Author: Dr. Athanasios Pallis and Dr. Theo Notteboom
Ports can develop cooperation and coordination strategies providing an integrated transportation service beneficial to actors involved in port supply chains.
1. Coordination of Port Activities
The purpose of port coordination and cooperation strategies is for a port authority to formalize its expansion through a more active landlord function. The key drivers for the setting up of coordination mechanisms include capital investments to accommodate increased traffic through the involvement of supply chain actors at the port and in the hinterland. Land scarcity, oligopoly in terminal operations, and negative externalities of port development, such as environmental impacts, further stimulate port authorities to a more active role. Port authorities have designed coordination strategies in order to align the various supply chain actors using integrated approaches and to develop cooperation strategies with other port authorities.
Globalization and the growing complexity of supply chains are encouraging port authorities to undertake strategies aiming at a better level of coordination of their hinterland that involve:
- Usage of incentives. Coordinate operations of freight actors so that the usage of transport chains and the underlying assets is improved. It can involve using a preferential rate structure for customers that provide a minimum volume or meet a reliability level. Others will be encouraged to follow since the reward is lower-cost access to the infrastructures.
- Inter-firm alliances. They concern two types of alliances. The first is vertical integration (along transport chains), where a maritime shipping company and a terminal operator can agree to coordinate their services. The second is horizontal integration (between competitors), where an equipment or container pool can be established to improve asset utilization.
- Organizational scope. A vertical integration process where an actor decides to penetrate a new market to expand or add value to its activities. For instance, a maritime shipping company can be involved in port terminal operations. Also, a port authority could be involved in developing an inland port as a strategy to alleviate congestion and expand to the market potential of its hinterland.
- Collective actions. A series of strategies under the port authority leadership, such as setting up public/private partnerships to create a logistic zone. Each actor contributes to its realm of expertise. The development of port community systems is also a collective action relying on information technologies.
The development of inland ports and logistical zones is an emerging paradigm. Still, port authorities tend to be reluctant to undertake partnerships with inland ports, mostly out of concern for losing added value activities and employment. Inland ports may also promote port competition by offering access to new freight corridors, thus challenging the fundamental hinterland of a port and its related cargo.
However, there is an increasing level of coordination between port authorities and inland ports, particularly among the largest ports. The latter tend to have more congestion issues as well as the volume and the financial and technical capability to undertake these initiatives. In Europe, the dominant strategy is the setting up of dedicated rail or barge services towards the inland port. In North America, port authorities tend to set up logistical zones within their adjacent areas to better anchor traffic.
2. Coordination in Container Terminal Operations
Coordination also occurs within port terminals, as terminal operators attempt to improve productivity through coordination with terminal users. In the case of vessel operations, this coordination focuses on:
- Berthing and the start of work on vessel arrivals. Terminal operators and carriers share information to coordinate berth allocation and work schedules.
- Planning for delays. Terminal operators and carriers coordinate to protect schedule integrity through communications with local shipping line agencies and ports along the liner call sequence for real-time information regarding schedule delays.
- Planning maximum crane allocation and adherence to berth windows, such as reaching agreements on available cranes, volume forecasts, allocations, and dock labor order.
- Organization of bunker and store deliveries. This coordination refers to sharing information and plans for deliveries so that they do not conflict with operations at the terminal and are completed before or during port operations.
- Late ordering of services (pilot, tugs, linesmen) by the carriers.
Terminal operators also collaborate with shippers and other cargo interests, with a focus on:
- The latest possible delivery window to receive cargoes.
- Load information (volumes, weights, container numbers, destination).
- Documentation (customs information, dangerous goods, incorrect weight, seal details).
- Stow plans on what is received in the terminal or will be loaded/stowed/restowed (i.e. empties, cargoes with special needs).
- Last-minute and unplanned stows or empty loads.
- Roll-over cargoes from a vessel to the next vessels in the case of transshipment, with last-minute priorities set on major customers and provisions for specific loads, such as reefer, dry, and empty containers.
- Late provision of discharge information and next modality information (e.g. latest possible connections to/from trucks, barges, rail, feeder, vessels).
These approaches facilitate qualitative improvements concerning asset planning and utilization. Understanding the needs of shipping lines might result in improvements of the stowage layout to match the needs of prioritized vessels, so they are ready for other discharge ports. Understanding the need of shippers might increase cargo discipline, minimizing the potential for excessive dwell times and empty storage entitlements. In any case, even when terminal users share similar visions for operational standards (on-time performance, high data quality), terminal operators are taking care of adequate serviceable equipment levels with sufficient excess capacity for flexibility and appropriate labor levels to service demand peaks.
3. Cooperation between Ports
A. Emerging cooperation schemes
Cooperation between port authorities governing different ports, as well as cooperation between terminal operators and between other service providers, does not exclude intense competitive behavior. Since the 1990s, cooperation is increasingly common, aiming at more flexible traffic distribution patterns. An early example includes Rotterdam and Baltic Region ports that began cooperating in the early 1990s to strengthen their competitive positions. Cooperation expanded to a strategy including a broad spectrum of initiatives aiming to:
- Better use assets in terms of efficiency, scale, and scope.
- Improve competencies.
- Gain a positional advantage by offsetting the undesirable effects of competition.
All these societal gains were made primarily through increased efficiencies. As in other businesses, cooperation between ports might be multi or single function and might even reach the form of coopetition, defined as cooperation with competitors to reach decisive benefits that cannot be reached otherwise.
Port cooperation is a strategy to improve port performance. Due to port regionalization, imbalances in port capacity and the competition in broader geographical regions form the key drivers of cooperation between ports, especially between those in proximity. Port cooperation sustains existing maritime links or establishes new services integrated into door-to-door logistics chains. It is also perceived to lead to specialization in cargo or ship types, and organization and pooling of hinterland transport facilities, and, in many cases, to an improvement in output.
For larger ports, cooperation might facilitate landside coordination of hinterland connections through neighboring load centers. The centrally located load center ports may face difficulties in maintaining their competitive position. A key reason is a continuously changing port–hinterland relationship. The advent of port regionalization, where the performance of major seaports is interrelated with the development and performance of inland networks and value-added activities in the port hinterland, brings port development to a larger geographical scale beyond the port perimeter. Many load centers face local land scarcity and the infrastructure needed to make efficient inland connections, conditions exacerbated by diseconomies of scale (i.e. inland congestion), environmental constraints, and local opposition to port expansion. Competing services in terminal, rail, and barge operations have brought challenges in terms of the provision of effective regional operations and efficient infrastructure use. Coordination leads to the more effective bundling of container volumes towards the hinterland. This allows deeper hinterland penetration and promotes intermodal transportation through higher service frequency and better utilization of shuttle trains and barges.
For smaller ports on the periphery, the rationale for cooperation is to bring more centrality to those ports and the region in which they are located. This can be achieved by increasing the volume of the specific hinterland and maritime transport services and a better configuration and working environment for maritime operations and hinterland transport chains.
B. Port networking
Port networking for market segmentation and the coordination of functions can prevent port authorities from wasting scarce resources on inter-port competition. For a port range serving a limited overlapping hinterland, there are two reasons why ports might cooperate. First, there may be substantial duplication in the services leading to over-competition. Second, there are gaps in the ability of the port range to serve the specific needs of shippers. In the latter case, developing a common regional public policy might be mutually beneficial, or a common marketing strategy could drive growth in total traffic for the port range. Alternatively, cooperation may mean an agreement to specialize in service at one port while not duplicating that service at another. Cooperation benefits lead to strategic alliances among ports premised on the belief that seamless customer service does not require ownership of all the assets and results from managerial values that accept cooperative behavior. In this context, in several parts of the world, such as the European Union, public funding has made cooperative port development projects popular and even led to more permanent forms of association between ports.
Cooperation takes several forms, with the typology of port authorities cooperation underlining that there is no optimal approach. Cooperation includes training, technical exchanges, port management assistance, sharing information on port development and environmental programs, promoting mutual logistics services, and articulating a common position at international forums. This occurs between ports in the same geographical region, aiming at the joint development of infrastructure, regional promotion and marketing, and common approaches to environmental issues. Cooperation between larger and smaller ports is also frequent, as regional cooperation aims to enhance particular trade corridors.
In the early 2000s, strategic alliances between adjacent container ports emerged as a countervailing option against the growing market power of shipping lines. Within an economic environment of seagoing trade, ports are “pawns in the game” of facilitating efficient and effective maritime flow, with cooperation between ports gaining in several countries anti-trust immunity so that cooperation may be used to facilitate counterbalancing carrier power but also to deal with the most pressing congestion problems facing ports.
Since the early 2010s, the collaboration between non-proximate ports has expanded. Port authorities develop partnerships to establish a commercial representation abroad, transfer know-how, and occasionally invest abroad. The motives relate to diverse goals ranging from marketing the port worldwide to ‘promote and/or sell the port’ (the customers-seeking principle), to control international transport networks a port forms part of (the efficiency and effectiveness principle) or gain a competitive advantage via additional knowledge, cutting-edge technologies, or new business opportunities. There are at least two ways that port cooperation expands beyond adjacent ports. The first is cooperation between the two ends of a logistics corridor to optimize freight flows between the two regions. The second is agreements to exchange information on port activities, management, organization, and technology. Port authorities with autonomy and a more business-like structure move towards a more entrepreneurial role that, apart from business development, involves internationalization strategies and partnerships that develop informally, such as signing memorandums of understanding.
At the same time, it is worth noting that the ongoing restructuring of liner shipping through alliances formation, acts as an incentive for collaboration between both proximate and non-proximate port authorities. For instance, Savannah and Norfolk port authorities on the American East Coast recently requested from the Federal Maritime Commission the permission to present to newly formed liner shipping alliances a united front on several vital issues. These port authorities are on the same coastline but 500 miles apart. As they do not directly compete on their captive local cargo markets, only on the longer distance discretionary intermodal markets, they are seeking to collaborate on a range of topics such as coordinating vessel calls and berthing arrangements, marketing, and procurement, and for the efficient use of their facilities. There are also adjacent ports forming alliances, such as the ports of Seattle and Tacoma forming the SeaTac Alliance, or neighboring terminals forming cooperation agreements.
C. Merging of port authorities
In some cases, the cooperation between port authorities can reach an advanced stage and take the form of port authority mergers. Port authority merger or full integration is the most far-reaching form of co-operation.
Port authority mergers at the national or regional level can be found worldwide. In some cases, these involve mergers between ports of similar sizes, such as the Ningbo-Zhoushan port in China or Hamina-Kotka in Finland. In other cases, a larger port authority merges with smaller ones such as for Port Metro Vancouver in Canada (Vancouver and Fraser), Valenciaport in Spain (Valencia, Sagunto, and Gandia), the integration of the port of Dordrecht in the Rotterdam Port Authority (the Netherlands) and the 2021 merger between the ports of Antwerp and Zeebrugge (Belgium). There also exist particular cases of regional integration of port authorities at a regional level, such as the creation of port system authorities in Italy and the integration of Chinese ports at the provincial level.
Cross-border mergers of port authorities are rare. The formation of Copenhagen Malmo Port (CMP) was the first cross-border merger in Europe. One of the main drivers behind the merger between the Danish port of Copenhagen and the Swedish port of Malmo was the realization of the fixed Oresund link between Denmark and Sweden, basically wiping out all short-distance ferry activity between both ports. Another cross-border merger is the creation of North Sea Port following the 2017 merger between Ghent Port Authority in Belgium and Zeeland Seaports (Terneuzen and Flushing) in the Netherlands.
In addition to full port authority integration schemes, a range of far-reaching port alliances is emerging. Examples include the Northwest Seaport Alliance between Seattle and Tacoma in the US and the structural cooperation platform HAROPA in France involving the seaports of Le Havre and Rouen and the inland port of Paris. The latter turned into a fully-fledged merger in mid-2021.
Port authority mergers can result from a decision or policy imposed by the national, regional, or provincial government (top-down such as in Italy or China) or be initiated by the port authorities themselves (bottom-up). Compulsory or voluntary top-down mergers are thus mainly driven by (national) policies. The core goal is to reduce the administrative burden and the recurrent jurisdiction overlap when port authorities are in proximity. The merged entity is expected to be more effective. Bottom-up mergers are more a response to market pressure, inter-firm ties (global terminal networks, vertically integrated carriers), and common threats or market challenges. The Rhine-Scheldt Delta region in Belgium and the Netherlands provides a good example of bottom-up mergers between port authorities.
The percentage of port authorities that are responsible for the managing of more than one port is increasing. This is evident in both commercial and cruise ports. The number of European port authorities that govern more than one port increased from 38% of the total in 2011 to 46% in 2016. In the second-biggest cruise region of the world, the Meditteranean and its adjoining seas, the percentage of Mediterranean cruise ports where the responsible authority governs more than one port reaches almost 30% of the total.
There are numerous possible drivers for port authority mergers, including:
- To avoid duplication of facilities and unnecessary competition through a more comprehensive planning process that rationalizes the use of assets of the merged authorities. Recognizing that land use planning and rationalization of existing terminals often become political in locally controlled ports, the merger of the cargo operations of the Ports of Seattle and Tacoma purposely avoided some of these challenges, focusing instead on challenges faced in governance. The creation of the Liaoning port group in Northeastern China provides another example. Dalian and Yingkou separately undertook strategies to maximize their competitive position against each other. These strategies included integrating terminals within their jurisdiction, developing relationships with inland ports, promoting port-related industries, and working with shipping companies on financing infrastructure. As these strategies did not reduce over competition between Dalian and Yingkou, a second round of integration was implemented by China Merchants Holding. Competition between Japanese and Korean ports for trans-pacific cargo has prompted the Japanese government to create port alliances within key bays in Japan, such as the Osaka Bay (Ports of Osaka and Kobe).
- To respond to mounting market and financial pressures and opportunities. For example, consolidation among the ocean carriers has brought pressure on individual ports to make investments to handle larger ships and remain competitive, while port sustainability and energy transition present unique opportunities for merged ports. Corporatized port authorities might resort to mergers to improve their financial status.
While port authority mergers have become a clear trend, many attempts have failed. For example, the adjacent ports of Los Angeles and Long Beach never succeeded in merging despite several attempts. This case shows the necessity of having a transparent process involving all stakeholders, and economic studies that identify clear benefits to both sides. A failed merger is not necessarily a negative outcome as it may force each port to behave more strategically, which can enhance their performance.
Overall there exist several possible impediments to port authority mergers:
- Administrative and cognitive borders at the national, provincial, even local level underline differences in port governance models in terms of socio-economic effects on decision-making (political and commercial) combined with top-down government interference. Cross-border mergers are challenging to match with national or regional port policy.
- Unfounded pressure on ports to specialize their activities after a proposed merger.
- No clear win-win situation with unclear or unfair distribution of costs and benefits of the proposed merger.
- Inter-personal factors such as the lack of trust between key decision-makers.
- Lack of decision-making power of initiators.
- No clear business case internally (profitability, development potential) or externally (towards port users and broader port community).
- Belief in expanded cooperation and coordination efforts to address the common issues instead of a merger.
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