This dissertation examines ports and their role in European maritime transport policy through 5 chapters. Chapter 1 provides a critical review of recent EU maritime policies and their aims to promote more sustainable and competitive transport. Chapter 2 develops a theoretical model to analyze port and road transport costs. Chapter 3 discusses using time spent in port as a measure of port efficiency. Chapter 4 considers incentives for improving port efficiency. Chapter 5 presents a case study examining what determines the potential success of short sea shipping. The dissertation aims to better understand how ports can be encouraged to support the goals of EU maritime transport policy.
Ports in Short Sea Shipping. A critical assessment of the European Maritime Transport Policy
1. Ports in Short Sea Shipping
A Critical Assessment of the European Maritime Transport Policy
Ancor Suárez Alemán
Phd Dissertation – Tesis Doctoral
Facultad de Economía, Empresa y Turismo
Universidad de Las Palmas de Gran Canaria, 24 de octubre de 2013
2. Contents
Introduction. Facts and SSS
Chapter 1. A critical review of recent EMTP
Chapter 2.Theoretical tools for analysing the role of ports within the EMTP.
Chapter 3. Port efficiency in the EMTP. Is time adequate to measure efficiency?
Chapter 4. Are there other incentives to promote port efficiency?
Chapter 5.The determinants of SSS potential success. A case study.
Future research & overall conclusions
2
3. Facts
90% of the EU external freight
trade is seaborne.
Above the 40% of intra-EU
exchanges is carried by sea.
Roads are (still) the preferred
modal choice for users, with a
market share of 46,6% (COM,
2012c).
European policies: aimed at
reducing the environmentally
negative effects of transport and
to re-balance the uneven modal
split.
4. Short Sea Shipping (SSS)
SSS is currently viewed as an alternative to road transport in most
of the European corridors.
In this thesis we adopt the description suggested by the EU, which
defines the SSS as
“the movement of cargo and passengers by sea between ports
situated in geographical Europe or between those ports situated in
non-European countries having a coastline on the enclosed seas
bordering Europe.”
The role of ports in fostering SSS promotion has been under-
reported. EU policy has focused mainly on prompting companies to
transfer cargo from road to sea.
4
5. The EU promotes maritime
transport
-------
SSS
How ? How not ?
Giving aids to
companies that shift
cargo from road to
sea and funding
infrastructure
Encouraging port
efficiency
How to estimate it
according to SSS
requirements?
Time in the port
performance
How to minimize it?
Incentives to promote
port efficiency
A case study
Why?
Geography
Competition
concerns
Environmental
concerns
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
7. Transport activities account for about 5% of European GDP,
providing around ten million direct jobs and numerous indirect
ones in related sectors.
Any effective transport policy needs to go well beyond local or
national borders, and requires strong international cooperation
(COM, 2011b).
In the EU, road transport has received particular attention from the
authorities. The high demand for this mode and its official
encouragement resulted in much congestion on the roads.
7
European MaritimeTransport Policy
A critical review
9. European MaritimeTransport Policy
A critical review
Road transport still plays the leading role in the EU freight
movements: it has absorbed about half of the market share in the
last few decades (COM, 2012c).
The EU has developed a number of different financing instruments
with the aim of reaching actual intermodal competition in the last
two decades.
The EU goals may be summarized as:
1) offering environmentally sustainable solutions and
2)promoting the aperture of the transport markets to
achieve free and undistorted competition (COM, 2011b).
9
10. A critical review of the EMTP
Geography
Around 70% of European industrial production is located within
150-200 kilometres from the sea (Paixão and Marlow, 2002).
According to the Eurostat (2011), around 205 million people live in
the EU coastal regions, i.e. 41% of the EU population or 44% of the
coastal Member States’ population.
Over 1,200 commercial seaports operate along some 70,000
kilometres of the EU coasts (COM, 2013a).
10
11. A critical review of the EMTP
The environmental concerns
SSS is considered to be the most environmentally friendly mode of
transport (Paixão and Marlow, 2002; Camarero Orive and
González Cancelas, 2004; Medda andTrujillo, 2010).
Eurostat (2011) data: 33% of energy consumption is accounted for
by transport and 80% of this is by road.
It is unrealistic for governments to expect shippers to move to a more
environmentally friendly, modally integrated transport choice if, in
doing so, it results in additional costs (Brooks and Frost, 2006).
11
12. A critical review of the EMTP
The role of intermodal competition
COM (2011b) points out the need of establishing a level playing
field between modes that are in direct competition.
The Commission has stated that “SSS can help rebalance the
modal split, bypass land bottlenecks, and it is safe and sustainable”
(COM, 2003).
12
13. A critical review of the EMTP
Main objectives and instruments
Operations
TEN-T
1996-
PACT 1992-2001
Infrastructure
European Maritime Transport Policy (EMTP)
Marco Polo I
2003-2007
Marco Polo II
2007-2013
Motorways of the Sea (PP21)
€1.5
tr.
€53 m.
€102 m.
€740 m.
13
14. A critical review of the EMTP
Conclusions
As COM (2013b) states, “the ambitious objectives of modal shift set
by the legislator have not been fully achieved”
A contradictory and ambiguous sentence from the Commission
states, “Marco Polo represents a good example of efficient use of
the EU funds even if the programme's objectives have not been
fully met and the allocated budget has not been entirely spent”
(COM, 2013b).
Thus, while support and funding have been given to companies
that shift cargo from road to rail or SSS, there are no incentives to
promote efficiency in SSS activities and to make this more
attractive to companies.
14
16. 16
Chapter 2
A theoretical model for freight transport market
We depart from traditional transport cost models to develop a theoretical
model for intermodal competition between two alternative modes – road
transport vs. SSS – in a single corridor.
Byroad
Origin Des na onFactory Final
market
BySSS
Port C
1
1 32
Port D
17. We will determine the generalized cost of each alternative,
This analysis comes from Dixit and Nalebuff (1993).
Chapter 2
A theoretical model for freight transport market
p : price per kilometre
z: taxes per kilometre
dOD: distance between origin O and destination D
vi : value of time of shipper i
κ : carriage all in (includes loading, unloading, drive to the storage)
Q: quantity (p.eg., a TEU)
Smode : average speed on each mode
troad
a
: road access time (explain)
η : port inefficiency
19. Each firm will choose the mode that minimizes its cost.
Let us now suppose that there is heterogeneity in the value of time
(v); the willingness to pay for time differs at individual level.
We seek the marginal shipper that is indifferent to choose one
mode or another. Therefore, considering that firms are located
between 0 and 1 in time value space, this firm will determine the
modal split.
19
( ) (0,1)iv f product and company characteristics= ∈
mGCmode
= min GC1
,...,GCM{ }
Chapter 2
A theoretical model for freight transport market
GCroad
= GCsss
19
20. 20
Chapter 2
A theoretical model for freight transport market
vi
*
=
p+ z( )×dAB
−dAC
−dBD( )−
κ
Q
÷×dCD
troad
BD
+troad
AC
+troad
a
+tsss
CD
+η −troad
AB
0 v* 1
GC
Road
SSS
SSSfirms Roadfirm s
21. 21
Chapter 2
a) Increasing road transport taxes
∂vi
*
∂z
=
dAB
−dAC
−dBD
troad
BD
+troad
AC
+troad
a
+tsss
CD
+η −troad
AB
0 v* v*’ 1
GC
Road
SSSfirms Roadfirm sNew SSSfirms
SSS
SSS’
Road’
22. 22
∂vi
*
∂ κ / Q( )
=
dCD
troad
BD
+troad
AC
+troad
a
+tsss
CD
+η −troad
AB
Chapter 2
b) Funding “carriage all in” cost
0 v* v*’ v*’’ 1
GC
Road
SSS
SSSfirms Roadfirm s
New
SSS
fir
m
s
New SSSfirms
SSS’ (h)
SSS’ (l)
24. 24
Despite EU efforts, maritime transport has experienced a decrease in
terms of market share while road transport has augmented.
Supply chain efficiency has been largely ignored by the EU,
especially in the case of ports, the nodes of SSS activities, despite their
key role in SSS competitiveness.
An improvement in the level of efficiency would provide the correct
incentives for firms, which would recognize by themselves how SSS is
more profitable in cases where it actually is.
Chapter 2
Conclusions
24
26. Frequently, ports either actually constitute, or are perceived as
constituting, bottlenecks that reduce the competitiveness of maritime
corridors (Wilmsmeier et al, 2006).
Traditional port efficiency studies:
Factors such as size or value of the labour force or the number or
value of capital items as inputs into the port production process,
with quantities (typically couched in terms of TEUs, containers or
tons) as the product of the production process.
DEAs or SFAs
Widely covered in the academic literature (González and Trujillo,
2009).
Chapter 3
Port efficiency in the EMTP
26
27. Our hypothesis: From SSS perspective, the time spent within the whole
transport corridor becomes a major issue.
Through the development of a conceptual and theoretical model, this
chapter proposes the direct utilization of the time spent in port by ships as
a suitable measure for port efficiency.
Chapter 3
Port efficiency in the EMTP
27
Madrid-Pariscorridor
Port A Port B
Maritime
price (€)
(1)
Maritime
time
(hours)
(2)
Maritime
external
costs(€)
(3)
Monetary
cost (€)
(4=1+road
costs)
Total time
(hours)
(5= 2+
road
time)
Total external
costs(€)
(6=3+ road
ext. costs)
Subsi
dized
Int. Price
(€) (4+6)
To Paris
Road Option 1398 43.1 423 1821
Gijón St. Nazaire 450 21 49 1500 36.6 353 No 1853
Bilbao Zeebrugge 950 44 127 1759 56.4 362 No 2121
Source: www.shortsea.es
28. An efficiency approach where the output is reoriented to the concerns
of port users (“how long is going to take my stay at port?”) introduces
greater transparency for them in terms of intermodal competition.
An efficient port has the possibility to charge higher prices if it provides
faster and more reliable services or if it allows the shipper to save
elsewhere (Wilmsmeier et al, 2006).
The time a ship spends in a port is a significant determinant of that port’s
competitiveness. Indeed, Hummels (2001) suggests that time constitutes
a trade barrier.
Chapter 3
Time in port activities
28
29. Traditional efficiency analysis has been developed on the most efficient
ports or terminals will attempt to minimize the time in port of ships, so
the output can be maximized.
For several possible reasons, however, this could not be the case:
ruptures between the time a ship spends in port and the quantity of
output that a port or terminal may occur.
Thus, the estimated levels of efficiency which are derived from such an
analysis may not correlate very well with the levels of efficiency as
observed or perceived by port users in terms of the time their ships spend
in ports.
Chapter 3
Time in port activities
29
30. African ports provide a relatively straightforward and suitable study case
to determine if empirically there are differences in results when we take
different outputs specifications in efficiency analysis.
Data has been collected for 16 ports from the statistical information
published annually by the Containerization InternationalYearbook (2012)
and the Africa Infrastructure Country Diagnostic.
A non-parametric estimation is proposed (DEA).
Inputs: Length of berths (in meters), terminal area (in square-meters) and
the number of cranes.
Outputs: Movements in port (output 1), movements per hour (output 2).
Chapter 3
An empirical example
30
32. By adopting an approach where the outputs in port efficiency analyses
are reoriented more directly to the needs and interests of port users (i.e.
related to the time spent in port), the potential benefits are that:
1) There is greater transparency for port users in comparing and
selecting alternative intermodal solutions;
2) Port decision makers are provided with more market-oriented
(rather than merely technical) benchmarks and;
3) Policy makers within the EU are provided with explicit information
on relative port performance from the perspective of users.
An immediate policy implication: the need to establish a data collection
process in SSS terminals, attending to time structure disaggregation.
Chapter 3
Conclusions
32
34. The government is under-informed in relation to the return of its
policies, so ports are free to establish their own private goals,
bypassing the public objectives that they are assumed to pursue
(Barros, 2003).
Indeed, the European Court of Auditors (ECA, 2012) states that
millions of European Union public port finance was squandered on
ineffective transport projects.
16 out of 27 audited transport projects—which covered 85.5% of
allocated the EU cohesion and structural funds between 2000 and
2006—ended up unsuccessfully.
COM (2009a) currently states that the challenge is to provide the
right mix of measures to ensure that ports can cope efficiently with
their gateway function.
Chapter 4
Incentives to promote port efficiency
34
35. Agents:
Government (the overall society).
Road infrastructure (R).
Port infrastructure (P).
Strategy:
We minimize the aggregate social cost defined as the sum of the aggregate
generalized cost of each transport mode plus the subsidy.
Variables:
Monetary component (m); Non-monetary component, as the sum of invested
time and the value of it, + the externality cost of each mode.
Invested time: A minimum + the port inefficiency (η).
Chapter 4
Modeling subsidies in the EMTP
35
36. Following the Chapter 2 analysis (…), the profit function of the port
infrastructure is:
where
k is the infrastructure capital cost
c(e) is the cost of the effort exerted by the operator
S(η(e)) is the subsidy that depends on the inefficiency and indirectly on
the effort exerted
To simplify, we assume c(e)=e and e ∈ {0,1}
Different degrees of effort. We also face the normalization: c(0)=0 and
c(1)=1.
π = m− c( ) −εP
+εR
tP
−tR
+η e( )
÷
÷
− k − c e( ) + S η e( )( )
Chapter 4
Modeling subsidies in the EMTP
36
37. The government cannot observe the effort exerted by the infrastructure
operator.
The objective is to obtain a second-best solution, that is, a proper subsidy
to promote maritime transport.
But, the government has to minimize the social cost (S.C.), satisfying two
conditions:
The participation constraint (P. C.)
The restriction of incentives compatibility (R.I.C.)
Chapter 4
Government and ports: A moral hazard problem
37
38. Thus,
This problem is solved as usual for inequalities, that is, with a Kuhn-
Tucker approach.The equilibrium condition:
Min SC
p(e)[(m−c)
εR
−εP
tP
−tR
+η(e)
i=1
N
∑ − k − e + S η(e)
≥ 0
∂
∂e
p(e)[(m− c)
εR
−εP
tP
−tR
+η(e)
i=1
N
∑ − k −e + S η(e)
≥ 0
Chapter 4
Government and ports: A moral hazard problem
1= −λ − µ
p'(e)
p(e)
+η''(e)+η'(e)
S ''(η)
S '(η)
−
c − m( ) εP
−εR
( )η''(e)
S '(η)(tP
− tR
+η(e))2
÷
÷
38
39. Naming , and
Then,
Corollary. Under the assumptions , and , a necessary
condition is .
Here we can discuss among different types of contracts—depending on
different subsidies schemes— to determine how they incentivize port
inefficiency reductions.
∆ε = εP
−εR
( ) ∆b = m− c( ) ∆t = tP
− tR
( )
p'(e)
p(e)
=
−1− λ
µ
+η''(e) 1+
∆b ∆ε
S '(η)(∆t +η(e))2
÷
η''(e) < 0 ∆ε < 0 m > c
S '(η)(∆t +η(e))2
< −∆b ∆ε
Chapter 4
Government and ports: A moral hazard problem
39
40. 1. Fixed Payment
The most frequent mechanism: each policy based on giving a fixed amount
of money to port authorities or terminal operators.
The infrastructure operator’s behaviour chooses the smallest possible
effort.
Proposition 1. Under a fixed payment, the effort exerted by the operator is
equal to 0, e=0 .Therefore, the optimal contract is a fixed payment equal to 0,
.
Ports have no incentives to make a proper use of the funding; they could not
be exerting the required effort.
S(η) = 0
Chapter 4
Government and ports: A moral hazard problem
40
41. 2. Proportional payment
The operator receives a payment proportional to the inefficiency reduction.
Let assume that the proposed contract takes the form .
The operator maximizes his profits considering this contract and the
government takes the operator’s decision as given to choose the
minimum .
Proposition 2. The minimum , the one that determines the government’s
choice, is given by:
S(η) = αη
α
αMIN
=
∆b ∆ε
e2
− ∆t( )
2
−
1
2e
Chapter 4
Government and ports: A moral hazard problem
41
α
42. 3.Two part contract
Proposition 3. Fixed part of the two-part tariff does not give incentives to the operator
to exert any level of effort.Thus, the optimal two-part tariff becomes a proportional one
with , and .
S η( ) = δ +αη
δ = 0 αMIN
=
∆b ∆ε
e2
− ∆t( )
2
−
1
2e
Chapter 4
Government and ports: A moral hazard problem
42
43. These results validate our hypothesis that subsidies similar to those
proposed by European Commission are not an efficient mechanism for
forcing port or terminal operators to exert an effort in the inefficiency
reduction.
The need of improving port efficiency does not mean that the EU should
support projects without any condition.
As a policy recommendation, here we propose the development of a
subsidy per inefficiency-reduction unit. If port operators perceive the
benefits of decreasing total time—by reducing administrative procedures
or improving access to the infrastructure, among others—, then the policy
will meet its real objective. Thereby, the efficiency gain process would be
internalized.
Chapter 4
Conclusions and policy recommendations
43
45. Chapter 5
The determinants of SSS potential success
There are 34 services which
link 43 European ports in the
Cantabrian shore and 35
services linking 64 European
ports, considering SSS as
alternative to road transport.
Assumptions:
18 cargo net tons
An average road speed of
65 kilometers/hour
A price per kilometer of 1.1
euros.
45
47. Chapter 5
The role of prices
Some exogenous factors affect the monetary cost, which finally is one of
the main strategic variables in any market: price established by transport
operators.
We have built a database that includes the following variables:
Total cost per kilometrei (mi)
Subsidized routei
Maritime frequency (MFi)
Competitors in the route (NCi)
Distancei
Road transport cost (RCi)
GDP origin and destination
mi
= β0
+ β1
Subsidizedi
+ β2
MFi
+ β3
NCi
+ β4
Distancei
+
+β5
RCi
+ β6
GDPo+ β7
GDPd+ Port effecti
+
i=8
18
∑ εi
47
48. Chapter 5
The role of prices
Explanatoryvariables (A) (B) (C) (D) (E)
Subsidized route -0.59 (0.27)* -0.60 (0.28)* -0.57 (0.26)* -0.17 (0.13) -0.19 (0.08)*
Maritime frequency -0.07 (0.06) -0.07 (0.06) -0.07 (0.06) -0.08 (0.03)** -0.19 (0.06)**
Competitors in the route 0.35 (0.31) -0.11 (0.14)
-0.75
(0.12)***
Distance
-0.001
(0.0003)**
-0.001
(0.0002)**
-0.001
(0.0002)**
2e-4 (6e-5)** 0.0001 (6e-5)
Road transport cost
(alternative)
-0.02 (1.68) -0.018 (1.70) 0.94 (0.27)** 1.04 (0.34)**
% distance by sea
-9.67
(1.59)***
-9.36
(1.23)***
GDP region of origin 6e-5 (4e-4)
GDP region of destination -6e-8 (6e-6)
Fixed effects by Port of origin No No No No Yes
Constant 4.98 (0.93)*** 5.00 (1.42)** 4.59 (1.68)** 6.46 (0.64)*** 6.21 (0.74)***
Observations 185 185 185 185 185
R
2
0.38 0.38 0.38 0.75 0.79
F-statistic 14.16** (*) (*) (*) (*)
Note 1: *** 1%, ** 5%, *10% significance test. Standard errors are shown in brackets.
Note 2: (*) Due to use of cluster option, Stata does not report the F statistic for conjoint significance.
48
49. Chapter 5
The role of external costs and time
This section examines the up and down of maritime transport.
More than 16,600 kilometres of the train network are also overcrowded,
resulting in bottlenecks. According to the EU estimations, the damage
from congestion accounts for more than 1% of EU GDP (COM, 2011b).
With regard to time and external costs, econometric estimations are not
required. Travelling time depends on distances and speeds; that is, fixed
and known factors. There is also other time that is not taken into
consideration in this analysis: port time.
Monetary price, time and external costs provide evidences to choose
different alternatives. Thus, the final choice will depend on user’s time
value.
49
50. Chapter 5
The role of external costs and time
SSS would reduce the external costs in all the cases analysed, halving them
in some cases.
Road generalized prices are higher than maritime ones in routes to Rome,
London and Moscow: SSS is more competitive not only in monetary or
external costs but also in time.
DECONSTRUCTINGSSSSAVINGS. THECASEOFMADRID
Route from
Madrid
Best Origin–Destination ports
combination.
Monetary
Cost savings
Time Cost
savings
External Cost
savings
Generalized prices
to Paris Gijón - St. Nazaire -7.29% 15.08% 16.54% Undetermined
to Rome Barcelona- Civitavecchia 26.9% 49.3% 52.3% gROAD > gSSS
to London Bilbao - Portsmouth 22.04% 23.82% 52.69% gROAD > gSSS
to Berlin Valencia - Genoa -3.91% 4.44% 22.22% Undetermined
to Moscow Santander - Kotka 6.41% 20.6% 40.59% gROAD > gSSS
50
51. Chapter 5
The role of external costs and time
Barcelona, being a coastal city, provides some advantages in the
commerce with other coastal cities such as Rome.
It is probably the most competitive Spanish SSS corridor, due to the
European geography, as cost data reflects.
DECONSTRUCTINGSSSSAVINGS. THECASEOFBARCELONA
Route from
Barcelona
Best Origin–Destination ports
combination.
MonetaryCost
savings
Time Cost
savings
External Cost
savings
Generalized
prices
to Paris Barcelona-Fos -6.76% -88.3% 30.56% Undetermined
to Rome Barcelona- Civitavecchia 40.32% 50.11% 76.7% gROAD > gSSS
to London Bilbao - Portsmouth -5.15% 9.34% 30.50% Undetermined
to Berlin Barcelona - Genoa 9.48% 7.34% 12.37% gROAD > gSSS
to Moscow Barcelona - Genoa -0.68% 23.45% 15.88% Undetermined
51
52. Chapter 5
Conclusions
It is frequently assumed that maritime transport generates longer transit
time, and it is seen as the slowest mode of transport.
However, the European geography provides a very proper scenario to
encourage SSS corridors.
In the present analysis, the Mediterranean and Cantabrian coasts have
proved to be suitable locations to establish some profitable corridors to
central and east Europe.
SSS corridors generate substantial reductions compared to road
transport, varying from 15.88 to 76.7%.
52
54. Future research
Main lines of our future research
1. A demand analysis based on SSS user’s perception.
2. Determining the deconstruction of total time in SSS ports through the
development of a database to monitor SSS activities.
3. European SSS terminal efficiency analysis.
4. A study on the European SSS fleet to determine the full impact of
external costs.
5. Extension to other geographical areas.
54
55. Overall conclusions
SSS has not been properly promoted. There are no incentives to foster
efficiency in SSS activities and to make this more attractive to companies.
The EU should not be financing firms to reach the desired modal shift, but
making SSS more attractive, through the promotion of supply chain
efficiency and implementing a combined road internalization cost
measure.
Port inefficiency is mainly a matter of time: the more the movement of
cargo in port/terminal takes, the more inefficient the port/terminal is.
Time savings must be considered as efficiency gains and should be
promoted to guarantee a real modal shift.
EU should promote those SSS-intermodal corridors that are actually the
best alternative to the society. 55
56. Thank you
Ancor Suárez Alemán
Phd Dissertation – Tesis Doctoral
Facultad de Economía, Empresa y Turismo
Universidad de Las Palmas de Gran Canaria, 24 de octubre de 2013
Hinweis der Redaktion
To meet the requirements established by the ULPGC to obtain a doctoral degree, I present a summary of the contents in Spanish. After that, we will continue the presentation in English.
About 80% of world trade is (still) carried via maritime transport.
This means that around 80% of cargo needs a ship to be moved from the place where it is produced to where it is finally sold.
This also means that ports, as origins and destinations of ships, have to handle the roughly 80% of the goods that we all consume worldwide (COM, 2009a).
Future estimates: a traffic growth of between 30% and 50% for the 2030-50 period” (COM, 2012a).
All these facts and figures summarize the relevance of maritime transport for the European society and contribute to identifying the ports as crucial infrastructures.
We study some specific European policies aimed at reducing the environmentally negative effects of road transport and to re-balance the uneven modal split in the last decades.
In particular, as it will be detailed in the following chapters, the EU has identified maritime transport as one of the keys to developing a more sustainable transport system.
There is not an unequivocal definition of SSS (Spanish Ministry of Public Works, 2011; Musso and Marchese, 2002; Paixao and Marlow, 2002).
either as part of a wider intermodal transport chain or as a fully substitutive mode.
To question whether this is possible or not is precisely the main objective of this dissertation.
We will particularly focus on the ports within the European Maritime Transport policies, with a special mention of the role that these infrastructures play (or should play) in the proper encouragement of SSS.
As the European Commission has widely recognized, an efficient transport system fosters economic growth and social cohesion, since it has a global nature that connects peoples, cities and regions.
10% of the transport network suffers from congestion regularly.
Road transport has been receiving around the 60% of the European total transport investment. The same figure shows how seaports received barely 5%.
This data does not seem to match with the fact that ports deal with 90% of the commerce between the EU and third countries and 40% of the intra-EU commerce (COM, 2012a).
Second place is occupied by maritime transport. Its market share has been around a 35-40% over the last two decades (COM, 2012c).
To avoid the massive use of environmentally harmful modes of transport such as road,
The EU pursues the objective of attaining a sustainable and efficient transport system, environmentally friendly and socially accepted, with larger modal integration.
The main objective in current European transport policy is to reach a more competitive and sustainable transport system:
“30% of road freight over 300 kilometres should shift to other modes such as rail or waterborne transport by 2030, and more than 50% by 2050, facilitated by efficient and green freight corridors. To meet this goal will also require appropriate infrastructure to be developed” (COM, 2011b).
Geography is a natural reason for maritime transport advantages (and, specially, SSS activities) in Europe.
Europe is one of the densest port regions worldwide
The Commission reflects how with some fuels (those with higher levels of sulphur) and vessels (a Ro-Ro/Ro-Pax vessel at more than 23 knots) combinations, the SSS may incur in higher external costs than road (COM, 2013c).
Air pollution, climate change, noise accidents and congestion are pointed out as road and rail external cost components. For SSS, these categories are reduced to air pollution and climate change.
Therefore, the use of more appropriate environmental technologies is also required. A more proper combination for the same service could reduce the external costs to a quarter.
The internalization of external costs produced by transport has not yet been achieved at a European level (some regional experiences)
As Figure 1.5 shows, road transport absorbs around half of the total market across Europe. Despite the policies implemented over the last decades (that will be discussed later), obstacles to smooth functioning of and effective competition in the internal market remain (COM, 2011b). Road transport in 1995 represented 42.1% of the total freight transport in EU-27, and sea transport comprised 37.5%. In 2009, these figures changed to 46.6 and 36.8%, respectively; so, while road transport has increased its market share, sea transport has suffered a decrease, resulting in an increase in the difference between the competitors (from 4.6% to 9.8%
COM (1997) established some recommendations in terms of competition between operators. The commission points out that a key element would be “the scrutiny and regulation of any abuse of dominant positions by carriers and operators. Examples of illegal practices by dominant players, which carry heavy fines under EC law, include the cross-subsidization of revenues from operations in one mode in order to eliminate competition in another, structural foreclosures of markets, predatory pricing and the exploitation of sub-contractors.”
The EU has estimated the cost of the EU infrastructure development to match the growing demand for transport at over €1.5 trillion for 2010-2030.
Regarding to seaports, the aim is to increase and modernise port capacity, and improve their ability to handle intermodal transport activity (COM, 2006b).
Motorways of the Sea (MoS, PP21) is one of the most ambitious axes of the TEN-T.
PACT: 1992-2001. To intensify the use of intermodal transport. 167 funded projects with a budget of €53 million.
Marco Polo I: 2003-2007. With a budget of €102 million for 125 projects involving more than 500 companies.
“Funding is in the form of an outright grant. It is not a loan to be repaid later (…)”.
Lastly, Marco Polo II has replaced Marco Polo I, with a budget of €740 million for the period 2007-2013 and similar conditions.
PACT: The Commission (COM, 2001a) recognized that about 20% of the money foreseen for rail and SSS projects could not be spent because the actions had to be terminated without success or had to be scaled down.
PACT was superseded by Marco Polo I.
The objective is to give grants to companies to shift cargo from road to more environmentally friendly modes of transport.
It was estimated that every euro spent in grants to Marco Polo would generate at least six euros in social and environmental benefits (EFTA, 2007).
It seems that the EU policy has not stimulated major observable differences with regard to the modal split. As shown, road transport represents around the half of the freight market, while maritime comprises a bit more than a third.
The role of ports (as nodes) and their characteristics in an intermodal chain are instrumental in the shift to SSS and EU needs to promote efficiency in the entire system instead of giving grants directly to companies.
The EU should instead promote a high level of efficiency throughout the system.
In order to determine why these programmes and measures have not reached their objectives, it is necessary to analyse how they have been implemented.
As detailed in Chapter 1, the Commission has carried out several studies highlighting the role of SSS in transport competition.
However, SSS has not yet reached a significant market share compared to road transport.
In this chapter, the theoretical model for freight transport market is developed in terms of intermodal competition.
As stated in De Rus et al (2003), the key issue here is to know what factors drive to the distribution among different modes, that is, the modal split.
There are two alternatives: first to move from factory (A) to final market (B) by using shipper 1. We consider this option as road freight transport market. Option two starts at factory (A) to Port C by shipper 2, continues to port D and, finally, to final market (B) using shipper 3 (known as door-to-door system). We consider this option as the Intermodal-SSS freight transport market.
In this model we do not take producers and consumers, because they are the same among alternatives.
that is, the whole cost that includes monetary as well as time cost, in order to obtain a better performance of cost functions and to consider the traditional transport cost models.
In other words, certain companies more than others could be more willing to suffer delays on their shipping activities, depending on different characteristics, especially if their products were perishable
Different companies have different values of time that are contingent upon product characteristics as perishability, mainly. This feature may lead to companies with very high time values, because they transport highly perishable products, and some other companies with very low time values, that are willing to accept long waiting times in exchange for lower monetary cost.
It is distributed as an uniform function between [0,1].
The model above for a given market size has allowed us to calculate the proportion of companies that choose each mode as a function of their characteristics, parameterized through a value of time.
Using the previous model, we test how different policies may affect the theoretical modal split so that we may find the best tool to reach EU goals.
Three different policies are analysed:
Taxation is the traditional tool to urge companies to internalize its external costs.
The current EU policy of giving grants to companies to shift cargo from road transport to SSS.
An increase in port efficiency is considered
An increase in road transport taxes decreases the market share of this mode, and consequently increases the market share of its competitor. However, as the above expression shows, this reduction is conditioned by the relationship between time and port inefficiency. It is straightforward to prove how the impact of this policy is less effective when port inefficiency is high.
Some EU policies and programmes have consisted of giving grants (which do not have to be reimbursed later) to firms if they shift cargo from road to sea. Marco Polo I and II programmes are proof of that. Firms, in essence, could regard this measure as a reduction of shipping costs. Therefore, this type of measure is analysed in our model as a reduction of “carriage all in” cost.
We expected that previous expression is negative, so a decrease in carriage price increases SSS market share. As previous policy, time structure affects this expression so does port inefficiency. The impact on market shares of carriage price changes is conditioned by the level of efficiency of ports C and D
In practice, an improvement in port efficiency may increase SSS-intermodality market share, so the expression above is likely negative. This policy will be affected by the total transport cost structure, as time, price, taxes or carriage, as expected.
More specifically, that would be done by decreasing port access time, custom and other administrative procedures or ship waiting time; or by increasing hourly load and unload container rate,
Along the same line, some authors have focused on port efficiency and its relevance on shipping cost reductions and trade promotion (Limao and Venables, 2001; Wilmsmeier et al, 2006; Clark et al, 2002; Sánchez et al, 2003; Baird, 2007, Paixao-Casaca, 2008)
the distance between both competitors has therefore increased from 4.6% in 1995 to 9.8% in 2009, even with EU promotional policies.
Therefore, if goals have not been reached, it is logical to seek measures which may be more appropriate to deal with the issue.
As previous chapter have shown, ports are crucial to the success of many of the available intermodal options within Europe.
Within this context, the appropriate analysis of port efficiency becomes, therefore, an absolutely necessary prerequisite to identifying the port-centric factors that crucially influence the success or failure of such policies.
In the absence of viable alternatives, these efficiency measures have proved extremely useful measures of port performance: they provide valuable information on whether a port or terminal is utilising its inputs properly.
However, the relationships established between the aforementioned inputs and outputs utilised in most previous studies may not be as directly relevant or important to port users as some other alternatives, specially when we focus on SSS.
Most of these empirical analyses can broadly be dichotomously categorised as utilising either parametric or non-parametric approaches (or models) for port efficiency estimation.
The former assumes a statistical function underpins the data (SFAs, mainly); the latter revolves around programming approaches that make no such assumption (DEAs, mainly).
in contrast to deep sea shipping where differences in time may not be as relevant as the type of carriage or geographical situation, among others. Why?
Some works have considered the role of time in ports when applying different methodologies: Sánchez et al (2003), Wilmsmeier et al (2006), Nordas (2006), Devin and Yee (2005), Hummels (2001), Djankov et al (2005), Clark et al (2002).
Port efficiency analysis (and rankings) may be a better signal to companies to choose among different (intermodal) alternatives. They will now be in a better position to assess the price/quality (efficiency) choices that they face.
A detailed analysis of ship time in ports is necessary, not only as the basis for deriving port efficiency estimates, but also as a potential basis for determining how to properly promote SSS.
That is, these entities produce a particular quantity of goods or services with the minimum amount of required factor inputs. Alternatively, that the quantity of goods or services is maximized for a given amount of factor inputs.
3) For example, waiting time for berths are high because the port is congested (e.g. in very high demand) and port output is maximized, or
a port serves an essentially captive market, when relative performance and the competitiveness of a port or terminal is not really a major consideration in determining the output level achieved.
by solving the previous programme for each case (CCR or BCC) form the DEA models. Thus, the technical efficiency of the kth unit can be calculated as
The best practice frontier is derived by solving the above programme, with the distance of each port or terminal from the frontier providing a measure of relative efficiency for each sample port or terminal considered.
From this procedure we could estimate levels of efficiency related with time and facilitate a comparison of performance as derived from both outputs.
Ideally, this empirical example should be based on the European experience, by considering the time ship spends in a sample of ports involved in SSS routes. However, there appears to be no data available with respect to this.
In both rankings the ports of Port Said (Egypt), Port Sudan and Cape Town (South Africa) occupy the first positions. From there, the ranking changes and the average efficiency decreases when time is included.
The aim is simply to prove how the inclusion of time introduces some differences (sometimes only subtle) in efficiency measures.
The previous example proves how the inclusion of time in efficiency analysis can modify the results derived from a more traditional approach based just on quantities.
In cases where time is crucial – for example, when ports face intermodal competition– it should be incorporated into analyses of port efficiency and, therefore, in policy actions where the results of which are influenced by differential levels of port efficiency.
Appropriate attention needs to be given to what determines the length of time ships spend in individual ports or terminals and to offer users an efficient value chain through the minimization of this variable.
If time is regarded as a relevant factor in maritime corridors and port competitiveness, failing to account for it in the analysis of efficiency will likely lead to an (under)overestimation of the true efficiency of the infrastructure.
However, both broader and deeper empirical analysis are required in order to evaluate the robustness of such an inference.
Previous chapters revealed how promoting port efficiency may be more effective to increase the modal split of SSS than just giving grants to companies.
Giving funds to port authorities to reduce their inefficiency could generate some perverse effects: some ports could receive aids that they would not have to refund later nor showing the achieved positive results, thus we would face a moral hazard problem.
The EU cannot easily observe the real effort that ports exert to reduce inefficiency; a non–positive result could be explained by the lack of effort or other exogenous circumstances.
That means empty ports and unused infrastructure:
Our latter objective is to encourage reductions in total times throughout the logistic chain by removing the bottlenecks.
So we design contracts to incentive ports to reduce inefficiency through the EU transport programmes.
In this chapter we assert that a proper contract has to be designed to reach the objective proposed.
Let develop a theoretical model to meet this Commission’s purpose.
There exists the risk that port infrastructure receives a subsidy for not exerting any (or a low) degree of effort.
Therefore,
They propose a menu of contracts depending on the effort exerted by the port infrastructure.
The higher the effort, the more likely is to get a higher inefficiency reduction.
The equilibrium condition:
Simplifications: It may be simplified by assuming a linear relation of the subsidy with respect to inefficiency (the second derivate is equal to zero) and we also assume a concave function of the inefficiency with respect to the effort (the second derivate is lower than zero)
The final inefficiency reduction crucially depends on the specific contract policy that the government chooses.
Concretely, in here we assess three different possibilities.
A fixed payment subsidy that the operator would receive regardless of the exerted effort.
A payment proportional to the inefficiency reduction.
A two-part contract with a fixed payment plus a payment proportional to the inefficiency reduction.
Alpha establishes a direct relationship between the degree of inefficiency and the subsidy. In other words, it represents the value of the inefficiency.
A proportional payment would require the establishment of a subsidy per inefficiency-reduction unit.
Linking the subsidy with an inefficiency-reduction—by giving funds for removing unnecessary administrative procedures, improving the access to the terminal or implementing ITS systems, among others—would be the key to make effective the current EU maritime transport policy.
This would have to meet the alpha-minimum condition determined above. Thereby, port authorities or terminal operators would internalize the indirect benefits of each exerted effort.
In this chapter we assert that the European programmes should link the funding with the effort exerted by port operators.
Port inefficiency is mainly a matter of time: the more the movement of cargo in port/terminal takes, the more inefficient the port/terminal is.
In previous chapters we have deeply studied port inefficiency as one of the main reasons of the apparent failure in EMTP and the still unbalanced modal split.
Another important factor to regard, as extensively analysed in the existing literature, lies in the fact that the internalization of external costs has not been fully achieved at European level.
As mentioned, with minimal exceptions, the economic literature has recurrently that SSS always outperforms all other comparable transport modes from an environmental perspective.
The choice of Madrid and Barcelona tries to consider the differences in SSS competitiveness between coastal and non-coastal origin cities (and the same for destination cities). The choice of destinations attempts to reflect different European geographical areas, by considering main economic centres.
We have also picked different routes, considering a standardized cargo that has to be carried from two main Spanish economic centres (Madrid and Barcelona) to some of the main European cities (London, Paris, Rome, Berlin and Moscow).
For all previous combinations, we have calculated time, prices and external costs of carrying cargo from each origin-destination pair by road and also by an intermodal chain, through using ports as nodes in maritime corridors.
We try to establish whether there are some relationships among final prices, characteristics of the route, competitors in the route, price of substitutive alternative and others.
Subsidized routes show lower prices than non-subsidized ones. It means that there is a positive incidence on prices from EU public expenditure on SSS.
The effect of competition on prices: both maritime frequency and number of competitors are significant and show a negative effect on prices.
The effect of alternative cost is positive. This means that higher cost of road transport from pair cities considered, higher prices in the mixed corridor.
The higher percentage of distance moved by sea, the lower the price.
On the one side, external costs are pointed out as the main reason for the promotion of this mode, conventionally regarded as environmentally friendly.
On the other side, time has not been traditionally considered a competitive variable in maritime: a trade barrier (Hummels, 2001).
To completely assess the competitiveness of a SSS route, it is needed to address these full-cost terms.
SSS savings are considered by selecting the most competitive origin-destination ports pair for each route from Madrid.
We consider as the best combination the one which improves the generalized cost in every single component. In cases where this is not possible, we take the route with the lowest time cost from those with an internalized price lower than the road one.
Maritime transport from Barcelona to Paris is not really competitive, with an increase in time costs of 88.3% and in monetary cost in 6.76%.
Generally speaking, the Port of Barcelona seems to be very competitive in the establishment of SSS corridors across the Mediterranean Shore.
The lack of data does not allow us to consider the impact of port-related time on those generalized cost functions.
Therefore, time cost savings should be faced waiting, load and unload, custom and other administrative procedures time.
Our analysis in terms of costs savings could be considered as a maximum gap in order to keep SSS competitiveness.
To completely assess the competitiveness of a SSS route, it is needed to address these full-cost terms.
There are also other variables that have to be considered.
and to know that we have to consider all the variables that compose their different generalized prices and compare among them and also other modes as, mainly, road transport.Our analysis could be useful as a reference to consider the gap that ports have before reducing the competitiveness of SSS corridors to the point of making road the most attractive mode to users.
The current trends suggest that we are not on the right path to meet the EU objective of shifting a 30% of road freight over 300 kilometres to other modes such as rail or waterborne transport by 2030, and more than 50% by 2050, facilitated by efficient and green freight corridors (COM, 2011b).
There are also other variables that have to be considered.
The importance of competition: prices are lower in routes with higher maritime frequency and higher number of competitors. For these reasons, public policies must to encourage not only the use of SSS by attracting them to firms, but also to improving the levels of competition in this mode.
In previous chapters we have deeply studied port inefficiency as one of the main reasons of the apparent failure in EMTP and the still unbalanced modal split.
Another important factor to regard, as extensively analysed in the existing literature, lies in the fact that the internalization of external costs has not been fully achieved at European level.
As mentioned, with minimal exceptions, the economic literature has recurrently that SSS always outperforms all other comparable transport modes from an environmental perspective.
1) An appropriate quantification of these times is essential in order to determine the most suitable measures to promote maritime transport for intra-European and other short sea movements
EU policy makers then have the prospect of promoting maritime transport based on appropriate knowledge with respect to relative port performance from the perspective of users.
The reductions of time in ports should be regarded as efficiency gains.
The EU should not be financing firms to reach the desired modal shift, but making SSS more attractive, through the promotion of system efficiency and implementing a combined road internalization cost measure.