Strategy of Port Development - Essay Example

?Port Strategy Table of Contents Port Strategy Introduction 3 Global and Integrated Port Services (Scope and Practice) 4 Strategies of Major Port Operators 6 HHLA (Hamburger Hafen und Logistik AG) 7 Evolution of HHLA 7 Motives behind Restructuring of HHLA 8 PSA (Port of Singapore Authority) 8 Evolution of PSA 8 Motives behind Restructuring of PSA 9 ABP (Associated British Ports) 10 Evolution of ABP 10 Motive behind Restructuring of ABP 10 Perception of Port Authorities towards Restructuring 10 Impact of Restructuring on The Efficiency of Port Industry 11 Conclusion 12 References 13 Introduction The global economy and business have expanded dynamically since 20th century. The business related to port had increased at a rate of 8% from 2000 to 2006. In the developing countries, the business had increased by almost 30% and fuelled by the high cost of gasoline and other primary goods. The growth in trade quantity is increasing the prospects of global and integrated port services. Many major port operator companies have evolved and engaged in competition with each other. The competition demands the needs for innovation and use of new technology for the port operator companies. Source: (Rossignol, 2007). In the era of 1990s, the majority of container ship had the capacity of less than 2000 TEU (Twenty foot Equivalent Unit). As the trade has increased, the demand for large volume of shipment has also increased. In the year 2006, the quantity of ships with capacity of greater than 5000 TEU had increased significantly (Rossignol, 2007). Global and Integrated Port Services (Scope and Practice) The improvements of shipments entail the needs of new necessities for port infrastructures. At present, port has become one of the major elements of global logistics chain. Thus, it needs superior services and effective productivity. To compete in the global environment the port proprietors require high investment, utilisation of innovative technology and highly expertise personnel for escalating the terminals. Since 1990s, several terminals across the globe had acquired by major shipping lines and large private port based operators that reduced the smaller port proprietors. The bigger private port operators are also known as GTO (Global Terminal Operator). Currently, the UNESCAP (United Nations Economic and Social Commission for Asia and Pacific) manages more than 1 million TEU in a year. In the year 2005, UNESCAP and TTD (The Transport and Tourism Division) comprised of almost 600 ports, globally. In the year 2002, GTO operated approximately 55% of total global port terminals (Rossignol, 2007). Source: (Rossignol, 2007). Since 2002, the larger port operator companies comprise of the larger market share and are increasing at reasonable rate. In the year 2005, the GTO’s share in port had increased to 58%. The capacity of goods in ports had risen by 11.3% which was calculated as 399 million TEU from 2004–2005. The high market share of GTO indicates the importance of port services globally. In 2006, it was found that GTO terminals possessed 81% of the largest cranes with more than 22 rows (Rossignol, 2007). Source: (Rossignol, 2007). The above table shows the major port operator companies throughout the world in the year 2005. Strategies of Major Port Operators The port operators had experienced tough dynamic business environment. This increased the need of merger and acquisition of small terminal and establishment of new terminal system. As a consequence, many port operators had implemented horizontal and vertical assimilation strategies. The motive for merger and acquisition strategies is to expand the business, market share, and economies–of–scale and attain the leading position. In the year 2009, HPH (Hutchison Port Holdings) was the market leader for port shipment and PSA (Port of Singapore Authority) was in the second position with regard to total hectare. This highlights the aggressive growth related strategy for obtaining terminal. The acquisition takes place in the lower market that possesses strong growth possibility. From 2005–2007, the port business had witnessed several mergers and acquisitions. In the year 2005, DP World had taken over CSX World Terminal and P&O Ports which was calculated at almost 8 billion USD. These dual achievements provided DP World an opportunity to expand its business in Hong Kong, South East Asia, Australia, America, Europe and China. In 2005, PSA purchased 20% stake of HPH’s international terminal portfolio whose amount was almost 4.93 billion USD. Source: (Notteboom & Rodrigue, 2006). Above table depicts the number of acquisitions made from 2005–2007. As a result of so many acquisitions, the land for terminal development had decreased and it had generated exceptional opportunities for port operator companies because many investors were attracted to put money in port terminal business. The ROI (Return on Investment) in port operator business was approximately 15% and in certain cases even higher which had motivated many banks, private equity companies, hedging funds, financial institutions to be part of port terminal businesses. As there is no big company remains to be acquired, PSA, HPH, DP World and APM terminal are likely to remain in the top positions of port operator industry (Notteboom & Rodrigue, 2006). HHLA (Hamburger Hafen und Logistik AG) Evolution of HHLA HHLA is one of the most significant hubs of global economy. It was established in the year 1885 in Hamburg. In the 19th century, HHLA port had progressively emerged as the biggest and the most significant cargo ports (Hamburger Hafen Und Logistik AG, n.d.) In the year 1938, about 60% of export cargo was passed from Hamburg region. Thus, it increased the growth of HHLA port. In the year 1992, HHLA had made a joint business enterprise with PKP (Polish State Railways). It provided inclusive rail container services to connect between German ports with central and Eastern Europe. HHLA provides storeroom for vacant container, manages project and bulky cargos. The quantity of HHLA containers has developed rapidly. In the year 2004, the amount of HHLA containers was almost 4.6 million TEU which became twice in 2008 to around 7.3 million TEU. Presently, the HHLA is acknowledged internationally as a provider of innovative logistics in Hamburg port and European area (Hamburger Hafen Und Logistik AG, n.d.) Motives behind Restructuring of HHLA In the year 2010, HHLA had decided to restructure the organisation procedure. The motive behind such decision was to tackle the present as well as future challenges of port business. It has been witnessed that HHLA was experiencing a need for upgrading and extension while continuing its operations with full capacity. The restructuring of HHLA will provide it a capability to handle twice as much as container as compared to 2005. In 2005, the capacity of HHLA was calculated as almost 2.5 million TEU per annum which would become approximately 5.2 million by restructuring. At the first stage, HHLA had opened rail terminal to transport the container through rail. The second phase was the expansion of ‘new mega ship berth’. In 2010, the restructuring provided HHLA to obtain extra ‘mega ship berth’ and cargo space into service. The restructuring will assist improved coordination and management of processes. This can provide good basis for constant improvement of all port operations. Thus, the performance of HHLA can be adjusted with the growing competition of logistics business (Hamburger Hafen Und Logistik AG, 2010). PSA (Port of Singapore Authority) Evolution of PSA PSA is a major port operator company of GTO group. It operates in 16 countries throughout Europe, Asia and America. PSA provides transportation services with high efficiency and consistency. PSA was previously a harbour of Singapore Authority which is a constitutional board that controls, develops and manages the terminals of Singapore. In the year 1970, PSA established a shipping port in Singapore. The first operation of PSA was started in 1972 and its business has increased considerably. In the year 1990, the total container of PSA was calculated as 5 million TEU which had made Singapore one of the biggest ports in the world. Its first step towards international port operation had started in 1996 by entering business with Chiba and Dalian. Currently, PSA operates in additional 200 shipping lines globally. It is popular due to its service, speed delivery and dependability (PSA International, n.d.). Motives behind Restructuring of PSA In the year 1995, PSA had decided to restructure the port. The motive behind such strategy was to privatise its operations, preserve its leading position in the market and enhance its capability to compete in future. The restructuring process was done in several stages. In the first stage, the operational distinctiveness of the company was analysed. The geotechnical, nautical, industrial and operational performances were evaluated and major factors were established. In the second stage, the connection which is best suitable for Singapore and also best for port was decided. PSA desired to establish a port industry infrastructure which can optimise the operations of PSA as well as help to achieve competitive position in the long run for Singapore. In the third stage, the competitive position of PSA in international environment was assessed. In the final stage, the financial analysis was made to underline the important aspects that can impact on the restructuring process (PwC, 2011). ABP (Associated British Ports) Evolution of ABP ABP is considered as a leading ports group which manages almost 21 ports in the entire UK and operates one fourth of UK’s seaborne trade. In 1962, ABP was known as BTDB (British Transport Docks Board). In the year 1981, BTDB was reformed and thus came to be known as ABP. In 1983, ABP’s name was registered in London Stock Exchange (Associated British Ports Holdings Ltd, 2007). Motive behind Restructuring of ABP There are three motives behind restructuring of ABP ports. The first motive is the limited competition and higher cost of port services. The second motive is to remain competitive with other European ports that had swiftly adjusted according to market condition and adopted advanced technology such as containerisation. The final motive is that under the control of government the port’s access was restricted i.e. it was unable to diversify into other profitable businesses. The restructuring helped to remove these limitations of ABP. Perception of Port Authorities towards Restructuring Restructuring is a complex process because many significant decisions need to be taken. There are many perceptions for restructuring a port. It requires mix of specific skills and transfer of ownership of assets. The main objective of restructuring is to increase the advantage of different stakeholders such as port authority, terminal operators, customers, government and entire economy. Port authorities establish separate organisations for restructuring of port which operate without supervision of government. These restructuring can ultimately result in privatisation of port. Port authorities assist the restructuring process by assessing strategic assignment. These assessments include operational configuration for new unit, characterisation of the aspects that will be managed by the private sector and other tasks to be reserved for private authorities (Chlomoudis & Et. Al., 2003). Impact of Restructuring on The Efficiency of Port Industry Restructuring can provide benefits to port operations. It led to more cooperative and productive workplace. Through restructuring, PSA and HHLA can achieve higher employee productivity which can lead to increase of operating profit per employee because it downsizes the labour force. It was argued that restructuring can lead to job loss. However, the impact of loss of employment is minor compared to loss of trade. A restructuring process can remove the limitation of diversification and thus provide opportunities for investor (Haarmeyer & Yorke, 1993). Conclusion In past, many port operators had restructured their port and begun to relocate operations and proprietorship to the private sector. The critical part in restructuring is that the government must make sure that the ports are managed effectively. It has been seen that private corporations have stronger encouragement to control resources competently than public organisations. The reason is that private companies are greatly exposed in the competition and there is less vulnerability of political intrusion. The restructuring had helped PSA and HHLA to gain insight about how to achieve more competitive and efficient ports. It directly benefits the employees and the neighbouring countries. Port restructuring provides convincing means to increase both political and monetary autonomies. References Associated British Ports Holdings Ltd, 2007. Company History. Associated British Ports. [Online] Available at: http://www.abports.co.uk/geninfo/abp.htm [Accessed June 09, 2011]. Chlomoudis, C. I., & Et. Al., 2003. Port Reorganization and The Worlds of Production Theory. University of Crete. [Online] Available at: http://www.portlab.gr/Ereyna/Arthra%20ergastiriou/Journal%20Papers/11.%20Port%20reorganisations%20and%20the%20worlds%20of%20Production%20theory.pdf [Accessed June 09, 2011]. Hamburger Hafen Und Logistik AG, No Date. The Port Of Hamburg Then And Today – 24 Photos Tell Twelve Stories. 12 Highlights from 125 Years. [Online] Available at: http://hhla.de/Twelve-highlights.1123.0.html?&L=1 [Accessed June 09, 2011]. Hamburger Hafen Und Logistik AG, No Date. Expansion. Container. [Online] Available at: http://hhla.de/Expansion.708.0.html?&L=1 [Accessed June 09, 2011]. Hamburger Hafen Und Logistik AG, 2010. New Work Organization. Archive Details. [Online] Available at: http://hhla.de/Archive-Details.218.0.html?&L=1&tx_ttnews[tt_news]=733&cHash=2fb8238c0bfd502b2f10f2d0572e1dcd [Accessed June 09, 2011]. Haarmeyer, D., & Yorke, P., 1993. Port Privatization: An International Perspective. Policy Study No. 156. [Online] Available at: http://reason.org/files/6a983123788632131171e022e6466a7a.pdf [Accessed June 09, 2011]. Notteboom, T., & Rodrigue, J. P., 2006. The Corporate Geography of Global Container Terminal Operators. University of Antwerp. [Online] Available at: http://people.hofstra.edu/jean-paul_rodrigue/downloads/Notteboom+Rodrigue-book%20Gdansk-final.pdf [Accessed June 09, 2011]. PSA International, No Date. Introduction to PSA. Investor Relations. [Online] Available at: http://www.internationalpsa.com/about/investorrelations.html [Accessed June 09, 2011]. PwC, 2011. Maximizing Opportunities at Your Port of Call. Transport & Logistics. [Online] Available at: http://www.pwc.com/en_BE/be/transport-logistics/pdf/Maximizing-Opportunities-at-your-port-of-cal-_PwC.pdf [Accessed June 09, 2011]. Rossignol, M. H. L., 2007. Global Terminal Operators: An Overview. Organization of American States. [Online] Available at: http://www.oas.org/cip/docs/areas_tecnicas/1_reformas_portuarias/15_global_terminal_operators.pdf [Accessed June 09, 2011]. Read More