Port Privatization, Efficiency, and Competitiveness

There are empirical studies that argue:

1. There is no clear-cut relationship, or even a negative correlation, between the type of ownership and port efficiency.
2. Port ownership has an effect on port efficiency.

So, it is not categorically proven that there exists a direct casual link between the degree of private sector involvement and economic efficiency. However, deregulation policies have been commonly used in many industries and across many countries (especially to the landside transportation sector), and privatization is perceived to be the most important policy for improving the efficiency of the ports sector (Cullinane et al., 2002).

A study by Tongzon and Wu (2005) shows that the best extent of private participation in container ports/terminals is between the Private/ Public and the Private mode, implying that it is better for port authorities to limit the private sector participation within the ‘‘landowner and operator’’ functions and take over the regulatory function. In other words, port authorities should introduce private finance, operation and management instead of state funds and administration while they remain in place as regulators. (I’m wondering whether the new limited role of PELINDO to be a mere regulator, due to new legislation, is the case of better or worse off situation. But I don’t expect the PELINDO employees who have actively protested recently read this study).

It is found that operation efficiency is very important for port authorities and port operators to gain a competitive advantage, implying that partial port privatization is a quite effective way to help port authorities to win in the competition. And it also implies that the customers of port services, shipping lines, do pay more attention to the port operation efficiency when selecting
the port services.

Finally, the results show that another most important factor determining port competitiveness is the adaptability to the customers demand. Since seaports are in a service industry, it is reasonable that port authorities and port operators should well understand the requirement of their customers and make efforts to meet and exceed their expectations.