Port Management: Port competition
By Capt Gajanan Karanjikar,
Multi-modal Transport expert, Independent Port Consultant.
“It is upon the sea-coast and along navigable rivers that industry of every kind naturally begins to subdivide and improve… not till a long time after that those improvements extend themselves to the inland parts of the country.” – Adam Smith (1723–1790)
The port competence primarily depends upon geographical location with respect to prevalent trade in that region. The trades do change with change in political scenario in the corridor involved however if the trade route is established with major Producing centers and consuming markets then the trade route is likely to be in scene for longer time.
The new ports coming up on horizon do establish competition to the older ones with respect to hinterland connectivity and efficiency in operations. The newer ports are better planned and thus also need to use modern equipments to augment that capacity building. Tariff remains as major term for consideration but the overall scenario is needed to see the impact on the trade rather than on one ship operational efficiency.
An imbalance of port capacity within a region will influence the level of rivalry between ports. Excess capacity will cause rival ports to aggressively compete for market share. Sometimes this can lead to destructive pricing. For example, the rapid growth in load center capacity in the Eastern Mediterranean has produced intense competition between hubs, and as a result ports such as Limassol and Damietta have been forced to aggressively compete to retain customers by pricing services so low that they may not be covering costs.
The modern global market is characterized by cutthroat competition; hence, it would be appropriate to utilize military principles when considering a port’s strategy: The two main thresholds of a port’s tactics should be (a) operational, that is, based on existing contracts, capacities, and performance; and (b) force developmental, that is, market pressure points are employed for designing strategies at a macro level and are triggered by potential or actual threats, desired goals, and market prerequisites. While ports’ assets, infrastructure, and resources are essential to sustain a strategy, the strategy itself has to be resourceful and inventive enough to be able to be attained even with the least of resources.
Ports’ Success Factors
A capacity that discerns seaports as tools for regulating global trade is both consistent with the shipping industry’s views and reflected in a nation’s trade and economic policies. While national interests aspire to cash in on the ports’ strategic geopolitical locations and competitive advantages, in practice the maritime industry is highly volatile, characterized by dynamic fluctuations and complex supply and demand networks. Ports, just like ships, are competing in a highly antagonistic global environment, which on top of the laws of supply and demand are strongly influenced by politics, trade agreements, and customers’ preference, in addition to currency wars, volatile commodity trade prices, scarce commodities, safety and security threats, and so on. These are some of the factors that formulate global trade patterns and sea routes and eventually determine a port’s potential for productivity, employability, and economic growth.
Based on the above, factors that may influence a port’s strategic position include the following:
- Global capital markets (United States, Japan, Western Europe, China. etc.)
- High production, demand, or supply hubs and regions (Shanghai, Busan, Houston, Hong Kong, S. Louisiana, etc.)
- Value-added trade centers (i.e., of services, fuel refineries, agriculture, and manufacturing)
- Transit areas (Panama Canal, Suez Canal, etc.)
- Supply/replenishment areas (e.g., Singapore, Malta, Cyprus, etc.)
- Free ports and free trade zones: US Virgin Islands (United States), Eilat (Israel), Singapore (Singapore), Malta (Malta), Hamburg (Germany), Colon “Zona Libre” (Panama), Suez Canal Container Terminal (Egypt), over 30 free trade zones of Dubai (UAE)
- Shipbuilding, ship repair zones: China, Japan, South Korea, United States, Germany, United Kingdom, and so on interestingly enough, a port’s ability to withstand the above challenges is restricted by its geographic and national boundaries.
While ports are typically bound by geological and meteorological variables, regional and national regulations, taxation regime, and government budget allocation, ships enjoy the privilege of resilience, for example, flexible trade routes, commodities, converting type and design, and even regulatory compliance through flags of convenience (UN ECE/Trans/210, 2010).
(Courtesy: Marex Media)