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**terminals in Asia: assessing the inﬂuence of administrative
**

and ownership structures

Kevin Cullinane

a,

*

, Dong-Wook Song

a,1

, Richard Gray

b,2

a

Department of Shipping and Transport Logistics, The Hong Kong Polytechnic University, Hung Hom, Kowloon,

Hong Kong

b

Institute of Marine Studies, University of Plymouth, Drake Circus, Plymouth PL4 8AA, UK

Received 17 April 2001; received in revised form 6 September 2001; accepted 12 September 2001

Abstract

This paper applies a ‘port function matrix’ to analyse the administrative and ownership structures of

major container ports in Asia. The relative eﬃciency of these ports is then assessed using the cross-sectional

and panel data versions of the ‘stochastic frontier model’. The estimated eﬃciency measures are broadly

similar for the two versions of the model tested. From the results of the analysis, it is concluded that the size

of a port or terminal is closely correlated with its eﬃciency and that some support exists for the claim that

the transformation of ownership from public to private sector improves economic eﬃciency. While this

provides some justiﬁcation for the many programmes in Asian ports which aim to attract private capital

into both existing and new facilities, it is also concluded that the level of market deregulation is an im-

portant intervening variable which may also exert a positive inﬂuence. Ó 2002 Elsevier Science Ltd. All

rights reserved.

1. Introduction

Asian container ports suﬀer from a number of problems including insuﬃcient port and/or

terminal capacity, ineﬃcient management and bureaucratic administration (Cullinane and Song,

*

Corresponding author. Tel.: +852-2766-7410; fax: +852-2334-1765.

E-mail addresses: stlkcull@polyu.edu.hk (K. Cullinane), stldsong@polyu.edu.hk (D.-W. Song), rgray@plymouth.ac.uk

(R. Gray).

1

Tel.: +852-2766-7397; fax: +852-2330-2704.

2

Tel.: +44-1752-232442; fax: +44-1752-232406.

0965-8564/02/$ - see front matter Ó 2002 Elsevier Science Ltd. All rights reserved.

PII: S0965- 8564( 01) 00035- 0

Transportation Research Part A 36 (2002) 743–762

www.elsevier.com/locate/tra

1998). This may be due in part to the fact that the majority of the region’s ports are controlled

and/or operated by public entities. To deal with these problems, the port authorities of a number

of countries in the region have launched programmes which aim to attract private capital into

both existing and new facilities. As a consequence, these schemes have kick-started a revo-

lutionary new operating milieu where inter- and even intra-port competition is rife. In many

instances, this has engendered the perception that organisational restructuring (including pri-

vatisation) is not only desirable, but necessary.

A key claim made with respect to organisational reforms is that the transformation of own-

ership from public to private sector will improve economic eﬃciency, as well as general welfare

(Yarrow, 1986; Vickers and Yarrow, 1991). Associated economic theories and existing empirical

studies, however, fail to establish clear-cut evidence supporting this claim (Vickers and Yarrow,

1988; Boardman and Vining, 1989). Indeed, econometric analysis of the relative productive eﬃ-

ciency of the ports sector pre- and post-privatisation seems to suggest that ownership itself does

not seem to be categorically related to eﬃciency in port operations (Song and Cullinane, 2001). It

may well be the case, as proposed by the United Nations Conference on Trade and Development

(UNCTAD, 1995a), that the apparent absence of a clear-cut theoretical and empirical relationship

may reﬂect, to some extent, a unique socio-political situation in which these business entities

undertake their economic activities.

Against this conceptual background, this paper analyses the administrative and ownership

structures of the major container ports in Asia by relating them to the ‘port function matrix’

(Baird, 1995, 1997) and assesses their relative eﬃciency by applying an econometric technique

known as the ‘stochastic frontier model’.

2. Port administration and ownership

Stehli (1978) and Goss (1986) note that, although most of the physical methods used within

ports (e.g. loading and discharging) vary little between ports, there are a number of alternative

forms of port administration and ownership. Few ports can be described as either purely private

or public. Moreover, it is often even diﬃcult to identify the extent of either public or private sector

involvement in a port. This situation does make it necessary, however, to distinguish between the

alternative approaches to port administration and ownership.

2.1. A conceptual framework for the classiﬁcation of port ownership and administration

UNCTAD (1995b) classiﬁes the list of facilities and services which should be provided by ports

for ships and cargoes: namely, infrastructure, superstructure, equipment, services to ships and

services to cargoes. According to which entity (i.e. private, public or joint) owns and provides

those facilities and services, ports can be divided into two distinct types (Goss, 1990; Heaver,

1995; De Monie, 1996). In the comprehensive port, the public port authority provides all facilities

and services within the port, thus having direct responsibility for the management and operation

of port services and facilities. Independent (private) operators are prohibited from undertaking

any port activity. This kind of port, therefore, can be said to be the ‘totally integrated port’. On

the other hand, in the landlord port, the activities of the port authority are limited simply to

744 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

providing and maintaining the basic infrastructure and essential services (e.g. ﬁre services, security

etc.), while all the other facilities and services such as the superstructure and stevedoring labour

are provided by independent private (or public) companies. This port model can be referred to as

the ‘purely regulatory port’.

An alternative to this traditional framework for analysing port administration and ownership

is proposed by Baird (1995, 1997) who refers to a port function matrix. The starting point for

this conceptual framework is that, regardless of whether a port is in private or public hands,

within the port area there will generally be three essential functions the port must fulﬁl and

provide:

1. The regulatory function of a port can involve substantial powers being given to the port’s public

or private sector management, the majority of which will be of a statutory nature. In general,

this function may be regarded as the primary role of a port authority (Nagorski, 1972).

2. In expediting a landowner function, ports control signiﬁcant land areas. Irrespective of whether

the land area of a port is large or small, however, the essential tasks involved would be to man-

age and develop the port estate, to implement policies and strategies for the port’s physical de-

velopment in terms of superstructure and (sometimes) infrastructure, to supervise major civil

engineering works, to co-ordinate port marketing and promotion activities, to provide and

maintain channels, fairways, breakwaters etc., to provide and maintain locks, turning basins,

berths, piers and wharves, and to provide or arrange road and rail access to the port facilities.

3. The operator function is concerned with the physical transfer of goods and passengers between

sea and land. In a comprehensive port, for example, the cargo-handling activity will be con-

trolled by state-owned organisations. Conversely, in a landlord port, private companies will un-

dertake this activity, while a mix of private and public companies may be involved as well.

According to which of these three functions are the responsibility of public or private organisa-

tions, the matrix presented in Table 1 makes it possible to ascertain the extent of the inﬂuence

exerted by public and private sectors within any given port. The matrix also suggests the four

main patterns (as deﬁned by choice of port administration, ownership, management and opera-

tion) into which a government is able to organise its port industry.

According to Table 1, port administration and ownership models are divided into four types of

port administration: the PUBLIC port, the PUBLIC/private port with the public sector dominant,

the PRIVATE/public port with the private sector dominant, and the PRIVATE port.

Table 1

Port function matrix

Port models Port functions

Regulator Landowner Operator

PUBLIC Public Public Public

PUBLIC/private Public Public Private

PRIVATE/public Public Private Private

PRIVATE Private Private Private

Sources: Baird (1995, 1997).

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 745

APUBLICport can be regardedas synonymous with a comprehensive port. It is a port in which all

three functions are controlled by the government or public authority. In the PUBLIC/private port,

the operator function is controlled by the private sector, with both the regulatory and landowner

functions remaining in the hands of the government. This type of port, therefore, can be interpreted

to be a variant of the landlord port. In the PRIVATE/public port, both the landowner and operator

functions are in private hands, while the regulatory function remains within the public sector. Fi-

nally, in the PRIVATE port, all three essential functions are controlled by the private sector.

2.2. The economics of eﬃciency and port privatisation

Engendering greater competition in the market is the main mechanism by which enhanced

eﬃciency might be expected to be achieved under a policy of deregulation. Baumol et al. (1982)

provide a comprehensive explanation of the process and conditions under which this might prove

to be the case. Although deregulation policies have been commonly applied in many industries

and across many countries (especially to the land-based transportation sector), the perceived

wisdom is that privatisation is the most important policy for improving the eﬃciency of the ports

sector. This is the case even though it is by no means categorically proven that there exists a direct

causal link between the degree of private sector involvement and economic eﬃciency (see the

diﬀering conclusions drawn from the analyses conducted by Millward, 1982; Millward and Par-

ker, 1983; Vickers and Yarrow, 1988; Boardman and Vining, 1989; Hutchinson, 1991; Parker,

1994). Perhaps the most obvious conclusion to draw from this morass of contradictory evidence

is, as Liu (1995) attests in relation to the ports sector, that the best way forward is to undertake a

speciﬁc empirical analysis to determine the relative eﬃciencies of alternative forms of ownership.

Hartley et al. (1991) and Parker (1994) attempt to set up a theoretical framework for imputing

and testing the importance of ownership. A conceptual schema due to the latter is illustrated in

Fig. 1, where Point A represents the position of a ﬁrm which is directly controlled by a gov-

ernment department. It is politically controlled and there are no tradable shares. Hence, from the

Fig. 1. Conceptual mapping for eﬃciency improvements.

746 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

theories of public choice and property rights, it is to be expected that eﬃciency will be low. Point

B represents an activity undertaken by a government agency which has some, if limited, autonomy

from the political process. Public corporations can be placed at point C since they have more

autonomy than quasi-governmental agencies. Points D, E and F correspond to forms of own-

ership in the private sector. Point D includes those private sector ﬁrms which are close to the

public sector because of government funding or a reliance on government contracts; character-

istics which might diminish incentives to be eﬃcient. Point E is a joint stock company, while point

F represents private ownership where property rights are least attenuated, particularly the owner-

manager company.

An upward movement along the y-axis corresponds to a shift away from monopoly towards

competition and, thus, greater product market pressure to be eﬃcient. Fig. 1, therefore, provides a

mapping of the expected relationship between ownership and performance. The schema implies

that changes in ownership involving movement away from political control and towards private

ownership, but with no change in competition, will be associated with improved eﬃciency due to a

change in the capital market (X to Y).

2.3. The Asian situation

As an obvious corollary of burgeoning international trade and the rapidly increasing seaborne

cargoes associated with this, Asian ports have played a pivotal role in national and regional

economic development (Haynes et al., 1997; Robinson, 1998). Table 2 shows that, in terms of

Table 2

Container port traﬃc league (Units: TEUs p.a.)

Rank

a

Port 1999 1998 Country

1 (2) Hong Kong 16,100,000 14,582,000 China

2 (1) Singapore 15,900,000 15,100,000 Singapore

3 (3) Kaohsiung 6,985,361 6,271,053 Taiwan

4 (5) Pusan 6,439,589 5,945,614 Korea

5 (4) Rotterdam 6,400,000 6,010,503 Netherlands

6 (6) Long Beach 4,408,480 4,097,689 USA

7 (10) Shanghai 4,210,000 3,066,000 China

8 (8) Los Angeles 3,828,851 3,378,219 USA

9 (7) Hamburg 3,750,000 3,550,000 Germany

10 (9) Antwerp 3,614,264 3,265,750 Belgium

11 (13) New York/New Jersey 2,863,342 2,465,993 USA

12 (11) Dubai 2,844,634 2,804,104 UAE

13 (12) Felixstowe 2,700,000 2,523,639 UK

13 (13) Tokyo 2,700,000 2,168,543 Japan

15 (21) Keelung 2,550,419 1,820,018 Taiwan

16 (19) Tanjung Priok 2,273,303 1,898,069 Indonesia

17 (16) Gioia Tauro 2,253,401 2,125,640 Italy

18 (17) Kobe 2,200,000 1,900,737 Japan

18 (15) Yokohama 2,200,000 2,091,420 Japan

20 (22) Bremen/Bremerhaven 2,180,955 1,812,441 Germany

Source: Derived from Boyes (2000).

a

Figures in brackets represent the rank position for 1998.

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 747

annual container throughput measured in TEUs,

1

10 Asian ports are ranked among the top 20

container ports in the world and that the top four positions are held by ports in Asia. Fleming

(1997) and Robinson (1998) provide plausible explanations as to why these Asian container ports

have emerged as both regional and international load centres.

As far as the administrative and ownership structures of Asian container ports are concerned,

Cullinane and Song (2001) conclude that, in terms of the taxonomy developed by Baird (1995,

1997), ports and terminals in Asia have tended to move away from something akin to a pure

PUBLIC model and towards the PUBLIC/private model of port administrative and ownership

structures. While it has become almost commonplace for the terminal operator function to fall

within the purview of a private sector organisation, the current situation is that landowner and

regulatory functions are often maintained under public sector control, whether at national or at

regional level.

By borrowing the concepts of Table 1 and referring to the horizontal axis of Fig. 1, we now can

describe the selected major ports/terminals in the region as illustrated in Fig. 2. Hong Kong’s

main container operators – Hong Kong International Terminals (HIT) and Modern Container

Terminals (MTL) – are closest to the PRIVATE port, while Korea’s Pusan and Japan’s Kobe

ports are located somewhere between the PRIVATE and the PRIVATE/public model. Taiwan’s

Kaohsiung port can be allocated somewhere between the PRIVATE/public and the PUBLIC/

private port, while Singapore and Shanghai ports are closest to the PUBLIC port.

Based on the administrative and ownership characteristics of the major Asian ports presented

in Fig. 2, the following hypothesis is established for empirical investigation:

Fig. 2. The hypothesis for port administration, ownership and eﬃciency.

1

Twenty-foot equivalent unit; a standard size of container used, amongst other things, for denoting the container

carrying capacity (size) of ships and the handling capacity and throughput of ports.

748 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

The economic eﬃciency of container ports/terminals improves as ownership moves along the

continuum towards greater private sector participation (i.e., in line with a movement away from

the PUBLIC port to the PRIVATE port).

3. Methodology

Over the last decade a number of methods for measuring eﬃciency have been proposed, all of

which have in common the concept of the frontier; eﬃcient units are those operating on the cost

or production frontier, while ineﬃcient ones operate either below the frontier (in the case of the

production frontier) or above the frontier (in the case of the cost frontier).

The literature on frontier models begins with Farrell (1957) who suggested a useful, and sub-

sequently widely accepted, framework for analysing economic eﬃciency in terms of realised de-

viations from an idealised frontier isoquant.

A distinction exists between the methods employed to derive the speciﬁcation of the frontier

model: either statistical or non-statistical methods may be used. The former technique makes

assumptions about the stochastic properties of the data, while the latter does not. Another dif-

ference concerns whether the chosen method is parametric or non-parametric. While the former

imposes a particular functional form, the latter approach does not. The non-parametric approach

revolves around mathematical programming techniques which are generically referred to as data

envelopment analysis (DEA). The parametric approach, on the other hand, employs econometric

techniques where eﬃciency is measured relative to a frontier production function which is sta-

tistically estimated.

Econometric approaches have a strong policy orientation, especially in terms of assessing al-

ternative industrial organisations and in evaluating the eﬃciency of government and other public

agencies. Mathematical programming approaches, on the other hand, have a much greater

managerial decision-making orientation (Aigner and Schmidt, 1980; Fare et al., 1994; Lovell,

1995). The policy orientation of econometric approaches more closely supports the purpose of this

paper, especially since they have a more solid grounding in economic theory (Forsund et al., 1980;

Pitt and Lee, 1981; Bauer, 1990). In addition, several studies (e.g. Gong and Sickles, 1992; Yu,

1995; Oum and Waters, 1996) have compared the performance of alternative methods for mea-

suring eﬃciency, focusing on the econometric method (in particular, the stochastic frontier model)

and the mathematical programming method. As measured by the correlation coeﬃcients and rank

correlation coeﬃcients between the true and estimated relative eﬃciencies, the results show that

when the functional form of the econometric model is well speciﬁed, the stochastic frontier ap-

proach generally produces better estimates of eﬃciency than the latter approach, especially when

measuring ﬁrm-speciﬁc eﬃciency where panel data are available.

The econometric approach involves the speciﬁcation of a parametric representation of tech-

nology which itself can be divided into two diﬀerent models; either deterministic or stochastic

frontiers may be speciﬁed according to whether or not certain assumptions are made concerning

the underlying data. The early parametric frontier models (e.g. Aigner and Chu, 1968; Afriat,

1972) are deterministic in the sense that all economic units share a common ﬁxed class of fron-

tier. This is unreasonable and ignores the real possibility that the observed performance of the

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 749

economic unit may be aﬀected by exogenous (i.e. random shock) as well as endogenous (i.e. in-

eﬃciency) factors. To allocate all these factors, whether favourable or unfavourable and whether

under or beyond the control of the economic unit, into a single disturbance term and to refer to

the mixture as ineﬃciency is clearly a dubious and imprecise generalisation.

As an alternative, the stochastic frontier model is motivated by the idea that deviations from the

production frontier might not be entirely under the control of the economic unit being studied

(Greene, 1993). Aigner et al. (1976, 1977) and Meeusen and van den Broeck (1977) independently

constructed a more reasonable error structure than a purely one-sided one. They considered a

linear model for the frontier production function as follows:

Y

it

¼ f ðX

it

; bÞ expðv

it

À u

it

Þ; i ¼ 1; 2; . . . ; N; t ¼ 1; 2; . . . ; T; ð1Þ

where Y

it

denotes the appropriate form of output for the ith ﬁrm at time t, X

it

is a vector of inputs

associated with the ith ﬁrm at time t and b is a vector of input coeﬃcients for the associated

independent variables in the production function. In the disturbance terms, the component v

it

represents a symmetric disturbance term permitting random variation of the production function

across economic units due, not only to the eﬀects of measurement and speciﬁcation error but also,

to the eﬀects of exogenous shock beyond the control of the economic unit (e.g. weather condi-

tions, geography or machine performance). The other component u

it

(P0) is a one-sided dis-

turbance term and represents ‘productive ineﬃciency’ relative to the stochastic production

function. The non-negative disturbance term u

it

reﬂects the fact that output must either lie on or

below its frontier. The deviation of an observation from the deterministic kernel of the stochastic

production function (Eq. (1)) arises from two sources: (i) symmetric random variation of the

deterministic kernel f ðX

it

; bÞ across observations that is captured by the component v

it

and (ii)

asymmetric variation (or productive ineﬃciency) captured by the component u

it

. The term u

it

measures productive ineﬃciency in the sense that it measures the shortfall of output Y

it

from that

implied by its maximum frontier given by f ðX

it

; bÞ expðv

it

Þ.

Nevertheless, any estimate of a ﬁrm’s eﬃciency level is not consistent, as it contains statistical

noise as well as productive ineﬃciency. In addition, stochastic frontier models suﬀer from two

other diﬃculties. One is the requirement of speciﬁc assumptions about the distributions under-

lying productive ineﬃciency (e.g. half-normal and exponential) and statistical noise (e.g. normal).

The other is the required assumption that regressors (the input variables contained in the vector

X) and productive ineﬃciency are independent. This may well be an unrealistic assumption since if

a ﬁrm knows its level of ineﬃciency, this should aﬀect its input choices.

A further development in the modelling of frontiers lies with the use of estimation techniques

which involve panel data. Initially, the stochastic frontier model (1) was developed for cross-

sectional data. Hausman and Taylor (1981), Baltagi (1995) and Blundell (1996) list a number of

attractive features of using panel data, one of which is that panel data allows for the control of

individual eﬀects which may be correlated with other variables included in the speciﬁcation of an

economic relationship, thus making the analysis on the basis of single cross-sections extremely

diﬃcult.

Initially, it was claimed that productive eﬃciencies for individual ﬁrms could not be estimated

and predicted. In an eﬀort to explore this unsolved problem with the previous models, along with

attempting to reap the beneﬁts of the aforementioned advantages of panel data, Pitt and Lee

750 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

(1981) were the ﬁrst to develop techniques using panel data to estimate the frontier production

function. Jondrow et al. (1982) presented two estimators (i.e. for half-normal and exponential

cases) for the ﬁrm-speciﬁc eﬀect for an individual ﬁrm under the assumption that the parameters

of the frontier production function were known and cross-sectional data were available for given

sample ﬁrms. Schmidt and Sickles (1984) suggested three diﬀerent estimators for individual ﬁrm

eﬀects and productive eﬃciencies for panel data.

A major breakthrough in the area of panel data models was achieved by Battese and Coelli

(1988), who presented a generalisation of the results of Jondrow et al. (1982) on the assumption of

a more general distribution for ﬁrm eﬀects to be applied to the stochastic frontier model. Their

model is given by

Y

it

¼ f ðX

it

; bÞ expðv

it

À u

i

Þ; i ¼ 1; 2; . . . ; N; t ¼ 1; 2; . . . ; T: ð2Þ

It can be seen that the main diﬀerence between models (1) and (2) is the absence of the subscript t

associated with u in the latter. Thus, u captures ﬁrm-speciﬁc time-invariant variables omitted from

the previous function. The symmetric terms v

it

are assumed to be identically and independently

normally distributed with mean zero and variance r

2

v

, i.e., v

it

$ Nð0; r

2

v

Þ. The one-sided terms u

i

(P0) are assumed to be identically and independently distributed non-negative random variables

which capture a ﬁrm eﬀect but no time eﬀect (Schmidt and Sickles, 1984). In addition, the error

terms v

it

and u

i

are assumed to be independently distributed of the input variables as well as of one

another.

The most frequently deﬁned distribution for the u

i

is the half-normal (i.e. u

i

$ jNð0; r

2

u

ÞjÞ

though other distributional assumptions for the u

i

terms have been proposed by several re-

searchers. For example, the exponential (Aigner et al., 1977), the truncated normal (Stevenson,

1980) and the gamma (Greene, 1980).

As far as the productive eﬃciency of a ﬁrm is concerned, Battese and Coelli (1988) deﬁne it as

the ratio of the ﬁrm’s mean production, given its realised ﬁrm-speciﬁc eﬀect, to the corresponding

mean production with the ﬁrm eﬀect being equivalent to zero. The productive eﬃciency of the ith

ﬁrm (PE

i

) is deﬁned, therefore, as

PE

i

¼

EðY

it

Ã jui; X

it

Þ

EðY

it

Ã jui ¼ 0; X

it

Þ

; ð3Þ

where Y

Ã

it

represents the output of production for the ith ﬁrm at time t, and the value of the PE

i

lies

between zero and one (0 6PE

i

61). If a ﬁrm’s productive eﬃciency is calculated as 0.65, for

example, then this implies that, on average, the ﬁrm realises 65% of the production possible for a

fully eﬃcient ﬁrm having comparable input values.

This technique, attributable to Battese and Coelli (1988), is relevant to a case where productive

eﬃciency is time-invariant. Schmidt (1985), however, states that unchanging ineﬃciency over time

is not a particularly attractive assumption; a criticism which is readily admitted by Battese and

Coelli (1988). With the assumption that productive eﬃciency does vary over time, an alternative

approach has been adopted by econometricians such as Cornwell et al. (1990) and Kumbhakar

(1990). None of these studies succeed, however, in completely separating ineﬃciency from indi-

vidual ﬁrm eﬀects (Kumbhakar and Hjalmarsson, 1993) and, in any case, the methods proposed

thus far are too complicated for empirical application (Ferrantino and Ferrier, 1995).

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 751

4. An application to Asian container ports

4.1. Deﬁnition of variables

Dowd and Leschine (1990) argue that the productivity of a container port/terminal depends on

the eﬃcient use of labour, land and equipment. Terminal productivity measurement, therefore, is

a means of quantifying the eﬃciency with which these three resources are utilised. As a measure of

the output of port production, Bernard (1991) questions whether total tonnage handled at a port,

should be applied to container terminals. Since the basic unit of output measurement is a con-

tainer and since, irrespective of its size and (especially) its weight, the facility inputs for the

movement of any container are more or less the same, his argument rests with the fact that the use

of total tonnage handled seems to be an illogical metric for the assessment of output at a container

terminal or port. One possible obvious solution to representing the output of a container terminal

may be provided by measuring the throughput in terms of the number of container movements

across the quayside or, alternatively, in terms of the monetary value of these movements as in-

dicated by the revenue associated with this operation.

In terms of a conventional categorisation of inputs, a typical expenditure structure of a port

over a given period of time is illustrated in Fig. 3.

As a proxy for the capital input variable, the combined values of buildings and equipment

(mainly cargo-handling equipment) accounts for 42% of total expenditure. Thus, the labour and

capital costs of a port or terminal together comprise 95% of the total cost structure of a port or

terminal operation. It seems reasonable enough to assume that this can be taken as suﬃcient to

describe the whole cost account.

It was originally intended that the basic economic inputs of capital and labour would fulﬁl the

data requirements of the study. This was the approach adopted in Song and Cullinane (2001)

where the focus was the productive eﬃciency of Korean and UK container terminals. Unfortu-

nately, across the Asian region in general, this sort of cost data proved impossible to collect from

secondary sources. In contrast with the situation in the UK, for example, accounting conventions

within the region have a general tendency not to require the publication of costs at a high enough

level of detail to allow their identiﬁcation. Instead, an alternative approach was adopted which

utilises certain physical characteristics of the terminals as the required input data. This is related

to output data in order to assess relative eﬃciency. Thus, terminal quay length (X

1

), terminal area

in hectares (X

2

) and the number of pieces (X

3

) of cargo handling equipment (including gantry

Fig. 3. A port/terminal expenditure structure. (Source: derived from Sachish, 1996, p. 347.)

752 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

cranes, ship-shore gantries, yard cranes, and mobile cranes etc.) were employed. Such an ap-

proach has the advantage that the data on these measures of physical container terminal ca-

pacities are available within the public domain and precedents do exist where they have been used

in this way (e.g., Notteboom et al., 2000; Tongzon, 1995).

For the econometric estimation of eﬃciency using the stochastic frontier model, data on out-

puts from the container terminal sample are also required. In Song and Cullinane (2001), the

terminal output (Y) was deﬁned as the turnover derived from the provision of container terminal

services but excluding property sales. Again, because of the range of accounting systems employed

by the sample of terminal operators, separating out the revenue attributable to diﬀerent sources

proved to be an intractable problem. In parallel with the solution proposed for the data re-

quirements on production inputs, the readily accessible, physical measure of annual con-

tainer throughput in TEUs was adopted as the basis for measuring the productive output of

container terminals (Y). This approach also has its precedents (e.g., Bernard, 1991; Notteboom

et al., 2000) though it would be preferable to use (but impossible to collect information on) the

actual number of boxes handled. A summary of the major characteristics of the variables is

presented in Table 3.

4.2. Data sources

The sample comprised 15 container ports or terminals in Asia, namely: Singapore; HIT, MTL,

Sealand (all three in Hong Kong); Kaohsiung, Keelung (Taiwan); Pusan (Korea); Shanghai,

Dalian, Yantian (China); Tokyo, Yokohama, Kobe (Japan); Port Kelang (Malaysia); and Manila

(Philippines). In virtually all cases, annual data were collected for the 10-year period from 1989 to

1998. In the case of the recently developed Yantian container terminal, however, data are only

available for the 6 years from 1993 to 1998. The data were collected mainly from the Contai-

nerisation International Yearbook (various issues) but was validated and, in certain instances

supplemented, by approaching each of the terminals directly. This process yielded a total of 146

observations.

4.3. Model speciﬁcation and assumptions

The estimation of relative terminal operator eﬃciency is conducted by assuming the ap-

propriateness of the log-linear Cobb–Douglas case. No other speciﬁcations were tested. The

Table 3

Statistical properties of the variables (1989–1998)

Variables

a

Mean Median Min Max S.D.

Y 2,476,032.00 1,812,710.00 105,736.00 15,100,000.00 2,524,487.00

X

1

3,483.00 3,192.00 305.00 8,754.00 2,397.00

X

2

111.89 94.43 12.50 275.50 73.45

X

3

73.23 52.50 4.00 433.00 86.37

a

Y is deﬁned as the terminal output as measured by annual container throughput in TEUs. X

1

is deﬁned as the

terminal quay length in metres. X

2

is deﬁned as the terminal area in hectares. X

3

is deﬁned as the number of pieces of

cargo handling equipment employed.

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 753

logarithmic stochastic frontier model speciﬁed for the container terminal operating sector in the

cross-sectional case is deﬁned by

ln Y

it

¼ ln f ðX

1it

; X

2it

; X

3it

; bÞ þ v

it

À u

it

; i ¼ 1; 2; . . . ; 15; t ¼ 1; 2; . . . ; T: ð4Þ

For application to the panel data, the model (2) is transformed into

ln Y

it

¼ ln f ðX

1it

; X

2it

; X

3it

; bÞ þ v

it

À u

i

; i ¼ 1; 2; . . . ; 15; t ¼ 1; 2; . . . ; T: ð5Þ

In both cases, Y

it

represents the output of the ith container terminal operator at time t; X

1it

; X

2it

and

X

3it

denote the respective input variables associated with the ith terminal operator at time t and b

is a vector of input coeﬃcients associated with the independent variables in the model and is the

object of estimation. The disturbance term v

it

represents the symmetric (statistical noise) com-

ponent. In model (4), u

it

(P0) is the one-sided (ineﬃciency) component and, in model (5), the

one-sided disturbance term u

i

(P0) represents the ‘terminal operator-speciﬁc time invariant in-

eﬃciency’.

The terminal operators are assumed to be proﬁt-maximisers and price takers in their input

markets. Hence, input prices may be treated as exogenous. Another assumption is that there is a

single-output production function. Thus, earnings from sources such as the sales of terminal

property are not classiﬁed as output and do not aﬀect the production function frontier. Finally,

the concept of the average terminal frontier is applied as the deﬁnition of the frontier. Estimation

of terminal eﬃciency is conducted by the David–Fletcher–Powell algorithm (Fletcher, 1980;

Greene, 1997) using the LIMDEP 7.0 econometric software package (Greene, 1995).

Since the maximum likelihood method applied within this algorithm is a large-sample esti-

mation procedure (Maddala, 1992), it is required that an asymptotic test statistic be used. Thus,

since it is one of the general large-sample tests based upon MLE, the likelihood ratio test statistic

(LR) is applied to test whether or not model coeﬃcients are signiﬁcantly diﬀerent from zero.

Under general conditions, the LR has a v

2

distribution with degrees of freedom equal to the

number of restrictions imposed and can be expressed as follows (Engle, 1984):

LR ¼ À2 ln

L

R

L

U

_ _

; ð6Þ

where L

R

denotes the ‘restricted’ likelihood function and L

U

the ‘unrestricted’ likelihood function.

5. Estimating the productive eﬃciency of Asian container ports

5.1. The cross-sectional model

The ﬁrst step in the estimation procedure is to check the sign of the third moment and the

skewness of the OLS residuals associated with the sample data (Waldman, 1982). The third

moment for the terminal frontier model is )0.130; the negative sign implying that the residuals of

the sample data possess the correct pattern for the implementation of the MLE procedure. This is

reﬂected in the histogram of the residuals shown in Fig. 4 which is clearly negatively skewed.

Because estimation procedures yield merely the residuals e rather than the ineﬃciency term

u, this term in the model must be observed indirectly (Greene, 1993). In the case of the

754 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

cross-sectional model shown in Eq. (2), Jondrow et al. (1982) suggest the conditional expectation

of u

it

, conditioned on the realised value of the error term e

it

¼ ðv

it

À u

it

Þ, as an estimator of u

it

. In

other words, E½u

it

je

it

is the ‘mean productive ineﬃciency’ for the ith terminal operator in the

industry at any time t. Under each of the three assumed possible distributional forms for the

ineﬃciency term in the model, this means that:

• For the half-normal model:

E½u

it

je

it

¼

rk

ð1 þ k

2

Þ

/

e

it

k

r

_ _

U À

e

it

k

r

_ _

_

À

e

it

k

r

_

: ð7Þ

• For the exponential model:

E½u

it

je

it

¼ ðe

it

À hr

2

v

Þ þ

r

v

/ e

it

À hr

2

v

_ _

=r

v

_ ¸

U e

it

À hr

2

v

_ _

=r

v

_ ¸

: ð8Þ

• For the truncated normal model: the ineﬃciency term is obtained merely by replacing ðe

it

kÞ=r

in Eq. (7) with:

e

it

k

r

_

þ

l

rk

_

: ð9Þ

Based on the sample cross-sectional data, the OLS estimates and the MLEs for each of the three

assumed distributions of the ineﬃciency term in the frontier model (4) are shown in Table 4.

The estimated OLS coeﬃcients are of limited value but do provide a starting point for the MLE

process. The goodness of ﬁt of the estimated regression equation evaluated by R

2

for the least

squares method looks reasonably high at 0.649. This implies that the three inputs to the model do

satisfactorily explain the model output. In addition, the F-statistic of 87.86 shows that the rela-

tionship between exogenous and endogenous variables is signiﬁcant at the 1% level.

The results also show that, except for the second input (X

2

) relating to the terminal area in

hectares, all variables are statistically signiﬁcant at the 5% level and that the MLEs under the three

alternative ineﬃciency distributions yield parameters which are close to each other. In addition,

Fig. 4. Skewness of the OLS residuals.

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 755

the signs of the parameters conform to a priori expectations. Another interesting point to address

here is that, except for the second input (X

2

) which becomes statistically signiﬁcant at the 1% level,

the MLEs diﬀer only marginally from the OLS estimates. This is to be expected since both

methods are consistent. The likelihood ratio test statistic of 153.24 reveals a high degree of sig-

niﬁcance beyond the 1% level, thus leading to the rejection of the null hypothesis that the coef-

ﬁcients are equal to zero.

2

As can be seen in Fig. 5, aside from the case of Kobe where a comparatively poor correlation of

approximately 0.67 was found when comparing the ineﬃciency estimates from each distributional

assumption, the worst correlation over time between diﬀerent ineﬃciency estimates for any of the

other terminals or ports is impressively high at 0.995. The unusual result for Kobe is explained by

the inﬂuence exerted by the ‘strange’ data returned for the period immediately following its ca-

lamitous earthquake. Under the assumption of a half-normal distribution for the ineﬃciency

term, the overall ineﬃciency level of terminal operators over the sample period is illustrated in

Fig. 5.

The parameter k (as calculated by r

u

=r

v

) provides some insight into the relative variance of the

two composite errors that make up the total variation in the structural disturbance term. The two

variances of the two error components, in addition to k, indicate that the ineﬃciency component u

varies more widely than the uncontrollable random exogenous component v. This means that the

productive ineﬃciency u makes a more important contribution to the variability of the total error

in the cross-sectional frontier model. Prior to analysing the eﬃciency level of each terminal

Table 4

Frontier production function of Asian container terminals

Variables/parameters OLS MLE

Half-normal Exponential Truncated normal

Constant 9.875

Ã

10.234

Ã

10.187

Ã

10.265

(22.00) (21.245) (24.394) (10.324)

ln X

1

0.154 0.157 0.154 0.163

(1.58) (1.702) (1.736) (1.757)

ln X

2

0.345

ÃÃ

0.340 0.338 0.328

(3.20) (3.136) (3.240) (2.995)

ln X

3

0.440

Ã

0.432

Ã

0.431

Ã

0.432

(6.21) (5.806) (6.301) (5.378)

k – 0.824 0.495 0.963

r

2

v

– 0.249 0.247 0.237

r

2

u

– 0.168 0.060 0.220

h – – 4.067 –

l – – – 0.044

Log-likelihood – –121.635 )120.886 )121.630

Figures in parentheses indicate t-ratios.

*

Not signiﬁcant at the 1% level.

**

Not signiﬁcant at the 5% level.

2

The Likelihood Ratio test statistic is calculated as LR ¼ À2ðÀ198:45 þ 121:83Þ ¼ 153:24.

756 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

operator as it varies over time, it is useful to see each operator’s average eﬃciency level over the

whole sample time period as shown in Table 5.

Under all three assumed distributions for which the model parameters have been estimated, the

average eﬃciency level of Kaohsiung is consistently highest, followed by Pusan, Singapore,

Keelung and MTL’s Hong Kong terminal. The container ports of Kobe in Japan, Manila in the

Philippines and Yantian, Shanghai and Dalian in the Chinese mainland are consistently the most

ineﬃcient ports in the sample, even though their precise rankings do not correlate perfectly across

all the distributional assumptions imposed.

One intriguing implication which can be drawn from this result is that the eﬃciency of a

container port or terminal appears to be very closely correlated to its size as measured in terms of

Fig. 5. Overall productive ineﬃciency levels (half-normal distribution).

Table 5

Average productive eﬃciency of Asian container ports/terminals (%)

Container port Half-normal Exponential Truncated normal

Singapore 79.43 (3) 85.25 (3) 79.83 (3)

HIT 75.55 (6) 82.12 (6) 75.57 (6)

MTL 75.75 (5) 82.36 (5) 75.85 (5)

Sealand 73.45 (7) 79.79 (7) 73.00 (7)

Kaohsiung 80.09 (1) 85.71 (1) 80.53 (1)

Keelung 79.39 (4) 85.17 (4) 79.61 (4)

Pusan 79.85 (2) 85.54 (2) 80.32 (2)

Shanghai 68.63 (11) 75.37 (11) 67.77 (12)

Dalian 65.43 (13) 71.45 (13) 63.90 (14)

Yantian 55.98 (15) 55.45 (15) 68.55 (11)

Tokyo 72.47 (8) 79.60 (8) 72.22 (8)

Yokohama 71.52 (9) 78.81 (9) 71.24 (9)

Kobe 67.28 (12) 74.54 (12) 66.36 (13)

Port Kelang 70.35 (10) 77.39 (10) 69.83 (10)

Manila 63.69 (14) 70.19 (14) 62.33(15)

(1) Figures are calculated by converting the ineﬃciency estimates using expðÀuÞ. (2) Eﬃciency rankings are shown in

parentheses.

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 757

throughput; a result which is validated by previous empirical work (for a review, see Cullinane

and Khanna, 1999). Another possible interpretation might be that there is an inverse relationship

between the degree of centralised government control which is exerted over a port or terminal and

its level of eﬃciency. This second inference would appear to potentially validate the theories of

public choice and property rights.

5.2. The panel model

By generalising the cross-sectional results in Jondrow et al. (1982) to panel models, Battese and

Coelli (1988) propose the following estimation of the ‘time-invariant terminal operator-speciﬁc

ineﬃciency’ u

i

under the half-normal assumption:

E½u

i

je

i1

; . . . ; e

iT

¼ l

Ã

i

þ r

Ãi

/

l

Ã

i

r

Ãi

_ _

U À

l

Ã

i

r

Ãi

_ _

_

_

_

_

; ð10Þ

where l

Ã

i

¼ c

i

l þ 1 À c

i

ð Þ Àe

i

ð Þ, c

i

¼ 1= 1 þ

k

T

i

_ _

and r

Ãi

¼

ﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃﬃ

r

2

u

1þkT

i

_ _

_

.

Based on the panel data, the MLEs of the terminal frontier model (5) are presented in Table 6.

As in the cross-sectional model, because the value of r

u

=r is high, the ineﬃciency disturbance u

makes a more important contribution to the total variation represented in the error component

than do the uncontrolled shocks denoted by v.

Given the parameters in Table 6, we are now able to compute the ‘time invariant terminal

operator-level eﬃciency’ by applying the formula given in (10). Fig. 6 shows the speciﬁc eﬃciency

for the seven major Asian container ports/terminals in the sample.

As distinct from the results achieved when considering the cross-sectional model, Singapore

is measured at the highest level of productive eﬃciency, with Pusan second, Kobe third and

Kaohsiung fourth out of the major ports in the region. The mainland Chinese port of Shanghai

again appears as the least eﬃcient operator. The main diﬀerence in results compared to the cross-

sectional model is the dramatic improvement in the measured eﬃciency level of Kobe and indi-

Table 6

Maximum likelihood estimates of panel frontier model for Asian container ports/terminals

Coeﬃcients Asymptotic t-ratios

Constant 9.648

Ã

11.427

lnX

1

0.363 1.973

lnX

2

0.427 1.991

lnX

3

0.145 1.741

k 1.437

r

2

v

0.119

r

2

u

0.171

Log-likelihood )81.913

k ¼ r

2

u

=r

2

v

.

*

Not signiﬁcant at the 1% level.

758 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762

cates very clearly the abnormal eﬀect of its earthquake upon the data collected and the results

produced by the ensuing analysis.

6. Conclusions

Although not wholly conclusive, the results achieved from this application of the stochastic

frontier model provide evidence of the eﬃciency rankings of a selection of container ports and

terminals within the Asian region. There exist certain anomalies, however, which seem to suggest

that the method of analysis does not necessarily produce robust results. This might be inferred

from the divergent results obtained for Kobe from the cross-sectional, as opposed to the panel

data analysis. As such, the impact of ‘catastrophes’ may well be a fruitful avenue for further

investigation and provide much-needed justiﬁcation for the omission of outliers from the sample.

One major intervening variable which might well have inﬂuenced the results achieved within

this study is the dichotomous positions of some of the sample ports/terminals with respect to the

level of market regulation of container terminal operations, particularly on the supply side. Whilst

recognising that there could well be other inﬂuential intervening variables, simultaneously con-

trolling for each of the individual eﬀects of both private sector participation and market dere-

gulation will allow greater ﬁne tuning in policy assessment and/or formulation. Within the context

of the container terminal industry, the greater cross-sectional variation in the combinations of

these two variables which comes from using a larger panel sample (particularly one with greater

diversity in geography and political economy) will permit the isolation of diﬀerences in their static

eﬀects. Similarly, time-series variation in the sample will facilitate the assessment of the dynamic

impacts of changes in policy.

On the basis of purely a subjective appraisal of the results obtained, however, there does seem

to be some support for the notion that greater privatisation within, and/or deregulation of, the

market does seem to be closely associated with enhanced productive eﬃciency. This empirical

investigation, however, yields no deﬁnitive and irrefutable link between the degree of private

Fig. 6. Major Asian container port/terminal-speciﬁc time invariant eﬃciency.

K. Cullinane et al. / Transportation Research Part A 36 (2002) 743–762 759

sector participation and the level of productive eﬃciency. Although there certainly appears to be

some justiﬁcation for the belief that there exists a positive relationship between the two, the most

persuasive inference to be drawn from the analysis is the consistency with which large throughput

operations appear to outperform their smaller counterparts in terms of eﬃciency; a factor which is

likely to further reinforce the existing dominant market positions of certain ports and terminals in

the region.

Acknowledgements

The authors are grateful to the British Council, Hong Kong and the Hong Kong Polytechnic

University who provided the funding for this research under the UK/HK Joint Research Scheme

(Project Numbers JRS 94/38, G-T149 and G-S976). We would also take this opportunity to ex-

press our appreciation of the many container ports and terminals in Asia who provided us with

the supplementary data necessary to undertake this analysis. Finally, we would express our

heartfelt thanks to Professor Frank Haight and two anonymous referees for suggestions which

have undoubtedly improved the paper.

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