Authors: Dr. Theo Notteboom, Dr. Athanasios Pallis and Dr. Jean-Paul Rodrigue
A multidisciplinary, multisector, and worldwide analysis of the contemporary port industry and port governance and development reveals the dynamics, diversity, and continuous evolution of modern seaports and port-related activities. Several emerging issues are central to port economics, management and policy.
1. Volatility and Shifts in Port Demand
Seaports act as nodes in global supply chains operating in an efficiency-oriented, competitive, and highly dynamic market environment. Economic globalization, based on the principles of free trade and open markets, led to a growing demand for port services. Historically, the maritime industry played a significant role as a support to trade and economic development, which was subject to cycles of growth and retrenchment. Since the 1970s, the port and maritime shipping industry has been at the forefront of globalization and experienced the massification of its terminals and conveyances.
However, globalization is being challenged by economic and geopolitical events. Changes in market opportunities and growing trade barriers can undermine the growth potential for ports through shifts in volume, direction, origin, and destination. In particular, the difficulties surrounding existing and new bilateral and multilateral trade agreements add to the volatility and uncertainty in global trade flows. This challenges ports and stakeholders to demonstrate higher flexibility and resilience as they integrate into global production and logistics networks. Further, maritime shipping and ports are recurrently facing disruptions, some local in scope, but others far more reaching. COVID-19, incidents such as the Suez Canal blockage in 2021, the water constraints of the Panama Canal in 2023, and the Red Sea crisis, have made policymakers, regulators, and the public much more aware of the crucial role of shipping and ports in facilitating world trade.
Port resilience and adaptive capacity are also needed in the context of a whole range of potential disruptions. Economic shocks and major trends such as nearshoring and reshoring, the energy transition, and automation are ongoing disruptions. Ports are intensifying their efforts to prepare for structural changes in port traffic levels, cargo mix, or the geographical distribution of foreland and hinterland flows. While the container business has attracted most of the attention in the past decades, it is expected that the future will bring a more balanced discussion focusing on other cargo segments and the passenger/cruise market. Geographical considerations will continue to play a fundamental role in the global structure of production, distribution, and consumption that ports and maritime shipping support.
2. Managing the Foreland and the Hinterland
Ports are confronted with managing the interests of their customers, which are on their foreland (shipping lines) and hinterland (cargo owners). The growth of international trade has given rise to large hub ports, which often combine intermediacy in the global shipping network with centrality towards specific hinterland markets. These developments have shown that ports are not only about fulfilling a derived demand. An integrated port cluster can serve as an economic engine for regional development and increase its attractiveness as a location for distribution, manufacturing, and industrial activities, including the service sector. The locational and logistics capabilities of a port form an integrated demand.
Not all ports can and should aim for hub status; instead, they should find an optimal position within their foreland and hinterland, which is key. This leaves ports with the challenge of developing appropriate functional and spatial strategies that bring about a desirable mix of international and more regional functions. Each seaport has a specific footprint linked to its unique mix of cargo and passenger handling, logistics, and industrial functions. Their network position, combined with observed cluster effects, makes ports ideal to lead the way in many domains such as energy transition, the greening of supply and transport chains, cargo bundling and optimization, modal shift in inland transport, the social dimension of automation, knowledge development and exchange, and transparency and visibility in global supply chains. Policymakers and stakeholders should provide ample room for port communities to take up and develop a leadership position.
In the immediate hinterland, major socio-economic conflicts are related to port development and operations. They can occur when community groups or other stakeholders perceive a significant disparity between the benefits (added value, employment) and costs (congestion, environmental impacts) for the local community when ports expand their footprint. Any potential erosion of public support for seaport activities should remain a key concern to port managers. A well-balanced stakeholder relations management and effective city-port interactions are expected to play an ever more important role in decisions on the future of port footprints and the associated mix of port functions.
3. Mitigating Environmental and Social Challenges
Port development and operations are not only guided by economic considerations, as environmental and social issues are having a growing impact. Many ports are taking on a more enterprising role in dealing with environmental, energy, and climate change challenges, partly because environmental aspects play an increasing role in attracting customers and potential investors, and as regulations have become more stringent. A port with a strong environmental record and a high level of community support is likely to be favored by market players since it is potentially less prone to disruptions.
The growing role of environmental and social considerations shapes the behavior and strategies of port-related actors. This includes a greater role attributed to setting and achieving sustainability goals, stakeholder relations management, and green supply chain management. Still, ports are often in a contradictory situation since they are simultaneously the source of environmental externalities, but also a key element in their mitigation.
The issue of climate change and the decarbonization of the maritime industry is complex in contradictions and ramifications. In the short to medium term, it is not climate change that will directly impact the industry in a significant manner, but the regulatory framework that environmentalism imposes. Since less than 5% of carbon emissions are attributed to ports and maritime shipping, the industry may face a regulatory burden well above its contribution. Environmental and social issues are strongly driven by perception, which can result in misguided policies.
4. Ongoing Digitalization and Automation
Information technologies are high on the agenda of many ports, leading to a digital transition. Ports have come to understand that coordination and integration in supply chains are key to their future competitiveness. Port-related actors and port authorities are developing initiatives to strengthen the interconnectivity of ports concerning their physical, digital, and operational networks. The number of initiatives in this area has proliferated, demonstrating an evolution in the emerging digital strategies being pursued. It highlights how ports and their stakeholders utilize existing assets more efficiently, leading to new opportunities.
Still, many challenges remain. Cooperation between actors demands a conducive environment for innovation and data sharing characterized by trust, mutual benefits, and sustainable business and revenue models. Conflicts on data ownership, competition for leadership, and regulatory challenges are expected to rise as data becomes a precious commodity. At the same time, port communities will have to address cybersecurity issues for data use and exchange.
In addition to their digital systems, ports are also facing the challenges of automation. The issue is not just related to capital investment, but the contrasts between ports as sources of employment and the need for productivity improvements. This has led to tensions and conflicts between operators and labor. However, just as containerization became inevitable more than half a century ago, automation is also inevitable. In many ports, there is a limited footprint available for expansion, and automation is the only reasonable option to increase productivity.
5. Vertical and Horizontal Integration in Port Competition
Port competition is no longer restricted to attracting cargo volumes. The increasing importance of integrating ports and terminals in supply chains has increased the focus on creating added value linked to cargo being handled. Furthermore, port competitiveness can be better understood by following a supply chain approach. Ports compete not only as individual places that handle ships but as crucial links within global supply chains. Port choice becomes more of a function of the overall network cost and performance of the supply chains a port is embedded with. Thus, a port could be more costly to use from a singular perspective, but could result in a lower cost structure from a supply chain perspective.
While competition between adjacent ports remains important, port competition has expanded spatially due to advances in maritime and inland transport networks. Corridors, dry ports, and inland strategies of market players and port authorities have contributed to a highly dynamic and competitive landscape in serving local and more distant hinterland regions. Captive hinterlands and customers have made room for shared hinterlands and large footloose port users. The corporate strategies of these port users are having an impact on the inter-port and intra-port competition.
To improve their operating margins, generate revenue, and offer a better service to their customers, market players in shipping, ports, and logistics simultaneously pursue two complementary strategies. The first is cost control through horizontal integration, and the second is service differentiation through vertical integration along the supply chain. Digital transformation and value capture along the chains play a key role in rolling out these strategies. Competitive issues to accommodate global supply chains have led to functional changes in seaports, as well as in the other nodes of the global transport and logistics network. Ports increasingly seek cooperation and coordination by bundling their transport flows with the hinterland. Nodal competition is supplemented by nodal cooperation.
Port competition is increasingly affected by consolidation and scale increases in shipping and logistics. The introduction of ever-larger container vessels was once seen as a clear benefit for global trade and maritime operations. Economies of scale at sea brought by mega-ships lowered the unit cost per container transported and brought about changes in the port hierarchy. In recent years, concerns were raised about the distribution of costs and benefits of these large ships among the actors involved. Issues related to the impact of mega-ships on supply chains, terminal operations, public spending on nautical accessibility, and society at large were brought forward. A limit may have been reached, or there may still be additional economies of scale to be realized. Debates about the massification, concentration, and scale increases in the port and shipping industry will remain at the forefront.
6. Towards a Multi-scalar Approach of Port Performance
Port performance is often approached from a port competitiveness and competition angle. From this perspective, cargo throughput and vessel traffic remain important output measures. However, ports face challenges in developing a multi-scalar approach to port performance, as they must consider indicators in supply chain performance, maritime and inland connectivity, financial performance, customer satisfaction, sustainability, socioeconomic significance, port governance, and port resilience.
There is also a focus on the effectiveness of stakeholder relations management, as well as on mitigating broad sustainability goals. The COVID-19 pandemic has underlined the importance of risk management and resilience in a seaport context characterized by uncertainty and volatility. Ports are expected to develop capabilities in port resilience planning and enhance the adaptive capacity of ports to cope with economic shocks and trends, and with the challenges imposed by climate change.
Still, many challenges remain. Interdependencies, or lack thereof, between various port performance measures remain relatively underexplored. Furthermore, many indicators are still experimental, with concerns expressed on their feasibility, acceptability, and relevance, particularly when comparing ports (benchmarking). Also, the identification and relevance of performance indicators might be influenced by the objectives and the beliefs of relevant actors. The challenge lies in comparing ports due to the difficulties in matching roles and functions, as well as using standard performance indicators.
7. The Evolution of Port Governance
Changes in the competitive environment, environmental and social challenges, and the evolving functions of ports have intensified the quest for a suitable port governance model. Innovative ideas and customized approaches to port governance have emerged, with some put to the test. Port governance reforms have brought tensions and opportunities, not the least because ports have to function in a global economic system while adapting and embedding in a regional or local political and economic context. Opportunities exist to advance the measurement of the effectiveness and efficiency of port governance solutions and provide tools that can help actors find the best governance fit.
One of the most remarkable trends in port governance is the shift from managing individual ports to managing multi-port groups or regions. Port authority mergers and other far-reaching cooperation schemes are on the rise to respond to mounting market and financial pressures and opportunities, and avoid duplication of facilities and unnecessary competition. This could trigger regulatory responses, as monopolistic and oligopolistic situations could emerge.
Port governance reforms have often resulted in a shift towards greater autonomy, more commercially oriented strategies, enhanced resilience, increased accountability, and a push for rational investments. They have also opened avenues to new revenue and business models for port authorities. While pricing structures of port authorities differ worldwide, most ports have held onto their traditional revenue base and pricing system. The financial backbone remains heavily dependent on port dues and land fees for landlord port authorities, often designed using simple and relatively rigid pricing methods. Port pricing strategies and revenue models are expected to evolve, including the exploration of more dynamic, flexible, and differentiated pricing methods. Moreover, port dues and land fees might complement other revenue streams from investments in digital transformation, energy transition, and the circular economy.
The centrality of port authorities will likely endure. Contrary to the skepticism that accompanied the rebalancing of the public-private interface in port governance in the past decades, the search and implementation of port governance models are expected to sustain the core role of port managing entities. The same is true for the role of terminal operators, especially given their multinational character, as well as the continuation of vertical integration trends. A different balance between port authorities and terminal operators might emerge, yet their interaction will be fundamental for advancing ports.
Irrespective of the critical and challenging issues that might prevail in the future, there is no reason to expect a homogeneous reaction and adjustment of ports. The diversity of ports worldwide will undoubtedly endure, continuing to make ports an industry worth investigating. The saying “to know one port is to know one port” remains valid.