Competition in Port Management and Development

Ali Gökhan ESİN
Southampton Institute

A seaport has been defined as a terminal and an area within which ships are loaded and/or discharged of cargo and includes the usual places where ships wait for their turn or are obliged to wait for their turn no matter the distance from that area. Usually, it has no interface with other forms of transport and in so doing provides connecting services (Branch, 1986). According to definition above ports are a service industry, where any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything (Kotler & Armstrong, 1996). The quality of service provided by port depends on the location of port, time and cost efficiency of handling, inland network, security and other services such as pilotage, bunkering and so on.

Definition of port management shows that labour and public relations need to be developed and should be kept a constant lookout for prospects of commercial expansion of the port’s business (The Nautical Institute, 1988). Any port development project requires that port authorities should take into consideration economic and technical aspects, environmental and pollution prevention. Thus the port in the marketing sense is referred to as the whole area where the port community lives, which includes all activities in the port area or relevant to port production (Somers and De Wilde, unknown).

In the light of port development and management, the purpose of this assignment is to examine the importance of long-term relationships between the port authority and ship owners, port employees, local communities and port networking.

Its focus is clearly on the benefits of enduring long-term relations and mutual understanding of stakeholders, in competitive environment of ports. Initially it describes the change in the market environment and how it affects the logistics. Than it shows relationship between ship owner retention and profitability and the importance of inland network. In addition, it defines the labour unions and shows the advantages of having a good relationship with employees. On the other hand this assignment interprets that how the local and environmentalist communities react to port authorities in response to lack of environmental practices. Moreover shows the benefits that can be derived by good relationship between port authority and local and environmentalist communities. On the port networking side, it discusses the co-operation of partners for to create a win-win strategy by using information-based relationship.

Relationships Between Shipping Companies,
Port Authority and Port Networking

During the last decades, the market environment in which seaports operate has been substantially changing. Nowadays consumers require a greater product variety and impose higher requirements as far as the availability, the quality and the reliability of the consumer goods are concerned. The short product-life cycles and short time-to-market affect the transport flows in the sense that the number of products to be shipped and the shipment frequency increase, whereas batch sizes are becoming smaller.

The emergence of global corporations has also been stimulated by the liberazing influence of organizations like World Trade Organization (WTO), the European Union and North American Free Trade Agreement (NAFTA), the growing effectiveness of international capital markets, and last but not least by the gradual deregulation process which undoubtedly promotes the emergence of a global transport industry (Notteboom and Winkelmans, 2001).

Today many shippers have developed into large concerns, often possessing more relevant market information than the shipping companies. They have, in other words, become much stronger players in shipping market. However, the reality of enterprises affecting the shipping market is more complex than that. There are players other than shippers and shipping companies involved, for example, stevedores, port authorities. Moreover, the interest and objectives of the market players have evolved. The competitive struggle goes much further, so that attention is also due to cargo handling, hinterland transportation and even other logistic services (Heaver, Meersman, Moglia and Voorde, 2000).

In a broader view, carriers compete with one another so do shippers. Presumably, this encourages service and product improvements and keeps price in line. It also directly affects the fortunes of the ports (Fleming and Baird, 1999). As port competition increase, ports want to increase their competitive differentiation, service quality that results in customer satisfaction and productivity (Kotler and Armstrong, 1996). Moreover flexibility to adapt quickly to changing opportunities and an integral approach to logistics issues in transport chains, create two key elements in obtaining competitive advantage. Thus ports seek competitive advantage in ways; more demanding on ship owners and rapid structural changes in logistic. On the other hand enduring relationships with ship owners cannot be duplicated by rival ports, and therefore provide for a unique and sustained competitive advantage (Buttle, 1996).

It is clear that port authorities must understand shipping companies expectations. This means that there must be a continuous flow of information, continuity is required because expectations change overtime. The latter point shows the requirement of long-term relationship. Conversely, in short-term relations customers’ best interests are not served. Relations based on two economic arguments; 1) It is more expensive to win a new customer than is to retain on existing customer 2) The longer the association between port and customer the more profitable the relationship for the port. The longer a relationship continues, the better a port authority can understand the shipping companies, their needs and preferences and so greater the opportunity to tailor the services (Buttle, 1996). Moreover, customers in long-term relationships are more comfortable with the services of the port, “handling services, port traffic management, operating and information services such as acceptance of bookings for pilots� (Branch, 1986). Shipping companies’ loyalty emphasizes the interactive nature of relations, it is an acknowledgement of the nature of the commitment of the customer to the port and/or its services.

Having claimed that the goal of the relations is to identify and nurture mutually satisfying long-term relationships with shipping firms, but there has been an argument that relations need not necessarily focus on the long-term. For example, some of which are like single visit to port by tramps such as voyage charters, narrow in scope and not involving much or any relationship (Buttle, 1996).

Differentiation and Vertical Integration

As the ambition of global corporations often exceeds the capability of their own resources, outsourcing of logistics functions is revealed to be an important strategic option. So the third-party transportation is already widespread, but also warehousing and distribution activities are becoming fast growing outsourcing business. As already mentioned the relation between port and its market is very important. A port may have most up-to-date equipment and infrastructure, the most efficient organization, the perfect location quality services and an excellent know-how; in short everything that can make it excellent, competitive port, all these assets are little value if there are no good connections with the hinterland. For the commercial development of a port is extremely important that the connection roads to the ports are free, an important responsibility of the government (Somers and De Wilde, unknown).

On the other hand there is only one factor will never change: the geographical position of the port in relation to the market demand. This leads to the notion of the centrality. It is wrong to look at centrality as an ever-lasting statistical fact. There is always a relationship between centrality and attainableness. For example, the economic advantages of operating large size container ships has led shipping lines to concentrate cargo at a limited number of ports. Moreover, the door-to-door philosophy has transformed most shipping lines into inter-modal logistics organizations. Ocean carriers are now issuing through inter-modal bill of ladings (BIL) to inland points under point-to-point freight rates. This is because of the significance of inland costs that has increased in the overall cost structure. For example, inland costs for CP Ships account for 42% of its overall costs or even 50% if the repositioning of empty containers is included. For P&O Nedlloyd, inland transportation accounts for much larger component of cost, around 70%, than running the vessels. (Notteboom and Winkelmans, 2001)

Therefore, improvements in terminal and landside operations are required not only to lower the cost burden of door-to-door transport, but also to make sure that the savings at sea with post-panamax vessels are not to be lost on land.

This has resulted in carrier co-operation on purchase an organization of inland transportation, in particular through inland depots and the introduction of own shuttle train operations. A good example of carrier co-operation in the rail sector is European Rail Shuttle (ERS), a joint venture between P&O Nedlloyd, Sea Land and Maersk. ERS operates shuttle trains between Rotterdam and inland terminals in Germany, the Benelux countries and Italy (Notteboom and Winkelmans, 2001).

The relationship of the shipping lines with inland transport have been complicated by the dispute with the European Commission. Because this relationship disallows collective exemptions from the rules of free competition for land transport (Heaver, Meersman, Moglia and Voorde, 2000).

It is clear that shipping companies are involving to door-to-door transport. As a consequence door-to-door philosophy shows that improving relations with shipping companies provides no benefits unless there is a good inland network.

Another strategy that is launched by shipping companies in order to lower the costs is dedicated terminals.

Dedicated Terminals

Traditional marketing theory places mutual satisfaction at the heart of marketing exchanges. Companies achieve their profit targets by virtue of satisfying customers. The needs, wants and expectations of customers have not been paramount importance if there is evidence that shipping lines want to enter into long-term partnership with ports (Buttle, 1996). This results in the demand for dedicated terminals. This demand in Europe has increased considerably in the last years, with new initiatives still underway. Some examples are Maersk in Algeria’s and Maersk in Rotterdam, Evergreen in Toronto and the MSC/Hessonite combination in Antwerp (Notteboom and Winkelmans, 2001).

However, commitment and trust are “key� in this long-term relation because they encourage port authority to (1) work at preserving relationship investments by cooperating with exchange shipping companies, (2) resist attractive short-term alternatives in favour of the expected long-term benefits of staying with existing partner, and (3) view potentially high risk actions as being prudent because of the belief that shipping companies will not act opportunistically. When commitment and trust —not just one or the other- are present they produce outcomes that promote efficiency, productivity and effectiveness. The challenge for port authority is to demonstrate their commitment to the relationship and to inculcate trust in their partner, because of the relative absence of tangible clues, and because services cannot be examined before they are produced/consumed (Buttle, 1996).

This vertical integration raises an important question: a danger that a certain shipping company may monopolize (part of) the port infrastructure? (Notteboom and Winkelmans, 2001)

Port Networking

Another way of gaining competitive advantage is port networking. The development of strategic relationships with other transport nodes is probably the most important role for port authorities in the new millennium. As indicated earlier port sector is broadening the geographical scale of its activities, also towards the hinterland. For instance, the stevedoring company ECT of Rotterdam already operates its own inland terminals, such as a rail terminal at Venlo and Barge terminals in Duisburg and Willebroek. The networked transport environment pushes port authorities to engage in port networking with (1) overseas ports, (2) neighbouring ports, and/or (3) inland ports. Strategic co-operation in port networks is normally aimed at the tuning of policies and the joint use of scarce resources. Major fields of possible co-operation among port authorities are traffic management, site issuing, hinterland connections and services, environmental protection, marketing, and research and development.

The implementation of port networking strategies can vary from informal programmes of co-ordination to advanced forms of strategic partnerships through strategic alliances, (cross-) participation, joint ventures or even mergers and acquisitions. The form of co-ordination and co-operation between port authority and other transport nodes is of secondary importance. Indeed, the optimal form for shaping the co-ordination and co-operation within a port network will largely depend upon the institutional and legal status of partners involved. One might say that there might be a fundamental shift in the nature of information exchange within network. When information was exchanged principally through person-to-person contacts, is an attribute of the relationships between the port authority and its partners. It is indeed the case that these information based relationships become so strong that they reach such a level that they act as effective “barriers to entry� of newcomers and thus acquire the capacity for self-perpetuation (Buttle, 1996).

Of primary importance is that any form of co-ordination and/or co-operation should envisage a win-win situation not only for partners directly involved but also for the logistics performance of the whole network. For most landlord port authorities, a win-win situation means more traffic and more port activity, as this will increase total revenue. A well-balanced port networking strategy does not imply a loss of port activity. It should enable a port authority to develop new resources and capabilities in close co-operation with other transport nodes and with mutual interest served.

A port networking strategy focused on inland terminals enables port authorities to tackle the problem of diseconomies of scale. It has been suggested that load centring can generate diseconomies of scale for seaports. One way to deal with this tendency is to shift a part of the distribution function of load centres to rail hubs and barge terminals in the immediate hinterland. The corridors towards the inland terminal network in fact create the necessary margin for further growth of sea-borne container traffic.

Although co-ordination of port authorities with inland ports is becoming a crucial item in new port competition and land accessibility, only a few initiatives have been taken by load centres in this field. Most port authorities are convinced that this type of networking is the responsibility of the private sector and that their own role should be limited to facilitation.

Port networking with overseas ports improves the ports’ functioning in the global transport system, through the exchange of knowledge and ideas. Co-operation with overseas ports is often materialized through sister-city agreements and less formal mutual exchange of information.

Port networking among neighbouring ports through segmentation of markets and co-ordination of functions can prevent port authorities from wasting scarce resources on inter-port competition. On the maritime side, even simple forms of co-ordination can help to counterbalance carrier power, especially when container flows towards the shared local hinterland of neighbouring ports involved (in that case alternatives available to carriers in terms of ports of call are limited). On the landside, co¬ordination or co-operation among neighbouring load centres can be extremely useful in view of the effective bundling of container volumes towards the hinterland. Bundling schemes allow deeper hinterland penetration and stimulate intermodality higher frequencies and better utilization of shuttle trains and barges. Several European initiatives suggest that co-operation among neighbouring ports is slowly developing. For example, the Belgian ports Antwerp, Zeebrugge and Ghent evolve towards a Flemish port network.

However, collaboration between port authorities of neighbouring load centres remains difficult to realize. In many cases, the private sector initiates the first steps towards a more structural co-operation by opening offices in neighbouring ports. For example, most co-operation forms between port authorities in Hamburg-Le Harve relate to marketing, R&D, whereas only limited co-operation and co-ordination could be found in the important fields of site issuing and hinterland connections. The lack of strategic co-operation in the latter fields is caused by orientation of many port authorities on the stimulation of the local economy (public objective). A way out is to disconnect the private objectives from the public objectives by making the port authorities concerned more autonomous through corporatization or, if necessary, complete privatisation. The acquired independence allows autonomous port authorities to fully concentrate on the port community’s interests (Notteboom and Winkelmans, 2001).

Socio-Economic Stability

Ports have a mission of generating jobs and incomes for the region. For this reason, for instance, in various Continental European ports, marketing is seen as part of a wider operation to encourage the industrial development of a city or region (The Nautical Institute, 1988). The response of the port authorities is influenced by their ownership structure and, in case of public ports, by the objectives set for them by community. Private ports have a primary interest in maximizing profits, but must serve the trade well to maintain their market share. Public ports are concerned with serving trade efficiently as a means of maximizing trade and economic benefits to the community.

Ports operate in highly competitive industry. In many trades and in many ports of the world there are more berths than ships with cargoes to fill them. However while the overall function of a port authority is normally to promote, to manage and to develop the port, their primary management objectives may differ. For example, some are required to place most emphasis on a primary goal of achieving a good return on capital and other resources employed. Others have a wider or more general aim-for, to take as much traffic as they can for the sake of local employment. One cannot fault the public port for undertaking this job-and-income mission, nor for developing and grooming the necessary facilities, planning port specializations and cultivating customers. Port authority play an important role in labour and local community relations and matters and so aid in achieving socio-economic stability that implies events such as strikes, safety problems, boycotts, unstable service standards and charges etc. (Heaver, Meersman, Moglia and Voorde, 2000).

In today’s competitive environment the effect of unreliability concerning these situations is a major disadvantage for the port. If one of these situations above occurs in the port on a regular basis, the port soon suffers in its reputation. A ports image once established is difficult to change, so great attention must be paid to port services. A port, even when it has solved its labour problems, has to convince prospective port users that the social situation of the port is indeed stable.

Relationship Between Port Authority and Port Employees

It is clear that the labour force is one of the key elements in the performance of port. If this element is weak because of low production levels, strikes, high damage levels and theft, the harbour user will try to avoid the port and use a neighbouring port if it as the opportunity to do so. Relations with employees often emphasises team spirit, teamwork and notions of leadership rather than of power. Conflicts are as a result of the activities of deviants and troublemakers or as arising from ignorance that can be overcome by training and “good� communications (Burchill, 1997). The value of each person needs to be explained in the total chain of international trade and transport. Only when the position of their jobs explained to the labour force in view of the total transport chain, they can estimate the value of their work (Somers and De Wilde, unknown). This requires a frequent information flow between the port authority and port employees. The needs, wants and expectations of employees are important for mutual understanding between port authority and port employees.

Workers may group together for collective employee relations for purpose on a temporary basis or in a more permanent form such as unions. These unions are an association of workers formed to protect their interests in employment situations. They have very specific objectives; higher living standards for their members, provision of welfare services such as sickness benefits, insurance and pensions, and security of tenture for the people they represent. The main device whereby unions pursue their objectives at workplace level is collective bargaining (Bennett, 1997).

The labour cost is an important issue in port management. Whenever it becomes too expensive, managers try to find other solutions. Prior to 1989, Felixstowe, which is a private port, enjoyed a significant advantage over other U.K. ports because port employees were not registered under the National Dock Labour Scheme; therefore employment costs were relatively lower. The scheme was abolished in 1989, partially levelling the competitive playing field (Fleming and Baird, 1999).

There are two types of conflicts that may occur in employee relations.

Conflicts of interest: These occur when various interest groups compete for the largest shares in a fixed amount of resources, for example, wage bargaining, making new arrangements on terms and conditions of work, renewing collective agreements, etc. Such conflicts are best resolved through negotiation rather than adjudication.
Conflicts of right: Conflicts of right arise from alleged violations of (for example) agreed terms in workers’ contracts of employment, a statute, or a collective agreement. The remedy is to obtain, via independent adjudication, a statement of the correct legal position.

The effective resolution of any form of conflict requires mutual acceptance of outcomes. Amicable settlement of conflicts is most likely where there is;

As it is clearly mentioned that open and extensive communication between management and the workforce and between individuals, sections and departments. Joint problem solving. Willingness to comprise. (Bennett, 1997)

If the port authority is unable to meet port employee’s needs it is likely that they will strike that might result in severe consequences to port and the region. For example, a month-long strike over wage increase took place in November 1983 in the Haifa and Ashdod ports in Israel. Ten days before the strike over, the direct losses to agricultural exports were estimated at $20 million (in 1983 prices). The strike ended only after it was agreed that 130 dockworkers receive a 34% salary increase (Efzioni, 1999). Thus the relationship between an organization and its employees requires a full range of interactions communications between employers and employees, and also the process by which they adjust to needs and wants of each another.

The advantages of having an employee relation between port authority and employees can be listed below:

The continuity of workers employment. This enables to create a consistent policy that will be applied within all the sections and divisions.
The emergence of informal ad hoc systems that operate in parallel with yet tend to undermine official lines of authority can be avoided.
Employees will receive much more information about the port’s structure, operations and level of performance than otherwise might be the case. This can greatly contribute to the establishment of common perspectives throughout the organization. Thus improve the morale of workforce.
Management becomes proactive rather than reactive, and may plan ahead.
Policies affecting employees can be dovetailed into an overall corporate plan (Bennett, 1997).

However, in the employment relationship there are some items of exchange that can be precisely specified, there are many others about which it can be notoriously difficult to be specified. In addition, the relationship is not a one-off transaction. It extends into the future, and it can be difficult to state precisely what terms of exchange will be needed then. Trust is necessary for the relationship to work.

There can obviously no sharing of decisions unless information is shared as well, simply keeping employees informed does not mean that they have been invited to help run the port. Thus even where communications are excellent, it should never be assumed that this is a form of participation (Rollinson, 1993).

Relationship Between Port Authority and Local Community, Environmentalists

On the other hand, port development chokes off alternative uses of valuable seaside property, disrupts nearby residential and business development. For example, because of the recent deployment of very large container ships requiring deep-draught channels, ports are investing heavily dredging ever-deeper channels to the issue of competitive advantage, but negative environmental consequences may result from dredging of contaminated materials. Moreover, modern port operating techniques require the port planner to provide areas behind the quays. Port construction will usually result in the destruction of the existing vegetation on these land areas. In addition, port operations can create waste, whose storage should be controlled to avoid nuisances. A port complex can also be associated with an industrial area, which sometimes generates air pollution that cause inconvenience to people and damage to vegetation and buildings. Furthermore, noise is a form of pollution which depending on the level, can vary from annoyance to physical damage to hearing (UNCTAD, 1985).

As a result environment can be also defined as all physical, chemical, biological and social factors likely to have an effect directly or in directly, immediately or later on living beings (UNCTAD, 1985). Poor corporate environmental practices, for example, commonly lead to activist demonstrations and embarrassing media coverage. Some polluter ports are encountering difficulties recruiting employees from an increasingly socially aware workforce and frequently, it is a firm’s local employees who are “blowing the whistle� and their environmental violations. Growing “stakeholder activism� has made environmentalism a critical strategic issue for ports in the global economy, and improving stakeholder relationships and management are necessary for effective organisational performance. Stakeholder theory posits that port authority should adjust their priorities to bring them in the line with their stockholder’s interest. So ports must consider all of its stakeholders potential to disrupt or maximize stakeholders potential to support its activities.

This relationship adopts a proactive approach that initiatives may lead to cost savings, increased profits and competitive advantages. Marketers are recognising that greater benefits can be achieved by working with local community, rather than adopting a confrontational approach. These broader collaborative trends as part of a more extensive shift away from a “blame and protest� culture towards a “solutions� culture. Relationship between the environmental (local) group and port authority also requires attention. The willingness to share information and to communicate fosters mutual understanding and inter-partner respect. In order to achieve solutions port authority should communicate with local community. A port authority’s dialogue can be in away of activities (See Appendix I for Antwerp Port major activities and their financing). The goal is mutual understanding and -whenever possible reaching-agreement on controversial points in a consensus oriented manner. True dialog therefore implies the serious consideration of the results of ports policy. Cases such Brent Spar demonstrates that companies are very vulnerable if they neglect to communicate not only the benefits but also the risks of their activities.

Provided that a port authority has established a working communication relationship with its stakeholders, one of the most important issues to be discussed is risk. The risks connected with a manufacturing site, the security systems designed to prevent them and the measures to be taken once on accident has taken place all need to be discussed with local community. One of the tasks of scientific staff will be to comment on the port’s risk analysis and to assess the effectiveness of preventive measures. Environmental activists will be asked to give their views on the nature of risks and their prevention.

However, are the broader environment/social benefits result from green alliances outweighing the potential authority advantages that may be gained over the local/general public? The cooperative relationship between a port authority and its environmentalist/local partner requires a degree of confidentiality. Many managers have misgivings about opening their operations and marketing process to environmentalists for the fear that the information may be used against them if the green alliance fails. Agreements on confidentially are necessary to elicit marketer participation, but they may conflict with the environmental groups’ accountability to its membership and its “watchdog� role in society.

The benefits for the organization are more accurate planning and greater acceptability in the eyes of public (Charter and Polonsky, 1999).

CONCLUSION

This assignment shows that port authorities need to build long-term relationships with shipping companies, local communities and employees. Moreover, port authorities want to build strong economic and social ties by promising cost and time efficient service, generating jobs and income for region, environmental control, safety and security in the port area, and good inland network.

It is clear that understanding the communities’ needs, wants and expectations is very important for port authority. This means that there must be a continuous flow of information. Continuity required just because expectations changes overtime. Enduring relationships with ship owners cannot be duplicated by rival ports thus provides a unique and sustained advantage. However relationship has no meaning without serving market demands.

Increasingly, port marketing is shifting from trying to maximize the profit by building mutually beneficial relationships with customers and other parties. Port authorities know that winning a new customer is significantly more costly than retaining existing customers and that when customers defect they take with them all future income streams. The latter point assumes that: build good relationships and profit will follow.

In today’s competitive environment labour and local community relations play an important role in social-economic stability of the port. Because once the ports image established it is difficult to change. For example, poor environmental practices may lead demonstrations and embarrassing media coverage, or poor labour relations may result in strike.

On the socio-economic side, the goals are to maintain and enhance the reputation of port in the community and to keep employees informed of port authority plans and activities. However relationship between employees does not mean that there will be share of decisions. Trust and commitment are two challenging issues for relationship.

Another way of relationship is port networking. Ports want to broaden the geographical scale of its activities. Their primary goal is to create a win-win situation and raise the “barriers to entry� of newcomers, for the whole network by information-based relationship. However, lack of strategic co-operation is the main challenge for port networking.

As a consequence good relationships between port authority and other communities may result in a more efficient port that implies a balance between the social and economic forces to use modern technologies to serve and expand trade for that region and nation (Canamero, 2000).