Port Development

1 G to 5 G Ports
 Background
• In the last 60 years, ports have evolved from cargo
loading/unloading locations to being crucial hubs in value driven
logistics chain system.
• Ports are international logistics platform acting as interface
between production and consumption centres
• Port and shipping sectors deal with the volatile world market ,
affected by political factors, international trade, and overall world
economic conditions.
• Shifting functions of a port, as well as many logistical,
technological, and economic uncertainties , make the planning
and design of these complex socio-technical infrastructures very
challenging.

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 I Generations of Ports
• Until 1960, ports played a simple role as the junction between sea
and inland transportation systems.
• Main activities in the port :cargo handling & storage, leaving other
activities extremely unrepresented
• Such a way of thinking severely influenced related persons in the
government and local administration.
• Also, it even influenced persons related with the port industry, so it
was considered that it was enough to develop and invest in only port
facilities,- cargo handling, storage and navigation assistance.
• It was for these reasons that important changes in transportation
technology were neglected.

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 II Generations of Ports-1960-80
• Had a system comprising of government and port authority, so the
port service providers could understand each other and cooperate
for mutual interests.
• Activities in these ports were expanded ranging from packaging,
labelling to physical distribution. A variety of enterprises(projects)
have also been founded in ports and hinterlands.
• Cargo type change(distribution processing), ship related industry -
enlargement of port regions
• Compared to first-generation ports, the second generation ports
have a characteristic that freight forwarders and cargo owners had a
tighter relationship.
• second-generation ports had begun to notice the needs of customers,
but when it came to keeping a long-term relationship with
customers, they took a passive attitude.
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 III Generations of Ports-post 1980
• Container transportation has been developed quickly, and the new
intermodal transport system emerged.
• The activities of production and transportation have linkage to form
an international network. The port service function has been
enlarged to include logistics and distribution services.
• The environment protection facilities are becoming more important,
so the ports are developing closer relationships with those in their
surrounding neighbourhoods.
• Compared to the past, port authorities are focusing on
efficiency(right way of doing things) rather than effectiveness (Right
things to do).
• Needs of customers were analyzed in detail and port marketing has
been actively engaged.
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 1 G to 3 G -changing role of ports-1:
• Evolved from traditional services to value-added logistics services
• These days, commercial success of a port could arise from a
productivity advantage in traditional cargo-handling service, from value-
added service, or from both.
• Productivity advantages come from economies of scale/scope,
suggesting that the most productive ports will be those that are
equipped to handle large cargo volumes and/or significantly reduce unit
costs through efficient management.
• Shippers and carriers select individual ports not just on cargo handling
service capabilities, but also on benefits they are capable of “delivering”.
• Unless a port can deliver benefits that are superior to those of
competitors in a functional aspect, port customers are likely to select
ports based merely on price. It raises the question of how a port can
achieve value differentiation.
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 1 G to 3 G -changing role of ports-2:
• In the 1970s, almost every port provided the same basic package of
services to almost every customer.
• Nowadays, however, it is more difficult for ports to compete on the basis of cargo-
handling service. There has been a convergence of technology within cargo-handling
service categories.
• This means that though new technology may sometimes provide a
window of opportunity for productivity improvement, in many cases
that same technology is also available to competitors.
• It is no longer possible to compete effectively on the basis of basic
traditional functions. Thus, there is a need for ports to seek out new
means of gaining a competitive edge..

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 1 G to 3 G -changing role of ports-3:
• Late 1980s saw the emergence of major changes. Customers began
to ask ports to provide a greater variety of services.
• Providing value-added services is a powerful way for ports to build a
sustainable competitive advantage. Shippers and port customers are
becoming increasingly demanding.
• Customers now look at value-added logistics services as an integral
part of their supply chain. So ports must attempt to satisfy these
needs by offering differentiated services.
• Studies show that the most successful ports are those that not only
have a productivity advantage in cargo-handling services, but that
also offer value-added services.

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Matrix of competitive advantage

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 Logistics efficiency and economic impact
• Logistics is a procedure to optimize all activities to ensure the
delivery of cargo through a transport chain from one end to the
other.
• The logistics chain consists of activities that facilitate the movement
of goods from supply to demand.
• As many such activities require the use of ports, port authorities
have taken a particular interest in the various port activities involved
in logistics.
• Logistics costs are not limited to costs consumed in carrying out
logistics activities. Rather, they should be understood as all costs
input into a given logistics system for the provision of logistics
service.

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Relationship between Logistics Costs and Logistics
Service-
Raising the level of logistics service requires an increase in logistics cost

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Direction of Improvement in Logistics Systems
When the overall efficiency of the logistics system is increased from logistics system (A) to
logistics system (B), a higher level of service can be provided (S1 A -> S1B ) at the same cost
level (C1A ), or the same level of service (S1A ) can be provided at a lower cost (C1A ->C1B ).

In general, logistics systems improve not by lowering logistics costs, but rather by achieving
better service level (c*, s*), at a lower cost level, by shifting the costs-service curve itself (A->B).

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 Cost Leadership Strategy
• The port could achieve a reduction in operational costs, to become
supplier with the lower cost services to its customers, thus able to
compete with other ports, and can be achieved through the
following factors:
• Reduction of operational costs.
• Labor costs less.
• Increase the labor productivity to the maximum.
• Optimization Utilization of assets fixed and the potential.
• wide-ranging facilities and modes with low-cost
• Better facilities and differentiation in the port fees payment.
• Treatment preferential to older clients
• Pricing services flexible

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 Differentiation of Services Strategy
• This strategy depend on the services that are distinct from its other
competitors:
• through provision the services with high added value,
• differentiation in the certain activities that competitors don't have
achieved, unique to the port without the others,
• this strategy depend on the following factors:
• Geographical Location: The port proximity elements to the main
ports and trade routes, the correlation extent between the port and
hinterland, volume the transport network and available
communications, and the processing port to receive large size ships.
• Facilities: A specialized berths, terminals and handling equipments
appropriate, that depend on high technology in the performance, the
major facilities is the most important in the differentiation success
on the others
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 Logistics Centres Evolution-1960s-70s
• Receiving
• Storage
• Order processing
• Reporting
• Picking
• Order assembly
• (Re)packaging
• Palletizing/unitizing
• Label/mark/stencil

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 Logistics Centres Evolution-1980s-90s
• Bonding
• Receiving
• Cross-docking
• Storage
• Order processing
• EDI Reporting
• Picking
• Order assembly
• (Re)packaging
• Stretch-shrink-wrapping
• Palletizing/unitizing
• Label/mark/stencil
• Shipping
• Documentation
• Outbound transportation
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 Logistics Centres Evolution-1990s-Present
• Materials Management
• Distribution Services(national/global)
• Import clearance
• Bonding
• Inbound transportation
• Receiving
• Cross-docking
• Storage
• Inventory management and control
• Shipment scheduling
• Orders processing
• EDI Reporting
• Picking
• (Product)subassembly
• Order assembly
• (Re)packaging
• Stretch-shrink-wrapping
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 Logistics Centres Evolution-1990s-Present
• Palletizing/unitizing
• Label/mark/stencil
• Shipping
• Documentation
• Outbound transportation
• Export documentation
• FTZ operation
• JIT/ECR/QR services
• Freight rate negotiation
• Carriers/route selection
• Freight claims handling
• Freight audit/payment
• Safety audits/reviews
• Regulatory compliance review
• Performance measurement
• Returns from customers
• Customer invoicing
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 Main activities of Logistics Centres
• Receiving goods, breaking shipments, preparing for shipment,
returning empty
• Packaging
• Simple storage, distribution, order picking
• Customizing, adding parts and manuals
• Assembly, repair, reverse logistics
• Quality control, testing of products
• Installing and instruction
• Product training on customer’s premises

• SEZ …..
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 Port Authorities create added-value
• Port often link added –value with
• The number of jobs created within the port and the port
system(industries/logistics)
• The amount of taxes paid to Governments
• Turn over or gross margin gained from port and related activities
• The global economic impact of a port on a region
• VAS is a marketing advantage
• VAS is any service that differentiate positively a port ( or a terminal)
from its competitors
• VAS are activities:
• Increase turnover and margin
• Create better stand over competitors
• Build customer’s loyalty
• They sell the advantages of your port and terminal
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 Value Added Service
• The first perspective of the ‘value added’ concept is that of an
incremental process, implying that a sequence of progressive
activities carried out to satisfy customers is viewed as value added
(Christopher et al., 2002; Porter, 1986).
• As an element (material or function) of demand advances along the
stages and progresses to satisfy customers, it acquires value (Okorie
and Tipi, 2008).
• In relation to maritime transport, Stopford (2009) portrayed ‘value
added’ as a modern economic jargon that can be used to convey the
meaning that the lives of recipients of goods and those who benefit
from global trade are made better.

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 Value Added Service…..
• Value added is perceived as based on efficiency and effectiveness
of resource utilisation.
• An integral aspect of Value-Adding Services (VAS) is about doing
things or offering some kind of activities to customers rather than
the total creation of tangible products.
• They are additional services to complement other major services
(Okorie and Tipi, 2008).
• Typically VAS means customised and extra special services beyond
the basics (Bowersox et al., 2007; Galetzka et al. 2006).
• Supply chains are increasingly customer-driven (Ainsworth, 1992),
and rendering tailored services offer opportunities for a competitive
differentiation strategy (Christopher, 2005).
• When VAS are carefully developed, the intrinsic worth of their
customised nature can be elicited.
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 Benefits of Value Added Service
• Long-term contracts
• More visibility on your business
• Less influence from your competitors
• Secure investments
• Show your willingness to accompany your customers
• It is a customer’s perspective
• …..but also your competitor’s perspective
• ………… and don’t forget your customer’s competitors
• Added value services build loyalty

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Value-added services : a means to attract clients

Module
24 3
Port users indication of VAS Availability

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 A Game theoretic Analysis- A New investment
• Game theory is concerned with the analysis of strategies for dealing
with competitive situations where the outcome of a participant's
choice of action depends critically on the actions of other
participants. It has been applied to war and business.
• A Game theory approach is adopted in new investment because the
pay off that a port receives from investing in new port facilities
depends on the investments made by competing ports:
• An investment is likely to yield more cargo if competing ports do not
invest, as cargo will leave the outdated , less efficient facility for the
newer, more efficient one.
• It is important for a port to take into consideration the strategic
investment opportunities of its competitors ports

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 Selling your port’s advantage
• Best performance is achieved when both Port Authority and
Terminals work together
• Port Authority
• Market its advantages versus other competing ports in the region
• Stress the port’s future development
• Port Facility or Terminal
• Market its advantages towards Users
• Different sectors and different requirements: bulk, break
bulk,container/RORO, passengers
• Depends on your own technical and service advantages

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 1-3 G Ports Summary
• 1st generation ports were conceived to transport goods between land
and sea and vice versa, through a local or regional hinterland (area
near the port that serves as a route for goods sales and distribution)
• 2nd generation ports begin to be seen as a transportation hub and a
center of industrial and commercial activity. Services are limited to
ships and goods but in its vicinity processing industries are installed.
These are called industrial ports.
• The 3rd generation ports incorporate logistics functions related to
the distribution of goods in services, data processing and use of
telecommunications systems, and help to generate added value.

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 4 G Ports-1
• The 4th generation ports make a step further and are characterized
by telematic networks (communication networks based on new
technologies) that connect different port areas and allow the
collaboration with other ports, with the objective to internationalize
and diversify their activity. These are called network ports.
• These ports are integrated into the international transport logistics
chains, door to door services with other logistics operators working
in several geographically nearby ports..
• The new network economy transforms the classic positions of port
logistics chains and gives them value

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 4 G Ports-2
Characterized by:
• Development of internationalization strategies and diversification of
its activities that allow, for example, the transportation of goods to
any place in the planet.
• Provision of a logistics organization that makes its facilities
attractive and efficient for the transportation of goods.
• Provision of electronic data interchange (EDI) networks integrated
among port areas.
• Looking for port areas distributed abroad.
• Cooperation with other port communities

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 5 G Ports

• Refers to the green port or low-carbon port. Time initially set from
around 2010 to the next 10 years or so, according to the situation the
length of this time can also be adjusted.

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 Background…
• Port Versus Harbour
• Ports as levers of Economic Development
• Domestic Trade and Production
• International Trade and Globalised Production
• Economy of scale
• Larger markets overseas
• Favourable cost economics- land, labour- China
• Fiscal Benefits- tax advantages in investment and corporate taxes
• Skills of manpower,
• Technology
• Laws- environment, labour,
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