Building Port Resilience

Private use. The move towards public facilities is making ports more resilient. Photo Port of Seattle by Don Wilson
Going public. The move towards public terminals is making ports more resilient. Photo: Port of Seattle by Don Wilson

This post was written by MIT CTL Deputy Director James B. Rice, Jr. jrice@mit.edu, and first published in the August 19th, 2013 issue of the Journal of Commerce.

In a recent Journal of Commerce article entitled Single-user Port Terminals on the Wane, author Bill Mongelluzzo described how vessel operators are eliminating their proprietary terminal operations in favor of using public terminals.

They may or may not know it, but by embracing the public option these operators are increasing port resilience.

Here are the main reasons why.

 Back up capacity an easier option.  The shift to public terminals means that these vessel operators have multiple options for berthing in any one port.  As a result, if there is a local disruption they can find an alternative facility within that locale (assuming labor agreements have been sorted out in advance).

The alternatives for vessel operators committed to proprietary terminals are less convenient, because in all likelihood they will sail to another proprietary facility that could be hundreds of miles away.

This limitation was confirmed to me by an operator with proprietary facilities in several West Coast ports.  He said that if one of their West Coast terminals was closed due to a disruption, the enterprise’s ships would sail to another proprietary terminal in order to keep the cargo handling revenues internal to the company.

The net effect is that the backup capacity for the vessel operator is in the same port; not at a distant facility that requires additional moves both on the water and on land.

More public terminals equals more options for all vessel operators.  The general move towards public terminals means that there is effectively more capacity in local ports that is available to all vessel operators.  An increase in overall capacity translates into an increase in resilience.

 Better space utilization for larger operators. The landscape of ports may shift away from small proprietary terminals towards fewer, larger public terminals.  This means that larger operations have the potential to more efficiently utilize cargo handling capacity because they are less likely to be stuck with small pieces of unused terminal space. A large contiguous terminal allows for various configurations of vessels berthing simultaneously, whereas a smaller facility is more limited and some capacity probably goes unused at any given time.

Imagine, for example, a small terminal with two berths and six cranes receiving an oversized vessel that occupies one-plus berths and employs four cranes. Lacking the space to accommodate another vessel, the terminal has no choice but to allow the unused capacity to remain idle. A larger facility would be able to use the balance of the berth and cranes in contiguous dock space making for less capacity waste.

Again, the bottom line is more resilience, in this case because capacity utilization is improved.

That is not to say that there are no downsides to the increased emphasis on public terminal usage. Here are two notable negatives.

Service degradation.  One of the advantages for a vessel operator with a proprietary terminal operation is high service levels.  The operator is given first priority by the proprietary terminal operator, and is able to run more efficiently in serving their core business needs.  Vessel operators in the public system do not enjoy this privileged status, and this makes their operations more complicated and more prone to congestion.

 Reduced pricing options.  If a large terminal operator provides all of the cargo handling services in a port, then it is effectively a monopoly because vessel operators have few or no alternative providers. Monopolies tend to skew prices in favor of the dominant player.

On balance, however, the shift away from proprietary terminal operations enhances port resilience and this is a positive outcome.

Of course the situation could reverse quite quickly in the event of an economic boom. But at least the move away from proprietary facilities has highlighted both the concept of local port resilience and the benefits of public terminals.

What do you think – are proprietary terminals gone for good or will they make a comeback when the economic tide turns?

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