Commercial location and extra value adding functions

Additionally to modern port technical and operational characteristics and accessibility, a commercial

location should comprise a logistics zone in order to provide further added value functions (see Table

Table 4-4 Value adding functions in a commercial location

Function Overview

Processing Operations on the goods: Includes sorting, packaging, testing, assembling.

Distribution Operations on the cargo: Consolidation, deconsolidation, transloading or cross-docking. Customs clearance Releasing and/or inspecting inbound cargo (Assumed by a national customs authority). Free trade zone Imported and domestic goods considered to be outside of the customs territory.

Requires bounded transport and bounded warehousing.

Container depot Handle containers (leased or carrier owned), transfer custody of containers between shippers, storing and servicing/repairing containers.

Source: Adapted from Rahimi, et al (2008)

The main value adding elements of a logistics zone should form around gateway and transhipment

port operations and functions. The scope and scale of these elements are illustrated in Figure 4.8

which shows the development process that tends to be simultaneous.

In Figure 4.8, a logistics zone develops out of the combination of transhipment ports and gateway

ports with modern technical and operational characteristics. In the logistics zone, there is a

specialisation in freight movement services and activities such as intermodal terminal operations.

These carry out operations such as transloading, mainly in the close proximity to the gateway. The

logistics zone instead of limiting itself to transferring freight between shipping and inland transport

systems should maintain the whole scale of value added activities associated with global commerce

ranging from financing to multimodal and intermodal infrastructures, transloading, cross-docking and

warehousing.

The logistics zone develops into logistics concentration as a result of government’s policy regarding warehousing and freight distribution activities. These policies provide a specific area for private firms

to develop their regional supply chain, distribution and commercial activities. Logistics concentration

is the outcome of mutual understanding and joint action of high level government departments and

the private sector. It needs deregulation as well as large scale infrastructure investments.

A commercial location evolves from logistics concentration and has value added benefits from port

technical and operational upgrades, logistics zone, and logistics concentration accessibility and

business environment. This allows for the formation of a network or clusters of different large and

small commercial and logistics firms and trade activities in a specific location. These activities

utilities, parking space and even hotels and restaurants. These activities need a high level of

integration between the firms and distribution centres and higher interconnectivity between transport

terminals and the logistics zone together with existence of free trade zone (FTZ) within the location.

As mentioned in the introduction to the chapter, most of the commercial cluster elements are port

operations and functions. Furthermore, it has been stated that due to the synergy that the network of

business activities within the port vicinity would create, the commercial cluster has network effects.

This kind of port development are industry-specific logistics and supply chain development, thus

attract specific investment which form further port specialization. The policy makers need to support

this environment by understanding the requirements of main supply chain players in order promote

the effectiveness of the cluster.

Figure 4-8 Commercial location and added value

This setting which consists of large and small firms forms a business network. This business network

or commercial cluster provides further level of service flexibility in distribution networks and results

in an efficient intermodal freight distribution system which advances supply chain management

strategies and even acts as a buffer. This arrangement should provide connections to regional

economic areas and also offer direct access to global shipping networks. The development of

reliability, general cluster benefits to be realized and the sharing of the same logistics and commercial

facilities and equipment by many firms. Verhetsel and Sel (2009) introduced the concept of “World Maritime cities” in conjunction with concept of “world cities” which initiated by Friedmann (1986). The “World Maritime Cities” mainly focuses on maritime institution and shipping cooperate (companies) concentration within a city. The study categorizes different levels of concentration such

as Alfa, Beta and Gamma and based on these categories differentiated the maritime cites to different level of maritime developments. The “Commercial Cluster Concept” focuses on cluster formation based on maritime operational and technical characteristics and differentiates the ports by hub and

spoke. The main difference between these two approaches is that, in maritime city approach, city

development can change the level of a city maritime level. However, in a commercial location

approach, port development is the main determinant of hub and the spoke system formation. In this

approach, some ports with significant city developments will remain as spoke, while some others

with limited city development can act as a hub, such as Malta. Furthermore, in many cases, shipping

and logistics operational development may prevent the city institutional development and vice versa.

The above analysis suggests a different approach to understanding port development and

competitiveness. Cluster theory considers clusters an important factor in determining competition

between nations, regions and industries. Clusters are a collection of interdependent firms which are

located in a same area to form a value chain. The application of this way of thinking to logistics and

port analysis provides a better understanding of the main elements of a successful port in “Modern Industrial Dynamics”. The commercial cluster naturally should form around a container port and consists of firms involved in the different transport, distribution and commercial activities.