Privatization of Individual Port Activities

G. Privatization of Individual Port Activities

The considerable experience with bottom-up restructuring has lead to a better understanding of the appropriate options for increasing PSP in each port activity. The selection from among these options depends on the condition of the existing port assets, the scale of

57 Many countries have relied on their Ministries of Finance to accomplish this task. Mexico and Colombia initiated their port privatization efforts by liquidating their port administrations. Chile attempted to do the same but it has required nearly a

decade to eliminate the national port authority, Empresa Portuaria de Chile. Despite this delay, private concessions and operating contracts have allowed the Chilean ports to achieve substantial increases in efficiency. In Argentina, the National Port Authority, continues to function and to employ a sizeable staff even though all port services and facilities have been concessioned.

activity, the capacity of the local private sector and the existing level of private sector involvement.

The port activities are usually divided between services to the vessels including: • Pilotage.

• Towage. • Mooring. • Dredging. • Utilities. • Ship repair. • Environmental services.

Services to the cargo including: • Stevedoring.

• Wharf-handling. • Transfer to Land Transport. • Storage. • Processing (Consolidation, Bagging, Mixing). • Cargo tracking and EDI. • Security. • Rental of specialized equipment.

Pilotage is generally retained as a public sector function. It is a mandatory service in most ports and requires experienced personnel, usually former sea captains. This activity has created difficulties because it is a natural monopoly and charges non-market prices throughout the world. However, this activity concerns safety of vessels and requires certification of the pilots. So far, there has been little success in privatizing this activity. Where this has occurred, as in the US, the private monopoly has not delivered reductions in costs or improvements in service.

Towage is one of the easiest port services to privatize. Public ports have difficulty maintaining tugboats and controlling the size of the crews. The transfer to the private sector is accomplished through a sale of assets and deregulation of the provision of services if there is sufficient traffic to support open competition. If the traffic is limited, the port can contract for private management of the tugboat service combined with a dry or wet lease of the vessels.

Mooring is a low skill activity performed by individual gangs. This activity can be easily deregulated allowing for private supplies or direct hiring from the union halls.

Dredging is a specialized activity that can be divided between capital and maintenance dredging. The former is generally accomplished through international tenders. The latter is usually performed by the port because it is a continuous process involving relatively small volumes. In this situation, the port can place their dredges and crews under private management through a wet lease arrangement together with a long-term contract for service. This will allow the private operator to utilize the dredges for other work thus spreading the fixed costs while at the same time committing the operator to providing a guaranteed level of service. In smaller ports, the dredging technology is relatively simple and can be managed by local Dredging is a specialized activity that can be divided between capital and maintenance dredging. The former is generally accomplished through international tenders. The latter is usually performed by the port because it is a continuous process involving relatively small volumes. In this situation, the port can place their dredges and crews under private management through a wet lease arrangement together with a long-term contract for service. This will allow the private operator to utilize the dredges for other work thus spreading the fixed costs while at the same time committing the operator to providing a guaranteed level of service. In smaller ports, the dredging technology is relatively simple and can be managed by local

Utilities, including electricity and potable water for the vessels, are provided by the local public/private utilities. The distribution systems within the ports are managed by the port as a common service and remain a public sector responsibility.

Ship repair is a separate activity from the port. In the past, there was a strong linkage between public ports and public dockyards. Today most of the industry has been privatized and what remains in the public sector is being sold.

Environmental services are increasing in importance with the implementation of the MARPOL Conventions. The normal handling of ship’s garbage has been extended to the collection and processing of oil wastes and containment of oil spills. These functions are contracted from the private sector. The port may enter into a general contract for these services. Where there is sufficient volume, direct competition can be introduced.

Cargo-handling services including the movement of cargo between vessel and wharf, wharf and storage, and storage, and land transport can be transferred to the private sector as deregulated services or through terminalization of the cargo-handling facilities. With the former, the vessels and the cargo owners contract directly with the private cargo-handling companies which then handle the cargo at the berth where the vessel is located. With the latter, cargo- handling companies are given control over specific berths and backup area through a lease or concession arrangements. These companies then provide services to the vessels calling at their facilities. Open competition among cargo-handing companies is used for general cargo operations, which do not require expensive equipment and dedicated storage. Terminalization is used for bulk and container operations where volumes are sufficient to justify investment in

fixed equipment and tight integration of the berth and the storage area is required. 58 It has also been introduced where the number of berths handling breakbulk cargo is sufficient to allow a number of competing terminals to be established and where efficiency requires that the berth and backup area be integrated.

Storage near the berth is controlled by the cargo-handling companies which either lease or rent the space. Warehousing and other long-term storage is managed by private companies which lease these facilities from the port. Cargo processing services including consolidation, bagging and mixing are provided by the cargo-handling or warehousing companies.

Cargo tracking is performed by individual terminal operators or shipping companies. EDI services require a pooling of information from the port, customs, the shipping lines and the forwarders. Public ports often take a lead in the development of these systems because of their neutral position in the exchange of commercially sensitive information. The ports contract out the development and maintenance of the information systems but maintain overall control of the transfer of data. The EDI systems are evolving towards a more distributed structure in which data is more easily interchanged. In the future, the role of the port in EDI is expected to diminish and that of the individual logistics companies to increase.

58 A notable exception is the port of Valparaiso where private stevedoring companies competed for the handling of containers with each providing their own mobile yard equipment.

Security is divided into three areas. Security for waterside access is usually provided by the government through its navy or coast guard. Security within terminals is provided by the terminal operators. The port provides security for landside access and for the common areas within the port boundaries. The port may contract for private security services but the powers of arrest and seizure cannot be delegated to the private security services. Instead, they would liaise with local law enforcement.

Rental of specialized equipment such as floating cranes is difficult to transfer to the private sector because of the difficulty in creating a commercially viable activity. However, the operation and maintenance of this equipment can be outsourced to the private sector.

Best practice in the transfer of individual port activities to the private sector emphasizes the need for an activity-by-activity analysis, taking into account the condition of existing assets, the need for integration of different activities and the level of competition which will result.