ADMIN NOTE: Promotional costs include rebates.

IX X I

Source: KTO's Audited Accounts.

exhibiting the widest variation and one which is consistent with the behaviour observed in total costs is the Direct Expense category. It represented the largest area o-F Terminal expenditure, standing at over J$23M in 1986 or 47/i o-F total cost.

The Direct Operating cost, as the term implies, represents all those costs incurred by the port in 't:he provision o-F its service to users and which would not have been incurred i-F there was no tra-F-Fic at the Terminal, that is, container handling costs. It there-Fore encompasses costs such as stevedoring, stripping & stuf-Fing o-F containers, mounting and grounding and repair and maintenance costs among others. As such this essentially represents variable costs and by de-Finition should vary with the level o-F Terminal activity. Variable costs (vc) seem only to be -Flexible upwards and recorded only a marginal decrease despite a substantial one in throughput. Thus the VC component o-F the Terminal’s costs may be said to have evolved overtime into -Fixed costs. The reasons -For this are manyfold, and can be partly attributed to constantly rising labour and equipment costs fuelled by high inflation and the basis of the stevedoring arrangement in effect with TSL.

In chapter 4 it was mentioned that stevedoring operations at the Terminal are carried out on a subcontract basis by TSL.

It was also mentioned that the straddle carrier relay system was employed by the Terminal in the quay transfer operation. What was however not stated was that the leg of the quay transfer involving movement from the apron to the stacking area was also carried out by TSL with KTQ’s personnel being utilized in the actual stacking. It is not clear whether this arrangement is union dictated. However, what is clear is that KTD paid nearly J$7M in 1990 to TSL for this service.

carrier direct system -For its quay trans-Fer operations, as this would eliminate the need to employ TSL labour and trucks. Again, it is not quite clear .what the prevailing arrangements are -For work allocation on the Terminal as there exists some complex associations. For example, several o-F the a-Forementioned trucks used by TSL are actually owned by the PAJ and bought for use on the Terminal. One would therefore expect that these would represent equipment at the disposal of KTO in much the same way as the straddle carriers and cranes. KTO is however billed for their usage by TSL.

Before proceeding further, a brief description of the basis of stevedoring charges will be instructive. To repeat, TSL is contracted by the Terminal’s management to provide stevedoring labour which it in turn recruits (on a need basis) from a central labour pool run by the SAJ. The labour engaged by TSL from the SAJ are paid at the union negotiated rates. TSL itself provides the supervisory personnel for the stevedoring and switching operations. Therefore in the case of stevedoring, KTO's payment to TSL has to cover wages and fringe benefits of both these categories.

TSL bills KTO, based not on hourly basis, but at a fixed cost per box moved. In the case of stevedoring it is the cost per shift divided by the estimated number of moves per shift (20 per hour for Lo-Lo and 10 for Ro-Ro) The cost of TSL supervisory personnel which represents a fixed annual cost is recouped by charging KTD a rate based on their total cost allocated over the estimated annual moves.

This charging practice is analogous to the Sliding-Scales method. According to the theory, the main advantage of

Internal Report on cost of services provided by KTO . Port charging practices by B.J. Thomas, Maritime Policy & Management 1978, vol.5 page 124

this method is that "a productivity agreement is built into the contract based on the knowledge that as per-Formance measured in Cmoves/gang/hourl increases, so average total costs -Fall". Thus the rationale is that since revenue received by the stevedoring company is based on box moves and not hours, while its costs (primarily labour) are incurred largely on a hourly basis, then by increasing the moves per hour (higher productivity), that much less stevedoring cost will be incurred by them -For a given revenue.

However, the system breaks down simply because the interests o-F the stevedoring company and that o-F the stevedores themselves are diammetrica1ly opposed: It is in the interest of TSL to improve productivity but from a wage point of view not beneficial to the stevedores. This problem is a result of the fact that the labour institution and the- stevedoring company per se are separate entities and that stevedores are wage earners and not salaried employees. This of course explains the relatively stagnant levels of productivity achieved by the Terminal to date — around 13 moves per gross gang hours.

The Terminal's management to some extent attempted to protect itself against this low productivity level by building in the calculation of the stevedoring rate, a higher level of performance (20 moves per hour) thereby penalising TSL for non performance, and the intention being to create an incentive for improved performance. However, the degree to which this is actually effective is questionable. It is conceivable, even logical, that TSL, faced with this situation and knowing quite well the more probable performance level of the stevedores, would make allowance for this in their presentation of the overheads used in the calculation.

presentation o-f the overheads used in the calculation.

The present stevedoring arrangement offers certain benefits for the Terminal. The primary being, it avoids the carrying of stevedoring costs as overheads. This was especially important during the formative years of the Terminal's life when keeping fixed costs to a minimum was important. Thus fluctuations in throughput would not result in surplus or shortage of .labour nor in the Terminal incurring huge losses. Maintenance of stevedoring labour as a variable cost was therefore important. This strategy has backfired, in that stevedoring costs are variable upwards but highly inflexible downwards and KTO may have to revise this strategy.

In addressing the question of productivity, it is essential to look at the efficiency of resource use, where efficiency is from a port standpoint synonymous with cost sffectiveness, usually measured as the cost per container handled. For the years between 1985 and 1990 cost per container handled at the Terminal are as below:

TABLE 5.4 I I--- I Direct I Staff I Promotion I A dm i n. IF i nance I Property I--- ITotal (J$) I--- 11ndex I--- I 1 1985 113.36 62.22 44.52 9.95 0.34 20.44 250.83 100 1986 144.58 72.41 52.54 15. 13 0.37 22.10 307.13 122 1987/88 1988/89 188.02 108.85 73.34 34.90 0.37 29.16 261.IB 178.13 62.86 55.70 1.06 60.35 434.13 619.28 173 247

Source: KTO Audited Accounts for Years 1985-1990.

' "I 1989/901 283.351 253.521 61.141 70.221 1.781 72.631 --- 1 742.641 ..^ 296 I

Basic Principles of Berth Operations, Iper, Le Havre, 1985. Page 19.

81

From a cost standpoint it may be said that during this period the e-f-Ficiency o-f the terminal in terms o-F cost e-F-Fectiveness worsened dramatically with cost per box displaying steep increases, re-Flecting in 1990 an almost 300% increase over the base year 1985.

5.3 IMPACT OF COSTS ON TARIFFS AND PROFITABILITY

Be-Fore remarking o n ’the impact o-F port per-Formance on the level O-F tari-Ff, a brie-F commentary on the structure and

allocation o-F revenues is necessary. The allocation o-F the various port costs incurred by the Terminal’s users is shown in Appendix 5.5. Except in the cases o-F wharfage (see discussion of the Agreement in chapter 4) and stripping and stuffing, KTD is not involved in the collection or billing for services which do not constitute a part of its revenue. Thus Harbour Fees, Pilotage, and Towage are contracted by carriers directly with the PAJ.

The general structure and content of the container tariffs is simple. Regarding the loading and discharging and quay transfer activity, a single rate is quoted for domestic and transhipment boxes respectively, regardless of box size. The rate for transhipment is a onp way rate, that is, discharge is billed separately from loading. The loading/discharging rate per box covers all activities from ship's side to transit area. Thus there is no separate contract between the stevedoring company and the carriers.

The flow diagram below summarizes the container handling charges associated with various stages of the handling process.

FIGURE 5.9

SHIP <--- > QUAY <->

LCL

<-- > CFS

LQAD/DISCHARBE TRANSFER STORAGE

FCL

DELIVERY/