Port Strategy and Development - Essay Example

PORT STRATEGY AND DEVELOPMENT By 10th, May, Port Strategy and Development Global conventions, European Directives, and national laws governs marine environment and ports operations. Issues of security, management, hazardous cargo, port congestion, land use, and ship discharge are some of the factors that manifest in a port. Indeed, issues of piracy, which is a security threat along various ports and coastlines, affect the insurance charges, delivery time, oil production, and cost of energy, and shipping costs (Mbekeani and Ncube, 2011, p. 5) that have a direct effect on port pricing. For a fact, piracy has adverse effects on the daily running of port operations (Talley, 2009, p.34-37), world security, and international business. At the same time, port activities are subject to weather influence. Weather has a significant impact on business activities of many kinds including the shipping business (Nasila, 2009, p.8). Port planning is also fundamental in realizing efficient, effective, and profitable port operations (Harris, 2007, P.1). Strategies in port operations include among others the pricing strategies, which refer to methods different ports use to price their products or services with an aim of covering all costs and making profits. According to Pettersen-Strandenes and Marlow, “existing pricing structures often suffer from trying to satisfy conflicting objectives - economists, port authorities, governments and port users will have different views on what constitutes an efficient port tariff” (Meersman, 2002, p.2). In determining the pricing in ports, the ports management should consider cargo handling, the time in port, port dues and charges (Meersman et al, 2002, p.5). Indeed, the main objectives of port pricing include profit maximization, economic efficiency, macro-economic policy, and income distribution. However, there are many challenges that relate to port pricing like transparency, competition, cost recovery, discrimination, price review vs. yardstick benchmarking simplicity, and cross-subsidy (Bichou, 2012,p.46-54). As such, ports should set their prices by analyzing the complex, network-like structure of principal and intermediary parties in the port, flow of services and related charges, differentiation and price discrimination in the market for port services, demand and supply in the ports, and competition (Ashar, 2001, p.1). However, setting and comparison of port prices is becoming a challenge subject to the wide variability in the population of ships and cargoes that each port handles. However, this paper will address the methods and strategies for port pricing in the Port of Melbourne in Australia. In doing this, I will review port pricing, port capacity, investment, competition and regulation. The essay will compare port pricing in the Port of Melbourne with port pricing theory and different port prices models. In conclusion, the paper will draw my opinion. Australia is an island nation and hence its ports are Australias gateway to the world. The Australian ports handle bulk commodity exports and metropolitan container imports with Port of Melbourne being the largest container and general cargo port and a crucial supply chain interface in Australia. In the last few years, Port of Melbourne has undergone many transformations subject to technological innovations in shipping and cargo. The port has four main terminal Berths that include Webb, Victoria docks, West Swanson, and East Swanson that are capable of handling third and fourth generation containerships (Taylor, 1997, p.284). Actually, up to 160,000 passengers and crew are expected to visit Port of Melbourne during the 2011-12 season which will see Melbourne host 56 voyage ship stopovers. Indeed, the port’s operations are expected to double in size every ten years. The port handles more than a third of the nation’s container trade. Indeed, in 2011, Port of Melbourne received about 2.5 million containers, an average of about 6,800 containers every day. With this capacity, the port of Melbourne conveniently offers about 15,000 jobs, handles around $82 billion exports, and imports annually (Port of Melbourne Corporation, 2012, p.5). However, subject to the handling strains and future expectations, the Australian Government has announced major port investment to ensure future port capacity can meet growing demand. To this end, the Victoria government will expand the port in its Swanson and Webb Dock terminal berths (Department of Transport, 2012, p.1). Most significantly, the Webb Dock will have a capacity of handling approximately one million containers annually. This investment will complement the longer-term investment in the development of the Port of Hastings. Additionally, DP World has announced that the first eight of 16 Noells Diesel Electric Straddle Carriers have begun operations at the port of Melbourne with the second batch of 6, Noells Diesel Electric Straddle Carriers due to arrive this year (Maritime Information Services Ltd, 2011, p,1). This will considerably improve the efficiency and productivity at the port. Hence, to make the port efficient, profitable, and sustainable a national coordinated approach to the planning and development of the port’s infrastructure was significant for Australias future economic growth. Indeed, in 2010, the Australian Prime Minister sent a request to the National Transport Commission and Infrastructure to initiate a National Ports Strategy relevant to the operations of port of Melbourne. The main objective of the strategy was to influence policymaking, improve the efficiency of port related freight movements, and minimize externalities associated with such freight (National Transport Commission, 2011, p.1). Following a Consumer Price Index, The Australian Government recommends that the Port of Melbourne Corporation (PoMC) pay an annual Port License Fee of $75 million starting 2012. In according fairness and equity, the PoMC’s intends to allocate the fee to all customer bases in the port to all prices and charges thereof. However, these charges exclude infrastructure fee and land rental charges. Every year, the PoMC communicates to the users of the port of Melbourne on any intention to increase the prices on port services and equally explain the rationale of the changes (Port of Melbourne Corporation, 2010, p.4). Like in many other ports, the aspect of short-run marginal cost forms the basis of all tariffs levied by and within the Port of Melbourne. This policy is relevant in ensuring continuity where unexpected changes in demand occur. Generally, the port adopts the policy of “user pays” in offering port services. Moreover, “they base their tariffs on a mix of pricing strategies designed to reflect the demand for port services, the competition between ports, and the cost of providing the services” (Crutchfield and Zellner, 2003, p.50). Theoretically, the port differentiates its prices on the basis of the quality of port services provided and the punctuality of handling the vessel and its cargo (Meersman et al, 2002, p.6-9). Conclusively, the port of Melbourne offers Cargo handling charges to cargo owners for services related to storage, cargo loading, unloading, stevedoring (Jansson and Shneerson, 1982, p.86-89), packing, unpacking, and equipment hire. The port equally charges dues to ship operators for ships entering, leaving, or using the harbor, marking or lighting the harbor. Additionally, the port charges cargo owners for services related to goods coming in and out or passing through the harbor by ship, but not related to services or work provided in respect of those goods (Bichou, 2012, p 45). Indeed, the prices of Port Melbourne can be compared to those of other competing ports. However, according to Meersman, Steenssens, and Van de Voorde, 1997, “the issue of growing port competition has in recent years assumed an entirely new dimension. It is, after all, no longer a matter of competition between individual ports, but between logistics chains. A port either belongs to a successful logistics chain for a particular goods flow or it does not” (Meersman, 2002, p.5). As such, if we compare port Melbourne with the South African port we will see that administered prices for port services and operations places South Africa in higher level upon considering port call costs for vessels and terminal handling charges on cargo. Indeed, according to TEU basis on total waterfront costs, South Africa is the most costly port (Trade and Industry Chamber, 2007, p.7). Ideally, port financing and pricing relies on the history of ports development in real time. Moreover, port pricing varies with ports locations with ports located in regions characterized by a high degree of port competition leading in pricing and performance. In my opinion, there should be internationally recognized standards to govern the mode of financing and pricing in all ports in the world. The mandate of these standards should supersede the national policies instituted by reference governments. This will help in addressing all the objectives, price determinants, and risks associated to port pricing. Additionally, every reference nation should adopt the most relevant price models and strategies to realize profits and cover all costs. Issues affecting the global maritime activities like piracy should be handled internationally as they play a major role in determining port pricing. Since nations are different logistically, geographically, and socially, competition should not be a determinant to port pricing and variant ports should adopt reasonable strategies to address port pricing. I however feel that the strategies and policies adopted by Port Melbourne are relevant to its profitability, effectiveness, and going concern. In conclusion, I find that port pricing and financing largely depends on the port capacity, services offered, number and amount of cargo, and national policies that relate to port operations. The port of Melbourne is significantly one of the major ports in the world with immense port capacity that emanates from its four main terminal Berths. Moreover, the idea to expand and invest in the port is effective in handling the foreseeable huge influx of vessels. Additionally, the port pricing mode of port Melbourne is quite inclusive where it incorporates all price determinants. Most significantly, the port follows set regulations in its pricing strategies. Its comparison with other competing ports gives it a higher edge in the marine industry. Works Cited Ashar, A 2001, Strategic Pricing in Newly Privatized Ports, Viewed 10 May 2012, < http://www.asafashar.com/AsharIJME_3_01.pdf> Bichou, K 2012, Introduction to Port Systems. Crutchfield, J and Zellner, A 2003, The Economics of Marine Resources and Conservation Policy: The Pacific Halibut Case Study With Commentary, University of Chicago Press, London. Department of Transport 2012, Port capacity, Viewed 10 May 2012, Harris, J 2007, Mackay Port Authority, Viewed 10 May 2012, Jansson, J and Shneerson, D 1982, Port economics, MIT Press, London Maritime Information Services Ltd 2011, DP World Melbourne boosts terminal capacity with delivery of new straddle carriers, Viewed 10 May 2012, < http://www.porttechnology.org/news/dp_world_melbourne_boosts_terminal_capacity_with_delivery_of_new_straddle_c> Mbekeani, K and Ncube, M 2011, Economic Impact of Maritime Piracy, Viewed 9 May 2012, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Maritime%20Piracy_Maritime%20Piracy.pdf Meersman, H et al 2002, Port Pricing Issues, Viewed 10 May 2012, < http://www.imprint-eu.org/public/Papers/IMPRINT_Van%20de%20Voorde_ports.pdf> Nasila, M 2009, Statistical Models for Pricing Weather Derivatives for Port Elizabeth, Viewed 10 May 2012, < http://www.nmmu.ac.za/documents/theses/Mark%20W.%20Nasila.pdf> National Transport Commission 2011, National Transport Strategy, Viewed 10 May 2012, Port of Melbourne Corporation 2010, Pricing Policy Statement, Viewed 10 May 2012, < http://www.portofmelbourne.com/shipping/~/media/Global/Docs/Pricing-Policy-Statement-2010-15.ashx> Port of Melbourne Corporation 2012, Expanding Melbourne’s Port Capacity, Viewed 10 May 2012, < http://portcapacity.portofmelbourne.com/downloads/120423-expanding-port-capacity.pdf> Talley, W 2009, Port economics, Taylor & Francis, London Taylor, D 1997, Global Cases in Logistics and Supply Chain Management, Cengage Learning EMEA, London. Trade and Industry Chamber 2007, Administered Prices Study on Economic Inputs Ports Sector, Viewed 10 May 2012, Read More