PORT INFRASTRUCTURE SPECIFICATIONS (PORT INFRASTRCTURE COSTS)

INFRASTRCTURE COSTS)

First, the analysis determined that there was a significant two-way relationship between the two main infrastructure charges (the channel/port due and the berth occupancy charge). The results indicate that the average value of the coefficient for berth occupancy charge (in natural log) is about 0.38, which is the cross elasticity of channel due with respect to berth occupancy charge17. This means that, if all else remains the same, a 1% increase in the berth occupancy charge is associated with a 0.38% increase in the channel due. On the other hand, the average value of the coefficient for the channel due variable (in natural log) of 0.40 indicates that, if all else remains the same, a 1% increase in the channel due is associated with a 0.4% increase in the berth due. The values of the coefficients for the other variables can be interpreted in a similar fashion. The significance of the channel length variable with the average value of its coefficient of 0.26 indicates that, if all else remains the same, a 1% increase in channel length of 1% would see a 0.26% increase in the channel/port due.

17

This is calculated as the average value of the coefficients for the variable that are significant at 1%, 5% and 10%.

JB STATISTIC P-VALUE α CRITICAL VALUES

lnTRFc 6.9 0.03 0.01 0.05 0.1 9.21 5.99 4.61 lnTRFb 1 0.6 0.01 0.05 0.1 9.21 5.99 4.61

76 Berth infrastructure specifications, berth lengths and depths are found to have insignificant effects on berth occupancy charge. This may be due to the fact that there are other factors affecting the berth occupancy charge which may need a separate investigation. Moreover, in some ports, this charge tends to be incorporated into wharfage which is associated with the terminal cargo handling service18.

The result does not indicate a significant relationship between channel width (lnCHWi ) and channel due, while channel depth (lnCHDi) is found to have a significant negative relationship with channel due. Although this variable is only significant in two regression models, its coefficient is consistent with the value of about -0.53, suggesting that a 1% increase in channel depth would decrease channel due by 0.53%. As explained

earlier, the negative relationship between channel depth (lnCHDi) and channel due

(lnTRFc) could be due to the fact that channels with sufficient natura l depth require less maintenance and dredging costs. This interpretation is based on the assumption that the available data reflect the natural depth of the channel rather than the artificial depth achieved through dredging. The results provide evidence on the relevance of costs to port infrastructure charges. For example, longer and shallower channels require more

maintenance costs, which in turn affect their respective charges. This also implies that

deeper channels would require less dredging costs, whic h according to Ghosh, Prasad, Joshi & Kunte (2001) also depends on the geographic and hydrographic characteristics of the channel, and this data was not available for empirical study purposes.

The depth of port navigation channels is one of the major determinants of port competitiveness (Ha 2003; Tongzon & Heng 2005). For port approach channels with insufficient depths and widths the need for continuous dredging for easy navigation of vessels and the increase in vessel size, have led port authorities to undertake large scale investment in port infrastructure, superstructure and channel deepening (Woo, Pettit & Beresford 2011). Moreover port infrastructure standards and expansion efforts by port managing bodies have been featuring as elements in port competition (Ishi, Lee, Tezuka & Chang 2010). The provision of a dredge channel can be a source of economic rent for port authorities despite its social and economic development consideration as a public good (Baird 2004). The results of the regression analysis are also supported by the earlier findings of Wilmsmeier,

18

As noted earlie r, this variable could not be included in the current study due to the unavailability of its data for all ports included in the samp le.

77 Hoffmann & Sanchez (2006), Wilmsmeier & Hoffmann (2008), and Oliveira (2010) that the improvements in the standard of port infrastructure such as berth length and maximum draft (deeper channels, turning basin and alongside depth) significantly reduce the impact of freight rate rise. This is primarily because, as explained earlier, ports with longer berths and deeper access channels charge shipping lines relatively lower berth and port access charges, and as a result the impact on voyage cost and therefore on the freight rate can be low.

With regards to port pricing issues in world ports across major port regions, such as the lack of cost-relatedness of port tariffs as highlighted by Haralambides (2002), the results provide clear directives to port policy on the pricing and financing of port infrastructure. The dilemma in the EU context of port pricing, and also in all modes of transport, is related to the establishment of fair price for transport infras tructure charges. With regard to port pricing, the commonly accepted norm is to undertake cost-based pricing of port infrastructure with the objective of establishing a level playing field for maritime transport and eradicating unfair competition and business practices. For other port regions where there is no official engagement of establishing a framework for port pricing, individual ports frame their own port pricing strategies which are mainly governed by the port policies of individual countries, the port's administrative and governance model, and port industry and shipping market dynamics. As a whole therefore the basic question, as EU port directives have proposed is, what is the appropriate basis for port infrastructure charges that all ports can have allegiance to, given the differences in economic and financial objectives, governance models, business models and port trade volume that exists among world ports?

Experiences in port pricing in the EU context suggests that major EU ports follow the cost-based pricing approach. Full cost recovery pricing is evident among EU ports, who has not significantly raised the port tariffs although they are cost related (Gardner, Marlow & Pettit 2006). This implies that seaports formulate port tariffs by considering the costs of providing port infrastructure services and the results presented in section 3.2 further confirm this specifically in terms of port infrastructure charges. The results provide port management organisations with clear evidence on the cost-relatedness of port infrastructure charges and directives for the formulation of charges. In order to remain economical and to provide efficient

78 navigation services ports, especially self- financing ones with longer and shallower channels, are required to be cautious when setting channel dues, and to adjust their charges to take into account the level and cost of maintenance operations over time This is because longer and shallower c hannels require continuous maintenance, which over time results in a large capital outlay. Therefore the revision of channel dues against the periodic costs of maintenance is a pre-requisite for the efficient maintenance of port channels. The method of financing port infrastructure and its maintenance however can have impact on the level of the port infrastructure charge. Ports that operate with a regional and country economic development objective, which are mostly public ports operating under a port autho rity and which are often financed through public funding, set relatively lower port infrastructure charges compared to commercially operating ports with a corporate ownership.

Some countries have a common policy towards port infrastructure maintenance and port charges do not reflect cost-relatedness. For instance US public ports are not financially and operationally responsible for maintaining port channels. Instead a central government organisation, the US Corps of Engineers, is responsible for maintaining all the main US ports and their navigable waters (Fawcett 2007). Therefore, US public port authorities do not charge channel or port dues for vessels calling their ports. However, federal government financial constraints on the US Corp of Engineers have resulted in the restructuring of the role of the port authority in terms of port infrastructure provision and as a result, a port infrastructure maintenance charge (harbour maintenance tax on the volume of cargo passing through the port) has been introduced in some public ports to maintain port access infrastructure (Kumar 2002). Owing to the utilisation of US federal funds for maintaining channels, centrally introduced harbour maintenance imposed on shippers has been criticised on the basis that the user pay principle is not represented in the pricing policy (Ashar 2003). This scenario suggests that institutional set up of US public ports has given rise to some complexities in the US port infrastructure development, maintenance, finance and pricing endeavours.

The lack of the cost-relatedness of port tariffs has implications for port competition and efficiency. Inter-port competition promotes port efficiency. Barriers to inter-port competition constrain the enhancement of port efficiency. Port reform in the Spanish port system provides a good example of this. Although port reforms

79 undertaken during the 1990’s to enhance the autonomy of port authorities resulted in the growth of port traffic (Castillo-Manzano, López-Valpuesta & Pérez 2008), the overall efficiency of the port system including the efficiency of the port infrastructure has not significantly improved (González & Trujillo 2008). This is particularly due to the fact that inter-port competition was limited in the enacted laws of the port reforms, as port tariffs were uniformly set for all ports (Castillo-Manzano, López-Valpuesta & Pérez 2008). Further cost-based design of channel dues will result in reducing port development anomalies.

If channel dues are not cost-based, channel maintenance requires public funding support, which is mostly found in some EU ports and most US ports. EU initiatives on achieving cost-based pricing are mainly backed by the discrepancy in objectives and pricing practices adopted by subsidised ports and private ports. Subsidised ports are able to charge lower port dues than competing privatised ports whose objective is to recover investment costs (Ubbels 2005). These pricing practices affect the competition balance among ports as public funding for channel dredging in some ports places those ports which do not receive public funding in a less competitive position (Ircha 2001a). For the efficient operation of the port, it is critically important for the port managing body to have the full authority over the management of the port access channel. The disintegration of full authority or the separation of the port access channel management from the port managing body and its transfer to a separate management entity will hinder port efficiency as timely investment in channel deepening is not guaranteed. For instance, in the Australian port industry, the transfer of the Port of Melbourne access channel maintenance to the Victorian Channel Authority has impacted on the efficiency of the port (Everett & Robinson 2006). A similar situation can be found in the waterways between Brussels port and Antwerp port in Belgium where a high fee for the use of the channel has been the result of separate channel management bodies (Balen, Dooms & Haezendonck 2012). These examples suggest that cost-based pricing of port infrastructure maintenance results in a level playing field for ports and that channel management needs to be a sole responsibility of the port in order to have an efficiently functioning port operation. Thus, in order for ports to increase their competitive position and the efficiency of the port infrastructure, the autonomy of the port managing body to set

80 and increase port tariffs is required. Once autonomous the port managing authority can set up cost-based port tariffs.