Introduction
1.3 PORT OWNERSHIP, STRUCTURE, AND ORGANIZATION This section focuses on the characteristics of port ownership types, while it evaluates
how ports have adjusted structural and organizational designs resulting from globaliza- tion, the radical market changes, and the competitive demands affecting the industry.
Over the years, ports have been affected by global trade and the shipping industry in terms of ownership, technology, and services provided. Port evolution was swayed by modifications in port ownership, management, and structural and operation pat- terns and brought about radical changes in labor recruitment, training, and production requirements.
As markets became progressively globalized, sea transport volumes soared. From the 1950s to the latest global economic crisis, the growth rate of global trade was virtually double compared to the economic activity as a whole. From 2000 to 2008, global trade expanded by at least 5.4% annually, while financial transactions, as assessed by the inter- national GDP, grew by only 3% annually (World Ocean Review 2013).
1.3.1 Forms of Port Ownership, Structure, and Organization
The resulting changes in distribution of power, investment, and innovation have reshaped port ownership, structure, and organization. A new hierarchy surfaces among port authorities, governments, terminal operators, and ship-owning companies, in a complex supply chain network. This evolving relationship has the power to influence the way in which port managers and decision makers in the entire supply chain interact.
The United Nations Conference on Trade and Development (UNCTAD) Handbook for Port Planners in Developing Countries (1998) specifies the governmental powers of a nationwide port authority in the following manner, provided that the operating decision making will be undertaken regionally:
• Monetary policy: Authorization to establish common economic objectives for ports, such as investment policies and goals (as defined on a standard basis), with a common policy to local—as opposed to centralized—facilities funding, and informing the government authorities on loan requests
• Tariff policy: Capacity to regulate tariffs and charges as needed to safeguard the general public interest
• Investment policy: Ability to accept plans and projects for port investment opportunities in amounts exceeding a specific figure, under the condition that the suggested plans were largely in line with another national plan, sustained by the authority
• Labor policy: Authority to establish common hiring standards, a standard sal- ary structure, standard qualifying criteria for professional advancement, and the ability to authorize standard labor union processes
• Legal policy: Capacity to represent the local port authorities as legal advisor
• Licensing policy: If applicable, authority to set up principles for accreditation of port workforce, brokers, or agents
• Research and data analysis policy: Authority to gather, evaluate, and distribute statistical data on port activity for common use, and to finance scientific, indus- trial research into port matters as needed
1.3.2 Port Governance
Port governance may be defined as the method by which power is exercised in the man- agement of a nation’s socioeconomic assets for growth (World Bank 1991). The key cat- egories of port governance are as follows:
1. Government/state ownership and administration.
2. Semigovernmental organization: Autonomous ports/public trusts. A nonprofit administration manages a port entity and its specified services. This is a fairly typical arrangement during the 1980s, for example, London and Liverpool ports before privatization, as well as the French “Portes Autonomes.” This port con- cept may be afflicted by budget deficit or overregulation.
3. State/regional ownership, for example, Rotterdam, Hamburg, and Yokohama.
The significant benefit of this port model is the region’s full engagement in meet- ing the port’s requirements owing to the port’s role in the regional economic
growth. Regional subsidies may also be provided, as well as other financial incentives, in order to promote regional prosperity. On the other hand, its draw- back is the region’s disinclination to participate in any nationwide program.
4. Privately owned ports. Since 1947, at least one-third of British ports became public and pursuant to the privatization of the Port of Felixstowe in the 1980s, many other British trust ports pursued this path, driven by an estimated yearly revenue of at least 10 million dollars. In 1983, 19 ports under the Associated British Ports umbrella were privatized, thus increasing manual work productiv- ity by 40% (Associated British Ports [ABP] 2013, http://www.abports.co.uk).
Privatization triggers efficient allocation of port assets, resulting in increasing its capital equity and revitalizing the regional economic climate.
Port systems are also distinguished in terms of the following characteristics:
• Geographical orientation, that is, global, national, or regional
• Regulatory and policy system (globalization, liberalization, and protectionism)
• Service arrangement, that is, private, public, or mixed
• Infrastructure ownership, that is, land, technical structures
• Superstructure and equipment ownership, that is, warehousing, cargo handling equipment, ship-to-shore handling equipment, outdoor sheds, and so on
• Management of stevedores (longshoremen); trade union members or nonunion arrangements
1.3.3 Port Ownership and Structural Types
Port typology is also segmented in terms of ownership, structure, and service arrange- ments, namely, segmentation between a fully public port, a tool type port, a landlord port, and a privatized port. For a port authority, the decision-making and selection pro- cess are crucial for the port’s competitive edge, productivity, profitability, and regional development. In order for a port to maximize market share and compete in the global platform, it is necessary to select the tools that will determine its effectiveness and com- parative advantage. Figure 1.4 illustrates the port management typology and the different service options available.
1. Public Service Ports: Service ports possess a public character. Within this frame- work, the port authority is the employer and provides the entire spectrum of services needed for global port operations. There is a tendency for certain service ports to be converted into landlord ports, especially in Africa. Certain ports in developing countries continue to be governed in accordance with the service type. The port possesses, controls, and runs all assets, equipment and services available, whereas cargo operations are performed by port authority employees.
Service ports are typically managed by national or state authorities and its lead- ership is composed of public officials, recruited by state or federal government.
Cargo handling is a primary service offered by service ports. In certain devel- oping economies, these services are carried out by independent public companies.
Typically, these companies are also managed by the same state or government authorities, just like the ports. A modern corporate challenge entails managing port authorities and related service providers of contradicting interests.
2. Tool Ports: Within a tool port model, the port authority is the owner, developer, and handler of the port’s infrastructure and superstructure, whereas it leases the port’s superstructure, including cargo handling equipment, to cargo handling companies.
Assignments are allocated through divided operational duties, as stipulated in their contractual obligations. While the port authority owns and operates the cargo handling equipment, the private cargo handling firm does not have the authority to entirely control the cargo handling operations; hence, it typically liaises with the shipowner or cargo owner. Over the past few years, there has been a fine line between tool ports and service ports: in an effort to increase effi- ciency and eliminate discord among port authorities and cargo handling firms, certain port authorities permit the operators to employ their own gear, hence gradually becoming less of a tool port and more of a service port. Other common elements between tool ports and service ports include the financing arrange- ments and their public character.
Modern arrangements have increased the role of private terminal operators, thus resulting into power struggles and a complex or inconsistent decision-making protocol. In general, a port’s function and its impeding success depend on power delegation, as well as the allocation of services and liabilities between the port authorities, the cargo handling companies, and private terminal operators.
On the other hand, the tool port model is an appealing option for ports that wish to benefit from a public–private coalition, in particular when the port authorities wish to minimize the risk entailed with an initial capital investment and may not rely entirely on private ownership. Tool ports are also an attractive option during the initial formation of a port, owing to the relative simplicity and time efficiency of legal and regulatory framework. During the initial stage of a port’s reform, no state resources need to be allocated to the privately owned busi- ness; hence, tool port models are a simpler and faster model to follow.
3. Landlord Ports: Landlord port models combine a public–private alignment: the port authority serves as a legislative and administrative structure, whereas the private sector provides its own superstructure (i.e., cargo handling equipment, cranes, derricks, etc.) and other port operations. In addition, private industries, for example, chemical plants, oil refineries, and cargo and liner ship terminals, lease infrastructure and space from the landlord port. Typically, this port type is the leading model for the larger hub ports and busy medium-sized ports, such as Houston, New York, Antwerp, to name a few. Typically, a contract stipulates terms and conditions for leasing time, use of superstructure (i.e., offices, cargo storage, and maintenance areas), and assets’ ownership and land repossession.
The annual lease typically involves a lump sum payment per square meter, pro- viding for an annual estimated inflation rate. The contract will also define steve- dores (longshoremen) and other labor provisions, both union and nonunion, as provided by either a port employment arrangement or private terminal operators.
4. Fully Privatized Ports or Private Service Ports: Under the full port privatiza- tion model, the port’s ownership and public policy-making is fully transferred from the state to the private entity. The benefits from this option include govern- ment support through private investments, generating commercial growth and increase of employment, as well as technological innovation and modernization of equipment. This model is encountered mostly in British and New Zealand ports.
Port types CharacteristicsPublic service portTool portLandlord portPrivatized port Port management PublicPublicPublicPrivate Navigational managementPublicPublicPublicPublic Navigational infrastructurePublicPublicPublicPrivate Port infrastructurePublicPublicPublicPrivate Superstructure (equipment)PublicPublicPrivatePrivate Superstructure (buildings)PublicPublicPrivatePrivate Cargo handling activitiesPublicPrivatePrivatePrivate PilotagePublic and privatePublic and privatePublic and privatePrivate TowagePublic and privatePublic and privatePublic and privatePrivate Mooring servicesPublic and privatePublic and privatePublic and privatePrivate DredgingPublic and privatePublic and privatePublic and privatePublic and private Other functionsPublic and privatePublic and privatePublic and privatePublic and private Ownership/management characteristics- Unity of command - Overstructured management- Terminals/private cargo handling company do not
entirely control cargo operations. - Power struggles due to private entity’s limited funding contribution, administrative and equipment usage issues.
- Long-term contracts - Terminal’s loyalty to port - Terminals/private cargo handling company owns and operates cargo handling equipment.
- Limited government authority and interference. - Government loses financial control and ability to benefit from future profit or development. - Regional development may not be a priority to the private sector. - Any future gains mainly benefit the private sector. Long-term benefits from port’s previous clients and supply chains. - Serious security concerns. - Risk of speculation. Private company free to resell, redevelop, or lease to third party, with huge profits, no government control or interference. - Strategic location encourages private company to expand business activities. - Risk of monopolistic behavior, as tariffs are decided by the private sector. Port tariff regulator may be needed to avoid overcharge, conflict with regional/national interests and supply chain. - Motivation to invest and take high financial risks. - Jobs creation may not be a priority to the private sector.
Private sector roleLimitedModeratePositive partnershipHigh FlexibilityLimitedModerate High; most adaptable to industr
y requirements. High; most adaptable to industry requirements. StabilityYesModerateHigh, long-term contractsN/A Problem solving potentialLimitedModerateHighN/A Innovation, modernizationLimitedLimited; private entity acts as labor pool, limited innovation incentive.
HighHigh Access to public fundsLimitedLimited; private entity does not own equipment; hence, there is limited investment incentive.
HighHigh Dependence on government budget and supportHighHighModerateLimited Incentives for growthLimitedModerateHighHigh Internal conflict/competitionLimitedYes, because of split cargo handling operations. LimitedHigh conflict potential pertaining to social responsibility, and all the above factors. FIGURE 1.4 Port management typology and predominant service arrangements. (Courtesy of M.G. Burns, based on World Bank, 2007, “Alternative Port Management Structures And Ownership Models,” Port Reform Tool Kit, Module 3 [accessed May 12, 2013]; World Bank, 1991, Managing Development—The Governance Dimension, Washington, DC; UNCTAD, 2012, UNCTAD Global Economic Outlook. Available at http://www.unctad.org [accessed May 10, 2013]; UNCTAD, 1998, Guidelines for Port Authorities and Governments on the Privatization of Port Facilities. United Nations Conference on Trade and Development. Distr. General UNCTAD/ SDTE/TIB/1, September 23, 1998.)
This is often regarded as the most risky type of port arrangement owing to high exposure of the national interests, especially pertaining to issues of national sovereignty, security, social responsibility, trade balance, and financial liability.
Once the sale agreement is finalized, sellers have the right to engage in any com- mercial activities, including land property speculation, and resale the land to any government or privately owned business, hence raising sensitive diplomatic issues.
Some characteristic examples of the potential complications involved with privatization are as follows:
Panama Terminal acquisitions by Hutchison Port Holding group, China Since 1997, the port terminals of Balboa and Cristobal were operated by the Panama Ports Company, a member of the Hutchison Port Holding (HPH) group. Certain maritime groups regarded this strategic purchase as China’s attempt to control the canal. Hence, the HPH CEO had to reassure the US government that this acquisition served purely trade purposes and no further involvement with the canal’s activities was intended.
US Ports management contracts with the Dubai Ports World, UAE
The Dubai Ports World controversy took place in post-September 11 America and became the dominant national security discussion in the coun- try. The debate entailed the port management contracts of six major US seaports to a United Arab Emirates-based company. DP World acquired the Peninsular and Oriental Steam Navigation Company and subsequently took over the full management of terminals in New York, Baltimore, Miami, New Orleans, and Philadelphia, together with 16 freight handling facilities and stevedoring operations at nine US ports. Pursuant to diplomatic action taken by the US Government, Dubai Ports World ultimately sold the assets to the Global Investment Group, the asset management division of the American International Group.
1.3.4 Port Privatization
Privatization pertains to the private sector ownership, that is, the transfer of property ownership from the public to the private sector or the utilization of private investment capital to finance ventures in port facilities, machinery, infrastructure, and superstructure (UNCTAD 1985 and UNCTAD 1998). Over the past few years, there is an increasing trend for seaports to pursue privatization. The contract types pertaining to privatization depend on the type of privatization, the time duration, and the degree of control and investment obligations on behalf of the private entity. Hence, the most commonly used privatization agreements, with the prevailing forms of privatization, and their respective contractual agreements are as follows:
1. Full privatization pertains to the full port ownership passing onto a private entity that eventually becomes the owner of all the land, water, infrastructure, superstructure, and generally all properties and assets within a port’s domain.
An asset sale agreement is applicable for the outright sale of a terminal facility.
2. Partial privatization pertains to an arrangement where only a fragment of the property, assets, or operations is purchased by the private sector, for example,
the superstructure is sold to the private sector, or the permit issued by a public port authority to a private business to develop and control a terminal, berth, or a designated port service (Trujillo and Nombela 1999). This type of privatization involves different forms of agreements, reflecting the time of lease or concession, the element of permanency, and the obligations of the private sector to invest, develop, and manage the segment of port facilities stipulated in the contract.
These contractual categories include the following:
• Concession agreement: Long-term facility lease, typically for 20–40 years.
• Service or leasehold contracts: A private operator performs specific opera- tional tasks, whereas the port authority retains ownership of the facility and equipment.
• Build–Operate–Transfer (BOT), Build–Own–Operate (BOO), and Build–
Own–Operate and Transfer (BOOT) arrangements. These agreements stipu- late that as a prerequisite for operating a port segment, the private sector must participate in financing, building, and managing of port facilities. Upon expi- ration of the agreement, the ownership is shifted back to the public sector.
On the basis of these models mentioned, it is worth noting that there is a great vari- ation in different privatization agreements, options, and the extent of ownership of differ- ent assets, services, and operations within the entire port area.
1.4 PORT WORKFORCE: PRODUCTIVITY, GROWTH,