Ports can be considered as “funnels” to economic development since they act as a catalyst, enabling three major types of effects:
- Direct benefits to the port. They involve the revenues that accrue from port activity, arising from various charges levied on ships and cargo for the use of the port. The volume of the port is thus directly proportional to revenue. They include pilotage, berthing, and towing fees, cargo handling charges, and demurrage. With the emergence of the landlord port model, port authorities are getting additional revenue from terminal concessions. Further, there may be additional rental revenue from developing port land, such as logistics zones or broader real estate projects. However, direct economic benefits tend to be less important than they were in the past, particularly because of mechanization and terminal concessions. Another category of direct benefits concerns the revenue generated by national transport firms servicing the port, such as trucking companies and railways (if present). The direct benefits to port users are generally referred to as economic benefits. These are also generally included in economic appraisals, although the benefits included will depend on the specific situation.
- Indirect benefits to port users. They involve firms that import or export goods from the port. Indirect benefits to port users include cost savings that arise from reduced operating costs, some of which may be realized outside the immediate port area. They involve lower shipping costs due to shorter turnaround times enabled by improvements such as more berth space, better channel access, higher terminal productivity, and reduced cargo processing time at the port. They may also include savings in ship operating costs from economies of scale enabled by larger ships with deeper drafts and additional volumes. Enhanced port facilities and operations may also reduce inland transport costs by reducing congestion, increasing productivity, and improving turnaround times. Other benefits to users may include reduced insurance costs from port improvements and lower interest costs related to inventory, particularly from lower inventory levels, as more efficient port operations enable users to adopt better supply chain management practices.
- Induced benefits to the economy. Include the benefits that filter through to suppliers of input factors, such as income to labor directly employed in port-related activities, and income to industries supplying the port with goods and services, creating indirect employment. In turn, these incomes generate re-spending, which further induces employment and income through the economic multiplier effect. Port investment may also stimulate economic activity in industries that use the port. Such benefits, however, are not as straightforward as cost-saving benefits. The induced benefits are secondary and not usually taken into account in economic appraisals. This is partly because it is hard to know where to draw the line in including the successive rounds of induced income and employment. Thus, there is a risk for economic benefit analysis to overstate the impacts of port activities by assuming indirect benefits that may not materialize. Besides, in developing economies, the potential induced benefits are often curtailed by a lack of capital and skilled labor and are lost through import leakage. Induced benefits can also be assessed from an environmental perspective, where less pollution, such as noise, particulates, and carbon, accrues as social benefits in terms of quality of life and healthcare costs. From a geographical perspective, the induced benefits effects are difficult to associate with a particular area or region, particularly given the transnational nature of maritime shipping, manufacturing, and the service sector.