Authors: Dr. Theo Notteboom, Dr. Athanasios Pallis and Dr. Jean-Paul Rodrigue
Seaports facilitate local and international maritime trade through well-organized transportation systems. Their structure and organization are shaped by the dynamics of trade, and the emerging trends within the shipping industry. A number of variables determine the demand for port services at microeconomic level.
1. Demand for Ports and their Services
A. Derived demand
The demand for port services is fundamentally a derived demand. It arises from the need to transport goods by sea for consumption or processing at a location other than their point of production, or from passengers’ willingness to travel via a particular port to another destination. These factors collectively drive the demand for the services provided by the port.
The demand for maritime transport and, by extension, port usage is closely tied to various factors, including the unequal distribution of natural resources, the availability or scarcity of production factors, and the varying rates of economic development across regions. Additional influences include the physical characteristics of a location (e.g., soil structure and subsoil), prevailing consumption patterns, the evolution of social and cultural relationships, and the geopolitical and military significance of maritime transport: The economic cycles of the global economy and the flactuations in market prices affect the demand for maritime transport, with the degree of impact related to the elasticity of maritime trade in relation to changes in industrial production. The distribution of an economy’s resources, including the scarcity or abundance of available production factors and raw materials, plays a significant role in shaping the scale of international trade. The economic trajectory—whether an economy is dynamic, growing, developing, or declining—and the characteristics of its key sectors, such as the size and needs of industrial production and the shifts in imports and exports, also contribute to the volumes of international and, thus, maritime trade. Geographical factors, such as a region’s terrain, subsoil characteristics, and hinterland structure, can either enable or limit the development of transport infrastructure and the use of specific transport modes. The consumption patterns of an economy and the evolution of social and cultural interactions between social groups determine communication and trade. The balance between work and leisure strongly influences the demand for passenger port services, as it determines the demand for port services for coastal shipping, cruise, and tourist ports. Geopolitical relationships play a critical role in shaping trade connections between countries and determining the structures of maritime and land transport corridors. Supporting military transport is also a key factor in developing certain ports, as their strategic role in defense and security operations can drive infrastructure investments and influence their overall functionality.ext
The demand for cargo-related port services, is significantly shaped by the following factors:
- Changes in the GDP of the economy,
- The price elasticity of demand for the specific goods being transported.
- The ratio of transport costs to the value of the goods being shipped.
- The availability of alternative transportation methods.
The demand for passenger port services is shaped by the following factors::
- The necessity or purpose of the passenger’s journey.
- The ratio of transportation costs to the perceived value of the journey.
- The availability of alternative means of transportation.
- The passenger’s ability to select alternative destinations.
B. Ports as demand generators
At the same time, modern ports can function as demand generators for their services. A port can establish a competitive edge by offering adequate infrastructure, cost advantages, efficient resource organization, effective service delivery, and integration into supply chains. This advantage not only attracts freight traffic but also helps increase the volume of traffic it serves over time.
Three key factors are essential for generating demand for moving goods through a specific port: the range and quality of port and related services, that play a crucial role in attracting users; the specialization of the port services, with modern production, distribution, and consumption networks often necessitate specialized port services (such as transhipment) to facilitate specific ships calls or cargo types transportation; and the interconnection with landside networks, with the integration of port services with broader landside transport networks and supply chain systems conditioning the seamless connectivity, enhancing the port’s appeal for cargo movement.
Demand creation is noticeable in ports handling international cargo traffic, especially containerized cargo. These ports often manage not only goods destined for or originating from the local economy but also cargo not intended for the host economy and unfinished or intermediate goods that require value-added services like storage, transshipment, or assembly, which can be provided even at a significant distance from the port itself. An illustrative example is the Port of Piraeus in Greece, particularly its container terminals. Piraeus facilitates cargo destined for Budapest, Hungary, despite the 1,476 km distance. Once the cargo arrives at Piraeus, it is transferred onto commercial trains for onward transportation. Interestingly, alternative ports closer to Budapest, such as Rotterdam (1,409 km), Hamburg (1,100 km), Trieste (550 km), and Rijeka (505 km), offer shorter distances. This suggests that, in addition to geographical proximity, other criteria influence port selection. Value-added services, logistical efficiency, and the ability to integrate into broader supply chains can be decisive factors for some users when choosing a port.
C. Factors defining the demand for port services
The organization of cargo ports and the volume and type of cargo that each port handles are shaped by a set of demand determining factors that are either ‘internal’ or ‘external’ to the development of maritime transport systems.
The dominant influence is exerted by internal factors. At the core of the internal factors is the flow of the transported goods; the port’s operation and growth prospects are defined and depend on it. Four other internal factors are decisive determinants in shaping the structures, growth rates, and prospects of cargo ports, with each factor influencing the others in succession:
- Trade volume and type: Fluctuations in trade volumes directly affect the cargo a port manages, shaping its operations and infrastructure.
- Structures of the production-transport-consumption process. The first important dimension is the location of production. The geographical focus of production significantly impacts port development. For example, China’s rapid economic and industrial growth has driven the expansion of containerized trade and transformed the approach to servicing international trade. The second important dimension is the quantity of production: High production volumes in an economy necessitate the development of ports or new facilities near production hubs to handle exports and raw material imports. The third one is the raw material sources. The increased reliance on diverse sources of raw materials affects trade volumes and port operations. Ports may need to accommodate intermediate products for modern production practices and prepare goods for final consumption. All these affect the fourth parameter, containerization: the widespread adoption of containers has prompted significant investments in container terminals, requiring ports to reorganize and enhance infrastructure and services to support this mode of transport.
- Logistics Services: The reaction of ports to the evolution of supply chains and developments regarding the provision of value-added services to the transported goods.
- Maritime shipping and transport systems structures. Factors such as the services provided by shipping companies, the size, technologies, and requirements of ships deployed, the chosen maritime corridors, and the range of offered services all influence how ports adapt to meet these criteria. Land-based transport systems linked to ports are equally critical, as their characteristics and efficiency impact a port’s ability to support broader trade and logistics networks.
Three external factors play a critical role in shaping the context in which ports operate and develop:
- Cultural Perspectives on Economic Organization, i.e., the prevailing approach to the roles of public and private sectors, economic regulation or deregulation, and market organisation significantly influence port operations. These perspectives are shaped at multiple levels—national, local, and increasingly international—affecting how ports are structured and governed.
- Technological Advancements: Innovations in technology are transforming the design and operation of ships and other transportation vessels, as well as the efficiency and range of services provided for transporting goods and passengers. This dynamic necessitates continuous adaptation by ports to maintain competitiveness and integrate modern solutions.
- Port Policy: Formulated at local, national, regional (e.g., European Union), and international levels (e.g., International Maritime Organization), port policy determines strategic planning and operational frameworks. Key considerations include land use and development, ownership models (public, private, or mixed-use), governance structures (e.g., roles of operators and managers), and operational regulations (e.g., waste management, mitigation of external impacts). These policy decisions shape the long-term development of port systems and the prospects of individual ports
These external factors, in combination with internal dynamics, define the strategic and operational environment for ports, influencing their capacity and their need to adapt and thrive in a rapidly evolving maritime landscape.
D. Seasonal Demand
Seasonality is a defining characteristic of all maritime markets to varying degrees, leading to fluctuations in the demand for port services. This seasonality is evident in all different sectors. The demand for transporting dry bulk goods, such as cereals, peaks in early autumn when harvesting occurs. In the liquid Bulk market, petroleum shipments to the northern hemisphere increase before winter to meet heightened heating and energy needs. Demand for maritime transportation of containers rises during autumn, as large volumes of goods, including foodstuffs and apparel, are shipped from Far East countries to Europe and North America in preparation for seasonal consumption. Conversely, demand tends to decline in early February, especially around the Chinese New Year, when production slows and the transfer of goods faces logistical constraints. These seasonal patterns require ports to adapt their operations and resource allocation to effectively manage demand fluctuations.
Demand for passenger services is even more seasonal. Coastal shipping shows a wide variation in the number of calls, vessels, and passengers, with demand being limited in winter. In the case of cruise shipping, seasonality is one of the main characteristics of a market dictated by the weather conditions in the various destination cities. In the Mediterranean, for example, more than 85% of cruise calls take place in the period April-October, while in the period November-March, cruises are extremely limited.
The demand for passenger services exhibits even greater seasonality than cargo transportation. Coastal Shipping experiences significant fluctuations, with the number of calls, vessels, and passengers peaking in warmer months and demand being notably low during winter. Seasonality is a defining feature of the cruise market, driven largely by weather conditions at destination cities. For instance, in the Mediterranean, over 85% of cruise calls occur between April and October, while the November to March period sees a drastic reduction in cruise activity. These seasonal patterns necessitate flexible scheduling, resource management, and strategic planning by port authorities to optimize operations and cater to fluctuating passenger volumes
2. Microeconomic Perspectives of Demand for Port Services
Changes in the macroeconomic environment would affect the prospects of any given port. Political stability and favorable trade policies in the port’s location can enhance its attractiveness, The same applies as regards the regulatory environment (i.e. local regulations, including taxes, tariffs, and environmental compliance costs), and trade policies. The overall volume of trade in the region is also driven by macroeconomic conditions, and international trade policies.
From a microeconomic perspective, within a given specified macroeconomic context, the demanded quantity of a particular port service (e.g., cargo loading or unloading) is determined by a demand function that typically includes the following factors:
- Price of the Port Service: Demand typically is inversely related to price (price elasticity). As prices increase, the demanded quantity generally decreases.
- Prices of substitute services, i.e., the availability and pricing of similar services at nearby ports or alternative modes of transportation. For instance, if a nearby port offers similar services at a lower price, demand at the given port may decrease.
- Prices of complementary services, i.e., the pricing and quality for related services (e.g., warehousing, customs clearance, storage are complementary to cargo unloading).
- The population of the hinterland market linked to the port,
- The income (GDP) of the population in the linked market influences the purchasing power and, thus, the demand for goods and services.
- Proximity to major markets or production centers: The geographical location of the port in relation to significant markets, production centers, or trade routes affects its competitiveness and demand.
- Seasonal variations: Demand for port services often fluctuates with seasonal trade cycles. For example, agricultural harvest seasons or holiday-related spending in consumer goods can lead to higher demand for cargo handling.
- Port service quality: ports offering superior services may attract more clients, even at relatively higher prices.
- Technological advancements: Innovations in port operations, as well as in shipping and supply chains, can shift demand patterns, such as the emergence of mega-ships requiring larger and more specialized ports.
Shipping companies, shippers, or other parties involved (i.e., freight forwarders, supply chain partners, etc.) short and long-term preferences and contract agreements for using specific ports will be determined by the relative importance they assign to these parameters. Port managers and policymakers consider the determinants of demand as the background to plan for capacity, pricing strategies, and investments accordingly.
A. Optimal balance between supply and demand for port services
The optimal balance between supply and demand for port services reflects a state where the price or quantity of services improves one stakeholder’s position without worsening another’s. This balance (in economic terms called Pareto optimum) represents the optimal social welfare and considers the following characteristics:
- Congestion: Overuse of port and transport services can reduce efficiency and increase costs, affecting user satisfaction.
- Perceptions of economic organization: Public vs. private provision of services and market regulation shape operational dynamics.
- Social impact: The effect of port activities on local communities, such as employment and environmental factors, contributes to stakeholder perceptions and demand.
- Efficiency (Productivity): The port’s ability to maximize output with minimal resource use ensures competitiveness and sustainability.
- Effectiveness (User Satisfaction): Meeting user needs through high-quality, reliable, and responsive services is key to demand growth.
- Other Factors include technological advancements, policy decisions, and global market dynamics affecting port operations.