but in case of vertical wall breakwater, it requires less material but modest equipment to fill the reinforced concrete wall with skilled labour. Thus, there is a need for trade off among those designs of breakwaters depending on richness of region in terms of resources and capital allowance in the project. Breakwaters have to anchor so as not to shift away under heavy waves, e.g. Sines port in Portugal. Ports can also be built dredging a channel inland so as to avoid the construction of large breakwaters e.g. Dubai with Jebel Ali.

Sea locks

Construction of sea locks is again a trade off between economic, operational and engineering analysis. Building a sea lock is an extensive capital investment and trade off between deepening the harbour and building sea locks - In some cases, costs can be reduced by prefabricating a concrete lock in one or several sections

43

Port Planning as a strategic tool: A typology away from its final location and floating it into position, with limited interference to port operations13.

Access to the port for inland transport (road, tunnel etc.)

When applying the demand forecasting four-stage model (refer chapter 3), it is very important to include the transportation cost to the hinterland. In ports range, a port becomes competitive when it has high accessibility to the hinterland in all kind of modes. In case of public service model, the hinterland connectivity can be improved at regional level by local government or in case of wholly private port model; it can be developed by the port itself. In a developing country like India, when the government announced its National Highway Development Programme (NHDP), it included the port connectivity after realising the importance of hinterland connection to the ports. In case of expansion of Rotterdam port project 2020 too, the hinterland connectivity is given due consideration. It is not only the cost of hinterland transport that is important but its the capacity of port affected by those hinterland connections. This will be discussed in the chapter 5 of capacity planning.

Rail connection between the hinterland and the port

Similarly, the Rail transport connection is also equally important. In a wholly private port like Pipava port in India which was the first BOT port in India, a separate rail network company was promoted to connect the port to the nearest main rail link in the region. But for other public ports, with the increase in motorway connectivity, The Government of India owned rail company Indian Railways augmented its connectivity to those ports to give them a competitive edge over the road transport. Thus, some times to make inter-modal/multimodal hinterland connections, the port can develop necessary hinterland connections by itself or by other agencies but care should be taken to make the port more competitive.

13

UNCTAD (1985): Port development A handbook for planners in developing countries, New York,pp85

44

Port Planning as a strategic tool: A typology Above all, if there is paucity of land in the port area, the distribution centre can be developed in a remote area, away from the port with good connectivity to the hinterland.

Inland waterways within the port areas

Even, an Inland waterway within the port area contributes to a substantial reduction in the operational cost of port operating companies. Though developing inland waterways within port area may be a costly affair but if it is naturally available, it can be utilised in an efficient manner for feeder shipping. Also, movement of cargo inside the port can prove to be economical.

Operational Port Infrastructure:

Inner port channels, turning and port basins

The width, depth and alignment of Channels in a port depend on various factors. This can be finalised based on the forecasting of shipping technology. In future what kind of ship will call at port? The transit time of vessels along the channel against tidal waves also affects the channel. From an economic perspective it is very important to forecast the shipping technology before finalising the inner port channel, turning and port basin.

Quay walls, jetties and finger piers

This is the most important infrastructure of port. All the port calls depend on availability of quay. This can be developed through queuing theory and simulation exercise. Ultimately it depends on productivity of berth. As discussed by Willy Winkelmans14, total available berth time depends on following factors: A vacant berth interval An occupied but not working interval (idle time) An occupied and working interval An occupied but not working interval (down time)

14

Winkelmans W. (1991) Seaport Planning from economics point of view, in, Shipping and ports in the National Economy, Economic Relations and models, University of Antwerp, pp 726

45

Port Planning as a strategic tool: A typology A simple example given by G. De Monie 15 illustrates that 85 % of berth occupancy has only 35 % of occupied and working time and this system faces great inefficiency. This will be discussed in detail in chapter on capacity planning. From economic point of view there needs to be a trade off between the cost of ship and cost of quay and accordingly number of quays must be built, as shown in Figure 4-1.

Figure 4-1

Variation in total cost in port with increasing traffic Total Cost in Port

Cost Per Ton

Cost of ships time in port Port Cost

Source: UNCTAD, (1985): Port development A handbook for planners in developing countries, New York

Traffic Volume

Aids to navigation, buoys and beacons

Navigational aid improves the efficiency of port with less turn around time of ship at the port, and also optimise channel configuration that can reduce overall costs and augment efficiency.

The other basic infrastructure is listed below: Specific mooring types, vessels traffic management system, patrol/fire fighting systems, docks and dry dock for repair shops should be built considering the trade off between various links that optimise the efficiency of the port at an optimum cost. A special consideration should be given to vessels traffic management system, to minimize the total turn around time of ship and safe navigation of vessels in the port area.

15

Monie, G. D., (1986):Measuring and evaluating port performance and productivity, P.U.C., AGHA, Nigeria

46

Port Planning as a strategic tool: A typology Specific mooring types Vessels Traffic Management system Patrol/fire fighting systems Docks Dry docks for ships repairs Pilotage

Port Superstructure The Port superstructure as listed in Port reform tool kit 16 , should be planned as support services like terminal lighting and parking areas that ultimately affect the productivity of a port. Shed and warehouses including stacking areas should support the efficiency of quay area. The other superstructure like office, building for terminal operations enhances the productivity of a port output. Repair shops, fuel supply to vessels give additional revenue to port besides general operation and improve the profits of port authority. The port superstructure as listed in Port reform tool kit16 is as follows: Paving and surfacing Terminal lighting Parking areas Sheds, Warehouses and stacking areas Tank farms and soils Offices Repairs shops Other building required for terminal operations

Port Equipments Port equipments as listed in Port Reform Tool Kit16, are to support the maintenance of the port operations. Due consideration should be given to plan for those equipments, since those equipment assist in the operation of a port. For instance, the cargohandling equipment at a fully automatic terminal of Rotterdam port greatly improves the productivity of the port. But again there needs to be a trade off between the capital
16

World Bank (2003): Alternative Port Structure and ownership model, Port reform tool kit, Public Private Infrastructure advisory facility

47

Port Planning as a strategic tool: A typology cost of those equipments and manpower cost. Anyway, through technological improvements & advances like ship/shore and cargo handling equipment, the efficiency of a port throughput improves. The port equipment as listed in Port reform tool kit16 is as follows: Tugs Line handling vessels Dredging equipment Ship/ shore handling equipment Cargo handling equipments (apron and terminal)

4.2

Technological Applicability

Application of modern technology improves the efficiency of port operation. (In some cases it needs due to the factors like high labour cost and non-disturbed operations: the new ECT automated terminal has a limited speed of handling to the dismay of ship owners). But the port has to make choice between acceptance of technology and employment generation. With the involvement of private sector in the Ports, the objective to maximize profits supersedes social obligations. In such a case, a port should adopt modern technology to improve capacity. The port technology can be divided in two parts: information technology and intelligent transport system. This section will focus on discussing the economics advantages of these technologies rather than technical aspects of technology.

Information Technology in Port In the application of information technology in port, first important thing is the electronic data interchange (EDI). According to Dale Bryce17, Broadly speaking, EDI may be defined as standard computer-to-computer exchange of inter-company business documents and information. EDI improves cash flow, simplifies stock control, allows for better customer services, reduce working capital; modernise business practices and reduce communication costs. EDI is a management rather than a technical tool because benefits are so wide reaching within the company.

17

Dale Bryce et. al.(1990): EDI & Cargo handling, International Cargo Handling Co-ordination Agency, p19,UK

48

Port Planning as a strategic tool: A typology

But port should always update technology according to market environment. The competitive port should move from EDI to XML, online data interchange and improve the port efficiency. This can be analysed using the most successful application of Information Technology in port management with the potential benefits and its key performance indicators through Table 4-1of Paul Kimberly18.

Table 4-1 Potential benefits

Key Performance Indicators of Potential Benefits Key Performance Indicator KPI

Accurate scheduling of ship arrival and Saving in operational costs; reduced cost departure to reduce turn around times, to shipper and traders. Reduced time for reducing congestion contention for resources and cost Better utilisation of ports assets, Reduction in capital requirements, improvement in returns on existing investments. availability of goods

equipments, fixtures and fitting through enhanced ability to schedule and balance use of key resources within constraints imperative and users requirements.

Reduction in time to deliver cargo Reduction in cost to trader and to resulting from improved communications consumer and exports clients, leading to between all of the parties concerned with growth in trade. port usages and imports & exports Accurate transaction information; Integrated IT system between all participants in the trade Higher throughput of cargo and increased Increased volume in containers, general utilisation of port facilities and bulk cargo, and passenger handled with known resources Increased security and customs efficiency Lower custom cost; increased custom as a consequence of container track and revenue; reduced cargo losses; reduced trace system problem in cargo identification; reduction Reduction in personnel, cost and paper in administration

18

Paul Kimberly(March 2000):Towards best Port practices, Egyptian centre for economic studies, p13, Cairo,

49

Port Planning as a strategic tool: A typology in unofficial taxes Better integration into national Information sharing and IT strategies. Adoption of international standards. Reduced cost and time of double handling, and correction of information, especially for national statistics and revenue reporting etc.
Source: Paul Kimberly (March 2000), Towards best Port practices, Egyptian centre for economic studies, Cairo,p13

Intelligent Transport System (ITS) Application of Intelligent transport system is one step further then simply application of information technology. It gives a competitive advantage to the ports in terms of performance and efficiency. Application of Intelligent transport system has improved the efficiency of ports like port of Rotterdam, port of Singapore and small port like port of Thessaloniki. There are various application of ITS in port operations similar to road transportation. According to lecture notes of Prof. G. A. Giannopolos on Adv. Port economics and the visit of port of Rotterdam, there are following application of ITS in port has been illustrated below:

Integrated Information System Computerised information should be registered at the entry/exit through smart card of vehicle driver with thumb impression for security. This information should be linked to final destination with terminal office building that gives information to terminal for loading and unloading of cargo. The whole system should be linked with local area network and should be operated online with port authority, shipper and operating agency, stevedore, customs (manifest, clearance).

Exit and entry control system When the container is booked by the shipper through port, the information has already been despatched to the port operator through online system about container bar code, smart card of driver, vehicle and date of delivery/receipt. When the driver arrives at the terminal, it touches its smart card with thumb impression for security check. In the mean time computer at the entry gate transfers the information to main computer of the terminal office. The office gives direction to automated gantry vehicles for that 50

Port Planning as a strategic tool: A typology particular container to deliver at given bay number, that particular bay number is already given at the entry gate to truck driver to load and unload the container. Automated Gantry Vehicle automatically collects the container from the bay and delivers the given container. At the exit gate, again driver checks through his smart card and container bar code. This type technology is only operational in the most

advanced ports e.g. Port of Rotterdam

Application of geographical information system (GIS) for yard planning The application of GIS can improve the terminal operation efficiency by locating the container with date of departure and arrival. It can be directly operated from the terminal office building with bar coding on container. There are various software techniques available and applicable in road transport also for better terminal management.

Track and Trace of container Through computer bar coding at the entry and exit at the gate, container can be located in the port. This will not only improve the efficiency of port operation but also provide safety and security after 9/11 in United States of America.

Traffic lights at the entry/exit gate For the safe and faster traffic circulation at the gates there should be separate traffic lanes according to vehicle type. These should be guided through traffic lights and improves the performance of gates.

Smart Card at the entry and exit gate There should be smart card and thumb impression reader at the entry and exit to check the security and improve the efficiency of entry and exit of gate. The other application of ITS can be Sensors at the entry gate Camera at the entry gate damage control Resource management system Wireless network in the storage area Terminal at the straddle carrier 51

Port Planning as a strategic tool: A typology Yard inventory management Handheld Loading and unloading control system Automatic invoicing

These technologies can always be updated with the market environment and availability. It also needs to be considered keeping in mind the shipper requirements and strike economic trade offs between the capital cost of these technologies and efficiency improvement of port operation.

4.3

Physical features of Port

The port is a very heavy investment and therefore before selecting the site, the factors affecting the port operation and capital investment to control those site considerations should be considered. Two key features affect the site selection of port: Natural features

There are various natural features that effect the construction and operation of ports. Hence, when the site of port selected, these factors should be considered. Hydrographical data of region Availability of resources to built the port Tides and waves Weather and wind conditions, hours of sunshine, rain level Natural harbour Land availability and etc.

These features should be analysed before port planning to reduce the capital costs of project.

Man made features ( external features)

These are certain man made features that affects the construction and operation of port. By improving those features, it can always reduce the capital and operation cost of port or some time this needs to make trade off among those features. Those features are: 52

Port Planning as a strategic tool: A typology Accessibility to hinterland Availability of know how Skilled labour for technical operation and construction of port (including dock labour) Local legislation and environment of region Availability of infrastructure for port

4.4

Supply forecasting as strategic tool

Supply forecasting can be used as a strategic tool in port planning. It should always optimise the capital cost of port or strike a trade off between the operation & maintenance cost of port and capital cost of port. It is not only the Cost trade off part but the efficiency and competitiveness of port in the region that satisfy more customers to maximise throughput or revenue. This has been explained through Figure 4-2 Figure 4-2 Supply forecasting as strategic tool

Superior services Capital Cost of port

Efficiency

Low efficiency

Revenue Source: Developed by author, based on UNCTAD, 1985

It can be seen from the Figure 4-2 that when capital cost is low, the operation & maintenance costs are high and the port has low efficiency while with high capital investment, port can reduce the operation and maintenance cost that not only improves the efficiency of port but also provides superior services and gives the port a competitive edge over other ports. 53

Operation and maintenance cost

Port Planning as a strategic tool: A typology

Capacity Planning

The fifth chapter discusses the equilibrium of capacity planning of the port. This is a very important chapter from the point of view of port planning. The objective of capacity planning is to optimise the cost and revenue of port (refer chapter 2 for details of objectives). This chapter is divided in four parts. The first part defines the capacity term in relation to the port. The second part discusses the vertical segmentation of capacity in terms of stage of production in port. The third part analyses the relationship factor of production with various capacity indicators of port. Finally, the fourth part deals with optimum capacity of port using fixed and variable cost and revenue curves.

5.1

Definition of Capacity

According to Oxford dictionary the word capacity is derived from Latin word Capacious which is derived from Capio and it means take or hold. It means the maximum amount that something can hold or produce. Capacity as defined in economics dictionary by Donald Rutherford 19 , It is the maximum output that a firm (in this case it can be a port) or an economy can produce from its existing supply of factor of production. Thus, to increase its capacity, a firm must enlarge its labour stock or its capital stock. While the capacity utilization is the ratio of the actual output of a firm, industry or national economy to its maximum output at a point in time. This ratio will fluctuate cyclically and high degree of utilization will be a signal of more net investment.

An earlier UNCTAD publication gives the following definition of port capacity (1969): Port capacity is the application of a port to assure the throughput of a certain quantity of goods (cargoes) during a given period20.

19

Ronald Ruhterford (1995), Routledge dictionary of Economics, Routledge, London Winkelmans Willy (2004), Port capacity a theoretical and practical approach lectures notes on Adv. Transport Economics at ITMMA, Antwerp.

20

54

Port Planning as a strategic tool: A typology In later UNCTAD publications, some variation is introduced and G. Monie states in his study on the Determination of port capacity, Lagos, 17 November 1980: In principle the capacity of a port is the suggested capacity of various homogenous port zones. Port capacity can only be determined based on a set of parameters which describe a clear situation and thus it becomes obvious that port capacity is not a constant value but one that will alter with the changing port operating conditions. In short the capacity of a port (or given set of port facilities) is a variable value which tends to fluctuate in relation to the type, volume and timing of the demand service.21 The National Ports Council of Great Britain22 has defined the port capacity as The annual throughput capacity was defined as the maximum throughput of cargo which the operator believes can be achieved on a continuing basis without incurring several delays and disruptions.

Hence, it can be analysed that capacity is a dynamic phenomena. It changes depending on various factors of production and volatile demand in the market. But from supply side, it can be analysed from Figure 5-1 that maximum attainable capacity is the point of bottleneck in the production chain of port. For e.g. in Figure 5-1 the capacity of a port has been compared with the capacity of a highway. Suppose, section A of the highway with 2000 vehicles per hour is similar with access channel of a port, while B section of same highway has 3000 vehicles per hour and is analogous to a port operational area and in the last end of highway i.e. section C is the bottleneck and has limited capacity of 1500 vehicles per hour, that may be similar to capacity of hinterland connectivity of port. Hence, based on the above definition and given examples, it can be analysed that maximum attainable capacity of a port is a combination of various factors of production in port, not the maximum point of production.

The capacity is dependent not only on supply side but also on demand side explains why it is a dynamic phenomenon. It is very difficult for the Ports to always maintain
21

Monie, G. D.(1980): UNCTAD The determination of Port Capacity for Nigerian Ports Authority Lagos-Nigeria

Winkelmans Willy (2004): Port capacity a theoretical and practical approach lectures notes on Adv. Transport Economics at ITMMA, Antwerp.

22

55

Port Planning as a strategic tool: A typology the maximum capacity. It depends on demand and efficiency of production factors. According to Winkelmans W. (2004)22, there is a difference between slack capacity (maximum attainable throughput, (MAT-HEAT)) and highest efficient attainable throughput (HEAT). Whenever the port is not able to produce equal to HEAT, it has extra capacity from its normal production capacity this is called over building of capacity of port but when it starts using the slack capacity due to peak in demand, it has under capacity.

The concept of over capacity and under capacity has been discussed later in relation to cost in subsequent section.

Figure 5-1

Example of Road Capacity in Port

2000
A

3000
B

1500 C

Source: By Author

5.2

Vertical Segmentation of Capacity

From the previous section it has been drawn that capacity is a dynamic phenomenon and it needs to be analysed at a point of time with each chain of production process of a port. Hence, it is compulsory that the operational process of the port should be thoroughly analysed at micro level from its efficiency point of view and coordinated with other links of operations. Vertical segmentation of port operation gives the capacity of each chain in the link of a port operation. This has been shown in Figure 5-2.

56

Port Planning as a strategic tool: A typology The analysis of capacity and efficiency of those links are interdependent and can be started from either end. If it begins from arrival of a ship then the process begins with navigational aids, with availability of locks, berths, hatching and cargo handling on board. But there are many other links in the production process as shown in Figure 5-2, the efficiency of those links should be analysed in concatenation with other links. This part is very important from the ship owners point of view. As the ship is involved till the cargo handling on board and ship owner wants to finish these activities at the earliest so that his ship can be freed from port because of high capital investment in ships. But after that, movement of cargo begins from quay area to hinterland operation. Port operators are mostly interested in clearing the quay area as this is a capital intensive and highly utilised for the port operators. After that, the shipper is interested in getting the highest efficiency for activities like value added services, delivery/receipt and hinterland transportation. But in the supply chain of the port operation, if there is any bottleneck in any part of operations then it affects the total capacity of port and should be synchronised with other factors of production.

Hence, it is very important for planning that before analysing the port capacity the analysis of the vertical segmentation of the port operation in coordination of all links should be done beforehand.

57

Port Planning as a strategic tool: A typology

Figure 5-2
Arrival of Ship

Vertical Segmentation of Port Operations for cargo


Departure of Ship Navigation Aid Approach Channel Pilotage outside port Lock Protected Water Port Pilotage Towage Berthing and Unberthing Berth

Opening of hatch Breaking Out Cargo handling on board

Closing of hatch Stowing Cargo handling on borad

Transfer to/from quay Cargo Handling on quay Transport to/from storage Storage Value Added services Delivery/Receiving Hinterland Transport Inbound Cargo

Cargo Movement Ship Movement

Outbound Cargo

Source: Based on UNCTAD(1975): Port Pricing, New York

58

Port Planning as a strategic tool: A typology

5.3

Relationship of Factor of Production of Port and Capacity

The capacity of port is a dynamic and is affected by both supply and demand factors of port. As shown in Figure 5-3, supply factors can be divided in fixed and variable factors of production of port. These factors of production should be divided on the basis of both, the time of their construction and the capital cost of investment. If any factors of production in the ports can be built up in a very short period of time at highly capital intensive cost it should be considered a fixed factor of production or vice versa. The factors of production in the ports that takes either a short period of time or low cost should be considered in the variable factor of production. These factors of productions can be changed according to the demand for peak and off peak period with low investments in a short period.

Fixed factors of production The fixed factors are highly capital intensive and need to be built up in coordination with demand for peak and off peak periods as well as any sudden rise in future demand, since these factors can not be built up in a short period of time with low investments. Hence, the capacity of these factors of production should be considered for very long term equal to their amortization period.

Fixed factors as shown in Figure 5-3, such as maritime access channel can be further segregated in navigational aid, breakwater and locks that have a long lifespan normally ranging from 50 to 100 years. Since, the concession of private sector port is not more then 50 years (normally 30 years), the contract for these projects should be undertaken so that the port authority builds the capacity of these facilities in coordination with demand and other factors of production.

The other fixed factors of production such as berth, dock, terminal facilities and hinterland facilities should also be considered in similar approach. The berth is highly occupied and demanded area in port. Because of that, the ports also want to construct as many berths as possible. The berths are money-makers for port because the ship owners would never like to wait for the berth. They shall always look for low waiting time. With the trend of dedicated terminal facilities for shipping lines in the market, 59

Port Planning as a strategic tool: A typology the port authority negotiates with the shipping lines and risks to building over capacity ports because of their growing demand. But these facilities should be built in coordination with the performance of other factors of production and its cost considerations.

Figure 5-3

Factors of Production Affecting Capacity of Port

Based on cost and time Fixed factor of production Variable factor of production Capacity of port

Maritime Access Channel Berth Dock, Terminal Storage, CFS Value added services Hinterland Connectivity

Quay Cranes, Grab cranes

Throughput

Stradle carriers, IT Labour resources Marine equipments

No of Ship call at port Hook cycle Vehicle loading storage Value added services Gate Hinterland transport

Source: Developed by Author

Watch out, some of this investment may be done either by public or by private entity! Hinterland connectivity is very important for smooth operations of the port as it creates bottlenecks and some times the port authority considers that it is not their cup of tea. But private port operators understand the needs of the market and starts building their own infrastructure to reduce the bottleneck at the end/beginning of production chain operations of the port e.g. Pipava Port Limited Gujarat, India. The facilities of value added services should be built in relation to its potential demand and availability of other facilities at port.

60

Port Planning as a strategic tool: A typology

Variable factor of production The variable factor of production should be built in consideration of maximum attainable throughput (MAT) and the highest efficient attainable traffic (HEAT) of fixed factors of production. The variable factor of production can change in short period of time with low investment and can be created to utilise the slack capacity of port. The facilities like cranes, straddle carriers, labour resources and information technology should be built for a short period and needs to adjust according to dynamic demand of the port over a period of time. Due to labour union at ports, it is very difficult to adjust labour resources in a short period of time but it may be possible in private sector port models. The application of information technology can be updated or changed with change in demand to use the slack capacity. But these variable factors of production should be built in coordination with dynamic demand of port and HEAT of fixed factors of production.

Capacity indicators of port These fixed and variable factors of production should be analysed and synchronised with various capacity indicators. Some of those have been shown in Figure 5-3. Overall, the capacity of port is considered in terms of throughput. But the maximum throughput can only be achieved with highest efficiency of other capacity indicators. Like the number of ships that call at the port gives the capacity of the maritime access channel, occupancy and efficiency of berths, hook cycle, and boarding. But all of these capacity indicators are related to each other and should attain maximum efficiency in relation to each other.

In case of container ports, the change in capacity of port has been analysed by H Paelinck, and J. H. P. Paelinck23. According to them, the size of the new ships also resulted in the necessary adaptation of ports in access capacity and in equipment.

The approaches to the ports are adapted, wherever possible, to the draft of the large vessels: 13.5 m as design draft, design draft indicating that all cells will be filled with
23

Paelinck H, Paelinck J.H. P.: QUEUEING PROBLEMS AND OPTIMAL DESIGN OF CONTAINER PORTS

61

Port Planning as a strategic tool: A typology full boxes. In reality this turns out to be 13 m maximum, as all vessels carry up to 20 % empty (MT) boxes or empty cells.

Container gantries are now required to be able to reach 18 containers wide, the new ships carrying up to 18 containers across; 18 x 2.44 m = 44 m is the resulting width of the ship. To reach the commercial handling speeds they have a lifting capacity of more than 70 tons in order to be able to lift two loaded 20 footers at the time.

Stevedore contracts specified in the past a minimum number of 35 boxes to be handled per hour on the ship. But with the large quantities to be handled now, and extremely high costs of these large ships (about 2,000 $ per hour!), the figure of 200 boxes per hour demanded by the ship-owner has become a reality. Well-organised ports can handle more than 30 boxes per gantry per hour, so this would require 7 cranes alongside one ship; ports like Singapore do this and reach spectacular performances (620 boxes in 2 hours 35 minutes with 7 cranes on one vessel).

From the above given study, it can be inferred that by building the variable factors of production like cranes can increase the capacity of quay up to certain extent and same in other factors of production.

5.4

Optimum capacity based on cost and revenue

It has been already discussed that the capacity is a dynamic concept and vary over a period of time. Hence, it is very difficult to achieve static equilibrium of capacity on the basis of demand and supply factors. But optimum capacity for the point of time can be achieved on the basis of cost (supply) and revenue (demand) curves of port and can be changed using variable costs as shown in Figure 5-4.

In Figure 5-4, on Y axis, the average cost/ revenue and throughput on X axis have been given. The C0 is the optimum occupancy level in the beginning but as the demand increases during peak period, fixed factors of production can not be changed but with change in variable cost from VC 0 to VC 1 results in change of optimum occupancy level from C 0 to C1. Due to peak in demand and congestion at the port, the average revenue curve will also shift from r0 to r1 and it will expand the 62

Port Planning as a strategic tool: A typology throughput capacity of port from A0-B0 to A1-B1 as the maximum throughput capacity of port shifts from t0 to t1.

But anyway this temporarily increase in capacity is costlier then normal capacity. As VC 1 is a much steeper curve then VC 0, because any increase in variable cost at slack capacity will be costlier for the port. In case of labour, overtime and installation of additional equipments needs more cost than normal cost. This trade off has to be made between cost of shipper and port user cost to minimise the generalised port cost.

Figure 5-4
TC0 Avg. Cost/ Revenue A1 r1 r0 VC0 A0

Optimum Capacity of Port

TC1 VC1 B1 B0 Rev1 Rev0

C0 C1 FC

0 Throughput

t0

t1

Source: Developed by author based on lecture notes of Prof. Winkelmans W. on Adv. Port Economics (2004), ITMMA, Antwerp

The issue of excess capacity has been discussed by Haralambides and Veenstra in their paper port pricing24. They suggest that the excess capacity had number of causes including the managerial ego boosting and infrastructure is built far ahead of demand than required to promote economics development. However, the real culprit of excess capacity ought to be found in capital indivisibilities (lumpiness of investments), economies of scale in port construction and over optimistic demand forecast25. But the
24

Herculas E. Haralambides and Albert W. Veenstra(2002), The handbook of maritime economics and business, Ed. by Grammenos TH Costa, Informa Publishing, UK, pp 790-792. 25 Based on Winkelmans W. and Notteboom Theo (2002), How to deal with uncertainties in the port (capacity) planning process? PTI, London

63

Port Planning as a strategic tool: A typology objectives of the port authority should be to minimise the generalised port cost i. e. the summation of ships time costs and port costs.

Capacity planning is an ongoing process and it needs to be expanded within an appropriate framework of time as explained by Winkelmans W. and Notteboom Theo26 in Figure 5-5.

Figure 5-5

Capacity planning as ongoing process

Optimum 1

Capacity

Optimum 0

Port Traffic I II III IV Time

Legend MAT HEAT I II III Maximum Attainable Throughput in a situation with specific capacity limits Highest Efficient Attainable Throughput a situation with specific capacity limits Start-up serious capacity underutilisation i.e. over capacity Phase of strong traffic growth with eventually leads to optimal capacity utilisation Phase of capacity over utilisation unless capacity is increased to MAT1 lead to new optimum 1 IV Phase of under capacity and highly congestion if capacity is not increased Source: Based on Winkelmans W. and Notteboom Theo26
26

Winkelmans W. and Notteboom T. (2002), How to deal with uncertainties in the port (capacity) planning process? PTI, London

64

Port Planning as a strategic tool: A typology From the economic point of view, phase I and III should be very small while phase II should maximise to gain from the economic operations. The port should avoid phase IV as it leads to congestion and waiting time that translates into high operating costs.

But as far as capacity planning is concerned, its an ongoing process and each port should find the optimum point and turning point of S curve. Since, the capacity expansion process of port takes time because there are lot of pressure groups in the port area that delay the port expansion programme e.g. project 2020 of Port of Rotterdam.

It is very difficult for a port to find the logistics curves based on traffic forecasting and efficiency of factor of production. Especially, the turning point of logistics (S) curves. From preliminary study of graph, it can be concluded that the turning point of the curve is also transposed in terms of high cost. During phase III, increasing cost starts functioning and the port should always plan the capacity expansion process, well before time, so it needs to change its optimum point (MAT1) at required time. There again is a need to conduct scientific research for the port to plot the logistics curves and to find the turning points in the curve.

5.5

Capacity planning as a strategic tool

Capacity planning is the most appropriate strategic tool in port planning since capacity planning includes the demand and supply factors of ports. Boston Consulting Group (BCG) Matrix can be applied to evaluate the capacity planning of a port as shown in Figure 5-6. Figure 5-6, has three dimensions of demand, supply and capacity planning. If the capacity planning is static with fixed demand and supply then port is in position of dog and it can not have any advantages of planning. But if demand and supply are both variable while capacity planning is static then port is in the cell of question mark because with static capacity planning and variable demand and supply, it will not only loose the market share but profitability also.

65

Port Planning as a strategic tool: A typology Figure 5-6 Boston Consulting Group Matrix

Variable Demand

Star

Variable Supply

Fixed

Dog

Cow Fixed

Static

Dynamic Capacity Planning

Source: Boston Group Consulting Matrix

If the capacity planning is dynamic with fixed demand and supply, port is like cow of BCG matrix because port can gain profits by applying dynamic capacity planning. If all three factors are dynamic then port is really a star because with variable demand and supply with dynamic capacity planning port will not only have profits but gain market share with competitive advantage over other ports. This is the position where every port wants to be or should be.

66

Port Planning as a strategic tool: A typology

Project Evaluation

There can be no port planning without its economics. The ultimate objective of any project development is to gain either economic or financial benefits. But the final aim is to achieve the welfare of the people. This chapter discusses the financial, cost benefit and economic impact assessment of a port project. This chapter is divided in four parts. The first part deals with the financial plan of the port projects. The second part discusses the economic analysis in terms of cost-benefit analysis of the port project. Some of the port projects are economically viable even than unnecessarily delayed by pressure groups hence; the third part discusses the economic impact assessment of port projects. Finally, the fourth part deals with the process of implementation of the port projects based on alternate options and its viability.

6.1

Financial Evaluation

Ports are highly capital intensive projects and in present world, it is very difficult for the government to finance the port project from public funds. As inferred from the ownership model ports are transforming from public service to private service model. For private sector participation, it is very much necessary that projects should be self financed with viability so the project can be bankable and implemented with Private Sector Participation (PSP) model. According to the port reform tool kit27, a financial analysis is designed to determine the conditions under which the proposed projects can respond to market requirements, which usually vary with time. This is what is understood by the bankability of a project27. The financial evaluation has been discussed in detail in financial implication of port reform of port reform tool kit by World Bank. Here, it discusses the main features and issues in financial evaluation of port projects.

There are seven values that drive and affect the bankability of port projects. These seven values are:
27

World Bank 2003: Financial Implication of Port Reform, Port reform tool kit, Public Private

Infrastructure advisory facility pp 44-45

67

Port Planning as a strategic tool: A typology 1. Revenue/Traffic Growth

Revenue estimation or traffic forecasting is a very important driver in financial viability of the project, since traffic forecasting is ultimately translated into revenue. There should be a scenario building for the traffic forecasting. At least, it should have three scenarios optimistic, pessimistic, and neutral and not more than five (refer chapter 3). Otherwise the model becomes very complex. Traffic growth rate should be taken broadly in consideration including all kinds of revenue that a port can secure from its operations. The operating revenue can be divided into following the categories as per port reform tool kit28. Port Dues Services to ships Estate revenue On board and on land services to cargoes Revenue from Administrative operations Miscellaneous ( e.g. rental of equipments)

2.

Contract/Concession Period

The contract/ concession period in case of land lord or private service port model is very important and complex since there are lot of anomalies in charging depreciation among regions for specific infrastructure/ superstructure of project. Generally, the life of port project ranges from 50 to 100 years but it is very difficult to forecast the other parameters for that period. So the concession period is fixed for 30-50 years. It is very difficult to estimate the residual value at the end of concession period. Hence, concession period is very important in financial planning of port projects.

3.

Capital Expenditure ( CAPEX)

The capital expenditure of port projects should be detailed out and split into various categories depending on their functionalities and life cycle. The problem in capital expenditure is to divide the items into fixed cost and variable cost. This was discussed in capacity planning earlier, that cost should be divided into fixed and variable depending on their amount of cost and time of construction. The financial planner should also make the financial phasing of project based on its construction and
28

World Bank 2003: Financial Implication of Port Reform, Port reform tool kit, Public Private Infrastructure advisory facility pp 81

68

Port Planning as a strategic tool: A typology operation period. It should also consider the operation of port during construction period. The financial structuring should analyse the cash flow during construction period in consultation with operational department of port. It is also possible that the ports can be built under the system key on the door. During that period there would be no income yet during construction.

4.

Tax Charges or Allowances

There should be a clear demarcation between depreciation, amortization and tax allowances. As given in port reform tool kit 29 , Amortization refers to capital repayments of financial loans. Depreciation is designed to adjust the economic value of an asset according to the loss of economic value it undergoes with time. Tax allowance represents the deductions that the tax authorities allows on the investments that Special purpose vehicle makes. Generally, the tax charges/allowances differs from country to country and should be carefully taken into consideration. In a

particular case, (port is needed for regional development) there can be a special request to government for relaxation in tax charges to make project bankable. When, infrastructure is financed by private enterprise. There will always be a period of tax holiday given by government (but that can be considered as delayed subsidy).

5.

Working Capital

The working capital planning is a prerequisite in case of dynamic capacity planning. It should carefully consider the financial requirements during the operational period and revenue receipt. It should also consider the necessity for dynamic planning to use the slack capacity of port to bring the port in a star position as discussed in Boston consulting matrix in previous chapter. According to port reform tool kit30, the need for working capital depends on four factors: Volume of business Length of operating cycle Customer/ supplier credit policy Operating cost structure

29

World Bank 2003: Financial Implication of Port Reform, Port reform tool kit, Public Private Infrastructure advisory facility pp 81 30 World Bank 2003: Financial Implication of Port Reform, Port reform tool kit, Public Private Infrastructure advisory facility pp 83

69

Port Planning as a strategic tool: A typology 6. Cash Flow

The cash flow can be defined as depreciation plus net result after tax. The calculation of cash flow has been given in Table 6-1. The free cash flow is equal to cash flow minus reimbursement of principal of loans.

Table 6-1 Sl No. 1 (2) 3 = 1-2 (4) 5=3-4 (6) 7=5-6 8 9

Cash Flow Statement Particular of Cash Flow Revenue Expenses Gross Margin- EBITDA Depreciation Operating result Financial Cost (Interest-fee,) Net result before tax Taxes Net Result after tax

Source: Honore Paelinck, Glossary of Terms, ITMMA, 2004

Care must be taken to ensure that there are no anomalies in estimating in the cash flow. It should consider the method of dividend payment for the equity of projects and reserve account for project to meet out the risk in the project.

7.

Weighted Average cost of capital (WACC)

In financial analysis of port project, it is necessary to measure the cost of capital to provide finance for the project i.e. termed as WACC. The WACC as explained in port reform tool kit31 is: WACC= [(1-g)* re] + [ g*rd] g = amount of financial debt in relation to the total financial capital rd = Cost of financial debt re = Cost of equity In summary the WACC is measured for project bankability and it depends on the availability of cost of capital in the market.
31

World Bank 2003: Financial Implication of Port Reform, Port reform tool kit, Public Private Infrastructure advisory facility pp 51-52

70

Port Planning as a strategic tool: A typology Besides these factors, there are other things that needs to be considered for project evaluation viz., Financial structuring: the financial structuring can be measured in following terms: The capital structure ratio The annual debt service cover ratio Net present value debt cover ratio

Risks of the project: This is most important and complex for financial planning of port project. But simultaneously, it is very difficult to quantify all these measures. Some of the important risks have been summarised in Table 6-2.

Table 6-2 Sl No. 1 Principle Risk Country

Risk of Port Project Categories Government, Currency, Social,

Taxation, legal etc. 2 Traffic Growth factor, quality of service, customer, tariffs, 3 Project Construction, handover, operating,

procurement, financial, social etc. 4 Contractual Contract Management, Indexation,

Credit-Guarantee etc.
Source: Based on Port reform tool kit, World Bank

Project evaluation techniques The various techniques as listed in UNCTAD32 for project evaluation are: I. Cost benefit Ratio II. Average rate of return III. Pay back period IV. Net Present value(NPV) V. Internal rate of return(IRR) But in practice one can consider the last two methods based on needs of the project. NPV is used to evaluate the projects viability but when it needs to compare the two
32

UNCTAD(1977): Appraisal of Port Investment, New York, TB/D/C.4/174

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Port Planning as a strategic tool: A typology alternate options, it is necessary to use the IRR method that gives more scientific results than other methods.

For private service model and even for the land lord port model, it is very much necessary to do detailed financial analysis, and consider the above given aspects. Investment in private sector is based on commercial aspects or profit, and the financial model of port project gives the return on capital investment and also explains the business plan of the port project.

6.2

Cost-Benefit Analysis

Need for Social cost benefit analysis The cost benefit analysis of projects in economics in also known as Social cost benefit analysis/Economic cost benefit analysis. This is generally applied for the project where public money is involved or needed. The port projects are very complex and rarely financially viable/bankable. In its totality they reach out from land-availability for port premises including dredging, breakwater facilities to security of ports. In most of the cases in the developing world, there is need for public funding for public service, tool and land lord port models especially.

Hence, whenever there is public money or public interest involved in port projects, it requires justification in a broader sense then private cost benefit analysis or financial analysis of the project. The difference between private and public cost benefit analysis is that former considers the profitability as the sole criteria of project while public cost benefit analysis considers public interest with developing systematic ways of analysing cost and benefits without considering market failures e.g. shadow pricing etc. In this thesis, the issues and methodology of cost benefit analysis shall be discussed.

Benefits of the Project The total benefits can be divided in monetized and non monetized benefits.

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Port Planning as a strategic tool: A typology Estimation of monetized benefits This should be equal to total revenue of financial planning of project. The revenues of a port can be segregated as per table 9 of Port Pricing UNCTAD33, and needs to be estimated for charges on ship and cargo separately.

Estimation of non-monetized and other benefits The other benefits can be estimated for port users as consumer surplus for reduction in cost of ships and cargo handling for shippers. But there are other benefits that are not only shared by port users but by others in the region too. Saving in maritime transport cost: The savings in maritime transport cost can be achieved by use of ship that can carry the goods at lower cost due to deeper draft and economies of scale. The same is applied for hinterland transport operations. The saving in cost of goods handling and reduction in processing time at port reduced the over all cost of maritime transport by the project. Due to better port investment there is saving in insurance cost to shipper and ship owner also. consumers surplus. These costs can also reflect in terms of

Value of time in port: The value of time for ships and cargo needs to be estimated. The estimation of value of time helps in quantifying the benefits to the shipper and ship owners. Still, there is need of a scientific theory for estimating the value of time of ships. Though, it can consider the savings in capital and operating cost of ships through advantages of economies of scale. There can be savings in ships total turn around time because of more locks, better maritime access channel, more quay and faster handling of cargos on board. On the other hand, there is value addition and saving in cargo because of faster and efficient handling, integrated logistics services at the port etc.

Safety and security in ports: After 9/11 event in U.S., the safety and security has become a crucial issue in port planning. Ports are investing huge capital in safety and security. But it is very difficult to estimate the savings from safety and security of ports.

33

UNCTAD (1975), Port Pricing, New York, pp-47

73

Port Planning as a strategic tool: A typology

Since, these events have cascading effects and needs to add on at each stage. But no such events happened in the case of ports so far and it is very difficult to evaluate the effects of safety and security in ports. The other saving should be for safety of ships and cargo due to design or planning improvements. The saving should be estimated comparing with a do nothing scenario.

Environmental benefits: It is always understood that ports had only negative external effects. But if the project has technological or efficiency improvements then it needs to estimate the savings of environmental benefits. It can have positive effects on port surroundings due to improvements in existing port and have positive environmental effects.

The over all benefits can be summarised in Table 6-3 and some of these benefits shall be discussed in economics impact assessment of port section. Table 6-3 I Direct benefits to Port Possible Benefits of Port Investment II Direct benefits to Port users 1) Additional revenue from dues on ship 2) Increase in cargo handling revenue 3) Additional rental 1) Saving in Inland III Indirect benefits to stake holders 1) Increase in Port

Transport cost 2) Saving in cargo

related labour 2) Increase in income to port related industries interest capital 3) Multiplier effects

handling cost of 3) Saving expenses in of

land made possible be the project investment

tied up in inventory 4) Saving in ships cost in port 5) Saving in ships 5) Environmental benefits 4) Safety and Security

operating cost arising 6) Saving in insurance cost 74

Port Planning as a strategic tool: A typology 7) Increase in output of portusers industry

made possible by port investment


Source: Based on UNCTAD (1977), Appraisal of Port Investment, pp-10 TB/D/C.4/174

Estimation of Internal cost The internal cost should be considered similar to financial cost at economic price. These costs should be estimated at shadow or economic price and not at market price due to market failures in the economies as discussed in subsequent section of shadow Vs market price. The internal cost can be divided in three parts. Capital cost Periodic maintenance Operation and Maintenance

The capital cost includes infrastructure, superstructure and port equipments. The periodic maintenance is to be estimated on the basis of life cycle of projects like dredging at regular intervals. Regular operation & maintenance cost includes labour, administrative and equipment maintenance cost.

Estimation of External cost External cost is very important for the economic analysis of a project. The main externalities of port projects are: Environmental cost: The environmental cost needs to be estimated separately for each type of pollution caused by the project. In a port project, special emphasis should be laid on water pollution in port caused by movement of ships, air pollution for industrial activities in the maritime industrial development area. Last but not the least, noise pollution cost should be

estimated caused due to the project. Though noise pollution is more concerned in air transport projects. There are four methods to measure the environment cost as suggested by Blauwens, Baere and Van de Voorde 34 : Stated Preference, Revealed Preference, Cost of Shadow Project and Effect on
34

Blauwens G., De Baere P. and E. Van de Voorde(2002), Transport Economics, De Boeck, Antwerp,

pp377-378

75

Port Planning as a strategic tool: A typology Productivity. Generally, revealed preference methods are suggested by

economists to measure the environmental cost of project.

Inconvenience during construction: Generally, inconvenience cost during construction has been ignored in cost benefit analysis. This is very important as and when the project is being developed. It not only affects the operation and efficiency of existing activities but some time also creates inconvenience to other factor of productions and people beyond the port project. This also needs to be quantified in terms of monetarily.

Other negative externalities: The other negative externalities should be considered like negative effects caused by port activities in urban areas. The congestion caused by port traffic on other modes of transport as well as congestion in the maritime access channel due to improvement in port capacity. Hence, these other negative externalities also need to be taken care of in cost estimation though it will be discussed further in economic impact assessment section further.

Shadow Vs Market Price The difference between economic and financial analysis is not only the additional benefits and cost of a project but these should be evaluated at real cost than just at the market price. According to Stiglitz35, whenever there is market failure, the market price may not reflect true marginal social costs or benefits. In such circumstances, the economist use social cost or shadow pricing. In the case of the perfect market, the price of a factor of production equals to its opportunity cost, which is forgone in alternative uses.

But it is very difficult to apply the shadow pricing for the projects in developing countries. Due to huge unemployment, labour has very low opportunity cost and similarly in case of cost of capital with lot of restrictions on interest rate by the central bank. But in any case, some issue needs consideration like transfer payment, taxes

35

Stiglitz E. J. (2000), Economics of the Public Sector, W.W. Norton Co., London, 3rd edition, pp283

76

Port Planning as a strategic tool: A typology and subsidies from market prices. These factors change the market price by a significant amount.

Social Discount rate The discount rate used by the government or used for public funding is called social discount rate and this should be used for the economic evaluation of projects. There are lot of controversies for the real discount rate. Here, the issues related only to port project will be discussed and develop some discount rate for the project. Firstly, care should be taken of the inflation and social discount rate at a realistic rate not at nominal rate. Secondly, the most important issue is that port projects have big share of foreign investment. There is a huge difference in many countries in cost of capital and that should be accounted for in discount rate with funding from international organisation at low cost of capital (low interest rate) .

There is no match in discount rate used by different countries and the social discount rates are used different for different countries (refer Hayashi and Morisugi36) . Hence, it needs to be estimated on basis of the weighted average cost of capital (WACC) for social discount rate. WACC= [(1-g)* rd] + [g*re] g = Amount of foreign capital share in relation to the total cost of project re = Cost of foreign capital rd = Cost of domestic capital

Risk evaluation There should be risk evaluation for the economic analysis of port projects as in case of financial analysis that is a generally ignored aspect. According to Stiglitz35 the risky projects have to earn higher returns than safe projects with the same certainty equivalent, in order to be acceptable. A risky project must earn an additional amount to compensate for its risk premium.

Time horizon In principle, the cost benefit analysis of a project should be for the period as long as it gives benefits the life cycle and maintenance cost. Generally, a port project has a life 77

Port Planning as a strategic tool: A typology cycle up to 100 years and it is very difficult to estimate the benefits for the same period. But ideally the time horizon should be as long as possible as it can forecast the cost and benefits of the project scientifically. Hayashi and Morigusi36, explained the project life for evaluation varies from 20 to 50 years in the countries like UK, US, Japan, Germany and France. Project Evaluation Methods The project evaluation can be the same as used in financial analysis section. But the important aspect is that economic analysis of port projects should not be done in its totality. The economic analysis should be separate for each of the projects for the time it needs to disaggregate the projects. So the internal part of a project should not be cross subsidies. Then internal rate of return should be used for selecting the alternate option while in totality the Net present value method can be applied.

6.3

Economic Impact Analysis

Some times, despite a positive economic and financial appraisal of a project, there is a delay due to various pressure groups and other obstacles. In such a case, there is a need for an economic impact analysis, for the project. For instance, Maasvlakte 2 of port of Rotterdam was conceptualised in 1991 but still is not realised. The economic impact analysis as suggested by Christ P.37 is : It can be used as policy instruments for public evaluation of port project. In that study, Chris Peeters suggested an input output matrix to evaluate the economic impact of ports investments. But a recent study The 2003 Economic Impacts of The Port of Seattle38 can be used by port planners to measure the economic impact of ports as shown in Figure 6-1.

36

Hayashi Y. and Mrisugi H. (2000), International comparison of background concept and methodology of transportation project appraisal, Transport policy, volume 7, pp 73-88

37

Chris P. (1991), The economic Impacts study as a policy instruments for the evaluation of public investment: An application to the maritime sector in Belgium, University of Antwerp, Antwerp .pp 4872 The 2003 Economic Impacts of The Port of Seattle(2005): Martin Associates for Port of Seattle

38

pp77, Pennsylvania

78

Port Planning as a strategic tool: A typology Figure 6-1 Flow of Economic Impact Generated by Port Activities Port Activity Business Revenue Pay Roll Retained earning, Dividens, Investments Re-spending Local Purchase Indirect Jobs

Direct Jobs

Induced Jobs

Taxes
Source: The 2003 Economic Impacts of The Port of Seattle38

According to study38, the flow of economic impact can be studied in four parts as discussed:

1. Business Revenue Impact The seaport generates activities for the business firms around the port. These business firms disperse the economic flow by providing goods and services, paying local taxes, charges for using ports and dividends to shareholders.

2. Employment Impact The employment impact of port activity can consist of five groups: Direct Employment Impact: This includes direct jobs generated by port, hinterland transportation, terminal operators and marine activities in the port area.

Induced Employment Impact: The jobs created throughout the local/regional economy because direct employment generates economic activities for other sectors of the economy by their expenditure on goods and services in local economy.

79

Port Planning as a strategic tool: A typology Visitors Industry Employment Impact: Jobs created by visitors as tourist and industry related business works to provide goods and services to visitors.

Indirect jobs: The jobs created by the maritime and logistics firms to purchase or hire goods and services to operate their business. This is different from induced employment i.e., generated by individuals employed in port activities.

Related user employment Impact: These are the jobs created by shippers to deal with logistics and port operating firms called related users employment. Though, it can be grouped in direct employment but actually it is not direct employment.

3. Personal Earning Impact The personal earning impact measures the wages and salaries of the employees and their re-spending for purchase of goods and services. The direct earning impact is more local while re-spending effects have a more regional impact.

4. Tax Impact The tax impact includes the collection of local and state taxes from business firms and individual from all sources including cargo waybill taxes etc.

Multiplier effects

The other way to measure the economic impact assessment can be assessing multiplier effects of direct generated economic activities of port and maritime operations. In this case, it needs to calculate the multiplier value of each unit of money spent directly in port activities. As in economics, the multiplier is a coefficient of investment affected by marginal propensity to consume or save. In a similar way, it needs to calculate the coefficient of each of the port activities. These can be segregated in maritime and cargo handling activities. It should also include the tax impact of port activities on generation of economic activities. The port reform tool kit

80

Port Planning as a strategic tool: A typology gives a number of areas where the economic multiplier effect is generated by the ports, as listed below:

Petro-Chemical Industry Value added service Repair and Maintenance Packing and Repacking Labelling Testing

Telecommunication Banking Customs Inland Transport

Though, there are many more areas where the economic multiplier effects can be calculated. This has also been applied to Airport projects 39 and estimated for

multiplier and total economic impact assessment.

Distribution effects

Above mentioned economic impact study provides flow of economic activities in its totality to the local and regional economy. But from a welfare economics point of view, it is more important to analyse the distribution of these economic activities among local and regional inhabitants. The government or international funding institutions are more concerned about the impacts of its projects on the distribution of income. According to Stiglitz40, if the project has optimally distributed its benefits then the social marginal value of benefits should be the same for all individuals. The social marginal benefit of projects is greater for poor than for rich individuals.

39

http//www.AOPA Online - Guide to Obtaining Community Support for Your Local Airport - What's Your Airport Worth.htm 40 Stiglitz E. J. (2000), Economics of the Public Sector, W.W. Norton Co., London, 3rd edition, pp292293

81

Port Planning as a strategic tool: A typology It should analyse the distributional effects in different circumstances. It should use the social welfare function approach to analyse the distribution effects. It can weigh elasticity of unity to average and half the weight to rich and twice to poor according to definition of median. Using these weights, the total weights can be calculated and of all the options with the same cost, the one with highest weighted benefits can be undertaken.

The distribution effects can be estimated for different projects based on below given formula41 Distribution effect for project 1= Wr*PoPr*0.5+ Wm*PoPm*1+ Wp*PoPp*2 Distribution effect for project 2= Wr*PoPr*0.5+ Wm*PoPm*1+ Wp*PoPp*2

Wr= benefit for rich class Wm= benefit for middle class Wp= benefit for poor class PoPr=Population of rich class PoPm=Population of middle class PoPr=Population of poor class

The project that gives highest result can be best project from distributional aspect. The other approach to measure equality can be used Lorenz curve.

6.4

Project Implementation

Once all the options of the project are evaluated then it is the time for project implementation. But before implementation of project, some issues needs to be taken care of once, the design and engineering have been finalised based on project appraisal and all planning issues. The project has to be structured based on institutional parameters. If it is private sector participation then has to decide that it is BOT, BOOT or any other model of private sector participation.

41

Developed by Author

82

Port Planning as a strategic tool: A typology The next stage is to finalise the bidding process of national or international level depending on domestic capabilities and government policies of that particular country. The bidding process involves a lot of financial and legal issues besides technical specification. So it should be monitored or consulted by some experienced consultant of international level since port involves huge capital investment.

The awarding of project should be very transparent and clear since it is not only a matter of financial issues but also port and maritime sector is international business. If there is any discrepancy in awarding the projects that may effects the project afterwards. Because, big players like Maersk, Sealand, P & O Nedlloyd, PSA, Hutchinson Port Holdings are involved in various maritime businesses all around the world and affects the business through their market share. Finally, its the

government policy of the local country that is going to take the final decision.

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Port Planning as a strategic tool: A typology

Conclusion

It can be concluded that port planning can be used as a strategic tool. Whether, it is a green field project or a port expansion programme. The important aspect is to apply the port planning tools as a strategy and not just as simple planning principles. Hence, the target of this thesis is to use port planning as a strategic tool. But before that the typology of ports need to be developed. The typology of port can be developed on the basis of ownership model of port. As discussed in chapter 2, it can be classified in four groups: 1. Public Service Port 2. Tool Port 3. Land Lord Port 4. Private Service Port

Based on the above classification of ports, the objectives of the port needs to be ascertained depending on the port organisation (refer chapter 2). Generally, in case of a private service port the main objective is profit maximization. But it differs for the ownership model of port. Though, these objectives are determined with the guidelines of the mission statement of a port but again the mission statement of a port depends on its ownership structure. If it is a public service port then the priority is social welfare not the profit maximisation.

Second stage of the port planning is forecasting of demand and supply of port. As discussed in chapter 3 and 4, it is a simultaneous approach. Before forecasting the demand, it needs to forecast the market structure (refer table3.1) in terms of generation of ports in that particular region. Though, there can be a quantitative or qualitative approach for demand forecasting but this depends on the port programme and its objectives. It also needs crosscheck before and after the demand forecasting (refer table 3.2). The demand for long term should consider the market behaviour and its capacity. A four stage urban transport planning model for demand forecasting can be applied.

In case of supply forecasting, the ownership model is very important. As in the case of land lord port model, the port operator always wants to get higher capacity of the port 84

Port Planning as a strategic tool: A typology infrastructure. But in case of private service ports, there needs to be a trade off between the capital cost, its capacity for long term and then economic analysis. The final target is to minimise the port cost and make the port more competitive. The other aspect, in deciding the port strategy can be the application of technologies in terms of information, intelligent transport and marine issues. Thus, it can use dynamic planning from the supply side (refer chapter 4). If the port uses high capital cost with low operational and maintenance cost, it can provide superior services and earn higher revenues or throughput depending on its objectives. Thus supply estimation can be used as strategic tool (refer figure 4.2).

It has been concluded in chapter 5 that the capacity planning is a dynamic phenomena. Every port should achieve the optimum capacity based on its fixed and variable costs. In short term, it can achieve the optimum capacity, by port planning using fixed and variable factors of production at the planning stage. At the planning stage, the port needs to define its logistic curve with the period of time (refer figure 5.5). The port expansion programme is a very lengthy process (e.g. Project 2020 of Port of Rotterdam). The most difficult part of port planning is to define the logistic curve of a port.

All the options need to be evaluated on the basis of finance and economics. This again depends on the port ownership model. In case of a private service port, it needs more financial evaluation. While in case of a public service port model it needs more public funding, hence needs social cost benefit analysis. There are various issues that need to be considered in cost benefit analysis, in spite of detailed cost and benefit estimation. Like social discount rate, time horizon of port project etc. Sometimes, port projects are unnecessarily delayed by protest groups, for various reasons. It requires a detailed economic impact analysis for such kind of project in all types of port models (ownership).

Hence, finally it can be concluded that based on port typology, the port planning can be used as a strategic tool depending on specific case. It requires quite some thinking in port planning aspect at academic and professional level.

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Port Planning as a strategic tool: A typology

Bibliography
Books Blauwens G., De Baere P. and E. Van de Voorde(2002), Transport Economics, De Boeck, Antwerp, pp377-378 Campbell & Yeung (1998): "Creating a sense of mission", in De Wit & Meyer. Strategy. Process, content, context. An international perspective.

Thomson, 1998 Donald J. Bowersos et. al. Supply Chain Logistics Management, McGrawHills 2002, pp-89 Herculas E. Haralambides and Albert W. Veenstra(2002), The handbook of maritime economics and business, Ed. by Grammenos TH Costa, Informa Publishing, UK, pp 790-792 Stiglitz E. J. (2000), Economics of the Public Sector, W.W. Norton Co., London, 3rd edition, pp283 Winkelmans W. (1991) Seaport Planning from economics point of view, in, Shipping and ports in the National Economy, Economic Relations and models, University of Antwerp, pp 726 Winkelmans, W., (Ed.) 2002, Port Competitiveness An economic and legal analysis of the factors determining the competitiveness of seaports, Antwerp, Editions De Boeck Ltd, First Edition, pp 39-41

International Organisations Reports UNCTAD(1975): Port Pricing, New York, pp-78 UNCTAD(1977): Appraisal of Port Investment, New York, TB/D/C.4/174 UNCTAD(1985): Port Development, A handbook for Planners in developing countries, New York, pp-206 UNESCAP (2002), Commercial development of regional ports as logistics centre, United Nations, New York World Bank (2003): Alternative Port Structure and ownership model, Port reform tool kit, Public Private Infrastructure advisory facility pp 77 World Bank (2003): Financial Implication of Port Reform, Port reform tool kit, Public Private Infrastructure advisory facility pp 95 86

Port Planning as a strategic tool: A typology Reports Dale Bryce et. al.(1990): EDI & Cargo handling, International Cargo Handling Co-ordination Agency, p19,UK Monie, G. D., (1986):Measuring and evaluating port performance and productivity, P.U.C., AGHA, Nigeria Paul Kimberly(March 2000):Towards best Port practices, Egyptian centre for economic studies, p13, Cairo The 2003 Economic Impacts of The Port of Seattle(2005): Martin Associates for Port of Seattle pp, Pennsylvania.pp-77

Lecture Notes Prof. Eddy Vande Voorde and Prof. Willy Winkelmans(2004): Lecture notes on Adv Port economics, ITMMA, Antwerp Prof. Enrico Muso (2004), Lecture notes on Advance Port Economics at ITMMA, Antwerp Prof. Frank Witlox (2005), Based on lecture notes on Air Transport Economics, ITMMA, Antwerp Prof. Rosario Macario(2005) based on lecture notes of Air Transport Economics, ITMMA, Antwerp Prof. Winkelmans Willy (2004), Port capacity a theoretical and practical approach lectures notes on Adv. Transport Economics at ITMMA, Antwerp

Research Papers Antonio Estache, Lourdes, and Emile (draft, 2005), Forecasting the demand for privatized transport: What economic regulator should know and why. World Bank Beresford, A. C. K., et. al.,..(2004):The UNCTAD and Workport model of port development: evolution or revolution?, Maritime Policy and Management, Vol. 31, No. 2, pp 93-107 Chris P. (1991), The economic Impacts study as a policy instruments for the evaluation of public investment: An application to the maritime sector in Belgium, University of Antwerp, Antwerp. pp 48-72

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Port Planning as a strategic tool: A typology Paelinck H, Paelinck J.H. P.: QUEUEING PROBLEMS AND OPTIMAL DESIGN OF CONTAINER PORTS Simme J. Veldman and Ewout H. Buckman (2003): A model on Container port competition: An Application for the east west European container HubPorts, Maritime Economics and Logistics, Vol. 5, pp 3-23. Winkelmans W. and Notteboom T. (2002), How to deal with uncertainties in the port (capacity) planning process? PTI, London

Internet Websites

http//www.AOPA Online - Guide to Obtaining Community Support for Your Local Airport - What's Your Airport Worth.htm http://www.itsa.org/subject.nsf/vLookupAboutITSA/What+is+ITS!OpenDocu ment http://www.jnport.com/new_site/home.asp http://www.mpa.gov.sg/aboutmpa/mvv/mvv.htm http://www.portofrotterdam.com/organizations/UK/CompanyInformation/Mis sionPositioning/Index.asp

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