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.

Port Performance and Efficiency

Tongszon (1995, Transportation Research A, Vol 29A, No. 3, 245-252) studies what determine port performance and efficiency. He measured port performance in terms of the number of containers moved through a port (throughput) on the assumption that ports are throughput maximisers. To measure port efficiency, he looks at the terminal operation aspect which is measured in terms of the number of containers loaded and unloaded while a ship is at berth. This aspect of terminal operation constitutes the largest component of the total ship turnaround time.

Functional Relationship:

TH = f (LOC, FS, EA, CH, E)
+ + + - +

E = g (CONMIX, BRLWT, GWLN, CHWH, TEUCH, CE)
+ - - + + +

where:
TH = number of containers (TEUs) in a year;
LOC = location represented by a dummy variable;
FS = frequency of ship calls (all);
CH = average government and port charges;
EA = level of economic activity measured by respective countries’ GDP;
E = terminal efficiency (i.e., average number of containers per berth hour);
CONMIX = average container mix represented by the proportion of 40-foot containers;
BRLWT = average delays in commencing stevedoring represented by the difference between the berth time and gross working time;
GWLN = average delays during stevedoring represented by the difference between gross working and net working time;
CHWH = average crane hours per working hour;
TEUCH = average crane productivity represented by the number of containers lifted per crane hour;
CE = average vessel size and cargo exchange.


Conclusions

The stronger influence of terminal efficiency relative to other factors in the determination of port performance provides an empirical justification for giving top priority to improving terminal performance in the overall process of waterfront reform. The dominant contribution of crane productivity (TEUCH) to terminal efficiency justifies the need to put more emphasis on enhancements of crane productivity.

Mega Trend, Mega Container Ship

Land divides, but sea unites! Over the last one and a half century, world population has risen from 1.3 billion in 1850 to 6.4 billion in 2004 at about 1% average annual growth. In addition, trade in merchandise and unfinished goods increases faster than the world’s GDP and so does the demand for maritime transport services, since shipping is the cheapest mode of transport has fulfilled the need for exchange of goods between various nations, taking the advantage of differences in their natural resources, cost of production and surplus supplies to feed, clothe and provide daily necessities of life to the rising world population. World sea trade has grown from 50 million to 6.2 billion tones over this period at 3.2% growth, nearly 3 times that of population. Seaborne trade is about 90% of world trade. It’s seaborne trade that provides life blood to the global industry.

The seaborne trade might not be able to do was not possible without massive innovations in shipbuilding and naval architecture or marine engineering. As far as general cargo shipping is concerned, major change started with McLean’s first trial run of Ideal X, a converted tanker, in April 1956 in the form of containerization. The development of containerization since then is nothing but impressive. Even more impressive is the evolution and growth in the size of fully cellular purpose-built containership that arrived on the scene in 1968.The maximum size of containership has reached from a mere 58 trailers on the spar deck in 1956 to 9,000+ TEU ships nowadays. The story continues. There are now on the drawing board designs of bigger and bigger containerships, we can expect to welcome: The Korean design of 10,000TEU, the British Lloyd’s ULCS and the French BV’s Verimax of 12,500TEU, the Hyundai’s Germanischer Lloyd design of 13,000TEU, the Maersk’s design of 15,000TEU, the Dutch Malacca Max of 18,000 TEU.

There will be only a few numbers of ports used by these mega ships. They are not meant for each and every port in the world. Which ports will be chosen by these ships? Which ports are likely to succeed competing for them? There have been the biggest and latest super cars in most Indonesian wealthiest people’s garages. Yet, it appears that Indonesian ports will not house those mega container ships.