Literature Review carried out from 14th Feb to 22nd Feb 2011

1. Port Pricing

Port pricing strategy can be based on cost factors (Heggie 1974). The study discussed that variable cargo is priced at marginal cost pricing and fixed cargo is priced at average cost pricing. He divided port cost in to capital cost and operational cost in order to determine marginal and average cost. The study placed emphasis on cost based tariff and it is important to have cost based tariff as far as port improvements are concerned as it facilitates the prioritizing of port improvement requirements.

(Bennathan & Walters 1979) in their book "Port pricing and investment policy for developing countries" mentioned that the efficient operation of a port requires its ports authorities to levy prices that are based on short-run marginal cost. This implies that when the demand for port facilities is persistently high and there is a possible port congestion, the authority should raise the tariff by adding a congestion charge and when demand gets lower relative to available port capacity, the authorities should use two-part tariffs to promote more traffic.

(Unspecified 1997) European Union (EU) Green Paper on sea port pricing places emphasis on the fact that port users should bear the real cost of the port services and facilities they consume. This proposition is resulted due to the present nature of port infrastructure financing which is through public funding. Accordingly it implies, from consumer point of view that the incurred cost by port users would eventually be transferred to the commodity prices through freight rate and at the final selling point the final consumer bears the larger proportion of cost. Thus, it is highly required to arrive at a general consensus that the burden of port tariff should be distributed among the all stakeholders participate in the affair. The Green paper further envisaged that any pricing model of port tariff should be based on the principal of cost recovery of new investments, operating cost, and external cost of the production of port services. This ensure that new investments on port sector are demand driven and in turn it will allow a fair competition among ports.

EU Green Paper elaborates port pricing as an economic problem and the solution therefore lies with the economic theory itself. It also elaborates on the requirement of an adequate pricing system for ports and port services in order to improve the efficiency of ports and ensure free and fair competition in the port industry.

A literature review on port related studies has been undertaken by (Pallis,Vitsounis & De Langen 2010) distinctively split port research subfields. Of them, port pricing is itemized under port policy and regulation. According to the review there about 67 research papers have carried out and completed on port policy and regulation covering Port pricing, state aid, and national policy environmental, safety & security regulations in ports, anti-trust regulation; issues in ports, supranational port policies during the period from 1997 to 2008.

(Pinto et al. 2010) studied the pricing of pilotage services in Brazilian ports and suggested that the provision of pilotage services must be regulated if they are operating within an informal economy. The study compares the pilotage service cost of major 35 ports which covered data such as pilotage price, distance and time spent on the maneuvers for a 3000 TEU containership. The study concluded with the finding that the prices charged by Brazilian ports are well above i.e.2.2 times, the average of all the international ports in the sample.

(Meersman 2002) in his study on port pricing issues quoted a study by (Marlow 2000) shows that pricing by ports and port operators are historically determined and take palace in a complex and an opaque manner.

(Ashar 2001) revealed that newly privatized ports are looking for setting prices by assessing the strategic environment within which they operate. The assessment of the strategic environment, according to him, comprises of structure of the port in principal and the intermediary parties, existing flow of services and charges, price differentiation and discrimination in the market for port services, the concentration of the demand and supply for ports and the competitive and cooperative behaviour of the market. As the methodology for setting the price two novel diagnostic tools were employed; a change flow diagram for analysing the allocation of port charges for principal and intermediary parties and a game tree for analysing the port competitors action and reaction dynamics of oligopolistic market.

A study by (Strandenes & Marlow 2000) also quoted the EU Green Paper and expressed the same opinion and in a context of the demand for port is inelastic, the situation would be severe.

(Perez-Labajos & Garcia 2000) introduced a novel approach to sea port pricing bringing a methodology for determining efficient tariffs for the services provided by commercial ports. The model determines the efficient unit profit of the services offered and their sensitivity which are useful for the port authority to take actions on the tariff levels and variable cost in order to optimize the economic benefits.

Research topics

1. Regulation of the pricing of different seaport services2. The evolution of port pricing practices in commercial sea port operation. 3. Investigation on charging practices of container ports4. Investigation on public finance composition in carrying out commercial

operations in seaports

2. Supranational Port Policies

Competition among sea ports has been a major research area in port economics and from economic point of view, it is a sound principal. (Donselaar & Kolkman 2010) stated that cooperation between sea port authorities offers possibilities of counteracting detrimental effects of port competition and provides a prospectus to improve efficiency. Nevertheless the focal point the study has not considered is that the welfare loss due to enhanced competition that can be generated from regional ports not taking part in the cooperation. As an addition to the research which may lead to over all welfare of the region, the possibilities need to be explored beyond cooperation among port authorities. This provides directives to look at the maritime operation of a given region with a holistic approach not only by amalgamating port authorities role and operations but also by consolidating regional port traffic by way of creating a regional hub port connected with an efficient feeder port network from which there can be substantial welfare gains to the society through productivity and efficiency enhancement within the ports and the network of shipping routes and ports collaborated in the "hub port cooperation".

(Grosso et al. 2010) carried out a study on short sea shipping revealed that the pricing policy for short sea haul varies according to destination and type of goods transported. Hence participating in hub port cooperation would facilitate streamlining a fair pricing policy for short sea shipping market since the movement of cargo in a hub port cooperation takes place via the shortest route network. On the other hand hub port cooperation would facilitate and enhance the operation of global liner shipping market by providing a large volume of cargo traffic. A study by (Wilmsmeier & Notteboom 2009) supports both the creation of a hub port and benefits of operating as a feeder port. The study researched the evolution of maritime networks in and between two differently developed regions and concluded that the liner shipping network reflects the strategic tradeoffs between market size and market coverage. Hub ports will develop where economies of scale in port calls to individual ports cannot be realized by calling individual ports. Thus individual ports whose maritime connectivity to shipping net work and hinterland land connectivity to ports is lack can enhance its productivity by participation of the hub port cooperation. This argument can be supported by the research outcome of (Rodrigue & Notteboom 2010) in which it is concluded that the evolution of the roles and functions of intermediary seaport hubs has created a process of foreland based regionalization i.e. integration of intermediary shipping hubs with regional shipping networks. Therefore on one hand this process has ensured greater traffic stability at the intermediary hubs making smaller feeder ports to have access to liner shipping market and global shipping networks and on the other hand it secures the liner shipping market from the risk of low volumes (under capacity) that would be resulted due to deficient demand situations such as financial recessions.

Research Topic

Optimization of regional maritime network by creating a hub port through strategic cooperation among regional seaports.

Ashar, A. 2001, 'Strategic Pricing in Newly Privatised Ports', International Journal of Maritime Economics, vol. 3, no. 1, pp. 52-78.

Bennathan, E. & Walters, A. A. 1979, Port pricing and investment policy for developing countries, Oxford University Press; New York (USA).

Donselaar, P. W.-V. & Kolkman, J. 2010, 'Societal costs and benefits of cooperation between port authorities', Maritime Policy & Management: The flagship journal of international shipping and port research, vol. 37, no. 3, pp. 271-284.

Grosso, M., Lynce, A.-R., Silla, A. & Vaggelas, G. K. 2010, 'Short Sea Shipping, intermodality and parameters influencing pricing policies: the Mediterranean case', Netnomics, vol. 11, no. 1, pp. 47-67.

Heggie, I. G. 1974, 'Charging for Port Facilities', Journal of Transport Economics and Policy, vol. 8, no. 1, pp. 3-25.

Meersman, H., Van de Voorde, E.,Vanelslander, T. 2002, 'PORT PRICING ISSUES - Considerations on Economic Principles, Competition and Wishful Thinking

', second seminar of the IMPRINT-EUROPE Thematic Network:“Implementing Reform on Transport Pricing: Identifying Mode-Specific issues”, Brussels, 14th/15th May,

Pallis, A. A., Vitsounis, T. K. & De Langen, P. W. 2010, 'Port Economics, Policy and Management: Review of an Emerging Research Field', Transport Reviews: A Transnational Transdisciplinary Journal, vol. 30, no. 1, pp. 115 - 161.

Perez-Labajos, C. & Garcia, J. E. 2000, 'Efficient Port Pricing: A New Methodology Applied to Spanish Commercial Ports', IJME, vol. 2, no. 2, pp. 141-160.

Pinto, M. M. O., Goldberg, D. J. K., Stupello, B. & Haley, C. W. 2010, 'Regulation and price setting of pilotage services in Brazil', Maritime Economics & Logistics, vol. 12, no. 4, p. 430.

Rodrigue, J.-P. & Notteboom, T. 2010, 'Foreland-Based Regionalization: Integrating Intermediate Hubs with Port Hinterlands', Research in Transportation Economics, vol. 27, pp. 19-29.

Strandenes, S. P. & Marlow, P. B. 2000, 'PORT PRICING AND COMPETITIVENESS IN SHORT SEA SHIPPING', International Journal of Transport Economics vol. Volume: 27, no. Issue Number: 3, pp. 315-334.

UNSPECIFIED 1997, 'Green Paper on Sea Ports and Maritime Infrastructure. COM (97) 678 final, 10 December 1997', in, p. 41.

Wilmsmeier, G. & Notteboom, T. 2009, 'Determinants of Liner Shipping Network Configuration: A two Region Comparison', 2009 Anual Conference of the International Association of Maritime Economists (IAME 2009),