Tongzon 1995 - Determinants of Port Performance and Efficiency
Tongzon 1995 - Determinants of Port Performance and Efficiency
245-252, 1995
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JOSE L. TONGZON
Department of Economics and Statistics, National University of Singapore,
Kent Ridge Crescent, Singapore 05 11
Abstract-Studies that have identified the various factors influencing a port’s performance and
efficiency are few. Furthermore, these studies have failed to quantify the relative contributions of
these factors to overall port performance and efficiency. This article attempts to fill this gap by
establishing a model of port performance and efficiency. Specifically, it aims to specify and
empirically test the various factors which influence the performance and efficiency of a port.
Based on a sample of 23 international ports, the study inter alia is able to provide an empirical
basis for the crucial role of terminal efficiency relative to other factors in the overall port perfor-
mance.
1. INTRODUCTION
examines only the performance in handling containerised cargoes across selected ports. ’
A sample of 30 container ports was initially selected based on size, geographical location,
and data availability. Questionnaires requesting 1991 data on port performance and
efficiency were sent out to these selected ports. Due to confidentiality reasons and data
nonavailability, 23 sampled ports have responded. The survey method was supplemented
with data from secondary sources. Two major secondary sources deserve special mention:
Port of Melbourne inhouse study on Comparative Port Study (1992) and the newly
published report by Australia’s Bureau of Industry Economics on International Perfor-
mance Indicators in the Waterfront (1993). Publications such as Lloyd’s Ports of the
World (1993) and Containerisation International Yearbook ( 1992) also provided infor-
mation. 3 Appendix 1 presents the summary statistics for all the relevant variables consid-
ered in this study.
Given data availability, the final sample of ports analysed are listed in Table 1,
together with their corresponding countries.
2. THE MODEL
qhere are generally four categories of cargoes that are handled in ports: dry bulk, liquid bulk, container-
iscdcargo, and noncontainerlscd nonbulk cargo. Each of these types require a certain type of ships and certain
Cargo-handllng quipment .
‘Data are available on request from the author.
‘It may also be postulated that the objective function of a port is to maximise throughput on a per unit
time basis subject to a revenue constraint in terms of a minimum amount of dividend required from government-
run ports. In the case of private ports. the constraint could be imposed by the stakeholders in the form of a
minimum profit level.
Port performance and efficiency 241
significant item in port charges and thus, it is vital to keep this type of cost to a mini-
mum.5 The speed of moving cargoes into and out of ships at berth will influence the
overall port performance via the charges imposed on shipowners and the actual through-
put handled.
‘This occurred when the port pricing structures in many countries have shifted from wharfage-based to
ship-based charges.
248 J.L.TONOZON
on the level of economic activity within a country and between countries. A change in this
level of activity will have a direct effect on the level of demand for port services.
2.1.5. Terminal efficiency. As defined earlier, terminal efficiency is measured in
terms of the number of containers loaded and unloaded per berth hour. This reflects the
labour and capital productivity levels in ports.
where:
TH = number of containers (TEUs) in a year;
LOC = location represented by a dummy variable;
FS = frequency of ship calls (all);
CH = average government and port charges;
EA = level of economic activity measured by respective countries’ GDP;
E = terminal efficiency (i.e., average number of containers per berth hour);
CONMIX = average container mix represented by the proportion of 40-foot containers;
BRLWT = average delays in commencing stevedoring represented by the difference
between the berth time and gross working time;
GWLN = average delays during stevedoring represented by the difference between
gross working and net working time;
CHWH = average crane hours per working hour;
Port performance andefficiency 249
TEUCH = average crane productivity represented by the number of containers lifted
per crane hour;
CE = average vessel size and cargo exchange.
The algebraic signs underneath the equations indicate the expected direction of the
effect of the independent variables.
There are other qualitative factors that can influence terminal efficiency. The more
significant of these factors are as follows: balance or lack of balance between various
subsystems at a terminal; motivation and quality of container terminal personnel; stow-
age distribution pattern over the bays of the vessel; stowage position in the bays; lashing
systems utilised for on-deck containers; one-way or two-way handling and allocation of
handling equipment on terminal.
3. ESTIMATION
The structural equations for the determination of port performance and efficiency
have the following mathematical forms’?
In TH In TH’ In E
The relatively high coefficient for the terminal efficiency variable (E) indicates its
high importance in the determination of port performance. The variable location (LOC)
has the right sign but is statistically insignificant.
The effect of location, represented by a binary variable, on port throughput must
have been reflected in the frequency of shipcalls (FS) and thus, did not emerge statisti-
cally significant. lo A diagnostic test for collinearity, using the variance-decomposition
proportions and condition indexes, also confirms a high correlation between the FS and
LOC variables. Variable (LOC) was later dropped out of the original equation to deal
with the multicollinearity problem. The estimation results without the variable (LOC), as
reported in column (2) of Table 2, did not significantly differ from the original results.
The government and port charges (CH) are not statistically significant although it
has the correct sign. Port charges are a small proportion of total transport costs so that it
is not surprising that their overall impact on port choice decisions could have been offset
by other more significant indirect costs of transport. Note that port charges are also the
feedback effects of throughput changes via the economies of scope argument. Ports that
handle more traffic can lower their charges as a result of the following: overhead costs
associated with the provision of berths, dredging and breakwater, which must be incurred
irrespective of the volume of cargo involved, will be smaller the more throughput is
handled; given the stochastic nature of ship arrivals, the more berths a port has the lower
the percentage of berth idle time needed to help queueing to an acceptable level; some
“A better proxy for the variable, location, is volume of trans-shipped containers. However, not all of the
responding ports reported this type of information.
Port performance and efficiency 25.1
elements of port infrastructure such as container terminals and loading facilities operate
at lower average costs as throughput increases, and greater concentration of cargoes
makes the use of larger vessels feasible which in turn lowers unit costs.
The aforementioned findings provide empirical support for the argument that port
performance is influenced by several factors, some of which are beyond the port authori-
ties’ control such as the level of economic activity, geographical location, and frequency
of shipcalls. There are, however, two variables which ports might be able to control
directly depending on the role ports play on the waterfront. One is terminal efficiency
(which has emerged as the single most significant contributor to port performance) if
port authorities take a more pro-active role.
On the other hand, if a port authority plays a “landlord” rather than a pro-active
role, then it only provides the basic port infrastructure and leaves the cargo-handling
operation and management to private stevedores. The other is port charges. The impact
of port charges on port performance is contingent on how significant these charges are in
the overall transport costs incurred by the port users. If the ports’ role on the waterfront
diminishes, its impact through its charges will certainly be reduced.
An important issue addressed in this study concerns the determinants of port perfor-
mance and efficiency. So far only few in-house studies have informally investigated this
issue. In this study, an attempt is made to integrate and empirically test the various
hypotheses of port performance and efficiency. The model has also quantified the contri-
bution of terminal efficiency to the overall determination of port performance. This is an
important finding as it provides empirical support for the notion that terminal efficiency
is a vital component of any waterfront reform aimed at improving port performance and
efficiency. The stronger influence of terminal efficiency relative to other factors in the
determination of port performance provides an empirical justification for giving top
priority to improving terminal performance in the overall process of waterfront reform.
The dominant contribution of crane productivity (TEUCH) to terminal efficiency justi-
fies the need to put more emphasis on enhancements of crane productivity. ‘I
The unavailability of data on the two variables related to delays during stevedoring
(GWLN) and crane utilization (CHWH) rates has constrained the efficiency analysis. It
will be interesting to see the extent to which these variables can contribute to terminal
efficiency once they are incorporated in the model. Finally, it is also interesting to see the
outcome if the economies of scope effects are neutralised by restricting the analysis to
ports of similar size. ”
Clearly, there is a lot to do. The evidence, provided in this article, that port perfor-
mance and efficiency can be modelled, suggests many directions that future research can
follow.
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Coefficient of
Variables Maximum Minimum Mean SD Variation
Statistics are based on the data provided by the sampled ports and other secondary sources
discovered in Section 1.1 of this article.