Author: Dr. Theo Notteboom
Port planning and development involve the strategic port planning process, data collection and forecasting, stakeholder relations management in ports, and the evaluation of port development plans and projects.
1. Strategic Port planning
A. Port planning in its context
Three different types of port planning by port authorities can be distinguished:
- Short-term planning involves the current allocation of the port’s resources and services. The resulting decisions aim to solve practical problems related to efficient cargo handling, vessel turnaround, and reasonable utilization of port facilities. Within short-term planning, a distinction can be made between operational and tactical planning. The former usually refers to a time horizon of one year. The latter refers to a planning horizon of one to three years. An important feature of short-term planning is that the time span is too short to allow major changes in the supply of port services, such as by infrastructural investments aimed at increasing port capacity).
- Medium-term planning involves both financial and strategic planning, often reported through business plans. The budgeting for the annual allocation of the port’s resources to specific activities is part of the financial planning process. Strategic plans, which are usually prepared every three to five years, aim to allocate port resources to different activities and meet specific marketing and financial objectives. This assumes a competitive environment in which the allocation of resources will affect the structure and level of demand.
- Long-term planning demands a more fundamental and visionary approach, in most cases embodied in the development of port master plans or strategic port plans. The output is a physical plan (including capital budgeting) for the future development of port infrastructure and other capabilities and capacities with a ten to 30 years planning horizon.
Port management is challenged to maximize consistency between the different types of port planning.
B. Strategic port planning in a changing market environment
One of the most important differences between strategic port planning and other types of port planning is its emphasis on evaluating the changes taking place in the environment and assessing the risks and uncertainties associated with these changes. Ports are affected by larger uncertainties and risks than before. These trends and the expansion of the role of the private sector in port activities have forced ports to become more market-oriented and to revise their strategic planning process. This shift can be illustrated by applying the Corporate Strategy Matrix to the port sector. The Port Strategy Matrix identifies four basic strategies that ports can adopt. Port behavior is classified according to (a) the nature of the strategy and (b) the different channels used for implementing this strategy:
- The nature of the strategy can either be efficiency or non-efficiency-oriented. The former situation can normally be expected in a competitive environment. In such a situation, a port seeks protection from competitors by creating government shelter or collusive behavior.
- The implementation channels of a strategy are situated either in a market or a non-market environment. In the former context, market forces prevail, whereas, in the latter situation, ports exert strategic behavior vis-à-vis government and pressure groups.
By combining nature and channel elements, the Port Strategy Matrix is constructed, and four port strategy options are identified. Non-efficiency-based port strategies aim to achieve an ‘artificial’ advantage in the form of shelter or protection vis-à-vis rival ports. Unfortunately, such shelter-based strategies are not sustainable in the long run as ports are increasingly subjected to competitive market forces. For instance, ports situated in quadrant 3 and looking for market sharing agreements may find themselves in an unstable position and may be forced to pursue an efficiency-based strategy.
The Russian port system during Soviet times was situated in quadrant 4. The Soviet government had a large impact on the economy through state-owned factories and companies and the development of rather rigid multi-year plans affecting all economic activities. As all ports were state-owned, inter-port competition in the Soviet Union was low to non-existent (non-market environment). The ports were developed as strategic assets to serve state-owned industries (steel, mining, manufacturing) and the overall economic system. Given the focus on full employment, port efficiency and overall labor productivity in ports were generally low.
As a result of the changes in the market environment, an increasing number of ports are forced to seek a position in quadrant 1, which has a major impact on traditional strategic port planning. Ports operating in highly competitive and volatile markets often develop formal port planning processes involving a larger amount of data collection and analysis. These planning exercises are concerned with directing change rather than responding to it. This involves a proactive rather than a reactive or defensive attitude towards changes in the external environment.
C. The strategic port planning process
A typical strategic port planning process consists of five different building blocks or phases in the development.
STEP 1: Formulate a mission or strategic intent
The starting point in the strategic port planning process is the formulation of the strategic intent or mission statement of the port. A strategic intent reflects the long-term objective of a port and, by definition, is very ambitious. In general, a strategic intent must be valid over long periods of time. In formulating its strategic intent, a port should try to go beyond extrapolation of the current status and role of the port. Strategic port planning should aim to identify strategies and formulate objectives that will provide the port with a competitive advantage to attain its strategic intent when translated into programs and activities. Thus, strategic planning should be focused on the question, “what should we do differently next year or next period to get closer to our strategic intent ?”.
The absence of a clear strategic intent or explicit objectives prevents the port from developing a dynamic strategy. Ad hoc planning often results in marginal or incremental adjustments to a current situation and does not allow for sustainable competitive advantage. The starting point for future port strategy is too often based on the present strategy without referring to intentions for the future. The entire port sector must accept the port’s ambition as specified in the strategic intent. Personal effort and commitment of the individuals involved in the port sector can only be gained if they can identify themselves with the strategic intent.
STEP 2: Assess the gap between abilities and ambitions
The strategic intent as defined in step 1 may lead to identifying a difference between what the port can do (abilities) and what the port should do (ambitions). In order to get a complete picture of this gap, a port should assess its port-specific resources and competencies and perform an internal appraisal of its organizational strengths and weaknesses. Further, a port should assess its competitive environment by performing an external appraisal of the environmental opportunities and threats available in the market environment.
STEP 3: Create resources to fill the gap
A port can narrow the gap between resources (what it is able to do = linked to strengths and weaknesses) and the ambitions set out in the strategic intent (what it should do = linked to environmental opportunities and threats) by creating new valuable resources. Port management should integrate the process of the development of new resources into its strategic planning. Each port is a collection of physical and intangible assets and capabilities. The effectiveness of a port is determined by these assets and capabilities. In order to become or remain competitive, port management has to identify, cultivate and exploit its core competencies. Core competencies are the collective learning in the organization, especially how to coordinate diverse skills and integrate multiple streams of technology. The management’s ability to consolidate the port’s capabilities and skills into competencies that empower the port sector to adapt quickly to changing opportunities is the real source of competitive advantage. A more detailed discussion on ports and competitive advantage was presented in Chapter 5.1.
STEP 4: Strategy formulation and implementation
After identifying core competencies and resources needed to fill the gap between its abilities (what is the port able to do?) and ambitions (what should the port do?), the next step is to determine strategies to develop a sustainable competitive advantage. The most important resources and capabilities of a port are durable, difficult to identify and understand, imperfectly transferable, not easily replicated, and in clear ownership and control. Strategy formulation should design a strategy that makes the most effective use of these core resources and capabilities. In the framework of strategy formulation, a port has to:
- Define specific objectives or goals to pursue.
- Define specific targets.
- Develop and compare alternative strategies.
In contrast to the strategic intent, the objectives must be dynamic and permit changing external and internal factors. Objectives must be specific in terms of time span and figures and must refer to defined departments or units of the organization. The targets must be more specific than the objectives and apply to smaller units of the organization. Objectives and targets should cover marketing, operation, finance, workforce, and the environment. The ability of a port authority to design and select strategies can be increased by improving communications within the port organization and with the port industry and the relevant public authorities. Once a strategic plan has the full support of the entire port organization, the actual strategy implementation can include the following basic actions:
- Reallocation of resources (labor skills, technological equipment).
- Reorganization of management or port services provided.
- Investments in new and existing physical (e.g. terminal) or non-physical (e.g. education) assets.
- Implementation of efficiency-oriented measures to lower port user’ costs or port operating costs.
- Implementation of measures to improve the sustainability of the port and the supply chains.
- Change in institutional and governance-related aspects of the port.
Step 5: Evaluate the effectiveness of chosen strategies
Strategy evaluation should primarily be concerned with whether the port is on the right track for closing the gap between abilities and ambitions and is achieving this at the desired rate. This evaluation must not only consider whether the strategy has been implemented properly and is effective in achieving the objectives and targets. Primarily, it should monitor the process of building a competitive advantage. As the dashed lines in the figure indicate, the strategic evaluation also involves a constant adaptation of the objectives and strategies in order to respond adequately to relevant changes in the resources and capabilities of the port (internal appraisal) and its competitive environment (external appraisal).
D. Approaches to the port planning process
Three basic approaches can be distinguished to structure the port planning process:
- Top-down planning. The government or port authority sets the strategic intent and prepares the plan. The main problem associated with this approach is that the port industry might feel neglected while having a better view of the port’s resources and capabilities and possessing more information on the external environment.
- Bottom-up planning. The port community provides inputs to the strategic plan. The government or port authority integrally uses these inputs to create a strategic plan without critically assessing the views and expectations of the port community. Such an approach can be valuable if the government or port authority wishes to pursue a microeconomic approach to port planning. However, such an approach might be severely influenced by local rationality and opportunism.
- Goals down – plans-up planning. The government or port authority sets the strategic intent and asks the wider port community to propose ideas and plans that comply with this intent. In most cases, the government or port authority will aim to achieve a structured confrontation by institutionalizing the strategic port planning process. This approach typically envisages a balance between macro-economic objectives and micro-economic goals.
In formulating and implementing a strategy, ports must be able to admit that certain activities could be performed more effectively by other economic actors or in other places, such as inland locations. An effective resource-based strategy does not need to limit itself to the geographical boundaries of the port, but should involve strategic port-network planning.
2. Data Collection in Port Planning
The strategic planning process demands comprehensive data about internal resources and capabilities and the external competitive environment of the port. In collecting the necessary data, a port should keep in mind not only the need to look for quantitative data but also the need for valuable qualitative elements. A unilateral focus on quantitative data can lead to a narrow-minded analysis of the past and current situation with too much emphasis on marginal developments. For example, a database can track fluctuations in the global steel trade but it is more important for a port to know the general trend and why this trend exists, including the qualitative elements of the evolution. Moreover, some resources such as people-based skills can not be found in a port database. Such qualitative elements are indispensable in building core competencies and are thus of extreme importance in the strategic planning process.
There are different ways to collect the necessary qualitative and quantitative information. For the internal appraisal of resources and capabilities, a port can get information from port management. A key problem in appraising capabilities is maintaining objectivity. Hence, the people who know most about the port may also be the people whose opinions are likely to be biased. Therefore it is useful to check the information gained against evidence from outside. In this respect, customer and competitor surveys can give additional and less biased information about the strengths and weaknesses of the port in question.
For the external appraisal of the competitive environment, a port can rely on a multitude of official statistics (e.g. government trade statistics), press reports, and sector studies. More specific information can be obtained through customer surveys, port publications (statistics, master plans), or through the reports of independent experts (consultants, universities, market researchers). However, a major problem remains the reliability and comparability of the information obtained. For example, as the procedure for collecting and presenting port statistics has not been harmonized globally, it remains dangerous to perform port comparisons based on official port statistics. The observation of the external environment should also include changes in technology (port, shipping, and industry), regulations, and public policies (including trade policy, shipping, and port policy). In performing an external appraisal, the tools used for competitor analysis should be focused on the existing resources of the present competing ports and potential future resources and future competitors. Regarding customers, special attention should be given to the strategies developed by those clients who determine the routing of the cargo.
If data models are used to assess the internal and external environment of a port, the analyst should keep in mind the assumptions that form the basis for the analysis. A sensitivity analysis of the results can offer more insight into the value and reliability of the outcomes. Moreover, models must be continuously appraised as to their suitability for the assigned task.
3. Traffic Forecasting as part of Port Planning and Development
A. Rationale behind traffic forecasting
Master plans and port infrastructure projects usually require long-term forecasts. As the design and the construction of a port infrastructure may take up to five years or more, and the infrastructure might be around for the next 50 to 100 years, public decision-makers and port authorities are asked to present long-term traffic forecasts. Poor demand forecasts and estimations of future financial flow (revenues and costs) can lead to bad decisions on port investments, wrong timing of such investments, and an overall misallocation of resources, causing both public and private economic and financial losses. Thus, high-quality port traffic forecasts are needed to help optimize and rationalize investment decisions regarding their timing and the existing and expected balance between port demand and capacity.
Port managers are increasingly expected to rely on forecasts and other statistical or quantitative techniques for supporting and justifying the entire decision-making process related to port planning and development. They are required to disclose more information on the assumptions which underlie their strategic planning. This allows them to strengthen the reliability of their development plans. In a port planning context, the port authority has to define the long-term direction of port development, including, among other things, defining the future port size (land and water areas), the portfolio of commodities to be served, and the related destination use of various facilities. The port authority has to plan its own investments in line with demand expectations and forecasting, but also complementarily with the investments planned by individual private actors in their business plans.
B. Forecasting methods
The port environment exhibits a high level of uncertainty. Cargo flows show variability and seasonality caused by economic cycles (peaks and downturns), seasonal fluctuations and time variations, and economic, social, political, nature-related, or health shocks and crises. The demand for port services is also affected by the evolutionary trajectories of other infrastructures connected to the port. The port choices made by (large) market players such as shippers, shipping lines, and related carrier alliances can also generate traffic volatility. Traffic volumes originate from the service patterns of shipping lines which, in turn, depend upon a number of underlying macro and micro-economic variables. These variables are often characterized by causal relationships, which increase technical concerns related to selecting the most suitable statistical methods for predicting future traffic flows.
A number of factors may affect selecting the appropriate method, such as the context of the forecast, the relevance and availability of historical data, the desired degree of accuracy, and the time period to be forecast. Qualitative and quantitative techniques are two basic forecasting methods, with the latter more reliable and accurate.
Quantitative estimation techniques are based on historical data series that establish trends and causal relations between the objective variable to be forecast and other covariates. These trends and relations are subsequently used in models, such as causal and econometric models, to predict future developments. Quantitative methods include a wide range of techniques:
- The first set of quantitative forecasting techniques is exclusively based on time series analysis. In time series models, the expected future value of a variable, such as traffic, is obtained by extrapolation or mathematical deduction from the historical pattern of the variable concerned. Scholars also distinguish between parametric forecasting models, such as assuming a model structure that can be described through well-defined mathematical expressions, and non-parametric ones, which are those not based on any definite functional form of the variables. The most used are moving average and exponential smoothing, the ARIMA (autoregressive integrated moving average) approach, and considering or excluding seasonality (SARIMA, X13-ARIMA-SEATS), as well as additional implementations and generalizations (e.g. ARCH and GARCH models). These methods enable the depiction of the main properties of the time series, identification of the underlying data generating process, and forecast estimations on future trends. To overtake the linearity assumption of the data generating process, Artificial Neural Network (ANN) and smoothing splines models are also suggested.
- The second set of more sophisticated quantitative forecasting methods rely on both causal relationships and time series analysis. These models start from the assumption that a causal relation can be established between the factor to be forecast and one or more variables. Causal models aim to capture this relationship in mathematical expressions, which constitute the starting point for scenario-based forecasting. Building further on the regression model approach, a large set of econometric models have been implemented (e.g. OLS, GLM, multilevel or hierarchical modeling), supported by longitudinal time-series data.
When data are scarce or ambiguous, qualitative forecasting techniques are preferred. They typically rely on expert human judgments and opinions combined with non-complete and non-numerical data. The qualitative forecasting techniques, also known as technological or engineering methods, include explorative and normative techniques. In explorative methods, future developments are evaluated based on empirical data from the past supplemented with expert information regarding expected traffic flows. Normative techniques start from future objectives and assess whether these objectives can be met, considering the present resources, capacity, structural limitations, and technologies. Among the techniques, expert opinions are used in the Delphi Method, Panel Consensus Forecast, and Visionary Forecast. Market Research Forecast and Historical Analogy Forecast are based on expert opinions, general trends, and economic knowledge. In general, qualitative methods are not reliable and accurate, but they are useful for drawing approximate scenarios in high variability contexts. As these qualitative methods are based on applying specific procedures, they do not simply reflect the subjective judgments of individuals or organizations viewed as experts.
In some circumstances, qualitative forecasts do not provide port managers and decision-makers with exhaustive data and information for dealing with the challenges impacting port planning and development. In these cases, hybrid techniques might be preferred. In the hybrid case, expert information and judgment are used to complement the outputs of the traffic forecasting models. This might be particularly relevant when considering the exposure of the port industry to economic or social shocks, as demonstrated by the COVID-19 pandemic. It might be useful to mix econometric models with expert judgments and specific commodity insights to provide a solid empirical backbone for strategic decisions.
Given the wide range of port activities and cargo flows, there is a need for a commodity-wise approach in traffic forecasting, following a disaggregated forecasting approach at the level of commodity types. Each coherent commodity group has distinct throughput drivers and terminal requirements. For example, inbound, outbound, and sea-sea transshipment flows in the container market may require different model specifications.
The longer the time horizon of predictions, the lower the expected accuracy of forecasts. The purpose of port-related forecasting in such circumstances is to build scenarios that help port managers and decision-makers identify the major opportunities and threats going forward and deal with related uncertainties. Uncertainty is tentatively captured using sensitivity analyses and scenario building.
C. Challenges and pitfalls in traffic forecasting
Traffic forecasting comes with a number of challenges and pitfalls:
- Lack of know-how. The forecasting exercise requires a solid knowledge of the port ecosystem and the key variables triggering change, as well as significant technical capabilities in terms of data gathering and data analysis and a good dose of caution in avoiding bias. While port authorities typically present long-term traffic forecasts in the context of port master plans or port (infrastructure) projects, they might not always have the capabilities, know-how, and resources to engage in traffic forecasting. Thus, they might have to resort to experts to support these types of exercises.
- Stakeholder perceptions. Despite the advances made in forecasting techniques, the relevance and validity of traffic forecasts are under the scrutiny of port stakeholders, such as market players, government agencies, and community groups. Port authorities are typically challenged to reassess the role and necessity of forecasting exercises in port planning and development processes. Choosing and applying appropriate forecasting methods, interpreting forecasting outputs, and communicating traffic forecasts with stakeholders are also challenges.
- Complexity. Traffic forecasts are highly complex exercises, as they should capture uncertainties and the interdependencies between factors that can influence future traffic flows. When engaging in traffic forecasting, port managers or the experts engaged by them often assume that, in predicting future values, uncertainties can be addressed by sensitivity analyses or by considering different plausible scenarios. Traffic forecasts in the context of port planning and development are inherently dependent on these assumptions and scenarios.
- Ad hoc decision-making. A number of ports, particularly medium-sized and minor ports, continue to operate on an informal or fragmented basis. Development in these ports often lacks a common backbone, resulting in the evaluation of ad-hoc opportunities or political/market pressure. In these cases, port planning activity is not formalized into a comprehensive planning document with a long-term focus and a lack of reliable traffic forecasts.
- Keep it simple. Ports might avoid the use of cutting-edge forecasting methods, even if these could provide better results. They might fear that using complex methods gives the forecasting exercise a high ‘black box’ image for stakeholders. Furthermore, sophisticated and complex statistical methods do not necessarily perform better than simpler ones. A lack of reliable data sources or inaccuracies in data gathering, for example, can lead to poor quality forecasts, notwithstanding the sophistication of the forecasting methodology.
- The life expectancy of forecasts. As it may take many years to complete a master plan or to implement a port infrastructure project, some of the initial assumptions and forecasts might already be outdated by the time the plan is presented. This can undermine the validity of the master plans and opens a window of opportunity for decision-makers to justify their actions related to certain port investments on other grounds than the master plan’s provisions.
4. Stakeholder Involvement in Port Planning and Development
A. Who are the stakeholders?
A large number of actors have interests in the port sector. As a result, (strategic) port planning and development are usually performed in an environment where a multitude of interacting and sometimes conflicting interests are involved. This complexity can create challenges in developing a mission statement, formulating the objectives and strategies for a port, and advancing port development projects.
In the broad view, stakeholders are described as any individual or group having an interest in or being affected by the project. The narrow view only recognizes stakeholders whose relationship is primarily of an economic/contractual kind.
Stakeholder relations management (SRM) aims to balance various groups and take due note of their rights.
In a landlord port, there are internal stakeholders, economic or contractual external stakeholders, community stakeholders, and public policy stakeholders.
They are part of the comprehensive port authority organization. Apart from realizing port authority objectives, the top management of a port authority might also envisage more personal goals such as salary, prestige, and power. The employees are interested in their wages, working conditions, and personal development. The public, semi-public or private shareholders pursue goals such as return on investment, shareholder/stakeholder value, and welfare creation. The identification of the actual shareholders of a port authority is not always an easy task. A large number of landlord port authorities are of the (semi-)public kind, with strong links to a municipality, a city, a region, or province. The true de facto shareholders of a public port authority are the taxpayers on the relevant geographical level. As such, the general public has a dual role to play, and in many cases, the (local) public is at the same time an external stakeholder and indirect shareholder.
Economic/contractual external stakeholders
The inter-organizational relationships among economic/contractual external stakeholders are characterized by two forms of interaction: physical (related to the physical transfer of cargo) and incorporeal. The latter type of interaction consists of contractual, supervisory, or information-based exchanges. The interactions between port authorities and the first-order port players are mainly of an incorporeal kind. For instance, port companies involved in physical operations are linked to the port authority via concession agreements.
Different port companies and supporting industries invest directly in the port area and generate value-added and employment. Some of these companies are mainly involved in physical transport operations linked to cargo flows (for example, terminal operators and stevedoring companies, including the carrier/terminal operator in the case of dedicated terminals). Others solely offer logistical organization services (for example, forwarding agencies, shipping agencies). Industrial companies in the port area (for example, power plants, chemical companies, and assembly plants), supporting industries (for example, ship repair, inspection services), and port labor pools also belong to the group of first-order economic stakeholders. Branch organizations and regional associations for specific industries represent a large number of these in situ economic stakeholders. Both the regional associations for specific industries and the existing port cluster umbrella associations play an important role in the governance of the port cluster. They can have a huge impact on the competitiveness of the cluster.
Other economic stakeholder groups include port customers, trading companies, and importers/exporters. These are less directly involved than the in situ economic groups, as they do normally not invest directly in the port. Nevertheless, they follow the port evolution carefully because port activity can influence their business results. Moreover, they exert strong demand-pull forces on port service suppliers, and as such, they dictate the market requirements which the port community has to meet. Powerful market players increasingly step to the fore as direct interlocutors at the operational level of port activity and in strategic matters related to port planning and port policy.
Public policy stakeholders
Public policy stakeholders do not include only government departments responsible for transport and economic affairs on a local, regional, national and supranational level. Hence, the scarcity of resources such as land and nature has increased the impact and involvement of environmental departments and spatial planning authorities on decision-making processes (particularly in the case of port expansion plans). The potential overlap in jurisdiction between the various geographical levels in public policymaking is another issue that needs careful deliberation. A vague demarcation of jurisdiction or bad coordination between the various levels can negatively impact port development processes, particularly when a court contests the validity of earlier (political) decisions because of procedural errors concerning public policymaking.
Public policy stakeholders typically follow a political management system based on the principle of distributional equity. The organizational structure in a political system is often based on administrative heritage and structural shocks caused by powerful individuals or pressure groups. Port authorities partly rely on political organizations for their survival, as ports are often considered strategic assets in community welfare creation and appropriate tools for achieving higher distributional equity. The challenge is for technocratic port organizations to work constructively with political managers by forming alliances of effective operating organizations.
Community stakeholders include community groups or civil society organizations, the general public, the press, and other non-market players. They are concerned about the port’s evolution, mainly about its expansion programs, for well-being reasons. They pay much attention to both getting and distributing information about port activity trends and port development plans. Environmental considerations are very prominent in the relationships of these groups with port authorities. Some community groups might argue that there is a clear imbalance between the benefits and costs for the local community of having larger and larger ports. This viewpoint is a breeding ground for major socio-economic confrontations related to port development. Local pressure groups often defend their local interests in such a fierce way that the individual well-being of a few people is becoming an even bigger driving force than the well-being of the greater community. For instance, the omnipresence of the NIMBY (“not in my backyard”) syndrome can seriously complicate the development of new hinterland infrastructures, even if these infrastructures will generate a positive impact on the modal shift from road to environment-friendly transport modes.
In view of developing sustainable stakeholder relations, port managers and government bodies nowadays (have to) spend much time trying to ensure that new port developments are socially broadly based. Ports cannot and must not take broad public support for development plans for granted. This aspect of port competitiveness will undoubtedly become more important in the near future, as resources such as land are becoming scarcer and as broader social and environmental functions increasingly challenge the economic function of seaports. The more international the maritime and port industry becomes, the more energy will be spent on embedding the port in the local community.
B. Key principles of effective stakeholder relations management (SRM)
As port management is characterized by complex decisions and is regularly confronted with many stakeholders, achieving a balance between the interests of all stakeholders is becoming an important job for port managers. Many port managers are well aware that socially responsible behavior can be the basis for a competitive edge in both market and public policy relationships. Stakeholder relations management has close ties with sustainable management. Sustainable port development is not possible without a well-balanced and integrated stakeholder approach.
SRM applied to port planning, and port infrastructure project evaluation requires simultaneous attention to the legitimate interests of all appropriate stakeholders, both in the establishment of procedures and general policies and in case-by-case decision making. However, this principle does not imply that all stakeholders should be equally involved in all processes and decisions. Formal processes might be available that describe how and when consultation with stakeholders should take place.
One of the keystones in SRM in ports is measuring the influence of various stakeholders on the port’s functioning and performance and then managing the linkages between these influential relationships effectively.
Port authorities and or government departments have to decide about the role attributed to each stakeholder in the decision-making processes. They could try to discriminate between those stakeholders with genuine legitimate interests in the process considered and those who only claim to have a legitimate interest. This exercise can turn out to be very difficult because the simple act of classifying a group as not relevant for a specific process can, in itself, become a major source of conflict. For instance, an actor or group with no direct legitimate interest can have a large political influence (for example, an actor who has the capacity to mobilize the press can impact the political level). To avoid such situations, one can opt for a maximum approach in which both the legitimate and non-legitimate groups are invited to participate in the process. In many cases, the active role of the latter groups is limited to information exchange, for example, through (passive) public hearings.
Stakeholders could be classified based on their involvement in the process/decision and their possible impact on the process/decision. Designing a well-balanced time planning for the structuring of stakeholder participation throughout the trajectory of port planning or project evaluation is one of the key actions in SRM:
- Involve all stakeholders right from the start. The advantage is that no stakeholder will feel neglected. However, a slow start due to long pre-negotiations rounds in the early phases of the project is an significant disadvantage of this approach.
- Draw up detailed plans in-house. Stakeholders will only be involved in the process once these plans have gained maturity. The strength of this approach is that stakeholders are confronted with rather concrete development plans, so there is less room for them to introduce unrealistic alternatives. However, some stakeholders might not feel at ease: such a top-down approach might give the impression that the decisions have already been taken, reducing the stakeholder participation process to a formality or a diversion.
An effective SRM strategy is not possible without suitable port governance structures. In fact, stakeholder relationship management partly deals with corporate governance questions, mainly the processes of stakeholder input and participation. The corporate governance framework should recognize the rights of stakeholders and encourage their active cooperation and participation in creating wealth. As effective and efficient governance does not arise automatically, port authorities should develop organizational processes and entrepreneurial cultures that enhance stakeholder satisfaction. Port managers have an obligation to deal openly and honestly with the various stakeholders, thereby avoiding self-serving actions as much as possible. In modern port policy and the concomitant decision-making processes, one should emphasize interdependence among the various stakeholders.
Positive and mutually supportive stakeholder relationships will encourage trust and stimulate collaborative efforts leading to relational wealth, that is, organizational assets arising from familiarity and teamwork. Conflict and suspicion among stakeholders will stimulate formal bargaining resulting in time delays and increased costs. Formal bargaining often appears when stakeholders demand compensation for incurred risks or harms. Compensation claims are often subject to highly politicized negotiation rounds, characterized by a lack of trust and an absence of solid deals/arrangements among the stakeholders. Under these circumstances, port authorities and or government departments might be tempted to use compensations as a tool to neutralize (at least temporarily) some community groups. In contrast, community groups might use the negotiation rounds as a tool to consolidate their position as legitimate interlocutors in port development debates.
C. SRM and the port objective struggle
Port managers should acknowledge and, whenever possible, actively monitor the concerns of all legitimate stakeholders. They should take the interests of specific stakeholders appropriately into account in decision-making and operations. However, conflicts of interests among different stakeholders may overshadow the community of interests. Some parties foster the economic value of ports. Others are more directed towards the maximization of the social value or the environmental value of ports. For port managers, there is no alternative but to embark on a quest for a value balance point that satisfies the prevailing market while minimizing adverse effects on the community and the environment.
- Economic value. Port managers quantify the direct and indirect economic benefits of their activities, but they might encounter major obstacles whilst communicating the port’s economic value to other stakeholders. A part of the population might be ignorant of how the port is organized and operated and how the port contributes to the local economy. The local community might wonder whether it is getting a fair input payback for the scarce local resources used by ports.
- Social value. Measuring social benefits is a challenging exercise. Many ports directly support a wide variety of community events and projects through sponsorship in an effort to attract community support. However, it is the indirect social contributions that most benefit local communities. For example, ports might invest in training and education programs. Such forms of social commitment are an important part of the success of ports, linking commercial responsibility to social acceptability and accountability.
- Environmental Value. The economic value of a port development project now tends to be taken as a given, so the argument concentrates on the environmental criteria (for example, dredging and dredge disposal, loss of wetlands, emissions into the air, water pollution, congestion, loss of open space, light and noise externalities, potential conflicts with commercial fishing and recreational uses of area waters, etc.). Ports must demonstrate a high level of environmental performance in order to ensure community support. However, environmental aspects also play an increasing role in attracting trading partners and potential investors. A port with a strong environmental record and a high level of community support is likely to be favored.
5. Adaptive Port Planning
Current approaches to port planning, design, and evaluation might not take uncertainty fully into account and this could result in plans and designs for port infrastructures that prove inadequate under fast-changing requirements. Consequently, the infrastructure has a shortened economic lifetime, which makes payback on the investments risky. Accounting for uncertainty within the planning process should become inherent in all port-related investments.
The Adaptive Port Planning (APP) framework tackles uncertainty from another angle. Instead of creating a static port plan, this approach allows for changes, learning, and adaptation to the constantly shifting environment. These approaches were first created and implemented in the airport industry, aiming to make more robust plans.
The APP method combines two frameworks, namely Assumption Based Planning and Adaptive Policy Making. The strength of combining these two methods is that uncertainty is not described as a function of possible futures and their respective probability of occurring but rather focuses on the formulation of strategies and actions aimed at minimizing the chance of a catastrophic plan failure.
There are six basic steps in the Adaptive Port Planning process.
Step 1a: Define the problem
The first step involves studying the objectives of the organization and the needs of the stakeholder in order to formulate the goals of the port project or overall plan. This allows for defining success in terms of the speciation of desired outcomes. This is required in order to be able to decide when the plan needs to be changed. This step also involves identifying various constraints or boundary conditions, the available choices, and the underlying assumptions. There are three major criteria to use when evaluating the success of a project or plan: time, money, and quality. The overall success of a port project or comprehensive port plan is measured by meeting a predefined financial criterion, such as minimizing lifecycle costs or maximizing revenues. Even so, criteria related to system effectiveness, such as technical performance, availability, and reliability, are specified and need to be met.
Step 1b: Define strategy and formulate alternatives
The planning time horizon (short, middle, or long) determines the choice of strategy. This includes selecting a forecasting method, planning techniques, tools, and a financial evaluation method. Once the project objective is defined, various alternatives can be formulated. In the case of port projects, these can relate to the various port layouts, infrastructure designs, or the complete master plan. Scenarios play an important role in this step of APP. The alternatives are defined based on numerous assumptions.
Step 2: Identify load-bearing and vulnerable assumptions underlying each alternative plan
In this step, the crucial load-bearing and vulnerable assumptions are identified. This requires an assessment of the consequences of failures. Identification of vulnerable assumptions involves thinking about the future and looking for plausible developments that could occur in the lifetime of the plan in question that could cause it to fail. If development is favorable to the plan, it is called an opportunity. Otherwise, the development is called a vulnerability. These vulnerabilities and opportunities are dealt with in subsequent steps.
Step 3: Increase the flexibility and robustness of each alternative
This step is based on determining the actions to be taken in response to the vulnerabilities and opportunities identified in the previous step. There are two basic ways of preparing a plan for vulnerabilities and opportunities, either by taking action early or by preparing actions in advance that can be taken in the future. The framework identifies multiple reactions to two alternatives, namely shaping, mitigating, hedging, or seizing:
- A shaping action either reduces or changes the vulnerability.
- A mitigating action is taken to reduce the adverse effects.
- A hedging action spreads or reduces the risk of highly uncertain adverse effects of a plan in the current planning cycle. Hedging actions are effective only if a vulnerability appears in the future. Therefore it is important to establish their cost-effectiveness, especially if entailing high investments.
A seizing action allows seizing an opportunity.
Step 4: Evaluate and select alternative
After identifying and incorporating each alternative, they need to be subjected to a thorough comparison. Cost being an important criterion in port projects and plans, and economic analysis is always carried out. Often, there is a cost-benefit analysis that includes the future revenues an alternative can generate, and also its direct and indirect effects. The latter may be monetized or assessed qualitatively. Tools such as a Balanced Scorecard can add strategic non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance, thus supporting decision making. The selection from alternatives is generally based on many criteria combined with other considerations that are, often political or strategic.
Step 5: Set up monitoring system for alternative
Even the best plans can fail. Therefore there is still the need to monitor the performance of the selected alternative and take action if some of the assumptions are failing. This requires an identification of key values. This is information that should be tracked in order to determine whether the plan is on course to achieving success. The boundaries of these values (triggers) are specified, beyond which actions should be taken to ensure that a plan keeps moving the system in the right direction and at a proper speed.
Step 6: Contingency planning for selected alternatives (trigger reaction)
In this final step, the plan, based on the selected alternative, is further enhanced by including adaptive elements. Contingency plans are alternative plans that can be used if the baseline plans are going wrong. The measures to treat the uncertainties in step three become a part of the scope of the project. The eventual costs resulting from the risks taken are not included in the project appraisal (except maybe in the contingency budget or the uncertainty reserve of a project). For example, extra container throughput in the event that a new shipping company decides to use a port is not included in the demand forecasts. However, as a contingency measure, land reserves can be used to capitalize on this opportunity.
Next, the selected plan or design can go to the implementation phase. Once the basic plan and additional actions are agreed upon, the final step involves implementing the entire plan. The assumptions or the vulnerabilities may have changed after the start of the process. Therefore, APP is an iterative and continuous process. After implementing the initial mitigating, hedging, seizing, and shaping actions to make the plan robust, the adaptive planning process is suspended until a trigger event occurs.
The implementation of APP is not easy. One of the problems is that it requires a change in mentality and approach in the port organization and all stakeholders closely involved in the planning process. For example, environmental and community groups might have some reservations when APP is used to develop a new port area as the new port land is not clearly assigned to a specific port activity (container terminal, industry) upfront. Another difficulty lies in identifying required actions linked to specific triggers or performance indicators. These actions need to be identified and evaluated on their feasibility, acceptability, and potential impact.
6. Port Infrastructure Project Evaluation
A. Procedures and guidelines
Port infrastructure projects are under scrutiny due to government budget constraints, increased competition for land, environmental awareness, and the need for integrated transport systems. These considerations are also mirrored in appraisal and evaluation procedures applicable to port infrastructure projects. Governments have to ensure that public funds are spent on activities that provide the greatest benefits to society and are spent most efficiently.
Governments have developed guidelines and tools to encourage a more thorough, long-term, and analytically robust approach to the appraisal and evaluation of port infrastructure projects. The formal frameworks typically refer to internal arrangements and working procedures. Decision-making frameworks on large infrastructure projects such as major port developments are typically complex in terms of the procedural aspects and the appraisal and evaluation tools used. The procedural aspects of the decision-making on large port infrastructure projects should be designed in such a way that:
- The procedure can be finalized within an acceptable timeframe.
- The involvement of relevant stakeholders throughout the process is guaranteed.
- The quality of the project appraisal results can be guaranteed.
The time factor plays an important role in any infrastructure project appraisal. First, there is the timing of the trajectory from the conception of a project to the final decision making. The whole procedure should be finalized within an acceptable timeframe. Guidelines on project appraisal generally might contain clear stipulations on the timing for completion of the project evaluation studies. Deadlines are often put forward for formal steps in the decision-making process.
There is tension between the long-term focus on infrastructure planning/realization and the short-term developments in business cycles and market developments. Markets change almost overnight, so companies typically use a short planning horizon of a few years. The shorter business cycles and economic cycles make it increasingly difficult to develop a long-term focus in the framework of port projects. Long time series about (cargo) flows are at the core of any port infrastructure appraisal, but the uncertainty of long-term developments become more apparent. Therefore, scenario building and risk analysis have gained importance when considering port infrastructure appraisal.
Iterative processes are gaining ground as they are generally considered the way forward to provide a reasonable understanding of whether the project proposal is likely to remain good value for money in the light of changing circumstances. Iterations in a project evaluation procedure often involve a step-wise approach. The detail and accuracy of the data provided increase as the evaluation progress from the initial steps of identifying and appraising the project alternatives to the final steps in the procedure. Given rising budget constraints, procurement routes are increasingly considered, including the role of the private sector in the financing of the project (public-private partnerships or PPP). This trend poses great challenges to the port project appraisal procedures as potential partnering arrangements and their implications for costs and benefits sharing should be identified early in the process.
Interest in stakeholder approaches to strategic management is growing. The dynamics of investments in port infrastructure do not take place in a vacuum but are articulated by the strategic and operational decisions of the stakeholders involved. Consultation is important. The days when governments or port authorities could unilaterally decide on large port infrastructure projects without the involvement of stakeholders are long gone. At present, a large part of the financial and human resources linked to a project appraisal procedure is linked to consultation with and between stakeholders.
At the appraisal level, there is a greater emphasis on assessing the differential impacts of port projects on the various stakeholders, where these are likely to be significant. In other words, project evaluation techniques are geared towards making the distribution of costs and benefits among the relevant groups/stakeholders in society more transparent.
Port authorities, government departments, and agencies are increasingly encouraged to establish formal evaluation or assessment units and formalize access to internal and external auditors. There is an increasing trend to include systematic optimism bias in project evaluation. There is a demonstrated, systematic tendency for project appraisers to be overly optimistic. Optimism bias has played a major role in underestimating construction costs or overrating the indirect benefits of a port project. Dealing with optimism is slowly being internalized in the evaluation process, such as by an explicit adjustment procedure to redress systematic optimism. Sensitivity analyses are now broadly used to test assumptions about operating costs and expected benefits. Project proposals are typically reviewed more than once regarding the impact of risks, uncertainties, and inherent biases.
B. Evaluation methods
In many cases, the Social Cost-Benefit Analysis is an integral part of decision-making trajectories. In most cases, SCBA is combined with other methods, including multi-criteria analysis, quantitative impact analysis, and qualitative impact analysis. The latter methods are typically deployed to evaluate effects that one cannot or does not express in monetary values.
The economic impact study or economic effects analysis can be used as well. In some cases, input-output analyses, which form the basis of economic impact studies, are being used to assess indirect economic effects. As such, the economic impact study, where used, is one of the quantitative impact analysis methods that can be used in combination with the SCBA.
A considerable stream of literature has developed over the years on identifying, managing, and realizing costs and benefits. This increased focus on methodologies to estimate the effects of port infrastructure projects has led to a multiplication of the kind of effects considered in an SCBA. Direct and external project effects that are commonly considered in an SCBA relate to construction costs, costs of maintenance and management, different types of logistics and transport benefits (time savings, vehicle/vessel costs, benefits for goods transportation), and the impact of the project on mobility and connectivity.
The picture is less straightforward in the case of some other external effects such as noise pollution, air pollution, and visual intrusion. In quite a number of countries, these latter effects are included in SCBAs and expressed in monetary values using a set of valuation techniques. In other cases, separate quantitative or qualitative analyses are used with a view to assessing these effects without monetary valuation. Valuation techniques for visual intrusion, vibrations, and community severance have proven to be less robust and less broadly accepted than the methodologies for evaluating noise and air pollution.
Port project appraisal and evaluation procedures and guidelines attach more attention to quality management. Quality tests can take various forms ranging from assessing compliance with the guidelines on project appraisal evaluating the basic scenarios and forecasts used. An external expert commission often screens interim and final project evaluation studies, with members typically consisting of central planning authorities and academics.
- Chapter 5.1..
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