Chapter 6.3 – Port Effectiveness

Author: Dr. Athanasios Pallis

Port effectiveness refers to the performance of a port in fulfilling the expectations and delivering the desired services to its users.

1. Effectiveness Component of Port Performance

Port competitiveness is related to the effectiveness in delivering the desired services to users. Desired services are those that are important to the customer, who remain the users of the port. If a negative and significant gap exists between the importance of desired services and their performance, dissatisfaction is the by-product.

Effectiveness and efficiency are two interdependent components of port performance. Improving technical efficiency is only a partial solution. A terminal operator wishing to improve its cargo-handling efficiency could enhance berth utilization through faster vessel turnaround. In that case, it may also improve its effectiveness as vessel time at berth drops, and customers may be more satisfied. However, if a terminal operator may improve its asset utilization by leaving more vessels at anchor so as to minimize downtime. In that case, its utilization is improved. Still, customer service expectations may not have been met, as more cargoes might be stored for more extended periods, increasing congestion at the yard. In this case, efficiency has come at the expense of effectiveness as different stakeholders may have different performance objectives.

Efficiency measures alone do not provide a full indication of how well a port manages its assets or serves its customers, such as providing reduced container dwell times or faster vessel turnaround. Even when efficiency indicators are positive from a port perspective, complaints from port users may still arise since not reflected in the used efficiency indicators. Effectiveness measures relate to how well the firm or agency uses its strategies, structures, and tasks to meet its mission and stated goals. For an effectiveness-oriented port authority, If one of the goals is profit-maximizing, there will be a companion goal of developing and retaining customers who generate the greatest margins while not servicing those that are not profitable. There is no interest within the effectiveness-oriented port authority of serving unprofitable customers unless it is part of its government-imposed mandate. In this case, the port Authority will seek a subsidy to offset its losses. However, by meeting the expectations of customers, employees, and stakeholders, profitability will accrue to solutions-driven, customer-focused organizations.

The perception of stakeholders is increasingly vital for correcting both operational and governance flaws that a port may experience. Measuring user perspectives of users helps managers understand current issues and eventually address them to improve experiences with the port. Insights into what is most important to port users provide managers a two-pronged tool:

  • It assists ports in setting priorities, such as pointing out areas needing the greatest investment for improvement (against those where investments are less effective).
  • It identifies those areas where a port already delivers value, and from which it could benefit from marketing initiatives to raise awareness.

For supply chains, effectiveness is related to the objectives of all the involved stakeholders, creating heterogeneous expectations. Port user groups might rate port effectiveness in service delivery differently. A port rated highly by the shipping lines may score poorly when rated by cargo owners or its supply chain partners.

For operators, effectiveness-oriented performance is related to the quality of services provided to transportation users. Quality-of-service measures are essential because they represent the bottom line. While the efficiency perspective is important because it can be used to improve operations, user satisfaction is also one of the critical performance indicators that must also be measured in an effectiveness-focused organization.

2. Evaluation of Port Effectiveness

Contrary to other transport sectors, the need to understand efficiency and effectiveness in port performance has been recognized by the industry, with several initiatives being implemented in the last two decades. For example, in 2008, Germanischer Lloyd launched the Container Terminal Quality Indicator, a certification process for quality standards in container terminals. In the European context, consultation towards the definition of such indicators was initiated. European port authorities have been involved in collectives efforts towards this end, exploring ways to define the relevant indicators and then monitor them.

In all cases, the process applied by a port or operator for evaluating its effectiveness includes three steps:

  • Step 1: Define customer (buyer/user/stakeholder). Shipping lines are commonly considered as the primary customer (the buyer). In recent years, there has been considerable debate about who chooses a port. The early thinking was that the shipping line chose the port, and the cargo chose the shipping line. The rising power of global cargo interests and the consolidation of lines have meant that ports have less power than before. The power that cargo interests or large logistics providers wield makes it even more important that ports make strategic changes based on the group of users they wish to attract. In cases where a port is specified in the transport contract (or the sales contract), the manufacturer, the freight forwarder (including 3PLs or 4PLs), or the consignee are also buyers depending on who has responsibility for making that purchase choice. Some are actively involved in the supply chain by providing port-related activities in wider geographical locations (i.e., operators of intermodal distribution centers, providers of port-related value-added services, or value-added logistics). Given the incursion of ocean carriers into land-based logistics activities, the role of the carrier in port selection may be even more vital than previously considered. Thus, their perceptions are also of considerable significance, given the emerging geographical and functional integration of ports in wider supply chains and logistics and the transformation of ports to elements embedded in value-driven multifaceted chains, which compete for attracting users located in overlapping hinterlands. This second group is included in the category of customers (although they may not be buyers and pay for the services provided) but more frequently are considered stakeholders, parties interested in port activities. This implies understanding the different subcategories of users and actors involved in deciding which port or mode to use to complete a transportation process.
  • Step 2: Identify the decision criteria of importance to the user/buyer/stakeholder. Each port wants to understand its user evaluation criteria to improve its performance relative to what its users seek in service delivery. First, the attributes of importance differ per user or group of users. Second, port performance is dynamic. Thus, both the identification and evaluation are periodic activities to be conducted at regular intervals. A dynamic evaluation of the attributes allows the port to understand better changing user perceptions, thereby providing feedback to strategy as it evolves.
  • Step 3: Developing and applying user evaluation of a particular port or service performance. Once users and their evaluation criteria are defined, attention turns to the development of an appropriate method to regularly assess and, if possible, measure in a concrete way user satisfaction level.

Effective performance by a supplier is measured in terms of what the service user expects. Satisfaction occurs when the performance of a supplier meets or exceeds expectations on the criterion (or criteria) of importance to the user. The purpose is to seek an understanding of the relative importance of each of the criteria for the users of a particular port, and conduct a gap analysis between the importance a particular user places on the criterion and its assessment of the performance of that port on that criterion. This provides ports with insights on where continuous improvements would pay off from a user and customer perspective. While current satisfaction may not lead to future choice, dissatisfaction will likely lead to rejection for those who are not captive. When a port understands its performance in the context of the expectations of its users, it is able to understand why users are dissatisfied, why business is lost, or how additional business could be gained, particularly if performance is benchmarked against other competing ports.

An effectiveness evaluation program provides a basis for understanding what possibilities exist for continuous improvement. It focuses on improving performance on critical factors where performance is poor and investing in resources having the most significant impact. The resulting more efficient allocation of port resources jointly benefits users and operators. Without such understanding, governments are unable to assess when investment decisions in port infrastructure or port policy adjustments are required to meet the needs of the market. Port authorities are less likely to make the optimal resource allocations to improve the competitiveness of their port, and service providers will be frustrated in their efforts to grow and exploit business opportunities.

The relation between the value attributed to specific port activity parameters and the gap between importance and performance provides actionable data for developing strategic plans for investment and marketing. Ports need to invest in important parameters for users they want to prioritize by identifying gaps between importance and performance. Then secondary attention can be placed on parameters that are of lesser importance. Beyond these, there are cases where performance is such that it deserves to be marketed, or it is of little importance to users, and therefore there is no requirement for action.

3. Supply Chain Approach to Effectiveness

The embeddedness of ports within supply chains underlines the significance of understanding the evaluation of port users concerning the services and processes they judge to be effective. The integration of ports in supply chains and the respective functional and spatial expansion of port-related activities demands increased coordination and synchronization. Relevant interactions include network structures wherein the performance of a firm impacts actors that are upstream or downstream of the supply chain. In light of the extended vertical integration practices and cooperative agreements experienced in shipping and logistics, the limits of these networks are unclear. In the era of information ubiquity, the various actors, service providers, and users have increased information about alternative options. Moreover, differences in size, location, and type of companies have led to a high level of diversity in the requirement of business customers. The difficulty lies in the complexity, diversity, and extended scope that characterizes the relations between port services providers and users.

Conversely, port users refer to choices and satisfaction from a supply chain perspective. The added value that port activities offer to transportation chains and the fact that those using maritime-related supply chains cannot substitute or bypass them contribute to the influence and control they exert throughout the supply chain. Supply chain interactions are a factor where port interactions play a role. Ports consist of multiple layers of involved entities, with each one pursuing its own goals and strategies and can be unconcerned for the level of satisfaction that the port, or the supply chain, offers as a whole. These entities are frequently both competitors and cooperating partners, or both users and suppliers involved in a complex internal relationship. The shifting interest towards strategies targeting the control of more extensive parts of transportation chains, such as integration, consolidation, cooperation, and coordination, creates broader business portfolios that blur the classification of market players as competitors or partners. The particulars and the changes in port-specific and closely related activities directly affect the supply chains in which they are nested. Each participant has its own competencies, which are integrated with participants within the supply chain and port setting. It is often within these integrated links where the most value is added within the chain.

In this context, ports search for growth through strategies aiming to attract large corporations, draw extra investments, exploit resources, and attain particular efficiencies. Although such approaches have been proved successful, ports might also outperform competitors by focusing on strategies concerned with searching for unmet needs and discovering and exploiting opportunities for which new services can be created, made available, and sold in competitive markets. Recognizing and fully understanding the needs of port users is the starting point for developing such strategies.

4. Variance of Stakeholders Perspectives

Ports commonly develop tailor-made measurements of their effectiveness, as the development of usable widespread effectiveness instruments is missing. This is partly because each port has its features, and each user or group of users, such as carriers, shippers, and forwarders, might have their perspectives on effectiveness and port choice.

However, effectiveness is important for most users for the additional reason that ports have developed into functionally and spatially regionalized entities that are embedded in complex supply chains. In this context, supply chain interdependencies (i.e., sequential, pooled, reciprocal) increase with satisfactory port performance as added value for the competitive advantage of the various actors involved.

The criteria the most influencing cargo owners or their agents (exporters, importers, retailers, and freight forwarders) tend to be those related to customer relationships, responding to and accommodating specific needs, and providing useful on-time information. Criteria such as terminal operator and port authority responsiveness to special requests, the ability to offer tailored services, the ability of employees to accommodate their needs both have either a strong or medium influence on overall performance assessments.

The ability of a port to deliver services tailored to different cargo interests, with the choice of inland carriers and intermodal connectivity also among the criteria critical to achieving high-performance scores. Given the importance of inventory carrying cost to many cargo owners, criteria directly related to the speed of service for cargo interests are also considered. Still, the perspectives of cargo interest vary. Any given port needs to first carefully assess the priorities of those transporting their goods via the use of the port and then prioritize performance improvement strategies.

Some shipping lines are influenced by a wider range of criteria than other stakeholders, while the criteria between shipping lines might differ. In contrast, for some shipping lines, the quality of inland carriers stands as the most influential criterion. This parameter has a weak association with the overall port performance when some other shipping lines assess the ports they use. A similar case is the criteria related to time, such as the incidence of delays, cargo loading and unloading speed, and vessel turnaround. On the other end, empirical evidence suggests that shipping lines attribute a relatively weak influence on overall service performance on incidences of cargo damage, port charges, the hinterland size, and the timeliness of maritime services, such as pilotage and mooring.

Depending on which shipping lines use the port, there are other criteria in which ports need to invest in or market their capacities. They include the availability of storage capacity, the availability and capability of dockworkers, the choice of logistics providers serving the port, the connectivity/operability to inland carriers, port authority and terminal operator responsiveness to special requests, the provision of adequate, on-time information, the quality of maritime services (pilotage, mooring), timely vessel turnaround, invoice accuracy, and port security.

Supply chain partners are trucking companies, warehouse operators, logistics service providers, and rail lines. The criteria with the strongest influence are the availability of capacity and the efficiency of documentary processes. A common theme is the need for expedient gate operations, the availability of labor, the incidence of delays, and the speed of cargo loading/unloading. They all strongly influencing the perceived overall service performance. Supply chain partners frequently share concerns with the shipping lines using the same ports as well. On the other end, empirical evidence suggests that invoice accuracy, ocean carrier schedule reliability/integrity, and cargo damage incidence are among the criteria having weak influences on perceived overall service performance.

There are other areas where ports could invest in improving service and satisfying the requirements of supply chain partners, such as providing adequate, on-time information and timely vessel turnaround. Several other criteria are at play, but the level of influence in supply chain partners assessment varies from medium to weak. These are the availability of storage capacity, the connectivity/operability to inland carriers, with some of the most significant supply chain partners having their means securing their own process of bundling services, port authority and terminal operator responsiveness to special requests, or port security.

Three attributes are essential for the implementation of effective performance measurements:

  • The first is customization. Each port market has unique characteristics and needs. Thus, selecting the market to be assessed by port users and the variables to be measured is a primary implementation step.
  • The second attribute is confidentiality. As users are reluctant to share business information and data, since such exercise results are sensitive, this information should be accessible only to authorized personnel and decision-makers.
  • The third attribute is flexibility. A port effectiveness measurement should be applied repeatedly with no specific intervals between two successive measurements. For example, for significant decisions or infrastructure development, the port authority, or the terminal operator, might run the exercise before and after the decision (project) to assess perceptions before and after implementation.

Related Topics

References

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