Sunday, February 13, 2022

Port devolution vs. recentralization: A reversal of conventional thinking?

[articulated from: Claudio Ferrari, Hercules Haralambides and Alessio Tei (eds.) 2022. Regulation and Finance in the Port Industry. Palgrave Studies in Maritime Economics, Palgrave Macmillan, DOI: 10.1007/978-3-030-83985-7_1].

From a historical viewpoint, the strategic significance of the port industry, both for foreign trade and national industrial development, has led many national governments to seek an active involvement in the development and control of port infrastructure. However, the scarcity of public financial resources; the unwillingness of the public sector to assume the market risk of specialization;  the limited ability of the public administration to run complex, risky, and increasingly commercialised activities, such as those of container terminals; the interest of carriers in having their own dedicated terminals and, finally, the increasing appetite of the private sector (Global Terminal Operators - GTO) in the often very lucrative port terminal investments, have given way to the devolution of decision-making authority from the ‘centre’ to the ‘periphery’. A period of national port reforms has thus started in the 1980s and 1990s, which is still underway in many countries.

Port reforms range from the simple commercialization of port operations to corporatization, and all the way up to full port privatization. But the private sector’s involvement in port business has often given rise to conflict between port and city administrations, particularly municipalities, many of which still believe that it ought to be themselves the lawful managers of ‘their’ ports [During my years as the manager of the Italian port of Brindisi, I vividly remember, the then mayor of the city, and member of the port’s supervisory committee, never missing the opportunity to declare that ‘he did not participate in committee meetings just in order to raise his hand and vote, but he was coming there to actually manage the port’!].

A reversal of the devolutionary trend can however be observed, increasingly, today, i.e., a recentralization of decision-making powers, through the integration of regional ports under a single authority. The trend is being championed by China, followed by Italy and other European countries. The premise behind this is simple: devolution has led to homogeneity of the port service, meaningless port competition and waste of scarce financial resources[1]. However, basic infrastructure such as that of ports is there to provide the platform on which companies compete, but it ought not be the subject of competition itself. Co-opetition is thus the new port model. In this, the development of basic port infrastructure (berths, terminals, channels, breakwaters, etc.) is centrally coordinated, to maximize regional benefit. The infrastructure is then meant to be used by private (or public) companies, i.e., port service providers such as terminal operators, towage companies, pilot corporations, stevedores, and a miscellany of port-related activity, in competition among themselves[2]. Competition here could be ‘competition in the market’ or ‘competition for the market’, the latter being the preferred model (concessions) of most ports[3]. But, to make this point crystal clear, someone needs to be out there to veto my ego-boosting managerial decision to build a new terminal, just because my next-door neighbour is doing so, or because carriers, in possession of significant market power these days, can successfully play one (container) port against the other.-

HH – February 2022

[1] I am not aware of a port-city not proud of its port: the need for expansion, real or imaginary, is always on top of the agenda of every city administration, particularly during periods of local elections.

[2] For more on ‘port integration’ and its models see: Shan Li, Hercules Haralambides and Qingcheng Zeng (2022). Economic forces shaping the evolution of integrated port systems - The case of the container port system of China’s Pearl River Delta. Research in Transportation Economics (forthcoming).

[3] I have described the difference between the two models in earlier communications. Competition for the market is the preferred model of the European Commission.

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