IMPACTS OF GLOBALIZATION ON PORT COMPETITIVENESS

By HARIS KHAN, MILT
May 10 - 16, 2004

Globalization has served as a catalyst for major developments in the transport sector leading to increased mobility. These global developments have had a direct impact on the maritime vessels as well as on their base of operations i.e. the ports. Seaports are now integral parts of complex logistic chains that has led to an increase in competition and so the whole playing field or environment has changed.

THE PLAYERS OR STAKEHOLDERS INVOLVED

In order to get a better understanding of the competition that has been referred to, it is important to know the players who are involved in this competition. Some of the main players are listed as follows:

1. Shipping Companies
2. Shippers or Owner of Goods
3. Stevedores
4. Port Authorities
5. Hinterland Transport Modes
6. Freight Forwarders and Shipping Agents

It is also important to get an idea about the possible objectives of all these players so that we know their motivations and could better predict their behavior and how they would interact with each other in this environment of increased competition. The shipping company's main objective would probably be to maximize their profits. In relation to this goal they would also try to maximize their market share and to possibly obtain control over the logistics chain. The endeavor of a shipper would be to get the lowest possible rates for transporting his goods and so minimizing his overall logistics costs including the time costs involved. The stevedores would also be trying to maximize their profits and achieve long-term customer loyalty through providing value-added services like storage facilities, packing services etc. The port authorities would be striving to first of all contribute towards reducing overall costs in the logistics chain through minimizing port dues and time costs. They would also be trying to maximize their cargo handling and handling efficiency, the former being more relevant for public companies. Furthermore, they would try and maximize their revenues most probably through making the port more attractive for users. The other hinterland transport modes like rail, trucks and to some extent even aircraft would want to increase their market shares, in the process also maximizing their respective profits.

Due to increased competition we have seen that many shipping companies have diversified into many other areas, which have threatened the business of freight forwarding companies as well. Therefore they are also looking for better market share and profit maximization. In order to attain it they are trying to achieve customer loyalty and trying to minimize total generalized logistics costs including time costs. Some are even diversifying themselves into added logistics services.

TYPES OF PORT COMPETITION

With so many players interacting with each other not to mention local, regional and global players, different types of competition can be observed. These can be characterized in the following way:

1. Intra-port competition
2. Inter-port competition
3. Inter-cluster competition
4. Inter-range competition

Intra-port competition consists of the competition within a single port between the various players. This competition is basically between the different shipping companies and terminal operators/stevedores within a particular single port. An example of such competition is in the Port of Antwerp between Hesse Noord Natie (HNN) and Katoennatie (KTN). Intra-port competition may also be considered in the case of, if and when a port authority has stakes in a terminal operator then it will also be competing with other terminal operators as well.

Inter-port competition is the competition between various ports. This competition may take place between terminal operators of different ports or between different port authorities as well. The different port authorities referred to in this category are local port authorities, for example, the competition between the US Ports in California like the port authorities of Oakland, Los Angeles and Long Beach respectively.

Inter-cluster competition consists of the competition between port clusters. This means the competition between a group of ports in the vicinity of each other with common geographical characteristics. An example is the Western Norway maritime or port cluster of Haugesund-Bergen-Kristiansund in competition with the Danish port cluster of Århus-Ålborg-Skagen in Jylland.

Inter-range competition consists of the competition between the ranges. This means the competition between ports located along the same coastline with an almost identical hinterland. An example is the competition between the Le Havre range, the Baltic range and the Mediterranean port range respectively.

THE CHANGING & INCREASINGLY COMPETITIVE ENVIRONMENT

Due to the process of globalization and the development of a global transport network, complex transport or logistics chains have emerged. As a consequence of this change an increasingly competitive environment has been built leading to a response from the various market players. The response to improve their respective positions has been vertical and horizontal integration. It is now important to analyze why such responses have emerged due to the newly increased competition. The vertical integration has been a direct response to the establishment of the transport chains and increased demand for global transport while the horizontal integration is an endeavor to basically cut costs and provide better services to customers.

The vertical integration along the supply chain has been in the form of many players diversifying and offering value added services. For example big shipping lines/container carriers like Maersk SeaLand and P&O Nedlloyd have diversified into terminal operations and hinterland transportation as well becoming full-fledged logistics service providers. In the same way many freight forwarding companies such as Danzas, Schenker/BTL and Nagel have developed from freight forwarding companies into logistics service providers as well. The horizontal integration has occurred in the form of Mergers & Acquisitions. Examples of such M & A's are Maersk SeaLand and P&O Nedlloyd.

THE SPECIFIC RESPONSE OF PORTS TO THE CHANGING COMPETITIVE ENVIRONMENT

In the light of vertical and horizontal integrations the ports are faced with the problem of how to remain competitive, as their customers have become increasingly influential. Therefore shipping lines not only formulate their demands with respect to port charges rather they are more interested in dedicated terminals which they envision as part of their global networks and logistics services. For port authorities this is an opportunity to push for more investment and longer leases in the process binding companies to their terminals. The ports are also moving towards providing much more attractive tariffs, value added services, better service times and more productivity in order to remain competitive.

CHANGING ROLES OF SEAPORTS DUE TO THE CHANGING ENVIRONMENT

Over time we have also seen a gradual change in the role of seaports as a consequence of the changing environment and philosophy.

The initial role of seaport was due to the territorial paradigm in which ports were considered as isolated due the fact that markets were protected.

Then the competitive paradigm was realized and we saw the integration of the hinterland leading to economies of scale.

Finally we have a cooperative paradigm leading us to network cooperation. Under this the role of the seaport is seen as that of a "Chain Port". As mentioned earlier we have seen the integration due to increased competition. This has led to the development of port and inland terminals that are now seen as integral parts of vast transport logistic chains. In this way through the Chain Port concept economies of network have also been achieved.

CONCLUSION

The role of today's seaports has completely changed from being an establishment where cargo is merely handled to being part of the whole global transport chain to provide customers with an over all transport solution. Modern seaports function can be attributed to the Chain Port concept and should focus on the various dimensions mentioned below.

As port competition has increased due to the changing environment we now see competition among ports, market players as well as transport modes. This is in line with the transport or logistics chain concept. Therefore a port's success or failure is not only limited to its own achievements or shortcomings in terms of performance rather it is also linked to the various other elements of the logistics chain as well. Interestingly the port itself has no direct control or impact on these other links. An example is the Hinterland connections. So the future of seaports is partly in their own hands and to a large extent it will depend on events external to them. All they can do is coordinate and/or facilitate, if possible. For example a client may choose not to use a port simply because the inland services do not conform to his market requirements and he has rearranged his service network.

Seaports that are likely to succeed in future are those ports, which have a customer-oriented approach. They must improve their internal performance through identifying and developing their core competencies, as this is the only way to a lasting competitive advantage. They also need to be mindful of the various stakeholders involved. In the end it is important that ports become flexible to adapt to changing requirements and opportunities and have an integrated approach towards the global transport chain.

(The writer holds a MSc. in Transport & Maritime Management from The University of Antwerp, Belgium and is a Transport & Trade Consultant. He is also on the panel of experts of Aim Consultancy Services & The World Trade Review)