Sources of Competition

B. Sources of Competition

The competition faced by ports is part of the general competition for the transport of cargos between their origin and destination. Traditionally, the competition has been between ports that serve a common hinterland. The extent of competition has increased as national port systems developed and land transport costs decreased. More recently, competition has extended to multi-modal routes that serve common origins and destinations. Although ports continue to derive most of their competitive advantage from their hinterland, the boundaries of the “captive” hinterland are being reduced. Efficient unit train operations and large tractor-trailer units have greatly reduced inland transport costs. Air freight has begun to capture higher-value, time-sensitive goods, either directly or in combination with ocean transport (sea-air services). Cross-border truck transport has increased the range of interport competition between countries.

Competition has also increased among the links of the logistic chains that transport, store and process goods from their point of origin to their point of consumption. The provider of port services competes with other links for the overall value-added provided by the chain. They negotiate with providers of services on other links to improve the efficiency of the chain. Land transport has tended to be a weak competitor for value-added because a large number of private truck operators

have come to dominate the transport of non-bulk cargo. 38 Shipping lines are strong competitors for this value-added. Their bargaining power, relative to ports, has been increasing even as their efforts to reduce competition through conferences, mergers, and alliances have generally failed. They use the threats of shifting to competing ports, reducing their frequency of vessel calls, and converting from direct calls to feeders to gain more favorable rates and services. They also use their market power to reduce the cost of inland transport by threatening to switch to other

carriers or to arrange for their own inland transport. 39 Within the port, there is often competition between the general cargo berths and the container terminals for marginal containerizable cargo and for containers not carried in cellular ships. Similarly, there is competition between general cargo berths and special-purpose berths for neo-bulk cargos.

The effect of the competitive interactions between suppliers of logistic services is to greatly reduce the opportunities for monopolistic behavior by the suppliers of port services. Most private providers of port services recognize that volume is more important than short-term profit in securing

a reasonable return on investment. This is especially true for the larger terminal operators (Appendix 1) which market their services in several ports and must provide a consistent level of service, since many clients call at more than one of their facilities. It is also true where they service the larger shipping lines or major cargo shippers who have the financial capacity to establish alternative terminals.

Despite the different sources of competition in the port business, there remain situations in which the establishment of private terminals or the franchising of cargo-handling services in public ports can create monopolies. For example:

38 A notable exception is the Malaysian container haulage industry which is restricted by the government. It has evolved from 39 Their involvement in inland transport began with trucking but has been extended to rail in a number of countries. Most a monopoly to an oligopoly, but continues to be plagued by inefficiency and high cost. countries have laws to protect local transport companies from foreign competition but this does not prevent the lines

contracting with local companies.

A small port that lacks sufficient facilities or traffic to allow more than one private company to compete for a specific service (e.g., Central American ports).

A private terminal operator that controls a much larger capacity than its competitors and is able to use its size to establish a competitive advantage (e.g., Hong Kong, China).

• An existing concessionaire that is allowed to bid for similar concessions either in the same port or in competing ports (e.g., Subic).

A private party that is granted protection from competition for a specified period and uses this protection to establish a dominant position in the market (e.g., Shanghai, Tanjung Priok).

A port that offers existing facilities to one party but has only undeveloped land to offer to potential competitors (e.g., Montevideo, Port Kelang, Surabaya).

A port with captive trade where there are no common-user facilities available (e.g., grain and other bulk terminals operated in conjunction with import licenses).