Chapter 4.2 – Port Authorities

Author: Dr. Athanasios Pallis

Port authorities are involved in port management and the promotion of the port they manage. With the increasing presence of private operators, the role of port authorities has evolved.

1. Port Authority: A definition

Any given seaport around the world is typically managed by a port authority.

A Port Authority is a public or a private entity that, whether or not in conjunction with other activities, under national law or regulation is empowered to carry out the (i) administration, (ii) development, (iii) management, and, occasionally, (iv) operation of the port land and infrastructure and (v) the coordination and control of port operation activities.

Historically, port authorities were governmental or quasi-governmental public institutions established in order to address:

  • The need to manage property rights in waterfront areas.
  • The need to plan port development.
  • The provision of public goods, like navigation safety, cannot be excluded for users who refuse to pay while consuming services that are unlikely to be provided by the market.
  • The need to take into account both positive and negative externalities.
  • The need to promote the efficiency of local monopolies in port services provision, which have the potential to generate economic rents.

As part of the port policy formation tasks, national or state legislation defines ownership, institutional structures, level of autonomy, level of strategic freedom, and, frequently, the composition of the governing body of a port authority. Within the given powers and strategic freedoms, port authorities define their goals and activities in order to fulfill objectives set by their regulators. Port authorities generally have specific strategic goals that relate to their responsibilities and functions. Given the differences in institutional structures (i.e. the norms and the rules of an economy) and market environment, the strategic goals may differ. The common strategic goal of port authorities is competitiveness, but a number of other strategic goals are either explicitly or implicitly linked with this primary goal:

  • Contribute to local, regional, and national economic growth.
  • Create employment.
  • Facilitate trade.
  • Maximize throughput volumes.
  • Maximize the added value of the port as a whole or individual companies.
  • Generate income and profits.
  • Integrate ports with their foreland and hinterland.
  • Promote sustainability.

As entities, port authorities combine public and private goals and can be characterized as hybrid or shared value organizations. Fully public institutions or private port authorities are uncommon, but secondary ports generally have public port authorities. Similarly, the absence of a port authority is rare. There have been cases where ports, including the real estate, were fully privatized. Ports are managed by the private companies that have bought them (e.g. the United Kingdom), the centralized national management and regulatory functions (e.g. Colombia), or public institutions assigned to provide oversight (e.g. Hong-Kong).

In the 21st century, the role of the institutional setting is evolving, but its importance remains. Extensive port governance reforms devolving powers at the port level and rearranging public and private roles in port management, an expanding presence of private operators and owners, and a changing economic context and technological environment have altered port functions and the role of port authorities. This led to the introduction of other more generic terms to describe them, including the widespread use of the managing body of the port. Port Authorities are bodies that might manage one or more ports in one or more geographical locations.

2. Functions of Port Authorities

The conventional roles of a port authority are those of a landlord, a regulator, and an operator of the port:

  • As a landlord, a port authority manages the port assets under its jurisdiction. This commonly concerns the provision of infrastructures such as piers and the dredging of waterways. This was commonly done with public funds that port authorities were able to levy.
  • As a regulator, a port authority sets the planning framework, namely fees, subcontracting services, and safety, as well as the enforcement of national and port-related rules and regulations.
  • As an operator, a port authority provides day-to-day services to ships (e.g. pilotage and towage) and merchandises (e.g. loading/unloading and warehousing).

Traditionally, port authorities performed one or more of these functions, with the variance defined by local port development traditions. The determining variables were the centralization level of port governance-related decisions and the extent of private operations. Since the late 1990s, changes in the business and political environments within which ports operate transformed these functions:

  • Devolution of governance has supported the notion that Port Authorities act as corporatized and/or commercialized entities that define autonomously at the local level the planning, development, and management of activities at the respective port(s) under their responsibility.
  • Concessionning has reduced the port authority role as an operator since this role is increasingly assumed by specialized terminal operators renting terminal facilities over long periods of time (up to 30 years). The dominant rationale behind this process was that port authorities tended to have poor performance levels in their terminal operations. Many are global terminal operators having terminal assets in a wide variety of markets.
  • Cluster governance is an emerging and extensive trend where the port authority assumes leadership in activities that conventionally were outside its jurisdiction. These include the setting of inland terminals and logistics zones (directly or in partnership), various strategies to monitor and improve performance (such as stakeholder relations management, marketing strategies, and internationalization activities), setting port community systems, promoting environmental and social initiatives, being involved in training and education for port-related employment as well as facilitating relations with its surrounding urban areas.
  • Growth of port activities and port regionalization have introduced further goals related to economic, social, and environmental sustainability and the need to secure the social acceptance of port operators; a practice commonly referred to as securing the port’s license to operate.

Along with new business-oriented approaches in public management, these changes progressively altered the strategic role of port authorities. This revision of the role of port authorities refers to two strategies. The first is the positioning of port authorities within the new institutional setting of port governance. The second relates to the functions and activities of the management entities in modern ports to advance their competitiveness. In many cases, the involvement of port authorities in operations lessened or was even abandoned. Port authorities started undertaking a number of additional functions. Like many organizations, ports now have environmental, social, and governance obligations, in addition to their responsibility for the promotion of trade. Environmental responsibilities (including mitigation measures) have led to greater coastal planning involvement, the management of inland traffic flows, and urban land-use planning. Social responsibilities increased concerns about the distribution of the costs and benefits of port development. The existence of multiple stakeholders leads to gradual changes in port governance arrangements and how decisions are made.

The strategic choices of port authorities do not imply that their centrality is challenged. On the contrary, it remains intact, even though the new governance settings are at the core of the landlord model. Port authorities are corporatized, assume responsibilities for commercial and financial affairs, investments in new development projects, mid-term business planning and implementation, and autonomous setting of long-term objectives.

There has been a significant increase in the functions that port authorities can be called upon to undertake, although not all of them do so. When they do, they opt to act as:

  • Conservators of the existing port ecosystems.
  • Facilitators of broader interaction between economic and societal interests within the port and beyond the port perimeter and try to engage in strategic regional partnerships.
  • Entrepreneurs, combining the main features of the facilitator with a more outspoken commercial attitude, with the scope being to advance the prospects of the port(s) they manage.

Τhe facilitating or entrepreneurial roles of port authorities are associated with:

  • Adopting a corporate culture based on transparency, entrepreneurship, and accountability is free of political interference that encourages an entrepreneurial approach coupled with strict financial discipline and sound risk management. This has even led to developing a function supporting new service development by private port companies and knowledge-based institutions in some ports.
  • A strategy of increased flexibility and adaptability, moving beyond long-term infrastructure plans and endorsed by critical stakeholders.
  • A permanent and constructive relationship with stakeholders, including the business community, government agencies, non-governmental organizations, and local community interest groups, provides the social acceptability that port development companies need to get the permits necessary to operate and expand.
  • A port development strategy that is not confined to within the geographical boundaries of the port but builds partnerships and networks beyond the port boundaries to enhance port competitiveness.

3. Port Authority Responsibilities

A. The port authority as a landlord

The landlord port model intends to involve private sector operations for a port authority managing public infrastructure. Among its many other responsibilities, the port authority is the curator and the authorized manager of the port land and adjacent aquatic surfaces, to be leased to the private sector. The port authority acts as the landlord, and commonly a regulatory body responsible for the technical management of the port area and several public authority functions. In contrast, port operations (especially cargo handling) are carried out by private companies. Infrastructure is leased to private operating companies and industries such as refineries, tank terminals, and chemical plants. Private port operators provide and maintain their superstructure, including buildings (e.g., offices, sheds, warehouses, container freight stations, workshops) and dock labor. This has become the dominant model in larger and medium-sized ports.

As a landlord, the port authority must optimize the use of its domain (the total area, land, and aquatic, under the statutory responsibility of the port authority) by earmarking port areas for specific uses, awarding concessions and authorizations to a selected mix of companies, monitoring and managing the implementation of concession agreements, and adopting an appropriate pricing system.

A landlord port authority might opt to perform its roles acting as the conservator that focuses on passive traffic, real estate, and area management. It can decide to be the facilitator who operates as an active broker that mediates business-to-business relations with other actors, including customers (users) and stakeholders. Within a regional approach, it develops strategic partnerships within or beyond the port perimeter. In the largest ports, a port authority might be the entrepreneur landlord that acts as the active developer. Simultaneously, it is directly involved in commercial business-to-business negotiations and investments beyond the port perimeter, collaborate with other port authorities as an internationalization strategy.

The situation is far from being uniform. On the one hand, the port authority is a concessionaire, similar to those it leases its managed areas. Often, leasing account for 50% of the total port revenue. In these instances, the port authority has fairly limited autonomy in setting concession prices, port operator authorization fees, wharfage charges, and other dues. At the same time, it does have the responsibility of generating a fiscal surplus. On the other hand, many other port authorities are still described as landlords but often provide services and develop strategic activities that are not generally associated with this role. These port authorities act with more autonomy and a more business-like structure, with a broader strategic scope and more business-like goals. The shift of focus from macro-level goals to goals at the firm level underlines their entrepreneurial role.

B. The port authority as an operator

In ports that continue to have a predominantly public character, known as service ports, the port authority acts as the operator offering a complete range of services required for the functioning of the seaport system. The port owns, maintains, and operates every available asset (fixed and mobile), and cargo-handling activities are executed by labor employed directly by the port authority. They are under the direct jurisdiction of public agencies such as a ministry, such as transport or maritime), a Chair (or Director-General), Board of Directors, with personnel civil servants appointed by and directly reporting to the public agency.

Port authorities also retain operating functions in some ports where the private sector has assumed, via concessions, leases, or outright selling, the responsibilities to operate terminals. In these cases, the involvement of port authorities in operations maintains a shareholding in private companies providing services and the provision of public or specialized services. Otherwise, port authorities do not act as operators. They are limited to either applying or even monitoring the implementation of mechanistic or dynamic concession policies of terminals to third parties.

C. The port authority as a regulator

Port authorities are the port level regulators, undertaking and monitoring several public authority governance functions. Acting as conservators of a given port, or port system, they take care of the application and enforcement of regulations set by other policy-makers, such as national administrators responsible for port policy set by international organizations, such as the International Maritime Organisation. These include regulations concerning operational safety, the implementation of local or international safety and security codes (i.e. the ISPS Code), and protocols and rules governing the provision of auxiliary services. Often, port authorities adopt port-specific rules aiming to secure the implementation of these regulations. In several cases, and for specific regulations like navigation, and law and order, they are assisted by the Harbor Master or the coastguard. Port authorities also regulate financial revenues by having full or partial control of port tariffs.

Beyond being active in creating mechanisms that facilitate implementation and monitoring compliance, port authorities can develop their own rules. Environmental management is one such field where port authorities are increasingly active in developing initiatives to advance sustainability. The adoption of differential charging methods (i.e. offering lower charges to environmentally friendly ships) is an example method currently used to promote the sustainability of port operations.

As part of internationalization strategies, port authorities have tried to capitalize their expertise as regulators. They are moving towards an entrepreneurial role linked with the commercialization of their expertise and tools available into other ports and creating financial revenues on a commercial basis.

4. The Port Authority as a Cluster Manager

A. Cluster leaders

In a contemporary setting, port authorities are hybrid organizations that act and develop beyond the management of the activities within their jurisdiction. Port management entities are increasingly acting as community and port cluster managers engaged with stakeholders and investing in facilitating activities like information technologies, promotion and marketing of the port, and training and education activities.

While cargo handling is the core of port activities, geographically concentrated and mutually related transport, logistics, production, and trade activities in the port zone and the surrounding areas, forming a port cluster. These activities centered around a distinctive economic specialization, develop in each port, with all stakeholders benefiting from competitiveness improvements. Port authorities increasingly have an active role in improving this competitiveness by increasing the cluster’s internal cohesion and generating agglomeration effects and competition with the hinterland.

Port clusters consist of a substantial number of firms and their evolution producing cluster externalities, such as port marketing, labor inflow, education and training, and hinterland access. Some of these externalities might be addressed on an ad-hoc basis, yet most require shared investments. This is because the threat of free-riding prevents cooperation of competing firms, and as a consequence, insufficient investments with joint benefits are made. The need for collective action follows, with the port authority standing as the institutional arrangement to address these collective action problems.

Within a port cluster, the port authorities act as the leading firm and the broker, which is trusted to resolve the emerging collective action problems. These initiatives would not be present otherwise, either because the scale of operations is small and natural internal monopolies exist in many seaports, or because specific actions might not be assumed by firms operating within the cluster prioritizing their very own interests. The role of the port authority is to increase investments in collective action problems and secure capital. The port authority might advance public-private partnerships, joint responsibility, and joint funding with other stakeholders to achieve this goal. The trust stakeholders have in the port authority can lower transaction costs, enable cooperation, investments, and innovation.

Ideally, for a port authority to effectively perform its cluster manager role, it should be self-sustaining, have the autonomy to set prices, make investment decisions and prioritize the goal to maximize the performance of the port cluster. While port authorities might seek to advance the competitiveness of the cluster, the situation differs between ports. In some cases, the optimal amount of joint investments is very substantial, while in other ports, private industries may invest relatively more, and the extra investments needed are relatively limited. The better the cluster governance, the more competitive the port cluster is.

B. Stakeholder relationships management

Stakeholder relationship management practices are important in advancing the prospects of the port cluster. To monitor critical topics, involve stakeholders, and implement strategies. According to their priorities, port authorities proceed to identify and classify various stakeholders, evaluate their potential influence on port operations development and planning, prioritize stakeholder relations, and then manage the ties between the organization and the most influential stakeholders.

A port stakeholders classification includes ten different categories that refer to both internal and external groups that are part of the broader port cluster. Community groups and civil society organizations are also included in awarding increasing attention to port activities, expansion patterns, and development plans. The main stakeholders include:

  1. Shareholders such as public or private organizations, firms holding an equity share in the port authority or allowed to appoint directors and executives of the port authority board.
  2. Port services providers such as pilots, mooring, towage operators, customs, and the coast guard.
  3. Concessionaires such as terminal operators with concessions in the port areas, or other concessionaries related to warehouses, industrial areas, logistics platforms, malls, and commercial areas.
  4. Carriers such as shipping lines and tramp operators.
  5. Employees and trade unions such as people working at the executive and operational level in the port authority. Public institutions, labor pools, and port-related firms, such as forwarders, ship agents, and customs brokers.
  6. Port users such as freight forwarders, ship agents, brokers, road haulers, railway companies, and logistics providers.
  7. Passengers such as people using port facilities for commuting, travel (ferries), and tourism (cruise and yachting).
  8. The financial community such as credit and financial institutions providing financial resources to support port investments and development.
  9. Local community and societal groups of interest such as people and organizations located in the proximity of the port areas and affected by port operations and business. The category also includes those people or groups of individual issues.
  10. Regulators such as local, regional, national, and international institutions setting the institutional and governance frameworks within which ports operate.

To achieve their growth targets, port authorities interact with stakeholders and other ports, developing coordination and cooperation strategies.

  • First, the growing complexity of supply chains is inciting port authorities to undertake strategies aiming at a better level of coordination of their hinterland. Port Authorities act as leaders in bringing together the various supply chain actors to provide, through coordination strategies, an integrated transportation service beneficial to all the actors but especially to the port.
  • Second, ports develop cooperation strategies with other ports, which might be competing ports located in geographic proximity or ports located in different port regions. In the context of the latter strategy and within an entrepreneurial approach, port authorities of the largest ports are involved in internationalization strategies as well.

5. Port Authorities Role in Cruise Ports Governance

Port authorities have assumed a different role within each of the cruise port governance models. They perform as either the entrepreneur, facilitator, or conservator. The role of the facilitator is qualified as less or more active, depending on several port strategy and structure variables, including the role of the port managing entities co-existing at the cruise port.

Four cruise port governance models are present in the Mediterranean and its adjoining seas, the second major cruise market in the world. Each model assumes a different role for the managing entity of the cruise port. All models co-exist with a contextual environment of apparent complexity and dynamism.

The port authority can be an active leader and an entrepreneur on all different fronts (model A). These are primarily large ports, in terms of passenger movements, without the presence of a cruise terminal operator. The port authority is responsible for the planning, development, and operation of the cruise port. It is also the entity leading overall promotion and marketing efforts. These ports tend to target premium cruise lines more than those that are belonging to other groups. Their strategy usually includes receiving feedback from passengers, applying cancellation policies for cruise lines that do not call according to schedule, and seeking public funding to develop infrastructures supporting cruise activities.

Large marquee homeports can be marked by the presence of an active investor (model B). Commonly, an International Cruise Terminal Operator (ICTO) manages and operates the terminal. The port authority is closer to the role of the facilitator of the ICTO strategic actions. The operator also acts as an investor and develops the port, either alone or with the facilitation of the port authority. The latter is more likely to have made direct investments, while the operator decides autonomously on new investments in capital assets. Just like Model A, these are ports receiving feedback from passengers as part of their strategy. At the same time, they tend to develop without establishing partnerships with other cruise ports, terminals, or cruise lines.

The role of the port authority can also be a facilitator, though less active (model C). Ports in this group usually have the terminal operator leading marketing and promotional activities. There is no significant relationship of this model with particular port features (i.e., port type). Rather than that, both the port authority and the cruise terminal operator jointly advance port planning. The entities operating cruise terminals tend to not make direct investments, with such investments remaining a public sector responsibility.

There are smaller cruise ports where the Port Authority maintains a passive managerial role (model D). This is the entity that, in practice, assumes the role of the conservator by taking responsibility for all marketing and promotional activities. It also tends to develop strategic partnerships with other cruise ports, terminals, or cruise lines. The strategy of these ports also is rather conservative. They usually do not apply berth allocation policies, nor do they receive feedback from passengers. These ports rarely target hosting the contemporary mass cruises market segment, and most of them do not have a formal collaboration with those responsible for other transport modes. Even if terminal operators are involved in port operations, they usually do not decide autonomously on new investments.

5. Ownership of Port Authorities

Seaports remain dominantly under public ownership, and this is reflected in the ownership of port authorities. For most port authorities, particularly in North America and Europe, full ownership by the state or the municipality remains predominant. Only a few port authorities combine ownership of different government levels, such as state-municipality or province-municipality. Mixed public-private ownership is rare, with the public sector owning the majority of shares and limited private shareholder participation. Port authorities listed in the stock exchange remain an exception. Full private ownership, where one or more private parties own both the port authority and the land, is only found in the UK and New Zealand.

Despite perceptions, successive port governance reforms in recent decades opened port services to private actors, but ownership of port authorities did not change substantially. In Europe, financial and economic crises put pressure on national budgets in the 2010s and impacted port ownership, leading to the privatization of some port authorities. In 2016, the major Meditteranean port of Piraeus in Greece was acquired by China’s Cosco Group, which took a 67% stake in the shares of the listed Piraeus Port Authority. In 2018, the second largest port of Greece, Thessaloniki, was acquired by a consortium led by a German investing Fund (Deutsche Invest Equity Partners), Terminal Link (a company owned by CMA-CGM), and China Merchant Holdings International (International Terminal Operator) which also bought 67% of the listed Thessaloniki Port Authority. The deal also included Koper in Slovenia, and Constanza, in Romania.

Port authorities are also moving towards more independent private management. European ports provide several examples illustrating this trend. The Port of Amsterdam was officially corporatized in 2013 to a limited liability company with the City of Amsterdam as the main shareholder. Finnish ports are limited liability companies since 2015, and as of 2016, the Port Authority of Antwerp, the second-largest port in Europe, became a corporation under public law. According to a 2016 survey of the European Sea Ports Organisation, 51% of the port authorities in Europe were already structured as independent commercial entities companies, and 44% were still independent public bodies with their own legal framework and different degrees of functional and financial dependency from public oversight. While operating under different legal forms, these two main categories may share similar principles like self-financing and commercial and entrepreneurial behavior to increase market share and attract private investment. They may also share the same levels of influence from public authorities through participation in the governing board of the port. At the same time, four out of five port authorities were fully or partially subject to commercial law and governed by specific laws and acts.


Related Topics

References

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