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PLEASE SCROLL DOWN FOR MANUSCRIPT Entry Barriers in Seaports
Peter W. De Langen
Department of Port, Transport and Regional Economics,
Erasmus University Rotterdam, The Netherlands.
E-mail: [email protected]
&
Athanasios A. Pallis
Department of Shipping Trade and Transport,
University of the Aegean, Greece
E-mail: [email protected]
Final version (September 2007)
Submitted for publication in Maritime Policy and Management
The journal is available online at: http://journalsonlind.tandf.co.uk
Abstract
The different types of entry barrier in seaports are analysed and the policies and practices to
reduce them are discussed in this paper. In most seaports, economic, regulatory, and geographical
entry barriers are substantial and increasing in complexity as ports become embedded in supply
chains and multilayered networks with multiple entry-levels. Various entry barriers in seaports
are identified through an overview of the relevant literature and their presence is confirmed by
empirical data describing them. The case is then made for lowering these barriers. This would be
desirable from an economic point of view, since lower barriers strengthen the contestability of
markets and increase the level of intra-port competition. The latter might yield substantial
benefits, such as fostering specialization and preventing the abuse of market power. Finally, low
entry barriers would facilitate the faster implementation of new technologies and business
models. In the third part of the analysis, policies and practices designed to reduce entry barriers
are examined. The implications are discussed of current national and supranational (EU) policy
initiatives aimed to liberalize service provision in seaports. Other (de)regulatory policies that
could contribute to the reduction of entry barriers are analysed.
Keywords: seaports, entry barriers, market structures, port policies 2 1.
Introduction [1]
In the last two decades, many new firms have entered the markets in seaports. Well-documented
challenges (such as a geographical shift of production, the reform of world shipping, just-in-time
manufacturing, logistics, and multimodal transportation) have raised the capital expenditure
required for port facilities and led to a call for the reorganization of port services, mostly through
liberalization and privatization. These changes have facilitated entry in many seaports, especially
in the cargo-handling industry [2].
Although the port industry has become a more open market, entry barriers remain
substantial. In some cases, port reform has introduced a few private port operators, but has failed
to lower the entry barriers for more firms interested in providing port services. Thus, while the
scope for private involvement in the provision of port services has increased substantially, the
issue of entry barriers is still relevant. Lowering entry barriers is desirable from an economic
point of view for at least three reasons. First, lower entry barriers enhance the contestability of
markets. Such contestability puts pressure on incumbent firms (existing producers) not to charge
excessive prices. Second, lower entry barriers increase the level of intra-port competition.
Substantial benefits might ensue, because market power would not be abused and port service
providers would have incentives to specialize and differentiate their services from competitors in
the same port [3]. Third, lower entry barriers would allow the faster implementation of new
technologies and business models [4]. An analysis of policies to reduce entry barriers is clearly
relevant [5] although it has been largely neglected in port studies [6].
In the first section, relevant entry barriers in seaports are identified. In the second section, the
case is made for the lowering of these entry barriers. The third section presents empirical data on
entry levels in seaports in Europe and analyses of policies to reduce these barriers. The relevance
is discussed of current national and supranational (EU) policy initiatives aimed at liberalizing
service provision in seaports. Other (de)regulatory adjustments that could contribute to the
reduction of the existing entry barriers are also analysed. A concluding section summarizes and
puts forward suggestions for further research.
2.
Entry Barriers In Seaports
The economic definition of a barrier to entry has been the subject of controversy since its
inception in the 1940s and 1950s. The issue remains inconclusive [7], mainly through a lack of
3 agreement on terminology [8]. Some authors (following Bain [9]) regard an entry barrier as
anything that allows incumbents to earn above-normal profits - including high capital
expenditure. This ‘Harvard tradition’ differs from the ‘Chicago school’, exemplified by Stigler
[10], who emphasizes incumbents’ cost advantages. According to Stigler, high capital
expenditure is not an entry barrier, because incumbents have also incurred such expenditure. Both
schools stress economic entry barriers, mainly because these are relevant for antitrust cases. Entry
barriers may also result from legislation. Some legal entry barriers, such as licences, are not entry
barriers according to the ‘Chicago’ definition, but they are included, either explicitly or
implicitly, by the ‘Harvard’ school.
Here, we use the broad and inclusive definition of Carlton and Perloff [11]: A barrier to entry
‘is anything that prevents an entrepreneur from instantaneously creating a new firm in a market,
while a long run barrier to entry is a cost that must be incurred by a new entrant that incumbents
do not (or have not had to) bear.’ Legal and institutional entry barriers are thus also taken into
account.
In most seaports, such entry barriers are substantial [12]. A distinction can be drawn
between:
(a) Economic entry barriers,
(b) Regulatory and institutional entry barriers, and
(c) Locational (geographical) entry barriers.
2.1 Economic entry barriers
Two economic entry barriers can be identified. The first is an existing service provider’s absolute
cost advantage. If an entrant cannot challenge this, there is clearly an entry barrier. The following
factors can contribute to such a cost advantage:
-
A better location in the port. When the incumbent is perfectly located , for instance with
regard to access to hinterland transport modes such as rail, road, and inland waterways, or at a
site with good maritime accessibility, the entry of competitors in less attractive vacant sites is
unlikely to materialize.
-
A larger scale of operation with associated scale economies. This issue is relevant when the
minimum efficient scale (MES) of port service providers is large compared with the market
size. This situation is frequently the case in seaports [3]. In such conditions, entrants either
4 face a competitive disadvantage resulting from a smaller scale or need to create a capacity
similar to that of the incumbent firm. This latter option would be unlikely if it were to result
in substantial excess supply, the prospect of a price war, and losses for both the incumbent
and the entrant.
-
Incumbents benefiting from accumulated public investments. In most seaports, public port
authorities have invested in infrastructure such as rail terminals and quays. In some cases they
have also invested in superstructure. Furthermore, the opportunity costs of the land are not
always included in the land price paid to the landlord by port-service providers. Thus,
existing leaseholders may benefit from accumulated public investments. Incumbents have a
long-term cost advantage if such benefits from public investments are no longer available for
entrants, for instance through changing policy guidelines (as recently discussed, although not
adopted, in the context of the EU Port Policy). Consequently, new entrants face costs that
incumbents have not had to bear. Thus, such subsidies that are not available for new entrants
are clearly a barrier to entry in both ‘Chicago’ terms (the incumbent has had lower initial
investments), and ‘Harvard’ terms (such subsidies lead to the incumbents’ relatively high
profits).
Contrary to Van Niekerk [13], who identifies ‘expensive specialized equipment’ as an entry
barrier, we argue that high capital requirements alone are not an entry barrier. Entrants are in
many cases multinationals (Hutchison Port Holding, PSA, Dubai Ports World, et cetera). In other
cases entrants are holding firms affiliated to large conglomerates: for instance, Holdings Ltd and
NSW Ports Management Ltd are both affiliated to ethnic Chinese conglomerates, while the AIG
Global Investment Group, which purchased stock in the marine terminal operator P&O Ports
North America from DP World, is a unit of the world largest insurance company; it now operates
at the Port Authority of New York and New Jersey, Philadelphia, Baltimore, Miami, Tampa and
New Orleans as Ports America Inc. Entrants might even be groups of investors with access to the
capital markets. An illustrative example is the recent (2006) takeover of Associated British Ports
by the Admiral consortium that consists of a Wall Street bank (Goldman Sachs), a Singapore
Government investment Company (GIC), a Canadian pension fund (Borealis); an illustrative
example of the last case is the infrastructure business of a UK-based international financial
5 services company (Prudential). Apparently, entrants can find financial resources if entry is
profitable.
A second economic entry barrier is the magnitude of switching costs; these are defined in this
context as the costs associated with switching from the incumbent port service provider to the
entrant. These costs often determine the capability of new entrants of starting up operations.
Switching costs can come in several forms. Switching from one port facility to another may
require the investment of port users. In some cases, such costs are insignificant; for example,
shipping lines can easily switch containers from one transhipment facility to a competing facility.
In other cases, switching costs may be substantial. For instance, port users (shipping lines,
forwarders or shippers) may have long-term contracts with rail or barge companies, or they may
have invested in dedicated transport equipment. Other port users may have invested in facilities at
the site of the port-service providers (for instance, car manufacturers that carry out pre-delivery
inspection and small repair activities at the site of a terminal operator). Such port users cannot
easily switch to another port service provider. For most bulk transport flows switching is
prohibitive, because of the specific investments made to create an efficient overall transport chain
(including hinterland transport). This also explains why cargo owners frequently invest in
terminal facilities: to avoid being exposed to independent terminal operators with dominant
market positions.
Switching costs may also be high through the bundling of the services of the incumbent portservice provider. For instance, a (public) terminal-operating company may also provide pilotage,
towage, and hinterland transport services. Such an arrangement creates a barrier to entry in each
of the separate markets, especially when some of the bundled services are natural monopolies
[14].
The bundling of port services is partly the result of the geographical and functional
integration of ports in wider regions and networks [15]. With the rapid restructuring of the supply
chains in which ports are embedded, ports are now elements in value-driven chain systems, not
simply places with particular functions [16]. In the emerging flow-based system, the various
phases of supply are closely synchronized and the various transport services are frequently
bundled.
The quest for long-term relationships with partners to reduce uncertainty and improve
coordination leads port authorities to implement strategies aimed to strengthen partnerships with
6 large players, by offering incumbent firms the conditions to develop strategies to succeed.
Embeddedness in such strategic networks [17] enhances a firm’s competitive position. Inclusion
in such networks may demand resources and be costly to achieve, because of the importance of
reputation, trust, and experience, for example.
Should a firm decide to leave the market, the investments required for inclusion in strategic
networks cannot be recovered. Since these costs are sunk costs, they are considered as an entry
barrier in the Harvard tradition. Thus, investments in ‘embeddedness in the port community’ can
be regarded as a third entry barrier.
2.2 Regulatory and institutional entry barriers
Regulatory and institutional entry barriers are caused by government involvement. These
barriers make entry to a market costly, time consuming or impossible. They are damaging to
economic development [18].
In a substantial number of ports, policy-makers or port authorities effectively limit the
number of terminal-operating companies, towage companies, and other port-service providers.
Sometimes these limits are set by explicit entry criteria that effectively limit the number of
competitors. In other cases, the port authority or some other relevant policy-maker decides about
entry on the basis of its interpretation of the rules, such as compliance with local, national, and
international environmental requirements and the development policy of the port [19].
In some cases, not only do port authorities grant authorizations, but they also provide port
services. This provision presents fundamental obstacles to market openness. Furthermore, in a
situation where the state in one of its various forms (national, regional, local) owns a port-service
provider, this operator enjoys an implicit state guarantee: the state would not allow a state-owned
operator to go bankrupt. This situation is a deterrent to new entry, as the state-owned operator is
potentially able to engage in predatory pricing: that is, set prices below cost to remove
competitors from the market.
Provisions in leases, concessions, and other operating agreements, particularly those
involving long-term investments by private operators, often provide these operators with some
degree of protection against new entrants. For example, a terminal operator who has been given
the concession to operate a container-handling facility might have exclusive rights to handle
containers in the port during the period of the concession. Furthermore, lengthy concessions,
7 even though they provide benefits in the short run that are often passed on to the users, can also
provide opportunities for rent-seeking.
The existence of regulatory entry barriers can be understood, at least in part, with insights
from public-choice theories. First, entry barriers can be explained by the lobby efforts of
incumbent firms to persuade policy makers to create entry barriers. These serve the interests of
incumbent firms, because further entry is deterred and profit levels can be expected to rise [20].
Second, regulation can be said to serve politicians and bureaucrats, because they can extract
rents. Both of these explanations underline the adverse welfare effects of entry barriers.
Consequently, low entry barriers are in general better than high entry barriers. The latter are
associated with higher levels of corruption and informal economies, not with better quality goods
and services [18].
These public-choice theories suggest that that the emergence of legal and institutional entry
barriers to serve the interests of incumbent firms, public port authorities or state agencies may not
be ruled out in advance. Ports are traditionally strong, locally-oriented communities [21] with
close relationships between the port authority and port service providers. In such an environment,
entry barriers may develop to serve the interests of the incumbent port community.
An alternative explanation along the same lines, namely that legal and institutional entry
barriers are the result of the lobbying of interest groups, is that a public port authority creates
entry barriers in order to collect economic rents. In many ports, port authorities offer additional
services such as pilotage, towage, and port labour. Entry barriers for such services clearly
increase the market power of the port authority in these markets.
2.3 Locational entry barriers
Natural barriers that constrain port capacity can limit entry, particularly of firms that require land
in the port. In many ports there is simply no space for additional berths, warehouses, and other
facilities. The lack of suitable locations and environmental regulation that constrain expansion
protect incumbents from new entrants. Such entry barriers are particularly relevant if alternative
ports are imperfect substitutes, for instance through differences in hinterland infrastructure or
nautical access, including deviation from main routes. Such deficiency is the case in many ports
and for many commodities. Greenfield port development (building port infrastructure in a
completely new location) is not usually a viable strategy for entry. Large investments are often
8 required for dredging, quay construction, access roads, and port superstructure. In most existing
ports, public authorities have contributed a large share of these investments without direct cost
recovery. Thus, private greenfield port development is unlikely to emerge. This supposition
further strengthens the case for low entry barriers in existing port complexes.
2.4 Summary of entry barriers in Seaports
Table 1 sums up the previous discussion of the different entry barriers relevant in seaports.
Insert “Table 1: Entry Barriers in Seaports” about here
3.
THE BENEFITS OF REDUCING ENTRY BARRIERS
Lowering entry barriers is desirable from a public-interest point of view. First, they enhance the
contestability of markets [22]. The relevant issue is how accessible (contestable) a market is for
entrants. If entry to (and eventually exit from) the market by new competitors is easy, the market
is said to be contestable and often just the threat of entry (potential entry) is enough to persuade
incumbents not to abuse their dominant market position. The possibility of entry introduces an
element of competition and, although there may not be many operators in the market, it is
competitive, with prices not far from social opportunity costs.
Such contestability puts pressure on incumbent firms not to charge excessive prices. This
contestability is particularly relevant given the increased market concentration arising from
economies of scale in modern cargo-handling technologies, the rise of global players in the
terminal-handling industry, and horizontal and vertical integration in the shipping industry, for
instance through the investments of shipping lines in dedicated terminals [21, 23].
Second, lower entry barriers increase the level of intra-port competition. This brings
substantial benefits, because the abuse of market power is curtailed and port-service providers
have incentives to specialize and differentiate their services from competitors in the same port.
Thus, generally speaking, ‘real’ intra-port competition is more beneficial for port users (and thus
consumers) than contestable markets with only one incumbent. However, owing to the large
9 minimum efficient size of many port services, such intra-port competition is not viable in all
cases [3].
Third, lower entry barriers allow for the faster implementation of new technologies and
business models [4]. Even when intra-port competition is established, the entry of additional
competitors can be an important engine for the introduction of innovations. New firms often
generate business dynamism and economic growth, particularly when the current activities of
incumbent firms are challenged by exogenous changes in demand. New firms are thought to be
particularly innovative and there is evidence that the process of entry (and exit) plays a part in
reallocating resources from low to high productive units [24]. Firm entry plays an important part
in the theories that stress the process of a creative destruction as a mechanism that helps shift
resources from less to more productive units, as in a Schumpetarian model with entrepreneurial
learning under uncertainty. When incumbents fail to exploit exogenous shifts in costs or demand
(perhaps because the required innovations would be rent displacing), entry is an important
determinant of industry performance [4].
To conclude, pursuing opportunities to reduce entry barriers is in the public interest. Policy
should concentrate on creating conditions that allow entry without directly hindering the survival
and growth of profitable firms. Additionally, regulation is required to control incumbents who
benefit from high entry barriers. Examples include antitrust policies and merger regulations.
Before these policy issues are addressed, some relevant empirical observations on entry barriers
in the port industry are first discussed.
4.
EMPIRICAL OBSERVATIONS ON ENTRY BARRIERS IN SEAPORTS
Different port services vary substantially with regard to entry. In the case of cargo handling, entry
has occurred in most ports. The number of competitors is limited in the large seaports around
Europe, but there are substantial differences per country. A recent study of selected European
seaports of international importance (the seaports in each EU country with a total annual traffic
volume of not less than 1.5 million tonnes of freight or 200,000 passengers, [25]) confirms the
paucity of service providers in ports [26].
Insert “Table 2: Number of Service Providers in major European Ports” about here
10 There is just one service provider of container-handling services in almost half the ports surveyed
by ESPO (not all listed in table 2). In general, the number of handling-services suppliers
increases with the port’s size (in terms of throughput). The last columns of table 2 show the
average throughput per service provider in the case of ports with more than one service provider.
These data allow for two conclusions: first, the minimum efficient scale seems to be fairly large;
for instance, the lowest volume per towage company is around 8.5 million tons, while the lowest
number of TEUs per operator is around 400,000 TEU. In ports with smaller volumes, intra-port
competition may not be viable.
Second, there seem to be opportunities to introduce intra-port competition in a substantial
number of ports. In Antwerp, Marseilles, and Le Havre, for instance, the annual volume is
sufficient to accommodate at least two towage and pilotage companies. This conclusion also
holds for mooring and un-mooring services and passenger terminals. These figures suggest that
there are barriers-to-entry in a substantial number of ports.
This conclusion is confirmed by a survey among port experts in three ports [27]. In
summary, it reports that:
•
A significant majority of port experts agree that entry barriers have a negative effect
on the performance of a port (cluster). These experts indicate that new entrants and
start-ups are necessary for the port cluster to remain vital.
•
The most relevant entry barrier is the inaccessibility of knowledge and networks.
This situation was explained with reference to a specific local ‘port community’,
which is internationally oriented, but inaccessible for entrants with no prior expertise
in the port cluster.
In another survey that was sent to the port authorities of the 12 Greek ports of national
significance, the 10 responses received suggest that the existing legislative barriers to entry
reduces the number of port service providers and reduces the quality of the services provided in
Greek ports. The implications of these barriers on the price of the services provided (e.g. on
whether there is rent seeking) are less clear [28].
11 Overall, these empirical observations suggest that entry barriers are substantial in many ports
and have a negative impact on their efficiency and performance. Thus, an analysis of possible
policies to reduce entry barriers is relevant for policy makers in seaports.
5.
POLICIES TO REDUCE ENTRY BARRIERS IN SEAPORTS
The first observation to be made with regard to policies to reduce entry barriers is that most
countries, economic zones (like NAFTA), and supranational entities (the European Union) have
developed a general legal framework to ensure low entry barriers. Such regulation is not industry
specific, but applies overall. In most countries, competition regulations protect entrants from
predatory pricing by incumbents, excessive tying, exclusive contracts with suppliers, and the like.
Mergers and acquisitions are also subject to competition regulations. These are relevant in the
container-handling market, given the strong consolidation in this industry. The question arises
whether operators have established a dominant position, limiting the potential of market
competition and discouraging newcomers [29]. The general competition law can and often does
go hand in hand with industry-specific regulations.
Table 3 provides an overview of policy options to reduce entry barriers in seaports. These
options may not be relevant or necessary in all cases, but may well be useful in some. While
some of these options require national policy initiatives, others can be implemented by port
authorities.
Insert “Table 3: Policy options to reduce entry barriers in seaports” about here
Structural cost advantages of the incumbent can be prevented by using effective pricing
mechanisms, such as tender procedures to grant the right to provide a service or a terminal
concession. In such procedures, all cost (dis)advantages are internalized in the price [30].
Another policy capable of reducing entry barriers is to split a terminal into parts forming
separate concessions. The existence of different market segments increases the viability of intraport rivalry. Dividing facilities so as to accommodate various port service providers may be
difficult. Much depends on the geographical layout of the port, the available traffic, and the
minimum capacity additions (taking into account the lumpiness of port investments).
12 In the long term, many physical/locational entry barriers can be overcome by building in
adjacent locations, extending out into the sea, and so forth. Furthermore, new concepts and
technologies can be introduced to limit the need for space in the port. For example, an inland
container depot can help create additional space for terminals in the port.
Having a public agency, in most cases the port authority, which invests in port-specific and
site-specific assets and leases these assets to the private sector is a policy option to reduce entry
barriers related to switching costs and sunk investments. A survey among all 20 Canadian Port
Authorities (CPAs), which elicited 11 useful responses [31], provided evidence that these port
authorities make such specific investments. Table 4 shows the percentage of CPAs willing to
make specific investments and reveals that even port authorities that mainly lease land do make
customer-specific investments. These have to be recovered from port users, so that providing
subsidies is not an explanation. PAs seem to create value by lowering port-specific investments
for customers. This strategy lowers entry (and exit) barriers [32].
Insert “Table 4: Port Authorities Investments in Assets for Specific Customers” about here
A further role for the port authority to reduce entry barriers is that of a smart co-ordinator [33]
that enable networks of stakeholders. Such a coordinator can help overcome decisional and
operational fragmentation. By coordinating the integrated port services provided by various
actors, the port authority acts as a cluster manager [34]. Such an active port authority can
increase opportunities for the entry of small and medium-sized companies.
Policy reform that promotes transparent concession procedures, forbids exclusive contracts,
and ensures the absence of discrimination is also relevant for reducing entry barriers. Reducing
the (maximum) duration of authorizations and concessions also lowers entry barriers, and rentseeking opportunities. Concessions and/or authorizations need to be sufficiently long to allow
companies to recover their fixed investments and earn a normal return on their investments.
However, excessively long durations limit opportunities for entry and reduce the dynamism in the
sector. In many European countries, durations of concessions of 50 years in the case of limited
investments, 75 years for significant investments in movable assets or 99 years for immovable
13 assets are common practice. The reduction to maximum durations of 8, 12, and 30 years
respectively, as suggested in the EU port policy proposals, would certainly lower entry barriers.
Last, but not least, entry barriers can be further reduced by the stability of the regulatory
regime and the presence of mechanisms for dispute resolution. Uncertainty and transaction costs
are reduced and lower entry barriers ensue.
The rejected EU port policy proposals [35] (referred to as the Port Package) included efforts
to create a level playing field between EU ports characterized by open access to the provision of
navigational, cargo-handling, and passenger services on the basis of transparency and nondiscriminatory procedures. Despite the controversial implications of several aspects of the
proposals (that led to their rejection), the European Commission’s suggestion of a ‘port services
directive’ would have worked towards lower entry barriers. Given the rejection of these
proposals, national and local governments have an important role in ensuring that entry barriers
to port markets are sufficiently low. The policy suggestions mentioned above could be helpful in
this respect.
In addition to these policies, it has to be noted that well-functioning markets, especially an
active second-hand market for cargo-handling equipments, is important in reducing entry barriers
and increasing the contestability of the market [36].
5
CONCLUSIONS
The entry of port service providers to ports may be difficult for a number of reasons: incumbent
firms may have a cost advantage, port users may not be able to switch easily to new port service
providers, and entrants may have to invest substantially in local networks and knowledge.
Furthermore, entry may be regulated by relevant public agents and may only be possible through
acquiring concessions. These, however, may not be available for new firms, perhaps because of
the lack of space in the port. Not all entry barriers are equally relevant in all ports, but the overall
conclusion can be drawn that entry barriers are very relevant in seaports.
This conclusion can be explained in part by the structural characteristics of the port industry,
such as the need to make long-term investments and the fact that public agencies (in most cases
port authorities) play a large part in port planning and development.
Notwithstanding these characteristics, policies can reduce entry barriers, for instance by
ensuring fair and efficient pricing, by concessioning small units (e.g. terminals), and by reducing
14 concession periods. These last two policies may require port authorities to make more
investments in fixed, port-specific investments and lease these to private operators.
This paper makes avenues for further research evident. Given the positive effects of entry on
port competitiveness, and the dominance of acquiring concessions as a mode of entry, more
research on concessions and concession procedures is required. Such research could analyse the
appropriate concession length from an economic perspective, the procedures of port authorities to
grant concessions, and the capabilities required to acquire concessions. Given the fact that
granting concessions is one of the most important functions of port authorities to influence port
development, the relevance of such research is clear [37].
ACKNOWLEDGMENTS
The authors would like to thank Professor Richard Goss for his valuable comments and his
continued interest in port studies.
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21. SLACK, B., and FREMONT, A., 2005. Transformation of Port Terminal Operations: From
the local to the Global. Transport Reviews, 25(1), 117-130.
22. BAUMOL, W., PANZAR, J., and WILLIG, R., 1982, Contestable Markets and the Theory of
Industry Structure (New York, US: Harcourt Brace Jovanovich).
23. NOTTEBOOM, T. E., 2004, Container Shipping and Ports: An Overview. Review of Network
Economics, (3)2, 86-106.
24. FOSTER, L., HALTIWANGER, J. and KRIZAN, C. J. 1998, Aggregate Productivity Growth
lessons from Microeconomic Evidence. National Bureau of Economic Research Working,
Paper No 6083.
25. EUROPEAN SEAPORT ORGANISATION (ESPO), 2004b. Impact assessment of the
Proposal for a Directive of the European Parliament and of the Council on Market Access to
Port Services, Mimeo, (Brussels: ESPO).
26. ECORYS and TRADEMCO, 2005, Complementary Economic Evaluation study on the
Commission proposal for a Directive on market access to port services, Final Report for the
European Commission -DG TREN (Rotterdam and Athens: ECORYS and Trademco).
27. The three cases are: Rotterdam, Durban, and Lower Mississippi – see: DE LANGEN, P. W.,
2004, The Performance of Seaport Clusters. Published PhD Thesis. (Rotterdam: Erasmus
Research Institute of Management).
28. PALLIS A. A. and VAGGELAS G. K. 2005, Port Competitiveness and the EU ‘Port
services’ Directive: The Case of Greek Ports. Maritime Economics and Logistics, 7(2), 116140
29. See: NOTTEBOOM, T. E., 2002. Consolidation and Contestability in the European Container
Handling Industry. Maritime Policy and Management, 29(3), 257-269.
30. An imbalance of port capacity and demand within a port will influence the level of rivalry inport. Excess capacity causes rivals to compete aggressively for market share. Sometimes this
situation can lead to destructive pricing. Similarly, the inability within a port to generate
sufficient traffic will increase rivalry for available business. There is therefore a need to
explore the types of traffic for which the port might have a comparative advantage.
16 31. The number of surveys is sufficient to sketch the broader picture, but insufficient for formal
statistical analysis. This deficiency is mainly to the result of the fact that there are only 20
Canadian ports with a CPA.
32. Of course, port authorities need to ensure relatively long-term contracts for such investments
in order to reduce the risk associated with long-term investments.
33. CHLOMOUDIS, C. I., and PALLIS, A. A., 2004, Port Governance and the Smart Port
Authority: Key issues for the Reinforcement of Quality Services in European Ports.
Proceedings of the 10th Word Conference on Transport Research, Istanbul, Turkey, June
2004, CD-Rom format.
34. DE LANGEN, P. W., 2003, The Port Authority as Cluster Manager. Proceedings of the 2nd
International Conference on Maritime Transport and Maritime History, Technical University
of Catalonia. Barcelona, Spain, pp. 67-84.
35. COMMISSION OF THE EUROPEAN UNION, 2004, Proposal for a Directive on market
access to port services, Com (2004)654, final (Brussels: European Commission).
36. The authors wish to thank Richard Goss for bringing this point to their attention.
37. NOTTEBOOM, T. E., 2007, Concession Agreements as Port Governance Tools. In: Issues
on Devolution, Port Governance and Port Performance (London: Elsevier), edited by M.R.
Brooks M.R. and K. Cullinane, pp 491-508.
17 Table 1: Entry Barriers in Seaports
Category
Economic
Legal and
institutional
Locational
Entry barrier
Structural cost
advantage of the
incumbent
High switching costs
Explanation
•
Incumbent enjoys a better location in the seaport
•
Minimum efficient scale in the seaport is large compared with size
•
Incumbent benefiting from accumulated public investments
•
Carriers need capital expenditure to switch port facilities.
•
Services bundling by incumbents increases switching costs
•
Reciprocity in partnerships leads to switching costs
•
De novo firms need time, capital, and knowledge to join sophisticated
spatial and functional networks
•
Restricted entrance –for historical, ideological, commercial reasons
•
Subjective entrance (allowing for discrimination) controlled by PAs
that are both regulators and operators
•
Regulation serves the benefits of politicians, bureaucrats, and/or
existing firms that can extract excessive rents
•
Natural, environmental, and capital, barriers constrain port capacity
protecting incumbents
Required investments
in networks
Entry conditions/
permissions
Exclusive
concessions
Unavailability of
land for entrants
Table 2: Number of Service Providers in major European Ports
Belgium
Towage
Container
Port
Pilotage
Country
Throughpu
t (million
tonnes
2003)
Throughpu
t TEU
(2003)
TEU per
TOC
(*1000)
Antwerp
1
1
8
126.1
5445
681
1
1
2
25.1
1000
500
Limassol
1
1
1
3
Denmark
Aarhus
1
1
2
10
Estonia
Tallinn
1
3
Germany
Throughpu
t per
pilotage
company
Zeebrugge
Cyprus
France
Throughpu
t per
towage
company
NA
845
37
Marseille
1
1
3
92.4
Le Havre
1
1
1
67.4
423
12.3
833
278
1890
Bremerhaven
3
2
5
42.5
3191
21.3
14.2
638
Hamburg
2
8
8
93.6
6138
11.7
46.8
767
39.4
-
13.1
19.7
1
21.4
1605
4
46.9
1606
30.2
119
15.1
7144
102.5
893
Wilhelmshaven
2
Greece
Piraeus
1
3
Italy
Genova
1
1
1
4
*
NA
Lithuania
Klaipeda
Malta
Marsaxlokk
*
2
NL
Amsterdam
1
1
Rotterdam
1
3
NA
402
1
NA
40.8
307.4
-
8
Poland
Gdansk
1
1
1
21.3
Portugal
Leixoes
1
1
1
12.8
Slovenia
Koper
1
1
1
11
Spain
Algeciras
1
3
2
48.3
2516
16.1
1258
Barcelona
1
2
4
29.9
1652
15.0
413
Valencia
1
1
3
30.5
1993
Sweden
Goteborg
*
UK
Grimsby &
Immingham
London
*
2
*
1
6
*
32.4
NA
55.9
NA
51
18 664
16.2
8.5
Tees and
Hartlepool
1
3
1
53.8
17.9
*
Probably one supplier
Source: [25].
Table 3: Policy Options to reduce entry barriers in seaports
Category
Economic
Entry barrier
Structural cost advantage
of the incumbent
High switching costs
Networking benefits/costs
Legal and
institutional
Entry conditions/
permissions
Exclusive concessions
Locational
Unavailability of land for
entrants
Policies to reduce entry barriers
• Fair and transparent pricing.
• Splitting up a terminal in two parts to be
concessioned separately.
• Investments in sunk costs by PA and costs
passed on to private firms
• The PA might act as a ‘smart’ cluster
manager that enhance the networking of
different operators
• Minimum and transparent procedures that
ensure the absence of discrimination
• Licenses for periods as short as possible, no
exclusivity contracts
• Long term, but flexible port planning
Table 4: Port Authorities Investments in Assets for Specific Customers
Investments
Road connections to terminals
Warehouses
Dedicated stevedoring facilities (e.g. covered terminal)
Office space for third parties
Rail connections to terminals
Cranes
19 Percentage of Port Authorities
making these investments
100
91
73
73
64
27