Potential for Monopoly Behavior

A. Potential for Monopoly Behavior

The most important characteristics of seaports, which make them vulnerable to monopoly practices, are the high cost of establishing a port and the economies of scale of port construction and operations. A new seaport requires the development of a protected area for mooring/berthing, sufficient depth in the access channel and alongside the berths, and adequate backup area for storage of cargo. Most coastlines have a limited number of sites with natural harbors and flat backup areas. Additional sites can be created through major civil works, i.e., dredging, construction of breakwaters, and reclamation of shore area or leveling of hillsides. These are extremely costly and constitute a major barrier to private sector development of new ports. The high cost for construction of the road and rail links connecting the new port site with the main transport corridors adds to that barrier. Since greenfield sites with sufficient, undeveloped land tend to be located far from the main transport network, the costs of developing these links can be comparable to the costs of developing the site.

The high cost to develop a new port has meant that the public sector has developed most large coastal ports. Private ports are generally limited to individual terminals with a few berths located either within the protected areas of larger public ports or along inland waterways. 36 in India, the development of private ports has centered in Gujurat where there is some natural protection against winds and waves. 37 in Thailand, there are a few natural harbors with adequate depth. Private terminals have been developed primarily along the Chao Phya River. In the Philippines, the private ports are located on rivers or in protected areas adjoining public ports. In Indonesia, the largest private ports are found in Kalimantan and serve large mining activities. The port structures are limited to loading terminals with a spare berth for

37 River ports, being less costly to develop, have been more attractive sites for private port development. There are a number of socio-political factors which have caused Gujurat to take a leadership role in this activity.

handling project cargo. In East Malaysia, the LNG berths in Bintulu were developed as private bulk terminals but the port facilities for handling project cargo, supplies, and the fertilizers produced from the natural gas were developed as a public port. There are common-user ports requiring major infrastructure, such as breakwaters and access channels, which are being developed by the private sector. However, there are situations where the private sector has invested in the expansion of existing ports or has joined with the public sector in developing

a port. The high cost of entry extends to the cost of constructing special-purpose facilities.

Their costs have increased with their throughput. An efficient, fully equipped container terminal costs between US$40 million and US$100 million per berth, exclusive of land and water access. The same order of magnitude applies for large dry bulk terminals. Liquid bulk terminals are less costly because of their simple pier structure and cargo-handling systems, but the backup storage and piping can be costly. General cargo berths configured for multi-purpose use are less costly, of the order of US$15 million-US$25 million per berth. The high cost for new facilities limits the number of potential developers to shipping lines, cargo owners, railroads, and the large terminal operators with access to international finance. These facilities have relatively low marginal operating costs, making it easier for an existing operator to discourage potential competitors.

The economies of scale apply to ports and to individual facilities. The larger the port, the lower the amortized cost per berth for the basic infrastructure, especially entrance channels and large breakwaters. There are also economies of scale associated with the depth of water available alongside the berth. The greater the depth, the larger the vessels and the greater the throughput which can be achieved at the berths. For individual facilities, an increase in the number of berths permits higher average occupancy and more sharing of the cargo-handling equipment and backup storage. However, these economies apply only for the first three berths. Beyond this, there are relatively little additional economies with an increase in size. The rapid development of competing trans-shipment hubs in the Mediterranean and the Caribbean suggest that economies of scale for larger terminals are limited.

The potential economies of scale relate not only to the size of the port but also to the size of the market it serves. Ports develop in parallel with their hinterland, which provides both the base load cargo and the supporting logistic services. The hinterland remains an important factor even with the expansion of land transport networks and the refinement of intermodal transport. Where ports have been restricted in their growth by the development of the surrounding urban area, they continue to have a competitive advantage over ports that are located in less congested areas within 100 to 250 kilometers of the urban area. Bangkok, Karachi, and Manila have all continued to thrive despite the availability of newer, less congested port facilities outside the urban area.

The volume of traffic introduces economies of scale by generating frequent calls by scheduled shipping services that provide services to different parts of the world. The ability to offer more frequent sailings to more trading areas with more direct connections provides a competitive advantage for attracting local and regional cargo and for capturing trans-shipment business. The development of the hub-and-spoke container shipping networks with multiple strings on the primary shipping routes are a recognition of the benefits of calling at a few larger ports.