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Port Economic

Port Economic

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Sections

  • 1Introduction
  • 2Port users and service providers
  • 3Ports in operation
  • 4Carriers
  • 5Shippers
  • 6Passengers
  • 7Port operator operating options, production,and cost
  • 8Port operator operating objectives, prices,and investment
  • 9Port governance and agglomeration
  • 10Port performance and competition
  • 11Port dockworkers
  • 12Port pollution
  • 13Port security and safety
  • 14Ports in the future

Port Economics

Port Economicsis the study of the economic decisions (and their consequences) of the users
and providers of port services. A port is an “engine” for economic development by providing
employment, worker incomes, business earnings, and taxes for its region. The book provides
a detailed discussion of types of carriers that use ports, the operation of cargo and passenger
ports, as well as the operation of such specific ports as Hong Kong, Hamburg, Le Havre,
Savannah, Miami, and Panama.

Port Economicsis the first contemporary textbook of its kind. It enhances our understand-
ing of port economics by

classifying port users and suppliers of port services in the context of economic demand
and supply curves;

denoting that the demand for port services has two prices, the price paid to the port by
the users and the price (or actual and opportunity costs) incurred by port user carriers,
shippers, and passengers;

presenting economic theories of carriers, shippers, and passengers.

The numerous up-to-date references will be of benefit to students and researchers of the
economics of the shipping trade; to government officials in developing port and shipping
policies; and to port operators in understanding the port-choice selection process by
shipping lines and other carriers.

Wayne K.Talleyis the Frederick W. Beazley Professor of Economics and Executive
Director of the Maritime Institute at Old Dominion University, Norfolk, Virginia, USA.

Port Economics

Wayne K.Talley

First published 2009
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

Simultaneously published in the USA and Canada
by Routledge
270 Madison Avenue, New York, NY 10016

Routledge is an imprint of the Taylor & Francis Group,
an informa business

© 2009 Wayne K. Talley

All rights reserved. No part of this book may be reprinted or reproduced
or utilized in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Talley, Wayne Kenneth.
Port economics / Wayne K. Talley.
p. cm.
1. Harbors–Economic aspects. I. Title.
HE551.T35 2009
387.1–dc22
2008041761

ISBN13: 978-0-415-77721-6 (hbk)
ISBN13: 978-0-415-77722-3 (pbk)
ISBN13: 978-0-203-88006-7 (ebk)

ISBN10: 0-415-77721-6 (hbk)
ISBN10: 0-415-77722-4 (pbk)
ISBN10: 0-203-88006-4 (ebk)

This edition published in the Taylor & Francis e-Library, 2009.

To purchase your own copy of this or any of Taylor & Francis or Routledge’s
collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.

ISBN 0-203-88006-4 Master e-book ISBN

To my grandchildren,

Luke Kenneth Perkins
Emily Dawn Talley
London Mark Perkins
Anna Carter Talley

Contents

List of figures

xiii

List of tables

xv

List of abbreviations

xvi

Preface

xix

1Introduction

1

What is a port?1
Vessel port calls: networks2
Vessel port calls: world, country, and vessel type4
Ports and economic development7
Containerization9
World container ports10
Summary11

2Port users and service providers

13

Introduction13
Users: carriers13
Container shipping lines13
Short sea shipping carriers15
Ferry carriers17
Cruise lines18
Railroads18
Truck carriers21
Carrier demand for port service22
Users: shippers and passengers23
Shippers23
Passengers24
Service providers26
Port operator26
Other service providers28

Summary31

3Ports in operation

34

Introduction34
A container port34
The flow of port containers35
Port design36
Port equipment38
Port services43
A cruise port44
Port design44
Port equipment45
Specific ports in operation45
Port of Hong Kong45
Port of Hamburg46
Port of Le Havre47
Port of Savannah47
Port of Miami48
Ports of Panama48

Summary49

4Carriers

51

Introduction51
Resources51
Operating options52
Output53
Cost54

Short-run cost54
Long-run cost55
Long-run cost: multiple outputs59

Pricing60
Carrier demand in port62
Ports and ship size63
Port choice and shipping lines65
Summary66

5Shippers

69

Introduction69
Business logistics management69
Transportation70
Inventory70
Order processing70
Warehousing71
Production scheduling72
Materials handling72
Packaging73

viiiContents

Location73
Supply chain management73
A supply chain network73
Supply chain activities75
Supply chain integration76
Transportation demand by shippers77
Shipper demand in port79
Port choice and shippers80
Port choice and supply chains80
Supply chain shipping capacity81
Summary82

6Passengers

85

Introduction85
Passenger time prices85
Transportation demand by ferry passengers87
Transportation choice and ferry passengers89
Passenger demand in port90
Port choice and passengers90
Summary92

7Port operator operating options,production,and cost

94

Introduction94
Operating options94
Resource utilization and congestion95
Production and capacity96
Cost97

Short-run cost98
Long-run cost99
Long-run cost: multiple throughputs101
Types of costs102
Costing port throughput103
Resource costing103
Cost-center costing104
Cost-equation costing104
Port output measures105
Summary106

8Port operator operating objectives,prices,and investment

110

Introduction110
Effectiveness operating objectives110
Port prices112
Port prices in practice112
Fully allocated cost port prices113

Contentsix

Marginal-cost port prices114
Port prices and external costs115
Port congestion prices116
The incidence of port prices117
Port taxes versus user fees118
Port investment119
Port investment decisions120
Port investment, costs, and prices121
Port investment and macroeconomic effects123

Summary123

9Port governance and agglomeration

126

Introduction126
Port governance126
Port privatization127
Port governance in practice128
European ports128
Asian ports129
North American ports130

Agglomeration131
Ports and cities132
Summary133

10Port performance and competition

136

Introduction136
Performance evaluation: a single port perspective136
Throughput performance evaluation137
Indicator performance evaluation137
Evaluation in practice139
Performance evaluation: a multiport perspective139
Port competition140
Interport competition140
Intraport competition142
Port competition, economic rent, and contestability142
Port competitiveness143

Summary144

11Port dockworkers

147

Introduction147
International unions147
EU port services directive148
U.S. dockworkers150
Employment150
Wages151

xContents

Dockworker versus seafarer wages152
Dockworker versus railroad wages153
Dockworker versus truck driver wages154

Dockworker protests155
Dockworkers in Hong Kong and Germany155
Summary156

12Port pollution

159

Introduction159
Water pollution159
Ballast water159
Dredging161
Waste disposal162
Antifouling paints162
Oil spillage163
Air pollution164
Vessels164
Vehicles166
Noise and aesthetic pollution168
Summary168

13Port security and safety

171

Introduction171
Maritime security incidents: economic effects171
The international ship and port security code172
U.S. port security173
Maritime cargo security initiatives173
The SAFE Port Act175
Detection176
Response and recovery177
Port security finance and cost179
EU port security180
Port safety181
Port accidents181
Port state control181
Port safe working conditions182

Summary183

14Ports in the future

187

Introduction187
Container port challenges187
Port congestion187
Size of containerships188
Size of containers189

Contentsxi

Panama Canal and vessel port calls190
Panama Canal expansion190
Panama Canal competitors190
Railroads190
Suez Canal191
Arctic sea route191
Port information and communication technologies192
Port pollution193
Port logistics activities194
Port security195
Port cooperation195
LNG marine terminals196
Summary196

Index

201

xiiContents

Figures

1.1Constant frequency port-call OD network

3

1.2Variable frequency port-call OD network

3

1.3Mainline-feeder network

4

1.4Mainline-mainline network

5

1.5Mainline-feeder and mainline-mainline networks

5

2.1Carrier demand for port service

22

2.2Shipper demand for port service

25

2.3Passenger demand for port service

27

2.4Port operator supply of port service

29

2.5Other service-provider supply of port services

30

3.1Feedering and main container ports in two trading regions

37

3.2Ship-to-shore gantry crane

38

3.3Straddle carrier

39

3.4Top loader

40

3.5Yard gantry crane

41

3.6Automated guided vehicle (AGV)

42

3.7Cassette AGV that is double-stacked loaded onto a cassette
and transported by an AGV

42

3.8Automatic stacking crane

43

4.1Carrier short-run total, fixed, and variable costs

55

4.2Carrier short-run unit and marginal costs

56

4.3aCarrier long-run costs

56

4.3bCarrier long-run unit and marginal costs

57

4.4aCarrier economies of scale

57

4.4bCarrier diseconomies of scale

58

4.4cCarrier constant returns to scale

58

4.5Carrier economies and diseconomies of and
constant returns to scale

59

4.6Carrier short-run profits and losses

61

4.7Carrier demand for port services at full prices

63

4.8Economies of ship size at sea

64

4.9Diseconomies of ship size in port

64

5.1Inventory cost and the quality level of transportation service

71

5.2Transportation costs and the number of warehouse locations

72

5.3A supply chain network

74

5.4Shipper transportation demand at full prices

78

5.5Full price, delivery time, and shipper transportation demand

78

5.6Shipper demand for port services at full prices

79

5.7Shipper supply chains

81

6.1Passenger transportation demand at full prices

87

6.2Full price, trip time, and passenger transportation demand

88

6.3Full price, value of passenger in-transit time, and passenger
transportation demand

89

6.4Passenger demand for port services at full prices

91

7.1Port throughput and labor

97

7.2aPort operator short-run costs

98

7.2bPort operator short-run unit and marginal costs

99

7.3aPort operator long-run costs

100

7.3bPort operator long-run unit and marginal costs

100

7.4Port constant returns to scale

101

7A.1Minimization of port cost for a single port throughput

108

7A.2Minimization of port cost for several port throughputs

108

7A.3Port operator long-run costs

109

8.1Marginal cost pricing

115

8.2aMarket for port services, price inelastic demand,
and price incidence

117

8.2bMarket for port services, price elastic demand,
and price incidence

118

8.3Net present value for port investment

121

8.4Port investment, costs, and prices

122

xivFigures

1.1The world’s top-ranked ports for vessel calls (2006)

6

1.2Vessel port calls by country and type of vessel (2006)

7

1.3The world’s 20 largest container ports (2007)

10

2.1The world’s 20 largest container shipping lines
(August 2007)

16

2.2Cruise Lines International Association’s cruise lines,
berths, and ships (2008)

19

2.3Top ten U.S. exporters of ocean containerized cargo (2007)

24

2.4Top ten U.S. importers of ocean containerized cargo (2007)

24

2.5Annual CLIA passengers in North America

26

2.6The world’s largest global container port terminal operators
(2006)

28

10.1Port performance indicators

138

14.1Containerized ocean freight flows (2007)

188

Tables

AEO

authorized economic operator

AFC

average fixed cost

AGV

automatic guided vehicle

APL

American President Line

ASC

automatic stacking crane

BLO

build-lease-operate

BOST

build-operate-share-transfer

BOT

build-operate-transfer

CARB

California Air Resources Board

CBP

Customs and Border Protection

CLIA

Cruise Line International Association

COLA

cost-of-living adjustments

CPA

Canadian Port Authority

CSI

Container Security Initiative

CSO

company security officer

C-TPAT

Customs–Trade Partnership Against Terrorism

DEA

data envelopment analysis

DHS

Department of Homeland Security

EBITDA

earnings before interest, tax, depreciation, and amortization

EDI

electronic data interchange

EPA

Environmental Protection Agency

EU

European Union

FBI

Federal Bureau of Investigation

FC

fixed cost

FEU

forty-foot equivalent

FMC

Federal Maritime Commission

FOC

flag of convenience

GAI

guaranteed annual income

HIT

Hong Kong International Terminals

HMT

harbor maintenance tax

HMTF

Harbor Maintenance Trust Fund

HSC

high-speed craft

ICC

Interstate Commerce Commission

Abbreviations

IDC

International Dockworkers Council

ILA

International Longshoremen’s Association

ILO

International Labour Organization

ILWU

International Longshore and Warehouse Union

IMO

International Maritime Organization

IOS

International Organization for Standardization

ISPS

International Ship and Port Facility Security

IT

information technology

ITF

International Transport Workers’Federation

LAITC

long-run average incremental total cost

LATC

long-run average total cost

LMC

long-run marginal cost

LNG

liquefied natural gas

LPG

liquefied petroleum gas

LTC

long-run total cost

LTL

less-than-truckload

MARAD

Maritime Administration
MARSECmaritime security
MCA

Motor Carrier Act

MEPC

Marine Environment Protection Committee

MTSA

Maritime Transportation Security Act

NOAA

National Oceanic and Atmospheric Administration

NOL

Neptune Orient Line

NOx

nitrogen oxides

NPV

net present value

NVOCC

non-vessel operating common carrier

OD

origin-to-destination

OECD

Organization for Economic Cooperation and Development

OOCL

Orient Overseas Container Line

OSHA

Occupational Safety and Health Administration

PDA

product diversification analysis

P&O

Peninsular and Orient Line

PFSO

port facility security officer

PMA

Pacific Maritime Association
POMTOCPort of Miami Terminal Operating Company
PPA

product portfolio analysis

PSA

Port of Singapore

PSC

port state control

RDC

regional distribution center

RFID

radio frequency identification

RO-RO

roll on-roll off

RPM

radiation portal monitor

RTGs

rubber-tired gantry cranes

SATC

short-run average total cost

Abbreviationsxvii

SAVC

short-run average cost

SB

social benefits

SC

social costs

SMC

short-run marginal cost

SO

secure operator

SOx

sulfur oxides

SPA

strategic position analysis

SSA

shift-share analysis

SSAS

ship security assessment

SSC

ship security certificate

SSO

ship security officer

SSP

ship security plan

STC

short-run total cost

SVC

short-run variable cost

TBT

tributyltin

TEU

twenty-foot equivalent unit

TL

truckload

TR

total revenue

TSA

Transportation Security Administration

TWIC

transportation worker identification credential

UN

United Nations

UP

Union Pacific

USDOT

U.S. Department of Transportation

VTS

vessel traffic service

xviiiAbbreviations

Port economics is the study of the economic decisions (and their consequences) of the users
and providers of port services. Port users include shippers, passengers, and carriers. Port (or
terminal) operators are the primary service providers; other service providers include,
for example, ship agents, customs brokers, ship pilots and towage, stevedores and freight
forwarders. Maritime economics consists of port and shipping economics. This book is an
introduction to port economics. Although a textbook, it is expected to be useful in maritime
research, to port user and service-provider decision makers, and to those of the general
public who are interested in port issues.
In 1984, I and two other business professors established the center, Maritime, Trade and
Transport (MTT), at Old Dominion University. Given that Norfolk, Virginia (where the uni-
versity is located) has one of the largest container ports on the U.S. east coast, the center’s
mission was to perform high-quality maritime research to promote the Port of Virginia and
international trade in the region. Prior to 1984, although a transportation economist, I was
not a student of maritime economics. However, MTT provided me with the opportunity to
become knowledgeable in the subject. In 1986, MTT was renamed the Virginia Center for
World Trade and established as an economic development agency of the Commonwealth of
Virginia. Given the success of MTT, the International Maritime, Ports, and Logistics
Management Institute (Maritime Institute) was established in 1994 at Old Dominion
University to provide graduate maritime management education – a maritime concentration
in the Master in Business Administration and Master in Public Administration degrees and
a maritime management certificate.
I have taught port economics in the Maritime Institute’s educational program since 1994.
Since a textbook in port economics did not exist, I have used a course pack, consisting of
journal articles and book chapters, as the text for these classes. However, in 2006, I decided
to write a port economics textbook based upon the syllabus of my port economics course.
This book is a result of that decision.
This book has benefited from my numerous maritime-related activities over the years such
as presentations before and discussions with my port economics students and presentations
and discussions at the annual conferences of the International Association of Maritime
Economists. It has also benefited from serving as a visiting professor at the Institute of
Transport and Maritime Management, University of Antwerp (Belgium); the Centre for
Shipping, Trade and Finance, Cass Business School, City University (UK); the Institute of
Transport Studies, University of Sydney (Australia); the Department of Transport and
Regional Economics, University of Antwerp (Belgium); the Centre for Transport Policy
Analysis, University of Wollongong (Australia); and the Transport Studies Unit, University
of Oxford (UK).

Preface

Further, it has benefited from serving as a Senior Research Fellow at the Marine Policy
Center, Woods Hole Oceanographic Institution (U.S.A.); a Research Scientist at the Institute
for Water Resources, U.S. Army Corps of Engineers (U.S.A.); and the Editor-in-Chief of
Transportation Research Part E: Logistics and Transportation Review. Serving as Executive
Director of the Maritime Institute at Old Dominion University since 1999 has, in particular,
been beneficial – e.g., working with the Institute’s Advisory Council, graduate assistants
Eric Custar and Jeremy Sykes, and Sara Russell, Instructor in Maritime and Supply Chain
Management. I would like to thank Dean Nancy Bagranoff of the College of Business and
Public Administration of Old Dominion University for her support of the Maritime Institute.
Finally, I would like to thank my wife Dolly for her support in the writing of this book.

Wayne K. Talley
Norfolk, Virginia
August 24, 2008

xxPreface

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