The quantity of the demand for a particular port service (e.g., cargo loading or unloading) is determined by a demand function that incorporates various microeconomic and macroeconomic factor, and can be expressed as:
DA=f(PA,Ps1..Psn,Pc1..Pcn,N,Y,Vt,S, Qs,Qs1..Qsn,Qc1..Qcn,L,E,P,R,TeWhere:
- DA = Demand for port service A.
- PA = Price of the service A, with demand typically inversely related to price (price elasticity), which is in turn defined by several pricing mechanisms.
- Ps1….Psn = Price of substitute services for service A.
- Pc1….Pcn = Price of complement services to service A.
- N = Population of the market under consideration
- Υ = The income level of the population, which influences their purchasing power and service demand.
- Vt = Volume of trade or level of economic activity; growth in trade and economic activity impacts service demand and port capacity requirements.
- S = Seasonality
- QΑ = Quality of port service A, reflecting various aspects
- Qs1….Qsn = Quality of substitute services
- Qc1….Qcn = Quality of complementary services associated with service A.
- L =Location of the port
- E = Economic environment
- P = Political environment
- R = Regulations
- Te = Technological factors
The Figure depicts the supply and demand equilibrium for port services (point 1, at a given price (P1), corresponding to the quantity (Q1) of port services demanded. The optimal balance between supply and demand for port services is achieved using the Pareto criterion (or Pareto optimum). This point reflects a state where the price or quantity of services improves one stakeholder’s position without worsening another’s and balance represents the optimal social welfare.
In a typical case, a price increase implies a decrease in the quantity of port services demanded and vice versa. Hence, the slope of the curve concerning price is negative. A change in the quantity of port services demanded, for example, due to a price change, implies a movement up along the given demand curve (D1).
Conversely, a change in one or more of the factors that determine the demand for the use of a port and its services leads, over time, to a movement of the demand curve D1 to D2 and the formation of a new equilibrium point. Indicative examples of a move to a new demand curve include an increase in income or population of the economy served by the port.
B. Substitute and Complementary Port Services
The port product comprises various services offered to port users, which may function either as complementary or substitute services. The relationship between these services influences how they are used, impacting port operations and market dynamics.
Two services are substitute services when an increase in the use of one leads to a decrease in the use of the other. This relationship is expressed as:
DA’ < DA ⇒ DB’ > DB
Where:
- DA: Demand for service A.
- DB: Demand for service B.
An example of substitute services is the neighboring Ports: Two ports serving the same markets can compete, with users substituting one for the other based on factors like cost, efficiency, effectiveness, or location. Another example is the terminals within a Port: Two terminals offering similar services, such as container handling, may see shifts in demand if one terminal improves efficiency or lowers costs. As port services become more specialized, substitution potential must consider cross-elasticity (the responsiveness of demand for one service to changes in the characteristics of another). For example, a terminal specialized in container transshipment cannot be easily substituted by a port designed for mixed cargo with infrastructure and processes catering to regional or local inbound goods.
Two services are complementary services when an increase in the use of one leads to an increase in the use of the other. This relationship is expressed as:
DA’ < DA ⇒ DB’ < DB
An example of complementary port services is nautical-technical services: Towing, navigation, and pilotage services are necessary for a ship approaching a port. Increased demand for one of these services typically correlates with increased demand for the others, as they collectively support vessel operations.