MEL Course 2003

ECORYS Transport Applications on Transport

and Regional Economics

























ECORYS Transport





Rotterdam, J anuary 2003



TRANSPORT


P.O. Box 4175
3006 AD Rotterdam
Watermanweg 44
3067 GG Rotterdam
The Netherlands

T +31 10 453 88 00
F +31 10 452 36 80
E transport@ecorys.com
W www.ecorys.com
Registration no. 24316726

Table of contents
1 Introduction 6
2 Trade and traffic demand 7
2.1 Introduction 7
2.1.1 Levels of decision-making 7
2.1.2 Study phases 10
2.2 Trade and traffic generation 11
2.2.1 Passenger transport 11
2.2.2 Freight transport 12
2.2.3 Maritime applications 12
2.2.4 Homogeneous cargoes 13
2.2.5 Heterogeneous cargoes 14
2.2.6 Some practical mathematical functions 14
2.2.7 An example: the relation container throughput and economic activity 16
2.3 Trade and traffic distribution 18
2.3.1 General 18
2.3.2 Distribution models 19
2.3.3 Origin constrained 20
2.3.4 Destination constrained 20
2.3.5 Double constrained models 20
2.3.6 The impact of travel costs 22
2.3.7 Linear programming (LP) 24
2.3.8 RAS method 24
2.3.9 Generalised costs 25
2.3.10 Maritime applications 26
2.4 Assessment of shipping type, ship size and route 27
2.4.1 Introduction 27
2.4.2 Physical appearance 27
2.4.3 Container penetration 27
2.4.4 Assessment type of shipping operation 27
2.4.5 Assessment of ship size and vessel traffic 28
2.4.6 Assessment of shipping route (or choice of ports) 28
3 Demand choice models 30
3.1 Generalised costs 30
3.1.1 Passenger transport 30
3.1.2 Freight transport 31
3.1.3 Costs and the choice of an alternative 31
3.2 Some examples of transport choice positions 33
3
3.2.1 Urban and inter-urban transport applications 33
3.2.2 Demand choice applications involving maritime transport 34
3.3 The logit model 35
3.3.1 Model description 35
3.3.2 The assessment of coefficients 37
3.4 Baltic Sea feeder transport versus land transport 39
3.4.1 Background 39
3.4.2 Transport costs 40
3.4.3 Quality of service aspects 41
3.4.4 Generalised costs: costs and quality of service aspects together 42
3.4.5 Specification logit model 42
3.4.6 Results of alternative choice models 42
3.5 Market share of the container port of Rotterdam 43
3.5.1 Introduction 43
3.5.2 Model specification and estimation of coefficients 44
3.5.3 Application of the model 48
3.6 Modal split short sea shipping versus road transport 50
3.6.1 Interactions between users and producers of services 50
3.6.2 Structure of short-sea modal split model 51
3.6.3 The modal split function applied 53
3.6.4 Results 54
3.7 Estimation parameters of a liner service choice function 55
3.7.1 The choice of liner shipping services 55
3.7.2 The stated preference survey 57
3.7.3 Ordinal versus metric responses 57
3.7.4 Example of an interview and estimated utilities 59
3.7.5 Result of the pilot survey 59
3.7.6 Assessment of utility coefficients with ACA method 63
4 Transport supply 65
4.1 Capacity of infrastructure 65
4.1.1 User and producer costs 65
4.1.2 Road capacity and congestion 66
4.2 Port capacity assessment 69
4.2.1 Port capacity as an economic trade-off 69
4.2.2 A port capacity formula 71
4.2.3 Benchmarks as applied in Gujarat State in India 72
4.2.4 Benchmarks as mentioned by Frankel 73
4.2.5 Benchmarks for modern container terminals mentioned by Drewry 73
4.2.6 Use of tables based on queuing theory 75
4.3 The Maasvlakte-2 project 76
4.4 Puerto America project 78
4.4.1 Queuing theory 78
4.4.2 Components of the simulation model 79
4.4.3 Schematisation of the wet infrastructure of the harbour 81
4.4.4 Description of the simulation process 82
4.4.5 Input data 83
4.4.6 Description of the output 85

4.4.7 Simulation runs 86
4.4.8 Results of the first set of runs 86
4.4.9 Conclusion 89
5 Costs of transport 92
5.1 Introduction 92
5.2 Operator costs and time of transport services 92
5.2.1 Costs and time of ro-ro services 92
5.2.2 Costs and time of road transport 96
5.3 Issues on socio-economic costs 98
5.3.1 The Unite project 98
5.3.2 Internalising external costs 98
5.3.3 Cost categories 100
5.3.4 Relationship between marginal, average and total costs 101
5.4 Socio-economic costs by category 102
5.4.1 Infrastructure costs 102
5.4.2 Supplier operating costs 103
5.4.3 User costs and benefits 104
5.4.4 Accident costs 105
5.4.5 Environmental costs 105
6 Evaluation of infrastructure projects 116
6.1 Cost benefit analysis 116
6.1.1 Role of cost benefit analysis 116
6.1.2 Producer and consumer surplus 117
6.1.3 Economic costs and benefits 119
6.2 The Puerto America project in Venezuela 120
6.2.1 Project description 120
6.2.2 Economic benefits 121
6.2.3 The optimum port draft alternative 122
6.2.4 Importance of benefits by category 122
6.2.5 Sensitivity analysis 123
6.2.6 Incidence of benefits 124
6.2.7 The Maasvlakte-2 Project of the Port of Rotterdam 125
6.3 Small scale example: removal of shoal in the port of Abidjan - 128
6.3.1 Background 128
6.3.2 Project definition 130
6.3.3 Trade and traffic developments 130
6.3.4 Port charges 132
6.3.5 The types of economic benefits 132
6.3.6 Time costs savings 133
6.3.7 Increase in traffic safety 133
6.3.8 Land reclamation 134
6.4 Financial evaluation and port finance 136
6.4.1 Introduction 136
6.4.2 Some lingo 137
6.4.3 Finance and port management models 137
6.4.4 Factors influencing type of private finance 140
5
6.4.5 Key elements of financial analysis 141
6.5 Practical applications on pricing of infrastructure 142
6.5.1 General 142
6.5.2 Roads 142
6.5.3 Waterways 143
6.5.4 Ports (1) The ATENCO project 148
6.5.5 Ports (2): Some examples 149
7 Miscellaneous issues 152
7.1 Liner shipping networks 152
7.1.1 Introduction 152
7.1.2 The position of the ports in the United Arab Emirates (UAE) 155
7.1.3 Relative advantage of the various container ports 157
7.1.4 Sample data PortScan South Africa 161
7.1.5 Sample data PortScan South East Asia 163
7.2 Costing transhipment port options 166
7.2.1 Introduction 166
7.2.2 The cost model 166
7.2.3 The case of the Arabian Sea Area 168
7.2.4 The case Southeast Asia 173
Annex 1 176

1 Introduction
This reader contains results applied research by ECORYS Transport being conducted
generally under the names of NEI Transport and the Maritime Economic Research
Centre. The text is a third version of earlier readers on applied transport research for the
international full-time MSc course in Maritime Economics and Logistics (MEL) on the
Erasmus University. The present text is restructured, new material is added and the
subjects are put into a new framework being wider than maritime transport only.

The Chapters two and three concern the demand side of transport and follow the structure
of transport planning models with its clear distinction in decision-making phases such as
production/attraction, distribution and modal split/assignment. In this demand choice
model applications obtain ample attention.

Chapter four concerns the supply side and focuses on infrastructure supply for ports and
roads in particular.

Chapter five on transport costs deals with concepts such as user costs, producer costs and
generalised costs, whilst feedbacks are made with the demand choice models as discussed
in Chapter three. With producer costs also attention is paid to economies of ship size.
Subsequently, external cost are discussed drawing on ECORYS Transports experience
with the UNITE project funded by the EU.

In Chapter six socio-economic and financial evaluations of infrastructure projects are
discussed and also some issues concerning pricing of infrastructure. Finally, in Chapter
some tools and concepts are discussed for the assessment of the position of container
ports in a liner-shipping network (a PortScan) providing a basis for analyses on the
relative position of transhipment ports in maritime coastline regions.

The subjects add up to more than 180 pages, all of which the students do not have to read.
During the course the students will be informed about the parts, which are important for
the assignments and examination and those, which are for wider education.

Dr. S. Veldman
ECORYS Transport
Rotterdam
J anuary 2003
6
2 Trade and traffic demand
2.1 Introduction

Transport demand concerns the movements of passengers and goods. The movements of
passengers are governed by consumer behaviour and the movement of goods by producer
behaviour. The latter can find its theoretical foundation on economic theories such as those
based on profit maximisation. Despite the difference in the economic foundation, the models
applied to quantify movements of passengers and goods show great similarity. This chapter
concentrates on the similarities and starts with the phases in transport decision-making by
consumers and producers and finally focuses on maritime transport and ports.

Transport demand studies can be distinguished by their focus, such as by:
1. Mode of transport: rail, road, inland waterway, sea and air;
2. Type of activity: point-to point movements and interposal transfers and storage such as in
seaports and airports; and
3. Geographic scope: urban, inter-urban, regional, international and inter-continental.

The demand models discussed produce outputs needed for the comparison with the supply of
infrastructure such as railways, road, inland waterways and uni-modal or multi-modal transfer
points such as logistic centres, inland waterway ports, seaports and airports.


2.1.1 Levels of decision-making
With respect to transport demand for goods three levels of decision-making can be
distinguished:
1. The level of locations (trade generation) concerns:
Location of industries, number of goods produced.
Total of imported and exported goods per firm or region.
2. The level of relations (trade distribution) concerns:
The choice of trade partners.
The assessment of trade relations between regions.
3. The level of operations concerns:
choice of transport mode, scheduled versus non-scheduled, choice of transport route and
vehicle size.

7
The analyses discussed here focus on the flows of goods or flows of passengers moving between
regions. The decision-makers are the collective of individual firms in the case of transport of
goods and the individuals in the case of passengers. The behaviour of the firms can be based on
economic theory of profit maximisation and those of passenger based on consumer behaviour.
Despite this dissimilarity the quantitative models applied most often look rather much the same.

Trade generation, i.e. the assessment of incoming and outgoing cargoes per region, concerns
long-term decision-making. Trade distribution, the choice of trading partners by importers and
exporters generally concerns medium to long-term decision-making. Modal split, choice of
transport route and choice of size of vehicles all are operational issues and often of a shorter-
term nature. See figure 2.1.

Figure 2.1 Levels of decision-making


Source: Tavasszy, Modelling European Freight Transport Flows, PhD Thesis, 1996


Based on these levels of decision-making the classic four-stage transport demand model has
been derived
1
that is applied to the movements of goods and passengers corresponding with this
approach is given in figure 2.2. The four basic phases are:
(1) trip generation, i.e. passenger movements or in the case of goods cargo flows or
movements;
(2) trip distribution;
(3) modal split; and
(4) assignment.

For a traveller the four stages of decision-making are:
1. Yes/no to make trip;
2. Yes/no to select a certain origin or destination;
1
Handbook of transport modelling, Edited by Hensher, D. and Button J ., Chapter 2 History of Demand Modelling by Bates. J ., Volume 1,
Pergamon, 2000.
8

3. To choose a certain means of transport; and
4. To choose a certain route.

In the first phase of traffic generation and attraction the numbers of trips or volume of cargo
flows coming in and going out is assessed on the basis of the characteristics of the regions
concerned. This aspect is worked out in Section 2.2.

In the second phase, the distribution phase, the outgoing trips or cargo flows are allocated to or
distributed over the various destinations resulting in an origin destination table or matrix (OD-
table). This aspect is worked out in Chapter 2.3.

The third phase involves the choice of mode. The various trips or flows of the OD-table are
allocated to the different modes of transport:
in case of passengers: car, bicycle, public transport means(bus, rail, air plane);
in case of freight: truck, train, river barge, sea ship, and airplane.

An important distinction often coinciding with the type of vehicle is between scheduled (train,
bus, plane, passenger ferry for passenger transport and train, plane, trailer ferry, ro-ro ship and
container ship for freight transport) and non-scheduled transport (passenger cars, bicycles, ships
involved in tramp shipping).

In the last phase, the assignment phase, the various flows by mode are transformed into vehicle
movements, which are subsequently assigned to the corresponding networks such as:
passenger car movements to a road network.
passengers to public transport to rail or bus line services.
freight movements by truck to a road network;
freight movements by rail to a rail network;
freight movements by barge transport to an inland waterway network;
freight movements in container over sea to liner shipping services.

It should be noted that for maritime transport the choice of the size and type of vehicle is very
important for planning purposes. In case of bulk shipping for instance the sizes of ships can
range from a small bulk carrier of a few hundred dwt to a large one of more than 400,000 tons
dwt, such as the Berge Stahl. For port planning for instance it is one of the major issues
determining the role and dimensions of a port.

So far it is assumed that the transport decisions are taken in the above sequence. Sometimes the
decisions are taken in an integral way, i.e. the decision of choice of destination, mode of
transport and transport route are taken together. The stages may be applied in an iterative way,
i.e. with steps back to the previous stage in order to gain more accuracy of information. See
arrows between blocks in figure 2.2.





9


Figure 2.2 The classic four-stage transport model


Source: Ortuzar, J . de D., Willumsen, J .G., Modelling Transport, J ohn Wiley & Sons, England, 1990


2.1.2 Study phases
In the preparatory phase (see the 4 blocks in the top of figure 2.2) the area of influence is
defined and is divided in traffic zones or regions and a corresponding network of infrastructure
or transport services. Passenger flows are divided according to the traffic motive of the
travellers, such as:
home to work;
home to school;
office-to-office;
other purposes such as trips for leisure, social or other purposes.

In a similar way freight flows are divided according to type of commodity and its physical
appearance. See Sections 2.2.3 and 2.2.4.

The evaluation phase (see block at the bottom of figure 2.2) may concern the financial or
economic evaluation of investments in infrastructure (rail, road and ports), the performance of
transport services (bus lines, railway lines or shipping lines), the identification of bottlenecks in
for instance a rail or road network or, more general, the assessment of the impact of policy
measures.
10

Studies for urban transport aim to identify bottlenecks in urban transport systems and to
investigate the impact of changes in the availability of infrastructure. These models are
becoming fairly standard practice and a great amount of commercial software has been
developed and is available on the market such as EMME/2, SATURN and QRS. As passenger
cars generally dominate urban road networks, at least in the peak hours, passenger transport
models receive most attention.

Studies for inter-urban or corridor transport aim to investigate the impact of changes in the
availability of infrastructure or of measures to influence the modal split. At present in the
European Union many studies are going on to investigate the impact of measures to trigger a
shift from road to public transport such as rail, inland waterway or maritime transport. For long
distance or international transport the same types of models are used.

For corridor studies modal split is an important issue. With respect to passengers it concerns
road versus rail, normal train versus high-speed train, airplane versus high-speed train. With
respect to goods it concerns trucks versus trains, trucks versus maritime transport, maritime
transport as roll-on-roll-off (ro-ro) and lift-on-lift-off (lo-lo) and so on. The studies all
concentrate issues of an operational level.


2.2 Trade and traffic generation
2.2.1 Passenger transport
Traffic generation consists of a push effect, the generation/production of passengers trips or
cargo movements and of a pull effect, the attraction of passengers and cargo movements. For
passenger traffic concerning home-work trips, the production side coincides with the decision
to choose a place for living and the corresponding attraction side corresponds with the decision
to choose a place to work. As home-work traffic is a dominant part of traffic, in peak-hours in
particular, the prediction of this type of trips is an important element with urban traffic studies.

Once a division of the study area in traffic zones has been made the number of working and
living places per zone has to be established. For home-school traffic and work-to-work (or
business) traffic similar assessments have to be made. Thus, important activities for the study
preparation are zoning of the area and classification of trips according to traffic motives.

The following factors are mentioned to determine trip production by person or group of persons
in a geographical area (traffic zone):
Income
Car ownership
Household structure
Family size
Value of land
Residential density
11
Accessibility
Characteristics of land use are used for the explanation of trip attraction, factors such as:
Office space
Retail space
Employment level

Quantitative relationships are investigated between the numbers of arriving and departing
passengers per zone as a function of the above factors. The types of models are often linear
models of which the parameters are estimated by regression analysis. These analyses are done
per traffic motive separately. For details and quantitative examples see Ortuzar
2
, Chapter 4.


2.2.2 Freight transport
With freight transport generation/production concerns the assessment of flows of incoming and
outgoing goods. The decision by a firm to decide to produce a certain level of goods leads to
outgoing flows of products and simultaneously a level of incoming goods such as raw materials
and semi-manufactured goods. By dividing goods transported into recognisable entities one can
establish a relation between decisions of production and levels of incoming and outgoing flows
of goods. In the clearest case this concerns well identifiable flows of goods such as incoming
crude oil and outgoing petroleum products for production decisions concerning a refinery. For
less clearly identifiable aggregates such as iron and steel products for a number of steel based
industries located in a certain region the relationship is looser. For aggregates such as building
materials or even more aggregated groups such as containerised goods the relation becomes
very loose.

To understand the development of incoming and outgoing goods, one can investigate production
history and production plans of the industries concerned, a refinery and the related petro-
chemical industry, an iron and steel industry, a construction industry in case of well identifiable
goods. In case of less well identifiable aggregates such as consumer goods, capital goods,
containerised goods, the relation with the specific industry is lost and one has to find relations
between the totals of incoming and outgoing goods and indicators of economic activity such as
Gross Regional Domestic Product (for a region) or even population.


2.2.3 Maritime applications
For maritime freight transport the four stage model can be elaborated in the following project
steps, as given in figure 2.3. The preparatory and evaluation phases and possible feedbacks
between the consecutive phases are omitted. The maritime applications concern worldwide
studies such as those by Drewry Consultants for the maritime transport of major, minor and neo-
bulk goods and regional studies on for instance short sea shipping and port studies. It should be
2
Modelling transport, Ortuzar, J , de D. and Willumsen, L.G., J ohn Wiley & Sons, England, 1990
12

noted that in practical applications, however, some of the steps might not be noted, as they are
trivial. This may concerns the phases 2 and 3 in particular.

Figure 2.3 Phases of port trade and traffic forecast


The forecast of port trade and traffic is part of the activities to assess the need for measures to be
taken such as expanding and/or improving the capacity of a port, to reorganise or restructure a
port or to update a masterplan of a port. The improvement of the port itself may have an impact
on the outcome of the trade and traffic forecast. This means that there need to be feedbacks
between the consecutive phases of the forecasting process.

Before proceeding it is useful to make a broad distinction between homogeneous and
heterogeneous commodity groupings.


2.2.4 Homogeneous cargoes
For homogeneous types of cargo such as crude oil, petroleum products, iron ore, coal and
cereals, the so-called major bulk commodities, it is often possible to do an analysis of surpluses
and deficits for the hinterland regions. These analyses are based on industrial plans for such
distribution
type of shipping size of shipment choice of route
demand of ships
by type and size
surplus -deficit
analysis
demand
&
consumption
supply
&
production
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
13
industries (oil refineries, steel industries, chemical industries etc.), which have a long
construction lead-time and which are known a long time in advance. In such a case the port
economist has to make a judgement on the nature and likely timing of such programs and to
make based on that his own assessment. This also applies to the so-called minor bulk
commodities such as non-ferro metals, timber and cereals and neo-bulk commodities. For these
products there are also publications on worldwide production, consumption and market
assessments. In these cases the port economist only has to collect the various reports and make
his own adaptation to the specific situation.

For homogenous cargoes the incoming and outgoing cargoes per region are equal to the
difference of production and consumption of the goods. Production is based on existing and
planned expansion of production capacities: crude oil production, petroleum products
production etc. Consumption of goods can be for the use by industries, such as iron ore by the
steel industry, chemical feedstock by the chemical industry and fertilisers by agriculture.
Consumption can also be for final consumers, such as grain for human food and can then be
related to the size of the population and the increase in consumption per capita.

Drewry shipping consultants is one of the leading consultants selling reports on the situation on
the various shipping and port markets. (See www.drewry.co.uk)


2.2.5 Heterogeneous cargoes
For heterogeneous cargo groupings such as general cargo, unitised cargoes or wheeled cargoes,
the approach is different. These cargoes generally concern an aggregate of all types of consumer
goods, capital goods and semi-manufactured products. Often these groupings result by
subtracting from a total all well identifiable major and minor bulk goods and by subsequently
re-grouping the remainder in manageable groups such as those of an agricultural nature,
construction materials and food products. Theoretically, it would be possible to conduct a
surplus and deficit analysis for each sub-group separately. In practice, however, this would often
be a waste of energy considering the detail of information and therefore the effort needed.

The total volume of incoming and outgoing unitisable cargoes can be taken as one group or as a
number of groups distinguished by economic sector, which can be forecast each separately or as
one group. The development of incoming cargoes of commodity group construction materials
in the past can for instance be linked to the development of the production of the construction
sector or to the level of investments.


2.2.6 Some practical mathematical functions
A mathematical relationship has to be chosen and the parameters of the function concerned need
to be estimated by for instance regression analysis. The mathematical relationships often chosen
are linear or log-linear and can be applied for the total or for cargoes by sector.

Growth functions
The following growth functions are often used:
(2.1) x
t
=x
0
(1+g)
t
14
where:
x
t
: transport flow in year t
x
0
: base year
g : annual growth rate
t : time in years

Sometimes instead is used:
(2.2) x
t
=ae
gt

where :
a : constant
e : base of natural logarithm
g : growth rate

The proposed mathematical relationships between incoming and outgoing cargo flows and
indicators of economic activity such as GDP, could be for instance:

Relationships between flows of goods and explanatory variables
(2.3) x =
0
GDP
1
where:
x =transport flow

0
=constant factor

1
=elasticity

The coefficient 1 is referred to as elasticity and can be expressed as:
(2.4)
1
=(x/x)/(GDP/GDP)

For the use of elasticities in maritime economics, see Evans and Marlow
3

A convenient property of it is that, if GDP increases with 1%, the total transport flow will
increase with
1
x 1% =
1
%. This relation holds for infinitesimal small values of the growth
rate. For small changes it is often used as follows:
(2.5)
1
={(x
t+1
- x
t
)/ x
t
}/{(GDP
t+1
- GDP
t
)/ GDP
t
}

In practice the value of
1
is often estimated on the basis of a time-series of values of x and GDP
in the following three ways by:
a. Applying regression analysis according to equation (2.3);
b. Calculating the average value according to equation (2.5) for a number of yearto-year
changes; and
c. Calculating the annual growth rates of x and GDP over the whole period and then simply
dividing the growth rate of the former by the growth rate of the latter.

An example of the application of this function is given in Section 2.2.7.

A linear relationship to predict flows of goods
(2.6) x =
0
+
1
x GDP

3
Evans, J .J . and Marlow, P.B., Quantitative Methods in Maritime Economics, Second Edtion, Fairplay Publications Ltd, UK, 1990
15

A logistic function to predict a market share or a ratio
In this x represents the share of containerised cargo within total general cargo or the
development of an elasticity, which may be anticipated to decrease after some time. Two forms
are given:

(2.7a) x =A/(1+a.e
-kt
)
where:
A =saturation level of x
t =time
k =constant
a =1/A
The logistic function is a function of time and can also be applied for the relation between
x/GDP and time, i.e. the relation between the sum of incoming and outgoing containers and
GDP. The advantage of this function is that a saturation level is explicitly included.
A variant form is:
(2.7b) x =A/(1+a(t-t
0
)
where :
a =constant
t
0
=start moment in time

For the choice of functional form and the estimation with regression analysis see for instance
Frankel
4
.

It should be noted that this types of functions is a tool for forecasting. The application of values
estimated on developments in the past should never be used automatically for predictions for the
future.


2.2.7 An example: the relation container throughput and economic activity
Analyses of the growth of international trade in monetary terms and production and consumption
of goods, as expressed by indicators such as Gross Domestic Product (GDP) show that the growth
of trade is larger than the growth of GDP for longer periods of time.

Some of the reasons of this difference concern the internationalisation of trade stimulated through
low costs of transport and of container transport in particular. Other factors having lead and still
leading to an intensification of trade are:
1. The vertical disintegration of production activities adding extra links to the supply chain;
2. The customisation and outsourcing of production activities;
3. A trend towards spatial concentration of production; and
4. The rationalisation of supply base.

Per type of trade the impact of these developments is different.

4
Ernst G. Frankel, Port planning and development, J ohn Wiley & Sons, 1987, p 168-170
16

The impact of the factors is little for the flows of the so-called major and minor liquid and dry bulk
goods and the handling of these goods in ports. For neo-bulk commodities such as iron and steel
products, timber products, temperature controlled goods and agro-bulks there are some interesting
developments with respect to supply chain management. In these concepts processing and value
added services are to be located in well-chosen seaports. Ro-ro shipping is also playing an
increasing role for these goods.

For general cargo flows, however, the impact is great, leading to a strong increase in trade, to
economies of scale in shipping and ports and to an overall increase in the importance of quality of
service. The container liner-shipping network is becoming more fine-meshed, ships on all services
are becoming bigger and, for certain segments, also faster. The companies involved have to adapt
themselves continuously to the changing world. This applies to the shipping industry, which has
seen a pattern of mergers (P&O Nedlloyd, Mearsk/Sealand) and to the port management industry,
which has seen an internationalisation of the industry with companies playing in all parts of the
world (Hutchison Whampoa, Singapore Port Authority and P&O Ports).

A new development is that geographically there is a relative increase of trades within world
regions, such within the Far East, within the Indian Ocean and within the Mediterranean.

Some quantitative justification of the increase in trade intensity can be derived from the worldwide
development of container trades. The factors determining the increase of container throughput
concern the development of:

1. economic activity in general;
2. logistics and technology such as container penetration;
3. trade intensity of the various sectors of the economy;
4. shipping systems such as multi-porting and hub and spoke systems; and
5. port competition leading to shifts in port hinterland.

Growth of GDP and container throughput
A statistical relation was measured between GDP and container throughput. The figures used were
established in such a way that only the factors one, two and three play a role. The container
throughput figures do not include transhipment, so that the strong increase due to double handling
is eliminated. See point 4. The size of the regions is so big that the impact of port competition
between regions is negligible. The main point remaining concerns developments in trade intensity.

The ratio of the annual growth of container throughput and of GDP (calculated according to
approach c of equation 2.5), to be referred in short as the elasticity, shows for a number of
world regions values ranging from 1.7 to 3.7. The start from a very low basis of containerisation
explains the high value for some regions. If the start of the period is put at 1985 instead of 1980,
the extremes are somewhat lower. The high values, however, remain. See table 2.1.

The interesting point is that similar values apply to both industrialised regions such as Europe,
North America and the Far East (including the then called tiger economies) and to developing
regions. One could expect that the industrialised regions of North Europe and North America, with
17
their high degree of container penetration, considered to have come close to saturation, would
show much lower ratios.

Table 2.1 Elasticity of container throughput versus GDP for world coastline regions.

Coastal region\ period 1980-1996 1985-1996
North Europe 2.7 2.4
South Europe 3.7 3.3
Middle East 2.6 2.1
South Asia a) N/A. 2.1
SE Asia 2.5 2.4
Far East 2.6 2.7
North America 2.4 2.4
Oceania 1.7 1.8
Africa 3.1 2.4
World 2.6 2.8
[Source: Internal study MERC/NEI based on container throughput data presented in Short Sea
Container Markets, September 1997, Drewry Shipping Consultants Ltd]

Note: throughput figures do not include transhipment

The interesting thing of this analysis is that the values of the elasticities generally are
considerably higher than one, both for regions with predominantly developed and developing
countries. An explanation for the developed regions could be the increase of trade intensity as
mentioned above. For the developing regions the reason could be the later start of
containerisation.


2.3 Trade and traffic distribution
2.3.1 General
After insight is gained on the number of departing and arriving trips (in the case of passengers)
and on the amount of incoming or outgoing cargo flows, the next step is to distribute these trips
and flows over the combinations of origins and destinations, i.e. the assessment of
origin/destination pairs (OD-pairs).

The passenger or cargo flows are allocated to or distributed over the various destinations. This
can be presented in an origin destination table or matrix, which can take a form as given in table
2.2. Assume there are n regions numbered from 1 to N. The rows for instance can represent the
cargo flows originating in one of the regions numbered from 1 to N. The columns can represent
the cargo flows with a destination in one of the regions numbered from 1 to N. It should be
noted that the set of origin regions and destination regions do not necessarily have to coincide.

Thus, a cargo flow from region 3 to region 2 is given the notation T
32
. In a more general way.
The cargo flow from region i to region j is given the notation T
ij
. All outgoing flows from
regions i add up to O
i
. In a similar way, all incoming flows for region j add up to D
j
.
18
In formula for all flows going out of region i:
(2.8)

=
=
N j
j
Tij
1
=O
i
and for all flows coming into region j:
(2.9)

=
=
N i
i
Tij
1
=D
j


The totals O
i
and D
j
are the result of the generation and attraction phase and the cargo flows T
ij

are the subject of the distribution phase. The regions i and j do not necessarily have to coincide
and may be different. In the formulation given in table 2.2 there are assumed to be N origin
regions and M destination regions. This for instance applies to the table of iron ore flows from
producing regions to consuming regions.

With respect to the relationship between production/attraction and distribution three possible
options exist:
1. both O
i
or D
j
are given As the result of the production/attraction phase;
2. only O
i
is given; or
3. only D
j
is given.

Specification (1) is called doubly constrained and the other two singly constrained.


Table 2.2 General form of the Origin Destination table

Origins destinations

=
=
M j
j
Tij
1

1 2 j .. M
1 T
11
T
12
T
1
T
1j
T
1..
T
1M
O
1

2 T
21
T
22
T
2
T
2j
T
2..
T
2M
O
2

3 T
31
T
32
T
3
T
3j
T
3..
T
3M
O
3

T
1
T
2
T

T
j
T
..
T
M
O

I T
i1
T
i2
T
i
T
ij
T
i..
T
iM
O
I

T
1
T
2
T

T
j
T
..
T
M
O

N T
n1
T
n2
T
n
T
2nj
T
n..
T
nM
O
N

=
=
N i
i
Tij
1

D
1
D
2
D

D
j
D
..
D
M

= =
= =
M j N i
j i
Tij
,
1 , 1



2.3.2 Distribution models
Distribution models can be distinguished in singly and doubly constrained models, depending
on whether per region the level of the outgoing flows or of incoming flows is fixed (singly
constrained). If both are fixed, the model is doubly constrained.

19
2.3.3 Origin constrained
A practical example of an origin constrained distribution model applied for passenger transport
is the WOLOCAS
5
model used to predict trip distributions for new residential areas. The trips
T
ij
have to meet condition (2.8) and are divided over the set of destination regions according to
the equation:

(2.10) T
ij
=a
i
O
i
X
j
F
ij


where:
a
i
: a balancing factor;
X
j
: a factor indicating the potential of region or zone j;
F
ij
: a factor indicating the accessibility of zone j from zone i.

The attraction abilities of the destination regions vary per trip purpose and can be for instance:
- the employment level of zone j, in case of home-work travel;
- the number of shops in case of in case of shopping travel; and
- the number of inhabitants in case of travel for social purposes.
These models are used to assess the number of trips generated by new residential areas.
See Ortuzar p. 136.


2.3.4 Destination constrained
A destination-constrained model can be:
(2.11) T
ij
=b
j
D
j
X
i
F
ij

where:
b
j
: a balancing factor; and
X
i
: a factor indicating the potential of region or zone i.

The attraction abilities of the origin regions can be:
the number of houses of zone i, in case of home-work travel;
the number of houses in case of in case of home-shop travel; and
the number of inhabitants in case of travel for social purposes.
These models are used to assess the number of trips generated by new shopping malls, industrial
centres and so on.


2.3.5 Double constrained models
Several approaches exist to assess the flows of goods or passengers trips between regions or
zones given the set of origin and destination totals:
5
WOLOCAS, acronym for WOonLOCcatie scanner, a model developed by INRO/TNO to assess the amount of outgoing trips by
destination for new residential areas. 1990
20

1) gravity types of models with a deterrence or cost function: this approach is very common in
trip forecasting. Most software used for urban planning includes gravity types of models. It
is less commonly used with freight transport;
2) LP models assuming an optimising behaviour is commonly used in freight transport in case
there is good reason to assume that optimisation takes place. The LP model can also be seen
as a special extreme case of the gravity model (1); and
3) RAS techniques
6
to reproduce a basic OD structure by proportionally adapting row and
column totals to the given set of totals. The technique is also called bi-proportionate
fitting or the Furness technique named after Furness.

The distribution of trips by trip length category expressed in travel time is given in table 2.4.
After an initial increase the number of trips is decreasing strongly. For bicycle, car and train the
ship of the curves is different. See figure 2.5.

Figure 2.4 Number of trips as a function of trip length expressed travel time (minutes)






6
Bates J , 2000, page 29; Ortuzar & Willumsen 1990, p 136
21

Figure 2.5 Number of trips by mode as a function of trip length in km



2.3.6 The impact of travel costs
Various approaches are applied. The general distribution model for a double constrained model
is:
(2.12) T
ij
=a
i
b
j
O
i
D
j
F
ij

Where:
T
ij
=tons of cargo moved from i to j;
O
i
, D
j
=incoming and outgoing flows for region i and j;
a
i
,

b
j
=balancing factors corresponding with region i and j, these factors indicate the
importance of the area of origin i and destination j for a particular flow from i to j;
F
ij
=indicating the accessibility of one region compared to the other

(2.13) F
ij
=f(C
ij
)

f(C
ij
) =the deterrence or cost function: a function of the generalised transport costs per ton
from region i to j.
C
ij
=generalised transport costs per ton from region i to j.

The cost or deterrence function makes that the further region i is away from region j and as a
result, the higher are the transport costs and travel time, the smaller the flow of transport from i
to j. The most popular forms of the deterrence function are:
(2.13a) f (C
ij
) =(C
ij
)
-n
a negative power function
(2.13b) f (C
ij
) =exp(-C
ij
) a negative exponential form
(2.13c) f (C
ij
) =(C
ij
)
-n
exp(-C
ij
) a combined function
22
where:
, n =parameters of the deterrence or cost function

Examples of the shapes of the various curves are given in figure 2.6.

The larger the value of the coefficient , the greater the (negative) impact of costs on the volume
of traffic flows. In case the coefficient takes a value of zero, the impact of costs i nil. In case the
coefficient takes a very high value, it can be proven mathematically that the solution takes a
value where total transportation cost are minimised according to a solution of minimisation of
costs according to linear programming.

For more details on distribution modelling see Ortuzar
7
. Although the applications presented
concern passenger transport, one can easily replace passenger trips by cargo flow
movements.

Figure 2.6 Frequency of trips as a function of trip length expressed trip costs




The starting point of the forecast concerns the values of O
i
, D
j
for the future. One can assess the
flows T
ij
by applying equation (2.12). Calculation of the values produces a result where the
values do not automatically add up to the constraints O
i
, D
j
and have to be adapted by a method
which involves successive proportional corrections by rows and than by columns to satisfy the
constraints. The algorithm stops when the corrections are small enough, i.e. when the constraints
7
On the pages 145 to 146 a method is given as to how to assess the parameter and the balancing factors ai, bj of the model.
23

are met within a predefined level of accuracy. By mathematicians this method is referred to as
bi-proportional fitting, by transport planners as the Furness method and by economists as the
RAS method. For an example of the method see Ortuzar Section 4.5.

Application of the model leads to a situation where there are cargo or passengers flows between
all region pairs. This is acceptable for passenger flows and flows of heterogeneous cargo
groupings in a system with a fine-meshed network where there are flows between all regions.


2.3.7 Linear programming (LP)
In some cases market conditions are such that there is a tendency towards minimisation of
transport costs. In the case of re-positioning of empty containers the shipping lines aim at
minimising transport costs and a simple model could look like:

(2.14) Minimise: C = Cij Tij
M j N i
j i

= =
= =
,
1 , 1

under the condition that
(2.15)

=
=
M j
j
Tij
1
=O
i
and
(2.16)

=
=
N i
i
Tij
1
=D
j

The total costs C are equal or less than the total costs according to any of the other above-
mentioned solutions.


2.3.8 RAS method
In case there is a great difference between the cargo flows of the base year and the cargo flows
as assessed according to either the distribution model or the LP model, one can use the cargo
flows of the base year as a starting point. In this way the basic pattern of flows, for instance the
pattern as experienced in the past, is reproduced for the future. This for instance applies quite
well for the forecast of crude oil flows and petroleum product flows between world regions. The
basic matrix shows a considerable number of empty cells and application of a gravity model
would lead to too much small flows and thereby to an under-estimation of the large flows.

This technique is for instance applied to a market study for traffic passing the Suez Canal, where
it was important to have good forecasts of the oil flows between the Arabian Gulf area and
North America and the Caribbean, which are prone to switches between the Suez Canal and
Cape of Good Hope route. Forecasts of crude oil movements were made given forecasts of
energy and oil production and consumption of world regions. The RAS method was used to
24
assess the oil flows applying crude oil flow patterns of the past as starting value. This approach
gave better results than the application of a distribution model with a deterrence function or LP.

In case there are important determining factors other than (generalised) costs, one can for
instance use the OD-pattern (the structure of T
ij
), as observed during the past as a starting point.
This approach is less common in land transport applications, as possible improvements in the
values of C
ij
are disregarded. Such improvements are less relevant in planning of sea transport,
where improvements of the transport network do not apply: at sea there is practically no
congestion. In planning of land transport, these improvements themselves are the subject of
analysis.

The technique to predict the values of traffic flows T
ij
for a future target year with new values of
a given structure as experienced in the past based or on a pattern calculated with new values of
O
i
and D
j
and/or new values of C
ij
is discussed below.

The initial summed values of T
ij
will not be equal to the sum values of O
i
andD
j
. By repeatedly
adapting the values of T
ij
to these totals, the adapted values appear to converge. This process of
repeated proportional adaptation over columns and rows until conversion is reached, is referred
to as the Furness- method (see Ortuzar and Willumsen, p. 134-135).


2.3.9 Generalised costs
The costs as used in the various types of deterrence or distance functions concern generalised
costs
8
, that means it concerns all costs as experienced by the user and supplier of transport
services. In its simplest form generalised cost is a linear function of travel costs and time, the
latter being converted in to money units by means of the so-called value of travel time
savings. It can be defined wider by including any variable that is likely to impact on travel or
transport decisions in the wider sense. It concerns all costs to produce a transport service as they
are put into a price for a transport service and the costs of the users of transport services. See
also Sections 3.3, 4.1 and 5.4.3.
8
Bates 2000, p. 12
25

2.3.10 Maritime applications
In a number of cases the maritime planner needs to have detailed knowledge of cargo flows
between certain regions and the interactions, which exist between such flows. This applies to
planning with both shipping and ports.

Examples with shipping are:
the repositioning of empty containers by a liner shipping operator, where the operational
department is planning the repositioning of empty container in such a way that it minimises
costs;
Another example concerns the Suez Canal Authority which wants to make assessments of
the worldwide flows of crude oil passing the canal and therefore studies the crude oil
shipping patterns at a global level;
planning of inter-island shipping in archipelagic nations such as Indonesia, Greece and
Philippines; and
a shipping company interested in a particular flow between two regions.

Examples with ports are:
The prediction of the flows to or from a certain region. The investor in a crude oil or coal
export port in, say Venezuela, wants to know the level oil sold to the US against the sales to
West Europe. This also applies to coal exports of Venezuela. Sales to the US go by smaller
ships and those to West Europe go by bigger ones.
In a strongly simplified form: the assessment of the ratio of aggregates of origins and
destinations, such as short sea shipping against deep-sea shipping within the total cargoes.
A special case: parts of the hinterland of a port may have the option to import or export over
sea from one group of trading partners and over land from the other group. In such a case
assessments have to be made on the future share of transport over sea.

For the prediction of the share of these large aggregates one can also extrapolate the shares
themselves, using market functions such as those of (2.7a) and (2.7b).
26

2.4 Assessment of shipping type, ship size and route

2.4.1 Introduction
In the fourth phase of the maritime trade and traffic forecast the activities, dealing with the level
of operations, are somewhat more complicated as with the simple division in a phase of modal
split and assignment, as with the classic four-phase model. See figure 2.2. The operational
phase is more complex as shown is figure 2.3. The following issues play a role.


2.4.2 Physical appearance
The physical appearance concerns the way cargo is packed or treated such as in unitised form
(containerised, palletised or in wheeled form) or in boxes, crates or bundles or in dry or liquid
bulk form. The volume of cargo being shipped is an important determining factor. Wine shipped
in small quantities is carried in bottles and bottles in boxes and boxes in containers. If quantities
are bigger, they can be carried in bulk in special tanks of general cargo ships. If quantities are
still bigger they can be carried in bulk tankers. The shipping practice offers plenty examples of
different technologies applied for different volume levels for the same goods, such as for
instance for chemicals, gasses, cement and beverages.


2.4.3 Container penetration
The most important issue in this context is the assessment of the degree of containerisation or
container penetration. In some cases port statistics give information on the amount of
commodities that is carried in containerised and non-containerised form, so that per commodity
the degree of containerisation can be established. On the basis of the development of the
containerisation degrees in the past one can make assessments of the development in the future.
This approach of the assessment of the development of containerised cargoes is referred to as
the micro-approach. Most often, however, information on containerisation degrees at
commodity level is not available, so that one has to apply broader measures to forecast container
flows at aggregated level, the macro approach.


2.4.4 Assessment type of shipping operation
The physical appearance of goods and type of ships carrying these goods is often linked in a
unique manner and seems therefore obvious. Dry bulk in dry bulk carriers and containers in
container ships etc. There are, however, many exceptions to such rules. Containers are carried in
cellular container ships (geared or non-geared), in semi-container ships, in general cargo ships
and ro-ro ships. For port planning purposes this distinction is important, as ships may be
handled at different berths and with different technologies.

27
The types of ships and ship operations include:
Tankers: parcel tankers, product tankers and crude oil tankers.
Dry bulk carriers.
Combined carriers.
Liner ships: container ships, ro-ro ships, multi-purpose ships, semi-container ships, and
tween-deckers.
Specialised ships: cement carriers, heavy lift ships, LPG tankers, and vehicle carriers.

For port planning purposes with container transport the shift from tween-deckers and multi-
purpose vessels to fully cellular containerships is an important matter and further also the shift
from liner ships to for instance specialised ships such as in the case of timber shipments.


2.4.5 Assessment of ship size and vessel traffic
With some port studies the size of ships is the main issue of the concern. For instance, a crude
oil port can accommodate only Panamax vessels and the port authority wants to know whether it
is feasible to dredge the ports entrance in order to be able to accommodate VLCCs and reap
the benefits of economies of ship size. Several investment alternatives with respect to the
maximum draft are investigated in order to assess the optimum one. In this case the port
economist investigates to what extent the ports trading partners face limitations in draft and
makes his assessment as to what extent larger ships can be accommodated. This type of studies
applies to import and export facilities of many liquid and dry bulk terminals and to major bulk
facilities in particular.

With some port studies the sizes of ships are of lesser concern, as there is no limitation in size at
present. The port planner has to verify whether this may change in the future due to changes in
shipping technology. At present the largest bulk carriers employed in the coal trades are up to
about 150,000 dwt and many ports are dimensioned on these ships. A port authority intending to
invest in a new terminal has to critically assess the probability that larger ships will come at a
future date. At the moment this applies in particular to container shipping. The issue is very
relevant because of the continuing increase in ship size and the discussions in the maritime press
about the design of much larger ships such as the Malaccamax of 18,000 TEU.

For the planning of berthing space, dimensioning of fairways and vessel traffic systems an
assessment needs to be made on the number of vessel movements by ship type and size class.
The assessment of the development of the size of ships can be based on developments in
worldwide shipping and the place of the port within these developments. Often this is done by
simple extrapolation of the average size of ships calling.


2.4.6 Assessment of shipping route (or choice of ports)
Seaports are part of a worldwide network that is becoming increasingly more fine-meshed, for
containers in particular. This means that for a certain origin destination pair the number of
routings (or multi-modal paths along which a container can be routed) is increasing. The choice
28
of a certain container routing therefore implies the choice of port. This in fact means that a
container port has to be considered as a part of a network and that one has to know about the
structure of such a network. The choice of container port is dealt with in Section 3.5. Some
issues with the choice of transhipment port are discussed in Section 7.2.


29
3 Demand choice models
3.1 Generalised costs
3.1.1 Passenger transport
If travellers are considering to choose between alternatives (a trip by car or a trip by public
transport; a trip by car via a toll road or a trip by car via a free road), they consider there
monetary costs, the travel time and sometimes distinguish between the various travel time
components such as in-vehicle time, waiting time and time walking. See for instance Ortuzar
1990
9
. In formula

(3.1) G =a
0
D +a
1
C +a
2
T
1
+a
3
T
2
+a
4
T
3
+a
5
H

where:
G : generalised cost
C: door-to-door traffic costs: traffic fare and so on
T
1
: in-vehicle traffic time
T
2
: waiting time at stops
T
3
: interchange time (if any)
H: terminal associated cost (parking cost, if any)
D: preference or penalty for a mode

In travel demand modelling for passenger transport there is a huge wealth of models with
respect to:
their use in the process of travel decision-making: (the decision yes/no to make a trip,
yes/no to go to a certain destination, yes/no to choose a certain mode and yes/no chose a
certain route and also the simultaneous integration of some of these decisions);
mathematical form (Logit, Probit);
the inclusion of all these decisions in commercially available software such as EMME/2,
Saturn and QRS; and
the widespread use in urban transport planning.

The application of such models in freight transport is less developed and even much less in
planning with respect to seaports and maritime transport. The internationalisation of the ports
industry, however, is changing this picture.

9
Ortuzar 1990, p. 131
30


3.1.2 Freight transport
For the users of transport services the costs they are considering when making a choice are more
than the costs of door-to-door transport that they have to pay to the transport service providers.
Also of importance are the costs related to transit time, the time span between two consecutive
sailings (sometimes referred to as headtime or inter-arrival time, which time is equal to the
365/F(F=service frequency expressed as the number of sailings per year) and reliability of
service. The latter can be expressed in time as the average amount of time a sailing is off-
schedule.

The costs the users experience internally relate to stock carrying and interest costs. Often all
these aspects together are referred to as quality of services aspects and they play an important
role, when users have to choose between alternatives and their sum is referred to as generalised
cost. The costs to be paid to the providers of transport costs are referred to as the provider or
producer costs and the costs as experienced internally by the users of transport services as the
user costs.

In its simplest form generalised cost is a linear function of all these aspects where travel costs
and time, time being converted into money units by means of the so-called value of travel
time ratio, are taken together. These aspects can be defined wider by including any variable
that is likely to have an impact on travel or transport choice decisions.

(3.2) G =a
1
C +a
2
T +a
3
IAT +a
4
OST

where:
G : generalised costs
C: out-of-pocket door-to-door costs
T: door-to-door transit time
IAT: time between two consecutive departures
OST: average amount of time a shipment is off-schedule, i.e. too early or too late.

The coefficients a
1
, a
2
and a
3
represent indicators of the various types of time or costs and the
theoretical foundation of the time differences can be based on cost minimisation regarding for
instance stock carrying behaviour.


3.1.3 Costs and the choice of an alternative
If a traveller or a shipper is choosing between two alternatives, he can choose the cheapest
alternative, i.e. the alternative with the least generalised cost. In a deterministic approach this is
a choice of either alternative A or alternative B. If G
i
>G
j
, then alternative j is chosen;
otherwise, alternative i is chosen. The choice is all-or nothing (AON-choice), see thick line in
figure 3.1, which concerns the choice of a land routing versus a feeder-line routing. If the
generalised cost of feeder minus land routing is positive the land routing is chosen, otherwise
the feeder routing.
31

In the theory on travel and transport behaviour there is a preference for a probabilistic approach,
where the choice of an alternative is a function of the relation between the values of the
generalised costs of alternative A (Ga) versus alternative B (Gb).

In this approach it is assumed that the values of generalised costs are measured on the basis of
the observed set of values, which are an approximation of the real set of values. The individual
chooses from two alternatives i and j option i, if as mentioned above G
i
>G
j
.
The observed part of the generalised costs or utilities is a function of the attributes as given in
the above equations and an error term i and j. If V
i
+
i
>V
j
+
j
, then the probability that i is
chosen P(i) is bigger that the probability that j is chosen P(j). The larger the difference, the
larger the probability that A is chosen.

If it is assumed that the error term i follows a so-called Gumbel
10
distribution and if this
distribution is identical for all considered alternatives and that these distributions are mutually
independent, than the probability that an individual decision-maker chooses option i can be
formulated as a logit-model. The resulting S-shaped market shares curve of the logit model
constraints the predicted market share between zero and one, is intuitively attractive and
realistically describes the routing-switching behaviour of decision-makers. For an assessment of
the advantages and disadvantages of the various types of demand choice models such as Logit,
Probit, Translog and so on see Oum
11
.

The logit model is the most popular one of the models to explain the choice between traffic
alternatives, as it is easy to understand. A number of applications of the model related to
maritime transport are presented in this chapter.

10
Handbook of transport modelling, Edited by Hensher, D. and Button J ., Volume 1, Pergamon, 2000, Both, C.R., Chapter 5, Flexible
model structures for discrete choice analysis, p. 79
11
Tae Hoon Oum, Alternative demand models and their elasticity estimates, J ournal of transport economy and policy, May 1989
32

Figure 3.1 Market share as a function of generalised cost difference of land and feeder routing
0
0,2
0,4
0,6
0,8
1
-150 -100 -50 0 50 100
cost difference feeder - land routing
Share of feeder routing (%)




3.2 Some examples of transport choice positions

3.2.1 Urban and inter-urban transport applications
Application of transport demand models for urban transport planning is rather common and is
applied generally for all medium and big size cities. Information on the commercial software is
readily available on the Internet, such as the packages EMME/2 Transportation Planning
Software, Quick Response System (QRS) and Saturn. These software packages offer the user
the possibility to forecast traffic movements via an urban road network and a public transport
network and have many possibilities with respect to model specifications such as the application
of the classic four-stage model as discussed in Section 2.1 and the modern variants where trip
distribution and modal split are addressed simultaneously and applications where the choice of
time of departure is included and various types of assignment models. Logit models are a
normal feature of the choice options in the models.

These models are intended to produce a situation of equilibrium between the demand side and
the supply side of urban transport, where the supply concerns the structure and dimensions of
the road or public transport network. The demand side corresponds with the models as described
in Chapter 2 and the supply side concerns the speed-flow functions to be discussed briefly in
Section 4.1. To achieve equilibrium the models apply iterative procedures with the various
stages of the transport model.

33
The SATURN
12
traffic model, was used to simulate the situation for the city of Brussels and
distinguished 184 zones covering the whole of Belgium of which 101 zones cover the capital
city, 66 its periphery and 17 the rest of Belgium. The road network was described by 5305 links
and 2032 intersections. Other applications of the model were for Edinburgh with 25 spatial
zones, which is a rather low number; for Helsinki with 145 zones and for Salzburg with 369
zones. Given the resulting enormous amount of information needed to load these models and
similar amounts of outputs, it may be clear that it will be a problem to evaluate the outcome and
this in fact can only be done with graphic presentations.

For long distance transport planning such as with respect to intra-European transport the
European multi-model network model VACLAV
13
is popular. With inter-urban transport
corridors such as Paris Brussels, Paris Munich, Cologne Milan and Duisburg- Mannheim
transport of goods will play a more important role, while homework travel is being replaced by
travel for business purposes. Also other modes such as rail, air and inland waterway transport
will play a role.

It can be concluded that the models contain interesting features also for application in a
maritime setting. The graphical presentation of results is tremendous. However, the focus is
generally very different from maritime applications, where the impact of capacity constraints in
the network is generally very limited. The application of the software for maritime planning
purposes is often not very useful and sometimes looks like cracking a nut with a sledgehammer.


3.2.2 Demand choice applications involving maritime transport
Users of transport services face many choices when arranging their shipments. Some examples:

A. An importer in Poland of electronics from the Far East can have his goods shipped by
mainliner to a North Sea port, further shipped by feeder vessel to the Polish port of Gdynia
and then further by road to his premises. An alternative would be to have it carried directly
from the North Sea port over land. The shipment via Gdynia would be cheaper, but would
take more time. This trade-off issue is dealt with in Section 3.4.
B. An exporter of machinery in the Ruhr area in Germany to the US can have his exports
shipped via each of the North Sea ports in the Hamburg - Antwerp range by road, rail and
barge and further shipped by mainliner to the US. A similar choice applies to Dutch
importers of electronics from J apan. These choice issues are dealt with in Section 3.5
C. A German importer of Portuguese agricultural products most probably has his goods carried
by lorry. The alternative of having it carried by sea either by trailer on a ro-ro vessel or in
container on a containership is at present in practice not yet available at a reasonable degree.
This modal split issue is dealt with in Section 3.6.
D. The selection of a liner shipping service by shippers and receiver on the Europe Far East
trade route is subject of analysis in Section 3.7.

12
UNITE Case Studies 7
E
and 7F.
13
UNITE Case Study 7C and 7D
34

Many importers and exporters in practice may not do the choice actively, but have it done by
intermediaries such as their forwarding agents or logistic service providers and most often do
not bother how it is arranged. They only want to know whether it is arranged according to their
wishes and prevailing standards. If it does not, they will look for other options.


3.3 The logit model
3.3.1 Model description
The logit model as applied here corresponds with the model in the difference form as discussed
above. The probability of choosing routing r (a combination of a shipping line, a port of transfer
and a mode of transport) from all possible routings can be expressed as:
(3.3)
e
e
= 1..M) = r | r = (m
P
U
M = r
=1 r
U
m
r
m

where:
P
m
: probability of choosing routing m from all possible ones r =1..M
U
m
: the 'utility' attached to route by;
m: routing index;

The probability function P
m
applies to all flows of containers carried from region A to region B
and vice versa. For the sake of simplicity the index of the regions is omitted.

The utility function
The value, which shippers and receivers located in a certain region attach to routing m, is
measured in the 'utility
14
' This utility is generally expressed as a (linear) combination of all
aspects or attributes being of importance for the choice between alternative routings. This utility
can be expressed as:
(3.4)
R
+
F
+ T +
C
+
D
=
U m 4m m 3m m 2m m 1m m 0m m

where:
D
m
: dummy variable indicating whether shippers/receivers have a reference for
routing m;
C
m
: shipping costs for routing m inclusive of freight rate, handling charges, land
transport costs etc.
T
m
: transit time for routing m;
F
m
: frequency of service of routing m;
R
m
: reliability of service of routing m;

0m
,
1m
,
2m
,
3m
,
4m
are the coefficients of the utility function
The explanatory variables C
m
, T
m
, F
m
, and R
m
are referred to as attributes.

14.
Sometimes referred to as 'generalised costs'. It should be mentioned that also other than linear functions can be used
such as multiplicative ones.
35

Relative position of one option against the other
The relative position of e.g. one container routing against the other can be assessed as follows.
Assess the ratio of the probability that a shipping/receiver located in a certain region chooses
routing k =m against the probability that he chooses routing k =n. This ratio is assessed by
subsequently substituting m and n in the equation presented above and dividing the results. As
the denominator is the same for both the result becomes:

(3.5)
e
=
e
/
e
=
P
/
P
U - U U U
n m
n m n m


By taking the logarithm of equation 3.5 the model becomes very convenient for estimation with
regression analysis:

(3.6) Ln(P
m
/P
n
) = U
m
- U
n
=
0m
D
m
+
1m
(C
m
-C
n
) +
2m
(T
m
-T
n
) +
3m
(F
m
-F
n
)

The probability of the ratios appears to be a function of the differences of their attributes. If a
shipper/receiver attaches the same utility to routing m and routing n, the probability of choosing
one or the other is the same. The difference of the utilities is zero leading to a value of the ratio
P
m
/P
n
=1.

If measurements indicate that the value of
0ij
differs from zero and equals for instance 0.5, the
situation differs. If a customer attaches a higher utility to routing m (this can be expressed by
putting D
m
=1), and if he/she is indifferent with respect to routing n this is expressed by putting
D
nj
=0. With all other values of the attributes (tariff, time, etc.) being equal, the right hand side of
the equation 3 becomes, e
0.5
=1.65, so that the probable market share of routing m would be
1.65/(1.65+1)=62% instead of 50 percent.

The dummy variable D
m
refers to aspects not yet included in the choice determining factors
treated so far. This could indicate at the relative advantage of a certain routing with respect to its
offerings of value added services, such as the availability of up to standard information services
(scheduling info, tracing and tracking, EDI), inland transport, warehousing, consolidation,
distribution services. All these aspects can be included in dummy variables expressing the (dis-)
advantage of routing m. This applies also in case shippers/receivers have a preference for a
certain routing.

The absolute value of the coefficients reflects the sensitivity of the share of a routing for
changes in attributes: the higher a coefficients value the steeper the S-curve. See figure 3.1. The
ratio of the two coefficients indicates the trade-off between two attributes, such as for instance
the trade-off between time and costs. The value of time equals C
m
/T
m
=
2m
/
1m
. See figure 3.2.

36
Figure 3.1 The share of a routing as a function of the difference in attributes
0
0,2
0,4
0,6
0,8
1
-150 -100 -50 0 50 100 150
Difference in attribute
Share (%)


Figure 3.2 Ratio of coefficients of utility function

25
27,5
30
32,5
35
37,5
40
42,5
45
750 1000 1250 1500 1750 2000
coefficient 1
c
o
e
f
f
i
c
i
e
n
t

2



3.3.2 The assessment of coefficients
Stated and revealed preferences
Logit models are used to make predictions of demand choice. Ideally the coefficients of the
utility function of the logit model should be estimated for a situation that is as close as possible
to this choice position and deals with the choices actually made. Statistical data used with such
revealed choices are referred to as revealed preference (RP) data. The alternative concerns
information based on stated preferences, i.e. preferences decision-makers state to have, when
being asked about hypothetical choices.

Stated preferences (SP) deal with choices made by individual decision-makers such as a
traveller in case of passenger transport or a firm in case of freight transport. Passengers fill in
questionnaires or are being interviewed about which mode of transport they have chosen in a
particular situation. The choices made can then be tested by estimating with statistical
37
techniques the parameters of the model on the basis of the values of the attributes of the model.
In the practice of passenger transport this often concerns the choice of means of transport
between home and work. In case of freight transport representatives of the firms are interviewed
about the modal split of the shipments of intermediate goods such raw materials and semi-
manufactured goods and of the shipments of their products. This of course only concern the
shipments they decide about and not the shipments decided upon by their trading partners.

It may be clear that there will be a difference between the situation of the actual choice and of
the hypothetical choice. Especially in freight transport such differences may exist as the process
of decision-making generally involves more people within a firm and at more levels: strategic
versus operational. Despite this weakness, the great advantage of SP data is that they generally
are cheap to collect.

With SP interviews the decision-makers are faced with a number of hypothetical situations and
asked which situation they consider to be better than the other. They may be given a number of
choices and than just asked to rank one option against the other and put the different situations
in order of increasing preference (Ranking of preferences). They also may state to what extent
they find option A better than option B according to a scale varying from 0 to 1 (Scaling of
preferences). Software has been developed to generate choice positions and statistically
estimate the coefficients of the Logit model. See example in Section 3.7.

Aggregate and disaggregate data
For revealed preference data a distinction is made between aggregate and disaggregate data.
Data based on information from the individual decision-makers, such as travellers or
representatives of firms are referred to as disaggregate data. Data based on aggregates of
individuals such averages of regions or zones are referred to as aggregate data. Through
aggregation of the individual decision-makers the shares of certain choices can be calculated.

With regression analysis or other statistical techniques the relation between these market shares
and the average values of the explanatory variables, the attributes of the utility function, can be
estimated.

It may be clear that in the case of aggregate data information is lost through aggregation and
averaging of the explanatory variables. The advantage, however, is that for the application of the
parameters of the model for prediction purposes on the same situation no aggregation is needed.
The greater accuracy of values estimated with disaggregate data, may be lost when the values
are used for prediction purposes and have to be aggregated and averaged.


38
Figure 3.3 Options to estimate parameters of a logit model






3.4 Baltic Sea feeder transport versus land transport

3.4.1 Background
Polish seaports face competition from other, foreign ports and from each other. Ocean-going
container traffic can be routed to and from Poland directly via Polish ports, indirectly via North Sea
ports to Polish ports, or via North Sea ports such as Hamburg and Rotterdam overland to inland
origins/destinations in Poland.

At present no major liner shipping services operating on the Transatlantic and Far East trade routes
are calling at Polish ports. Cargoes for Poland are handled at North Sea ports and shipped either
over land (mostly Via Hamburg and therefore referred to as the Hamburg routing) or by feeder ship
to Poland (predominantly via Gdynia and therefore referred to as the Gdynia routing). Direct calls
at Polish ports are at present only made on intra-European services and by services on secondary
container routes.

The importance of the Hamburg routing differs for the various regions of Poland and the types of
cargo/customers. For the regions close to the Baltic Container Terminal in Gdynia the Gdynia
routing is important. The importance decreases for regions further to the Southwest such as for the
industrial centres of Warsaw, Poznan and Lodz and practically vanishes for the industrial areas of
Silezia. Note that the values of the example presented hereafter concern the situation in the
beginning of the 1990ies.




Estimation of
parameters
Revealed preferences Stated preferences
Aggregated
data
Disaggregated
data
Scaling of options Ranking of options
Estimation of
parameters
Revealed preferences Stated preferences
Aggregated
data
Disaggregated
data
Scaling of options Ranking of options
39

3.1 Map of Poland


3.4.2 Transport costs
For the various regions of Poland the situation is different and the least cost routing of containers
to/from ocean-going destinations/origins such as North America and the Far East can be assessed as
follows.

The additional cost (additional to the ocean sea freight which is the same for each alternative) of a
TEU carried to or from the Baltic Container Terminal in Gdynia and transhipped via a North Sea
port is US$ 300-400 for the TransAtlantic route. Similar slightly higher additional costs are
mentioned for the Europe-Far East trade route. These rates include the cost of double handling in
the North Sea port, amounting up to US$ 200, leaving US$ 100-200.

The costs of road haulage from a North Sea port, Hamburg is taken as an example, amount to a
fixed amount per TEU of US$ 37.5 and a variable amount of one US$ per TEU/kilometre. Road
haulage costs without border crossing in Poland are 20% lower and contain a fixed amount of US$
30 per TEU and a variable one of US$ 0.80 per TEU-kilometre. The various cost data are given in
table 3.1. For shipments to the Warsaw region this results in a cost advantage for the Gdynia
routing of US$ 209. See column (2) in table 3.2.

40
In terms of costs it appears that there are clear cost differences for the Gdynia routing ranging from
a cost advantage of US$ 409 for the regions close to Gdynia in the North East of Poland to a cost
disadvantages of US$ 254 for the Silesia regions in the southwest. If cost only would play a role
and if shippers and/or receivers all would select the cheapest route, the number of containers routed
via the port of Gdynia would add up to 55,700 TEU on the total of 100,100 TEU. See column with
5 in table 3.2. This selection is not a realistic option, as will be argued hereafter.

Table 3.1 Cost and transit time differences for Polish regions

Region distance (km) costs in USD per TEU Time in days
Gdynia Hamburg Gdynia Hamburg Diff. Gdynia Hamburg Differ.
Warsaw 293 836 664 874 -209 6,4 1,7 4,7
Lodz 405 753 754 791 -37 6,6 1,5 5,0
Krakow 669 853 965 891 75 6,9 1,7 5,2
Wroclaw 579 602 893 640 254 6,8 1,3 5,5
Poznan 408 531 756 569 188 6,6 1,2 5,3
Gdansk 20 739 446 777 -331 6,0 1,5 4,5
Szczecin 340 404 702 442 261 6,5 1,1 5,4
Torun 250 786 630 824 -194 6,3 1,6 4,8
Katowice 598 783 908 821 88 6,8 1,6 5,2
Radom 395 920 746 958 -212 6,5 1,8 4,8
Lublin 454 999 793 1037 -243 6,6 1,9 4,7
Bialystok 487 1191 820 1229 -409 6,7 2,2 4,5


3.4.3 Quality of service aspects
Surveys on quality of service aspects such as transit time, service frequency, service reliability and
aspects dealing with the provision of EDI services and responsiveness to customer needs are of
great importance. Transit time is the most important one. The time span from arrival of the ocean
carrier in Hamburg to the subsequent arrival of the feeder ship in Gdynia is about six days, allowing
for transhipment time in Hamburg, time spent at sea and time lost with matching of main line and
feeder line ship. In 1993 there were three feeder services with a service frequency of one trip per
week. Additional time for loading or unloading in Gdynia is about one day and further transport to
Warsaw comes at 0.4 days. The total time span since between arrivals of ocean carrier in Hamburg
and arrival at the customer's premises in Warsaw comes at 6.4 days. See time data in table 3.1.

The Hamburg routing is much quicker. Road haulage between Hamburg and Warsaw comes at 1.7
days inclusive a 12 hours waiting time loss at the Polish-German border. The resulting time
advantage for the Hamburg routing comes at 4.7 days. For the various Polish regions the
differences range from 4.5 to 5.5 days. See column (3) in table 3.2.

If time only would play a role and if shippers and/or receivers all would select the cheapest route,
the number of containers routed via the port of Gdynia would add up to 0.0 TEU on the total of
100,100 TEU. See column 6 in table 3.2. This all or nothing selection is neither a realistic option.

41

3.4.4 Generalised costs: costs and quality of service aspects together
Generalised costs are the sum of transport costs as paid by the users of transport services and all
quality of service aspects expressed in monetary form. Costs and quality of service aspects can be
taken together in monetary terms by applying the value of time. From studies in the Polish context
it appeared that a delay of one day of one TEU is valued at USD 50. Thus the generalised cost
difference for the Warsaw region comes at 209 +4.7458 x 50 =USD 28.2. See also table 3.2 and
the all-or-nothing allocation based on generalised cost leads to a total throughput for Gdynia of
29,200 TEU. See column 7 in table 3.2.


3.4.5 Specification logit model
The following specification of the Logit model is used:
D
ij
: dummy variable indicating whether or not customer j has a preference for routing i;
C
i
: shipping costs for routing i inclusive of freight rate, handling charges, land transport costs
etc.
T
i
: transit time for routing i

0ij
,
1ij
,
2ij
: coefficients of utility function

The values for the coefficients of the utility function are:

0ij
= 0.00;

1ij
= -0.01;

2ij
= -0.50;


3.4.6 Results of alternative choice models
The container flows to and from the various Polish regions can be allocated to the two routings
according to different criteria such as:
1. All-or-Nothing (AON) based on costs only: this leads to 55,700 TEU allocated to the
Gdynia routing. See column 5 in table 3.2;
2. All-or-Nothing (AON) based on time only: this leads to not any container allocated to the
Gdynia routing. See column 6 in table 3.2;
3. All-or-Nothing (AON) based on generalised costs: this leads to 29,200 TEU allocated to the
Gdynia routing. See column 7 in table 3.2;
4. Logit model: this leads to 29,500 TEU allocated to the Gdynia routing. See column 8 in
table 3.2, which is rather close to AON based on generalised costs. Comparison of the
columns 7 and 8 shows that per region the differences of the allocated flows are rather big.



(3.7)
T
+
C
+
D
=
U i 2ij i 1ij ij 0ij ij

42
The values of the explanatory variables are given in table 3.2.

Table 3.2 Application of alternative container flow allocation criteria

Region flows -cost -time -cost market shares Gdynia routing in 1000 TEU
1000 TEU USD/TEU days - time
USD/TEU
AON costs AON time AON costs Logit costs
+time +time
(1) (2) (3) (4) (5) (6) (7) (8)
Warsaw 8,0 -209 4,7 28,2 8 0 0 3,4
Lodz 8,1 -37 5,0 214,3 8,1 0 0 0,9
Krakow 7,5 75 5,2 336,9 0 0 0 0,2
Wroclaw 10,9 254 5,5 527,1 0 0 0 0,1
Poznan 6,9 188 5,3 454,4 0 0 0 0,1
Gdansk 6,3 -331 4,5 -105,4 6,3 0 6,3 4,7
Szczecin 4,6 261 5,4 531,1 0 0 0 0,0
Torun 6,1 -194 4,8 44,3 6,1 0 0 2,4
Katowice 14,5 88 5,2 350,1 0 0 0 0,4
Radom 4,3 -212 4,8 27,0 4,3 0 0 1,9
Lublin 12,4 -243 4,7 -6,1 12,4 0 12,4 6,4
Bialystok 10,5 -409 4,5 -182,8 10,5 0 10,5 9,0
Total 100,1 55,7 0 29,2 29,5



3.5 Market share of the container port of Rotterdam
3.5.1 Introduction
For their imports and exports of containerised cargoes the various parts of the European mainland
can be served by different combinations of deep-sea routes, seaports and modes of transport.
Certain parts of the West European hinterland can be served by up to 200 different combinations, or
routings, and practice is that certain parts of the hinterland are served by routings using each of the
seaports in the Le Havre Hamburg range. Formulated from the point of view of the ports, there
appears to be a great overlap between the hinterlands of the North Sea ports. This also demonstrates
the great amount of competition that exists between these ports.

The great degree of competition makes it difficult to measure the impact on the relative position
of ports through changes in costs and quality of service: for instance, to measure the impact of
changes with respect to access to the sea (the ability to accommodate bigger ships), productivity
of handling cargo and ships and access to the hinterland by road, rail or waterway.

43
Map 3.2 Alternative routings for a North Sea port hinterland area





3.5.2 Model specification and estimation of coefficients
The coefficients of the logit model were estimated for the continental hinterland regions and the
West European transhipment areas separately.

Continental hinterland flows
In a previous application of the logit model in the same setting the values of parameters of the
utility function were derived from applications in other comparable situations
15
. This leads to an
inaccuracy as the values depend on the character of the choice, the method of estimation and the
aggregation of data.

The involvement in a recent market study
16
for a large-scale container terminal expansion
project in the port of Rotterdam offered the writers the opportunity to test logit models. This
concerned the choice of container hub-ports both for regions on the West European continent
and for regions served by feeder services.
Basic data of the continental hinterland concerned the container flows generated by 33
hinterland regions in the Netherlands, Germany and Belgium and routed through the ports of
Antwerp, Rotterdam, Bremen and Hamburg, covering 83% of the continental hinterland of the
port of Rotterdam. Container flows were distinguished by mode of transport, but not further by
type (full/empty), commodity and direction (incoming/outgoing). The explanatory variables
concerned transport costs, transport time, frequency of service of the inland modes and liner
service frequency by seaport and major trade route.

15
Ewout Buckmann and Simme Veldman, A model on container port competition, SIG-2 International Workshop Genoa, 2000.
16
Welvaartseffecten van Maasvlakte 2, Kosten-batenanalyse van uitbreiding van de Rotterdamse haven door landaanwinning, CPB, NEI
en RIVM 2001.
44

The sea freight of the deep-sea trades has no influence on the cost variable in the logit function,
as the liner shipping services apply the same tariff to each of the continental seaports. In the
statistical analysis on the choice of transhipment port, the ports of Southampton, Felixstowe and
Le Havre are added. For the UK ports, also a difference in ocean sea freight has to be adopted,
as they face a higher deep-sea sea freight
17
.

For the container flows generated by the continental regions a number of models were tested.
See table 3.3. In the first model the variables, except the reliability of service variable, as given
in equation (3.5) were adopted. All except the time variable showed significant
18
values. Most
probably, the low significance of the time variable can be explained by the correlation, which
exists between the time and the cost variable.

The inter-arrival time in port variable is an index representing the average number of services
calling and is proportional to the average number of weekly services calling at a port of the
TransAtlantic and Europe Far East trade routes. The variable appears to be significant. The
value of the inter-arrival time variable cannot be compared with the time variable. For a port
with 10 lines calling weekly on the Europe-Far East trade route, the inter-arrival time value
would come at 365/(10*52) =0.7 days. It is not clear what this time stretch means for a
particular shipper/receiver and what he considers important for his choice: the number of calls
offered by an operator, an Alliance, a consortium or a combination of these? The number of
services connecting with the particular ports in the Far East he is trading with? The inter-arrival
time variable catches the fact that a particular port offering a great number of services is thereby
attractive. The variable therefore rather reflects the quality of service of the port.

The variable inter-arrival time of hinterland modes also appears to be statistically significant.

Various model versions were tested and it appeared that importers and exporters located further
from the ports had a different perception of the time and cost related factors than the ones
located nearby. Therefore, these variables were split in a distance dependent and independent
part, leading to a better fit. See equations 2 to 4 in table 3.3.

A further improvement appeared to come by replacing the inter-arrival time in port variable,
being a proxy for quality of service, by the market share of ports in the total. See equation 3.
The inclusion of mode specific dummy variables appeared to lead to further improvement and
has therefore been used to prediction purposes. See equation 4.


17
Due to the weaker position of shippers and receivers vis vis shipping companies in the UK.
18
In this article significant referes to the situation where the coefficients estimate differs with from zero with a 95% probability,
i.e. with a t-value of more than 2
45

Table 3.3 Equations tested for routing choice with respect to continental hinterland regions
Equation 1:
Variable
Coefficient Std. Error T-statistic
Costs
-0.001632 0.000234 -6.972932
Time
-0.117883 0.126456 -0.932200
Inter arrival time in port
-0.510490 0.043528 -11.72785
IAT hinterland modes
-0.817722 0.297808 -2.745798
R-squared
0.124244
S.E. of regression 2.307671
Adjusted R-squared
0.114690
Observations 246
Equation 2:
Variable
Coefficient Std. Error t-statistic
Costs
0.001403 0.000593 2.367766
Costs per avg. distance.
-0.922787 0.195298 -4.725034
Time
-0.191850 0.118327 -1.621354
Inter arrival time in port
0.076896 0.113861 0.675351
IAT port per average distance
-166.9038 33.06027 -5.048472
IAT hinterland modes
-0.615732 0.279393 -2.203820
R-squared
0.245657
S.E. of regression
2.149571
Adjusted R-squared
0.231841
Observations 246
Equation 3:
Variable
Coefficient Std. Error t-statistic
Costs
0.001368 0.000610 2.243165
Costs per average distance
-0.916726 0.196498 -4.665312
Time
-0.252337 0.116732 -2.161678
Market share hub port -3.480221 2.427636 -1.433584
Market share port per average
distance
4018.790 708.3892 5.673139
IAT hinterland modes
-0.638648 0.277749 -2.299371
R-squared
0.250777
S.E. of regression
2.142264
Adjusted R-squared
0.237055
Observations 246
Equation 4:
Variable
Coefficient Std. Error t-statistic
Costs
-0.000801 0.000441 -1.814973
Costs per average distance -0.675210 0.136669 -4.940489
Time 0.057925 0.123675 0.468362
Market share hub port -3.219505 1.691011 -1.903893
Market share port per average
distance
2756.291 500.1990 5.510388
Dummy rail -3.442757 0.197851 -17.40079
Dummy IWT -2.195699 0.569278 -3.856987
Dummy IWT R-WB 2.622217 1.539098 1.703736
R-squared 0.644217
S.E. of regression
1.481688
Adjusted R-squared 0.635027 Observations 246


46
Transhipment flows
Similar regression analyses were conducted separately for the transhipment flows between the
seven hub-ports (four continental North Sea hub-ports, two UK transhipment ports and Le
Havre) and 14 West European transhipment areas, together generating 88% of Rotterdams
transhipment cargoes. The transhipment flows were assessed on the basis of incoming and
outgoing transhipment flows through these seaports and feeder service call patterns connecting
these ports and areas. Feeder service freight rates were collected through interviews with
representatives of shipping lines and freight forwarders.

Feeder flows between continental hub-ports were discarded. The costs of these flows are not
charged directly to shippers and receivers, as they are included in the ocean sea freight. Feeder
costs for ports outside the continental port range, however, are charged to the shippers/receivers
on top of the ocean sea freight.

For the choice of transhipment port similar equations were tested as for the choice with respect
to continental hub-port. The equations with the difference in costs, the difference in costs
divided the average distance to the hub-ports and the market share of the hub-ports showed good
results.

Table 3.4 Equations tested for routing choice with respect to overseas hinterland regions

Variable
Coefficient Std. Error t-statistic
Costs
-0.0014 0.0010 -1.42
Costs per average distance
-3.0394 0.9787 -3.11
Market share hub port
5.7660 0.6573 8.77
R-squared
0.7117
S.E. of regression 0.6400
Adjusted R-squared
0.6973
Observations 43


Conclusion on statistical tests
The tests clearly show that the explanatory variables of differences, both in absolute terms only
and when also divided by distance, with respect to costs, frequency index and port market shares
in various forms are statistically significant. The impact of differences in time is weak and the
most likely explanation is that differences in time and cost are strongly inter-correlated.

The routing choice variables discussed so far correspond with the usual variables in a transport
demand choice model. The market share variable, however, has a special meaning. At one side,
it corresponds with frequency of service or inter-arrival time. At the other side, it includes
aspects related to the supply side. Shipping companies have good reasons to call more at a port
because of its relatively low port call costs (deviation costs mainliner, cargo-handling costs,
accessibility for large ships together cause differences in port costs). In their interactions with
shipper and receivers shipping companies therefore may call more at these low cost ports than
what would be required, considering hinterland costs and quality of service aspects only. Price
setting practices and market forces make that shipping lines do not discriminate between hub-
47
ports (on the West European hinterland
19
). If a certain hub-port is more attractive for them, they
just call more often at these ports and accept the higher inland costs. The common practice of
carrier haulage offers them the instrument to achieve their preferred frequency of call pattern.


3.5.3 Application of the model
The market share of the port of Rotterdam as a function of price
The coefficients estimated were used for the prediction of container throughput. The future
throughput for the port of Rotterdam can be assessed as a function of cost differences for the
situation that the Maasvlakte-2 (MV-2) project is executed and for the situation that it is not. By
increasing the costs of the port of Rotterdam vis a vis its competitors containers are re-routed
through the competing ports. Thus, a demand curve can be constructed. By systematically
increasing the costs of containers passing through the port Rotterdam, the market share of
routings via Rotterdam becomes smaller. By setting this market share equal to the future supply
of the port of Rotterdam without the Maasvlakte-2 project, one finds a basis for the assessment
of economic benefits related to inland transport cost savings of this project
20
.

Results of the use of the above models
21
show that by increasing the port costs of the port of
Rotterdam vis vis competing ports with NLG 60 per TEU, the market share of containers
generated by the continent will be halved. In case of transhipped containers the halving would
correspond with a price increase of NLG 60 per TEU. See figure 3.4.
19
This applies to both the both Transatlantic and Europe Far East trade route. The market share of Rotterdam on the latter is
considerably greater than on the former. An explanation going further than tradition is that the port of Rotterdam is more accessible for
the larger containerships than the other ports.
20
In fact a supply curve was constructed representing the port capacity of the existing terminal and the new expansion as a function of
costs. By increasing port throughput of the terminals port congestion will arise within the terminal and on the quays alongside. See
Section 4.3.CPB, NEI, RIVM study
21
See CPB, NEI, RIVM study
48


Figure 3.4 Impact of an increase of port costs on the container port market share


0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80
price increase in NLG per teu
index
hinterland
transshipment total


A second application for this project concerns the Cost Benefit Analysis. This application is
dealt with in Section 6.3 on CBA Applications.

A third application in the MV-2 project concerns the pricing of the use of port infrastructure.
Once the project is considered viable from the socio-economic point of view, one wants to know
to what extent the benefits can be recuperated. See Section 6.6.

A final remark of the use of logit models in the same context is the following. For the EC the
SSNIP test
22
is an important instrument for an assessment of the relevant market criterion.
With this test the price elasticity of container terminal handling services plays an important role
to directly simulate the effect of a merger. A high value of the price elasticity suggests a high
degree of competition. See Simon Bishop p. 213.

On the basis of the values of the price elasticity of both hinterland and transhipment containers
it can be concluded that there exists a high degree of competition in both categories of the
container handling.


22
Simon Bishop and Mike Walker, Economics of E.C. Competition Law: Concepts, Application and measurement, Sweet & Maxwell,
London, 1998.
49

3.6 Modal split short sea shipping versus road transport

3.6.1 Interactions between users and producers of services
At present there are practically no (modern) ro-ro services and (other than feeder) container
services for Intra-European cargoes between the Iberian Peninsula and West Europe and the
Mediterranean. It will therefore be difficult to assess the market share of a service that not yet
exists. In general one can state that the set-up of a liner shipping service is the result of
interactions between the users (the importers and exporters) and the producers (the liner
shipping operators) of a service. The liner shipping operators are adapting their services to the
needs of their customer by continually re-arranging sailing schedules, ships, pricing policies and
additional customer services such as logistics and EDI services. The customers let their wishes
be known by choosing or not choosing a particular service, so that sub-optimal liner services
disappear. See figure 3.5.


Figure 3.5 Interactions between users and producers of liner services

Demand for shipping services
Supply of shipping services
User choice Producer choice




A modal split model dealing with the choice land transport and multi-modal sea transport
therefore needs to have the option to easily interact with the supply side. The modal split modal
discussed here basically simulates this process by iteratively assessing the equilibrium between
user and producer needs.

The available modes for shipments between Portugal and West Europe concern:
Road;
Intermodal rail;
Intermodal ro-ro sea;
Intermodal container sea;
Specialised sea transport such as by liquid and dry bulk carriers.

This study concentrates on the shift from transport by road to transport by sea. Transport by rail,
which is negligible, is disregarded. Specialised transport by sea in bulk is not likely to be shifted
50
to transport by ro-ro or container, although there may be some volumes that may be shifted.
Such volumes are small from the point of view of specialised transport, but may be important
from the point of view of ro-ro or container transport. In theory, such volumes might just be
sufficient to provide sufficient critical mass to make a container or ro-ro line economically
viable. The main focus of the analysis therefore concentrates on the modal split road transport
intermodal ro-ro transport.

The modal split is applied
23
to the transport flows between regions in Portugal (5 regions) at one
side and a number of regions in the Mediterranean (3 regions) or Northwest Europe (10 regions)
on the other side. For each of these trade routes, the Med trade route and the Northwest trade
route in short, a logit model is applied to assess the market shares of 5x3 =15 Med trade
connections and 5x10 =50 Northwest trade connections. The competing modes concern road,
rail, ro-ro and container transport. The market shares are expressed as a function of shipping
costs and quality of service differences between the competing modes of these trades.

The differences in cost and quality of service aspects concern:
the gravity point to- gravity point transport costs;
the gravity point to- gravity point transport times;
the gravity point to- gravity point inter-arrival times.

For, say, the trade North Portugal Northwest Germany an assessment is made of road transport
costs, rail transport costs and sea transport costs. Road transport is assumed to be door-to-door,
rail transport is assumed to require some extra road transport and sea transport is assumed to
require road transport between the nearest port of call, which is adopted for the shipping service
concerned, and the regional gravity point.

If a two port ro-ro service is applied with Zeebrugge in Belgium as port of call, road transport
will apply between Zeebrugge and the regional gravity point put at the city of Hanover. If also
the port of Bremen would be called at, the shorter road trip between Hanover and Bremen will
apply. For the assessment of ro-ro shipping costs, see Section 5.2.1.

Transport times are assessed in the same way as transport costs by adding transport times related
to all shackles of the gravity point-to-gravity point transport chain.

For the assessment of road haulage costs see Section 5.2.2. The inter-arrival time depends on the
number of services per unit of time.


3.6.2 Structure of short-sea modal split model
The structure of the short-sea market model is given in figure 3.6. The costs and quality of
service inputs of the land modes are represented by the items 1 Network of land transport
connections, 2 Performance land transport modes and 3 Cost and quality of service land
23
Ongoing research project for Portuguese customer
51

transport of the scheme in figure 3.6. These data can be considered as not influenced by the
model.

The OD-flows, in item 7, for the future target years are the result of the distribution phase of the
model
24
.

The costs and quality of service inputs of combined sea-land transport are represented by the
items 5 network of combined sea-land connections and 6 start design ro-ro/container service
and result in 7 cost and quality of service sea transport.

The cost and quality of service data of the competing modes are used to assess a set of cost and
quality of services differences, which are the inputs of the logit model, 7 Logit model
attributes. Given the OD flows and the logit attributes the flows are allocated applying the logit
model. The parameters used in the logit model are based on a statistical test concerning the
choice of container routings as discussed in the following section.

In (10) the capacity implied in the assumed supply of ro-ro services (6) is compared with the
allocated demand (9) and it may be clear that only by chance both would be in balance. If
demand exceeds supply, i.e. the shipping lines capacity is not sufficient to carry the flow of
trailers or containers, the capacity offered needs to be increased. This can be done by increasing
the size of ships or the number of sailings per time unit. The number of sailings can be increased
by increasing the vessels design speed, by adding ships or by adapting the vessels port call
pattern.

If supply exceeds demand, i.e. if the shipping line has over-capacity, with the recalculation in
the next iteration unit shipping costs will become higher and as a consequence the amount of
cargo being allocated will be lower. In such a situation of oversupply, there is not sufficient
critical mass for the ro-ro line to exist. It is possible that by systematically adapting the port call
patterns, other more viable call patterns are found.

The degrees of freedom for adaptations according to item (11) are limited by geography, market
practices (requiring weekly sailing schedules) and vessel particulars. If, otherwise, the cargo
allocated would be too high, in a new round the carrying capacity needs to be expanded by
utilising larger ships or higher frequency of service. This adaptation can be repeated until supply
will equal demand. The inputs to increase supply are:
The carrying capacity of ships in trailer units.
The speed of ships; and
The frequency of service.

The vessel cost and operational data (sailing speed, cargo handling speed and carrying capacity)
are organised in such a way that, corresponding shipping costs, bunker costs, time spend at sea
and in port are generated easily by applying specific functions, as discussed in Section 5.2.
24
The distribution model applied has the economic development of Portugal as explanatory variable and the existing shares of incoming
and outgoing flows are kept constant. This therefore is an example of a singly constrained model. See Section 2.3.
52

Figure 3.6 Simulation of interactions between user and producers of liner shipping services

Adapt
shipping
capacity
Cost and quality
of service
sea transport
Cost and quality
of service
land transport
Network
of sea-land
communications
Start design
ro-ro/container
service
Network of
land
communications
Unit cost
modes of land
transport Ready
Logit attributes
-cost
-time
-frequency
OD Flows
Allocation of
flows
YES
NO Supply
=
demand
1 2
3
4
5 6
7
8
9
10
11
12


3.6.3 The modal split function applied
The modal split function used has costs, time and inter-arrival time as explanatory variables, i.e.
equation 3.4 minus a reliability variable. The values of Logit model were established as follows.

Ideally the values of the coefficients to be used should have been estimated on the basis of the
choices made by the parties involved, i.e. the shippers and receivers of cargo shipped between
Portugal and West Europe. This information is not available so that a second best solution needs
to be found. In a UNITE case study
25
concerning the choice ro-ro sea transport road transport
on the trade Antwerp Bilbao information on the impact of service frequency is available. This
study aims to measure the value shippers and receivers attach to additional frequency of service
of ro-ro services, by varying the value from one to 5 trips per week. On the basis of a Stated
Preference analysis amongst the shippers located in the hinterland of these two ports an
estimation was made on their valuation of frequency versus costs. See also Section 3.3.2.

The reciprocal of frequency of service, the inter-arrival time between two sailings, can be
expressed as a time variable. If all shippers have their ideal times of arrival and/or departure
equally divided over this inter-arrival time period, the average waiting time equals half the value
of the inter-arrival time. This means that there is some knowledge on value of the ratio
3
/
1
.
From a study on the choice of port in West Europe we get some clue on the absolute value of
1

in the context of container transport. This analysis was based on revealed preference.

25
UNITE Case Study 7J , Mohring Effects for Freight transport, 2002
53

A study on the value of time in goods transport by road, rail and inland waterway
26
shows a
wide range of values. The studies on inland waterway and rail presumably include low value
cargoes. Values for road transport, allowing for an average truck load of 25 tons, is about USD
1.00 per tonne per hour which seems rather high and presumably includes an element of vehicle
time costs. In the study on the choice of container port also a time variable was included,
although not very successful in statistical terms, i.e. only in a view models the estimated value
appeared to be significant. The corresponding value of time per ton came at 35-40 per ton per
day. This value is considerably in excess of interest costs of cargo in transit arriving at about
12 per ton per day, which is not unexpected. For the calculations therefore a value of 35 per
ton per day will be applied and herewith also the value for
2
/
1
becomes available. The value
for
0
is assumed to be zero, as there are no a priori reasons to expect a basis for one mode
against the other. The resulting values are given in table 3.5.

Table 3.5 Coefficients applied in modal split model
Coefficient Related variable Unit Value of coefficient
0 Dummy Not available 0
1 Costs -0.0317
2 Time Days -1.1099
3 Half IAT Days -0.1712
Note: values are based on Euros and metric tons

A description of the assessment of costs, transit time and frequency by mode and some
background of the related issue of economies of scale with respect to ship size is given in
Section 5.2.


3.6.4 Results
Ro-ro trailer services generally connect two ports, but there is no reason not to include more
ports, if the catchment area can be enlarged substantially. For the trade between Northwest
Europe and Portugal a number of 35 different routes were analysed in order to get some
indication of the preferred set of ports of call. First were analysed two-port routes and then
three-port ones with two ports in Northwest Europe. The ro-ro market shares are assessed on the
basis of the performance of a 6000-dwt ro-ro trailer ship in combination with five weekly
services. The ports considered were 5 in Portugal and 10 in Northwest Europe.

Modal split calculations for a number of route call patterns show that a three-port service with
calls at Leixoes, Zeebrugge and Southampton gives the best performance. This route achieves,
based on 5 roundtrips per week a theoretical market share of 22.4% (within the sum of the UK
and northwest European continental trade). This market share corresponds with a cargo volume
of 1.2 million tons.
26
Handbook of Transport Modelling, Volume 1, Ed. Henscher and Button, Chapter 34, Value of Freight Travel-Time Savings by G. de
J ong, 2000.
54

The cost and operational performance are further based on a modern trailer ro-ro type of vessel
as presently employed by the Norfolk Line on the service Scheveningen Felixstowe as
referred to above, i.e. a vessel of about 6000 dwt with a carrying capacity of 120 trailers of 14
m. length and an average load of 15 tonnes per full trailer. The design vessel speed of the ships
should be 15.9 knots corresponding with an operational speed of 13.3 knots.

The market shares show a great variation per hinterland region varying from negligible for the
UK and France and the biggest for Belgium, the Netherlands and North and West Germany.

Ro-ro market share for 2020
The increase of the road transport level as such implies that with the same market share the
potential ro-ro volume becomes bigger. This increases the possibility to employ larger ships
and/or attain higher frequencies of service. As a result shipping costs per ton carried will
decrease and the corresponding quality of service will increase leading to a higher market share.
The impact on the potential market share is studied for the base case route.

Calculations show that the highest market share is achieved for a situation with the biggest size
ro-ro ship of 16,000 dwt with a trailer capacity of 337 units to be employed with a frequency of
14 trips per week. Supply and demand of ro-ro services are than in balance corresponding with a
market share of 40.2% or 4.3 million tons.


3.7 Estimation parameters of a liner service choice function
3.7.1 The choice of liner shipping services
This project was conducted to obtain insight in the process of selecting a liner shipping service
for a particular flow of shipments27. It appears from market that attributes of a liner shipping
service as price, transit time, frequency and reliability play a key role. Further it became clear
that the attributes are distinctly valued for the various types of cargo and customer. In a study by
Collison28 the shipping service markets were distinguished in segments of combined cargo and
customer characteristics and concerned:
For the cargo:
perishability
hazard
consumer/industrial
For the customers:
large/small shipper
shipper/receiver/forwarder

To elaborate on the distinction a number of interviews were conducted with operators and
shippers active on the Europe-Far East route. The following observations were made.
27 Simons, L. and Veldman, S. (1992). Integrerend logistiek goederenonderzoek (in Dutch): a small scale Stated Preference Analysis
with respect to the choice of liner shipping services on the trade route Northwest Europe - Far East. MERC: Rotterdam.


55

(a) There exists a wide variety in the way that shippers come to decisions on the selection of a
particular liner shipping service, such as with:

Small shippers using a consolidator.
Larger ones contacting an operator on a consignment per consignment basis, while chasing for
a good bargain.
Larger ones deciding periodically on the most suitable operator in order to come to a service
contract for a longer period of time.
Still larger ones deciding on the choice of more than one operator, as they wish not to be too
dependent on one operator. They are not able to negotiate lower rates, as they have already
exhausted the possibilities for further bargaining; and
The largest worldwide operating shippers who take also into consideration the offers and
performance of operators at the other global liner shipping routes, as the TransAtlantic or
the TransPacific.

The annual volumes in TEU carried vary from a few per year to several 10,000's per year for the
large worldwide operating companies. The smallest leave the decision on the choice of a liner
shipping service partly to consolidators, while the largest ones comply with a complex set-up of
centralised and decentralised decision-making.

(b) In line with the distinction made above, it can be observed that the annual flow of
containers per shipper may include:

a few point-to-point shipments;

shipments (consumer goods) from many points in the Far East (from Japan for expensive
electronics to Indonesia for cheap textiles) to one or a few points in West Europe; or,
in the opposite direction (also consumer goods) from a few points in West Europe to many
points in the Far East;

from many points in the Far East to many points in West Europe for intra-company shipments
of multinationals with many locations along both coastlines.

(c) It is suggested by some sources that a relatively small number, of say 35, European
shippers dominate the market of cargoes where European shippers take decisions. It should not
be surprising if such a dominance exists at the other end as well, where Asian shippers have a
similar type of dominance depending on the fob/cif character of the trades.

(d) For the large shippers the distinctions in high value/low value cargoes, in
consumer/industrial cargoes, in perishable or hazard cargoes may become less important with
their choice of one or even more operators for all their shipments. The performance of an
operator is valued in a broad perspective, so that some of the distinctions are averaged out. The
distinction in perishable/non-perishable and in hazardous/non-hazardous cargoes presumably
concerns a relatively small number of shippers and is not too important for the overall
performance of an operator. Some may decide to be strong in such niches, while others
concentrate on the minimum the market requires.

56
For this study it is important to make an outline of the role of the dominant shippers and to
analyse the requirements they put forward.

It appeared further that cargoes from consolidators constitute a small share in the total, a share
of less than 10 percent was mentioned, while this should be considerably higher for e.g. the
TransAtlantic route.


3.7.2 The stated preference survey
As discussed in Section 2.4, the Stated Preference (SP) method is a technique to assess the
parameters of a logit model. An SP-survey can be distinguished in three phases:

1. The formulation of the utility function: most often a function linear in the attributes, where
estimation can be done by multiple regression.
2. The validation of the utility function: issues relate to the approach (SP or RP), the source of
information (aggregate or disaggregate), in case of SP the type of information (ordinal or
metric data) and further to the presence of a priori knowledge on the choice positions.
3. The estimated utility function is to be fit into a demand choice function, a probability
model. The probability model chosen is, for simplicity reasons, the logit model.

3.7.3 Ordinal versus metric responses
The variables in the utility function can be obtained through ordinal or metric responses. Ordinal
responses are obtained by a preference ranking of constructed choice positions or profiles by the
respondent of a survey. A profile is a combination of levels of each attribute. Metric responses,
however, allow for the fact that one or more of the attributes of a profile are measured according
to a scale.

An example may clarify this. Consider three profiles A, B and C, and two respondents. With
ordinal responses both respondents state that A is preferred over B, and B is preferred over C.
Suppose that the first respondent attaches a great difference to A and B and is almost no
difference to B and C, while the second respondent is almost indifferent with respect to A and B
and sees a great difference between B and C. Ordinal ranking cannot allow for such refinements.

In a metric survey, respondents are invited to score on an odd scale between A and B, and B and
C etc. Suppose the score can be set against a 7-point scale. If a respondent would state 5 points
of his preference of A versus B this would automatically imply a score of 3 of B versus A,
indicating a preference to B. If he would score 1 towards A versus B, this would mean a strong,
in fact the greatest possible, preference for A over B. The scale has to be odd in order to allow
for an outcome being the same score for each alternative.

57
Metric responses are preferred to ordinal or ranking ones because of the absence of "sound"
errors. See
29
and
30
. In large samples, however, one may expect that the estimated values of the
utilities tend to be the same.

The success of an SP survey on demand choice depends critically on the attitude of the respon-
dent who has to be assisted and guided, but not influenced by the interviewer. Interviews asking
for metric responses require a good amount of explanation, while those requesting a ranking are
generally easily understood. Therefore both were used in the pilot survey discussed here.

Packages using metric techniques make use of fractional designed profiles, combined with a
minimum number of trials. See also
31
. The alternatives given in each trial are depending on the
answers given by the respondent in the previous trials and are therefore random. The various
trials are generated by a computer program. The alternative profiles to be scored by the
respondent are therefore not equal over all respondents. Ordinal methods have the property that
the profiles given are equal over all respondents.


Two computer packages in demand choice modelling based on metric responses were
considered, viz. Adaptive Conjoint Analyses (ACA) developed by Sawtooth Software Inc., and
Direct Utility Assessment (DUA) developed by Leeds University.

Direct Utility Assessment
Indirectly assumes knowledge on the structure of demand choices such as with route choice or
modal split. That is, the choices are to be known before the interview starts. In many studies
information on the number of splits is already available. Like in traditional modal split studies,
where for a certain shipment, the shipper has to choose between using modality railways or
modality inland waterways. The alternatives to be scored by the respondent are related to this
assumed modal split. One is based on a combination of attributes related to modality railways,
while the other alternative is related to modality inland waterways. The two profiles are judged
by the respondent in the same trial. A combined utility, in fact the sum of two separate utility
functions is estimated.

ACA system
A utility function can be estimated without knowledge of the possible number of choices (mode
of transport, route). A large number of combinations of attributes, or "products", can be
evaluated after the interview has taken place. The estimated utility function is validated for each
respondent immediately after the interview. The method uses a logit framework to predict
shares, and more important it deals with the problem of relevant alternatives in market share
estimation. If similar combinations of attributes are introduced, the ACA system corrects this
"mistake".

29
Using regression analyses in estimating utilities based on information obtained by a ranking survey, incorrectly assumes that observed scores
are metric values.
30
Backhaus et. al., Multivariate Analyse-Methoden, Chapter 8, Auflage 6, Springer Verlag, dezember, 1988.
31
Kocur, G. et. al., Guide to forecasting travel demand with direct utility assessment. RP#413, 1981
58

Summarizing, both packages estimate utilities. The DUA method seems appropriate in demand
choice studies (the applications published generally refer to modal split issues), where the
number of choices is known before the interview takes place. The ACA method does not need
that and requires only information on the attributes and their levels. Combinations of attributes
serve as products and for a number of products logit analyses can be applied. The ACA method
is considered most suitable here.


3.7.4 Example of an interview and estimated utilities
A pilot survey was conducted with 5 customers making use of liner shipping services offered on
the Europe-Far East route. The utility functions include 4 attributes, viz. freight rate, transit
time, frequency and reliability. There were assumed to be 3 two-level and 1 (frequency) three-
level attribute.

The profiles adopted with the ranking-method were a combination of levels from all four
attributes. Not all 2x2x2x3=24 possible combinations are needed; a selection of only 8 of these
profiles will provide sufficient information. The five respondents were asked to rank the eight
profiles. Each of these represents a hypothetical liner shipping service and is printed on a card.
They were asked to put the cards in order of increasing/decreasing attractivity.

The utilities over all 5 respondents were estimated with regression analysis. Results are given in
table 3.6 under the heading 'ranking util'.

During the same interview session respondents were asked to "walk through" the choice
positions generated by the ACA computer package and attach a preference to each choice
position according to a scale ranging from 1 to 9 points. An example is given in figure 3.7
where services A and B are compared, which differ in 3 attributes while the fourth attribute is
not shown, is takes the same value.

After the ranking method and the ACA method a third validation was done in order to refine the
outcome of ACA. Respondents were asked to express the likelihood to purchase/choose a
certain alternative. See figure 3.7.


3.7.5 Result of the pilot survey
Scaled utilities are obtained from estimated ones according to the following steps:

(1) For all attributes the least desired estimated level is subtracted from the original level and
thus put at zero;
(2) The number of attributes times 100 (400 points) is distributed over the obtained level
values from step (1).

Scaled utilities indicate the relative importance of the attributes for a respondent. The estimated
parameters and scaled utilities are presented in table 3.6.

59
The data obtained through the ranking method are based on aggregate data, so that the parameters
can be used directly for the assessment of the probabilities according to a logit analysis. The data
obtained through the ACA method are based on disaggregate values, while the estimated
parameters are averages of these. In logit analysis, ACA market shares are calculated on an
individual base for each respondent and averaged afterwards. See par. 4.6.

The scaled utilities obtained by both methods do not differ too much. According to the ranking
method outcome changes in costs lead to the greatest variation in utility from zero to 160 points
with a range of costs from 2000-2200 USD per TEU. The ACA outcome shows a somewhat
smaller variation. Second comes transit time with (0, 120) according to ACA and frequency (0, 86)
according to the ranking method. It should be noted that not too much value should be given to this
results given the small sample and the varied categories of shippers.


Figure 3.7 Scoring between service A and B according to ACA method


Figure 3.8 Assessment of purchase likelihoods


60
Table 3.6 Estimated parameters and scaled utilities according to ACA and rank-preference method.

Attribute level ACA-method ranking method
parameters utility parameters utility
Inter arrival time
or frequency
0.5 week 0.98 71 1.91 86
1 week 0.25 47 -0.08 40
2 weeks -1.24 0 -1.83 0
costs USD 2000 1.90 129 3.5 160
USD 2200 -1.90 0 -3.5 0
Transit time 30 days 1.55 105 1.83 84
40 days -1.55 0 -1.83 0
Reliability 1 day 0.74 49 0.67 31
3 days -0.74 0 -0.67 0


The results of the survey can be explained by an example of the results from the ranking survey. It
should be kept in mind that the same sensitivity analysis can be done with the ACA survey.

Suppose we have two liner services called A and B. All attributes are initially the same with a
transit time of 40 days. The impact of a reduction in transit time with one day on the utility and
further on the probable market share, can be explained as follows:

The utility as a function of transit time amounts to:

(3.8) U(x) =constant +((-1.83 - 1.83)/(40-30))*(x-30) +1.83

where x: transit time in days

The derivation of the function is demonstrated by figure 3.9. The slope of the line AB corresponds
with coefficient of time in the utility function, where the points A and B correspond with the
calibrated values of the survey results. The partial derivative of the utility with respect to transit
time is:

(3.9) (U)/(x) =-0.366
So, one day extra transit time offered reduces utility with 0.366.


61
Figure 3.9 Estimated utility points and utility function



From table 3.6 we can read (using the parameters in rank column) that the total utility for the
services A and B are:
(Application of formula (3.8) leads to the same result)

(3.10) UA(40) =UB(40)=constant - 1.83

The logit model predicts a market share for liner service A:

(3.11) P(A) =exp(UA)/(exp(UA) +exp(UB))

or, multiplying by exp(-constant)/exp(-constant),

P(A) =exp(-1.83) / (exp(-1.83) +exp(-1.83)) =50 %

The market share for liner service B arrives at 1 - P(A) =50 %.

A property of the logit model is :

(3.12) dP(A)/dU(A) =P(A)*(1-P(A))

Thus,

(3.13) Dp(A)/dx =P(A)/U(A)*U(A)/x =P(A)*(1-P(A))*-0.366
=0.5*0.5*-0.366
=9.15 %

62
So, given the positions of liner services A and B, a reduction in transit time of A with one day,
would increase its market share with approximately 9.15 %. The partial derivatives of the utility
functions with respect to the attributes for the ranking survey are given in table 3.7.

Table 3.7 Partial derivatives of the utility function with respect to the attributes

Attribute value Valid range
Inter arrival time or, frequency -3.98 0.5 week 1 week
-1.91 1 week 2 weeks
Costs -0.035 USD 2000 USD 2200
Transit time -0.366 30 days 40 days
Reliability -0.67 1 day 3 days

Respondents tend to choose for ACA as a pleasant way of being interviewed, because of the
quick evaluation of results possible by the ACA system immediately after the interview. Also,
according to table 3.6, respondents seem to rank profiles in the ranking experiments in stages,
leaving no room for interactions between attributes. Finally, the averaged utilities in table 3.6
for both ACA and the ranking survey seem to direct towards the same direction.


3.7.6 Assessment of utility coefficients with ACA method
Derivation of the coefficients of formula (3.13) according to the ACA method is more
complicated, as utilities and market shares are based on individual respondents.
The utility attached to liner service A by respondent i is given by:

(3.14) UA
i
=constant
i
+
i
* x
i
i=1,...,n

with
i
: coefficient of utility function with respect to transit time for utility respondent i.

The share of liner service A is:

(3.15) P(A) =1/n * P(A
i
) i=1,...,n

with P(A
i
) the probability that respondent i chooses service A.

Formula (3.13) becomes:

(3.16) dP(A)/dx =1/n * [P(A
i
)*(1-P(A
i
))*
i
]

To apply (4.9) to the survey results, individual estimates are required. Individual parameter
estimates reflect individual behaviour by companies; it is beyond the scope of this study to
present them here.




63

64
4 Transport supply
4.1 Capacity of infrastructure

4.1.1 User and producer costs
For investments in infrastructure a good understanding of capacity is indispensable and capacity
can best be understood as an economic trade-off between the costs of the suppliers or producers
of infrastructure and those of the users. The transport capacity of roads, railways, channels and
ports and structures like bridges and sluices is determined at one side by the costs (related to
physical dimensions in combination with the volume and structure of use) and at the other side
by the costs the users of infrastructure incur.

In the case of roads factors such as the physical dimensions of a road (in terms of number of
lanes, lane-width, road curves, gradient, surface and road conditions) determine the traffic speed
together with the inter-actions between road users. The traffic volume and composition
determine the speed and thereby the use per unit of time. If the traffic volume increases,
capacity is reached after a certain level. By increasing the traffic volume at a certain level
congestion will start and will reduce the traffic speed. Increasing it further will lead to heavy
congestion and with a strong decrease in speed. This means that the costs of road users in terms
of traffic time losses, i.e. congestion costs, will increase.

For all transport infrastructure, user time losses occur, if demand reaches a sufficiently high
level. A similar situation exists for navigation channels where waiting times are starting to occur
when certain traffic levels are being reached. Frankel
32
gives examples as to how to estimate the
capacity of a navigational channel applying a straightforward diagrammatic approach and a
more complex dynamic programming approach.

For the assessment of the capacity of the Suez Canal a simulation model was applied using the
physical characteristics of the canal, the Canal Rules of Navigation with its convoy systems and
transit regulations. See Section 6.6? The output of the simulation model produced waiting time
curves for the ships passing. The simulation model was used to identify measures to increase
capacity by including additional bypasses, widening critical parts of the canal and through
measures dealing with the manoeuvrability of the ships, communication systems, pilot skills and
32
Frankel, p. 363
65

organisation and traffic management. A typical instrument for the analysis and understanding of
canal traffic capacities are time-space diagrams.

Simulation techniques are often applied to assess the capacity of sluices such as for instance for
the entrance of the North sea Channel of the Port of Amsterdam and a current study for the
sluices in the Belgium inland waterway system.

In case of railways the operators are meeting increases in demand with increasing frequency or
making trains longer. At a certain level, however, they will start meeting ceilings leading to
irregularities in the railway schedule resulting in train delays and delays for passengers.
Capacities op public transport systems are complex to assess as they concern a combination of
the railway and bus services as provided by the public transport provider and the provider of
railway infrastructure.

The approaches to assess capacity range from the application of rules of thumb (practical
benchmarks), queuing tables, speed-flow curves up to simulation techniques. The latter may
concern simulation at a very micro-level using Monte Carlo techniques or the application of
transport planning models such as those mentioned for urban planning, that more or less
reproduce the actual situation and new hypothetical situations. In this chapter we will deal with
road and port capacity issues, as these are applied most often and quite well documented.


4.1.2 Road capacity and congestion
There is a great wealth of literature on road planning issues dealing with road congestion. The
core of congestion concerns the relation between the speed of vehicles as a function of volume
of traffic flows, the speed-flow functions. As the flow increases, speed tends to decrease after an
initial period of little change; when the flow reaches capacity, the rate of reduction increases.
The maximum flow is obtained at capacity (V
max
) and when attempts are made to force traffic
volumes beyond this value an unstable region with low flows and low speeds is reached. See
dotted line of left part in figure 4.2. As a result the travel time and thus user costs increase very
steep.
66
Figure 4.2 Typical speed-flow and cost-flow relationship for a long link
33




Speed-flow relations are also part of the Highway Development & Management (HDM)
software as made available by the World Road Association. HDM-4, the newest tool is a very
popular tool for road network planning purposes in developing countries (see
http://hdm4.piarc.org). In the older HDM-3 a speed flow relation was described
34
, where the
curve consists of three linear parts: first the horizontal part the so-called free flow part where
traffic speeds are not influenced by interactions (capacity up to QO), a part with traffic
interactions (from QO to QCAP) and a part with traffic congestion (from QCAP to QJ AM).
The HDM-3 computer package assists in assessing the precise shape of the curve in a practical
situation and is very popular for road planning studies with World Bank assistance.


Figure 4.3 Speed-flow curves consisting of three-zone linear model (Hoban p. 11)


33
Ortuzar, p 241
34
Hoban, C.J ., Evaluating Traffic Capacity and Improvements to Road Geometry, World bank Technical Paper Number 74, 1987
67

In a similar way the US Government through the Transportation Research Board publishes the
Highway Capacity Manual (HCM) of which the newest version HCM 2000 (see on Internet
under HCM2000).
In the EU project Unite a number of case studies had congestion costs for urban and inter-urban
transport as subject
35
. Various type of speed flow curves were applied and discussed such as the
official German EWS speed-flow curve for a motorway with 3 lanes and separated carriage
ways and a TRENEN-style function, where travel time is expressed by a simple exponential
function of traffic volume and also a simple linear relationship between travel speed and traffic
volume. See figure 4.4 left side. The resulting marginal social congestion costs are given in the
right graph of the picture.

This type of speed-flow relations is used for the traffic assignment stage in traffic models such
as EMME/2, SATURN, QRS for urban transport planning or for TRENEN and Vaclav models
for inter-urban and corridor studies.

Figure 4.4 Speed flow relationships (left) and marginal social user costs (right)

From the shape of the curves in figure 4.2 and 4.5 it appears that for a long un-interrupted road
link there is maximum hourly capacity level to be reached. This is a technical maximum of
traffic accommodated per hour (during a peak period) and after that level the amount of satisfied
traffic decreases. As requested traffic exceeds the maximum level, it can be accommodated
afterwards, i.e. for instance during time outside the peak period. To assess marginal and average
social costs (i.e. the sum of producer and user costs) the curves have to be extended as shown by
the dotted lines in the figures 4.2 and 4.5. The marginal social congestion costs as apply in the
Unite study for the various types of curves are given in figure 4.4.
35
Unite project 6 case studies numbered 7a 7f. For more info on UNITE project see Section 5.????
68


Figure 4.5 Speed flow relationship and average/marginal social costs for requested and satisfied demand for road space


The speed-flow curves are applied for situations of road segments separately (HDM and HCM
models) and for applications in an urban or inter-urban road network. In the latter case they are
applied to the assignment phase of an urban transport planning models which is aims at finding
equilibrium between demand and supply of a transport network and to identify bottle-necks.


4.2 Port capacity assessment
4.2.1 Port capacity as an economic trade-off
Port operators facing competition continuously have to investigate their need for infrastructure
and the productivity of the berths, cranes, equipment and storage areas. When capacity is too
low, vessels will have to wait, which may lead to high freight rates and demurrage costs, i.e.
costs of the ports users and which could endanger the foreign trade positions of the ports
hinterland. When capacity is too high the costs of the port itself, as a producer of port services,
will be too high, which may also put a burden on foreign trade.

It is therefore important to find a proper balance between supply and demand and economic
theory says that the optimum capacity is that level where marginal costs are equal to the
marginal benefits of the expansion project. In theory this applies to infinitesimal small
expansions. In practice, investments in a port are lumpy investments that cannot be divided in
small parts: large units such as the expansion of a container terminal or coal terminal with one
or more berths or the construction of a total new terminal.

The fixed costs of a port are those related to infrastructure and decrease as a function of port
throughput. Until a certain level A variable costs are constant and start to increase. By adding
69
more labour and equipment to meet increasing demand the cost-efficiency will reduce, so that
variable costs increase and after some time also the total port cost. See figure 4.7.

The costs of ship time at a berth may be stable or decrease as per ship more labour and
equipment is brought in so that ports stay will decrease slightly. The ships arriving in the port
increasingly have to wait for quay space so that ships waiting time costs will increase. See
figure 4.8.

The sum of port operator or producer costs will start to increase after some. This point reflects
the optimum berth capacity where it is worthwhile to expand port infrastructure. See point B in
figure 4.9.

The assessment of port capacity therefore concerns an economic trade-off of the costs of an
additional berths, additional quay length, storage space or a combination of these and the
benefits of this expansion in terms of cost savings related to for instance avoided waiting times
or to the use of larger ships.

Table 4.7 Port costs as a function of traffic volume

Figure 4.8 Port user costs as a function traffic volume

70
Table 4.9 Total port costs as function of traffic volume


4.2.2 A port capacity formula
The optimum berth capacity can be expressed as follows:

(4.1) C
opt
(n) =BO
opt
(n) * n * wdpy * pg * sd * gs

where:
C
opt
(n) :optimum capacity in tons per year for n berths
BO
opt
(n) :optimum berth occupancy ratio for n berths
n : number of berths
wdpy : number of working days per year
pgs : productivity per gang per shift (containers per hour x number of hours per
shift)
ngs : number of gangs per ship working simultaneously
nsd : number of shifts per day

If a ship occupies a berth during one day the number of tons handled is the product of the
number of gangs working the ship (ngs), multiplied by the tons handled per gang (pgs) and
multiplied by the number of shifs per day (nsd). The result can be named the daily handling
productivity per ship.

By multiplying the daily handling capacity with the number of working days per year and with
the number of berths an indication of the maximum capacity results. This capacity however is
too high. The result has to be multiplied with the optimum berth occupancy ratio BO
opt
(n) in
order to arrive at the optimum berth capacity. This factor reflects the fact that ships do not arrive
at a pattern where each new ship arrives at precisely the moment that another ship is ready to
leave. The factor therefore depends on the structure of the arrival and departure patterns of a
port, or more precise on the pattern ships arrive in a port and of the pattern of the time that the
ships are being served in the port.
71
A container feeder terminal with one berth, with an optimal berth occupancy ratio of 60%, on
average 1.5 cranes working simultaneously per ship and per shift, an average hourly output of
15 boxes per hour, three shifts of 7 hours per day and working 350 day per year would result in
an annual throughput of:

C
opt
(n) =60% x 1 x 350 x (15 x 7) x 1.5 x 3 =99,225 containers.

The berth occupancy ratio (also named just occupancy or utilisation) can be defined as the ratio
of the number of days all berths are on average occupied (a number of vessel days per year) and
the number of working days per year multiplied by the number of berths. The optimum berth
occupancy factor is then the optimum utilisation degree, where expansion is economically
justified.
The optimum occupancy rate can be assessed by calculating and comparing port expansion
costs, operational costs and vessel service time and waiting time costs as depicted in figure 4.9.
This, however, requires a lot of calculations and in practice therefore more often benchmarks
are applied.

4.2.3 Benchmarks as applied in Gujarat State in India
For evaluating investments in port capacity the Ministry of Surface Transport in India applies a
number of rules, which are partly based on studies by UNCTAD. In table 4.1 a number of such
rules are given such as the optimum berth occupancy ratios, above which values capacity
expansion is justified. Different values are given for break-bulk and specialised terminals, where
the difference relates to the distribution functions of the vessels arrival times and service
times
36
:
Break-bulk terminals: vessels are assumed to arrive at random (Poisson) and service times
to be distributed Erlang2 (the combination is in short referred to as M/E2/n).
Specialised terminal: Erlang2 arriving vessels and Erlang2 handling times (in short referred
to as E2/E2/n).

The figures in table 4.1 show that for break-bulk terminals there appears to exist a great
difference between the UNCTAD and the Indian practice, where in the latter much higher
occupancy rates and waiting times are considered to be acceptable. The Indian practice therefore
seems to be more conservative. Only in the situation with 6 and more berths both practices are
the same. In the international practice the rates for specialised terminals are somewhat higher.
The figures recommended by UNCTAD were used in a recent study for the broad assessment of
port capacities in the state of Gujarat in India

These rules imply that it is advised to expand the terminal with one additional berth, if the berth
occupancy is in excess of the recommended maximum. It may be clear that these rules are very
rough approximations economic trade-off as discussed before. In table 4.1 a number of
occupancy rates are presented being applied in the Indian State of Gujarat. As one can see, the
optimum rate increases with the number of berths.
36
An explanation of the application of waiting and service time issues is given in Annex 1
72


Table 4.1 Recommended maximum berth occupancy rates in India
Number of berths Break-bulk terminal
Poisson/Erlang2
Specialised terminal
Erlang2/Erlang2
UNCTAD
recommendation
Indian practice
(MOST)
UNCTAD
recommendation
1 40% 60% 45%
2 50% 70% 65%
3 55% 70% 70%
4 60% 70% n.a.
5 65% 70% n.a.
=>6 70% 70% n.a.
4.2.4 Benchmarks as mentioned by Frankel
In his book Frankel
37
gives berth capacity figures expressed in tons per meter quay length,
which is convenient in case a berth cannot be defined straightforward, such as with long quays
and with ships calling with varying lengths. He gives capacity data for 6 different types of
terminals and the corresponding types of operations and also values of port productivity in tons
per crane hour and the related berth lengths.

The yearly capacity per meter berth length for conventional ships using pallets is 1000 tons and
increases to 6000 tons for berths with mainline container ships with two cranes working.
Information about the corresponding occupancy degrees, gross cargo handling productivities per
gang hour or crane hour and the length of the berths is also given. These productivity figures are
reportedly relevant for the 1980ies. See table 4.2.

Table 4.2 Port capacity benchmarks mentioned by Frankel
Ship type and ship operations capacity Berth crane/gang berth calculated
Ton/m/yr Occupancy productivity length capacity
Ratio % ton/hr m. tons/year
conventional ships, no pallets 1000 50% 15 180 180,000
conventional ships, pallets 2700 50% 40 200 540,000
container feeder ships, two cranes 3700 50% 116 160 592,000
container mainline ships, two cranes 6000 30% 325 280 1,680,000
Based on Frankel p 170, table3.3-1


4.2.5 Benchmarks for modern container terminals mentioned by Drewry
During the years the productivity of container operations increased. Crane capacities for
instance increased from 55,000 boxes per year in the mid 1980s to 90,000 boxes in the mid
37
Frankel, Ernst G., Port planning and development, J ohn Wiley & Sons, 1987, p. 170-174
73

1990s. With one crane per every 100 meters the annual capacity in the mid 1990s comes at
900 boxes per meter.

In a study on container capacities Drewry Consultants
38
mentioned as important factors such as:
1. Vessel arrival patterns;
2. Container exchanged per call as proportion of the vessels carrying capacity;
3. Size of ships;
4. (Lack of) discipline of exporters meeting the vessels schedule; and
5. Performance of customs in releasing containers from the yard.

The capacity of a container terminal depends on the total of the operations of loading and
unloading, shore handling and storage activities. The most critical factor, however, is stated to
be quay length rather than container yard capacity. As reason is given that bottlenecks in
container yard capacity can be solved by measures outside the terminal or by higher pricing of
storage.

For terminals with a numbers of berths varying from one to three, the optimum berth occupancy
factors ranges from 60% to 80% and a study by UN/ESCAP is mentioned as a source of these
rates. The size of ships is about 3000 TEU and the container rate in boxes per hour varies with
the call size, i.e. the number of containers that is loaded and unloaded per ship call which is
expressed here as the percentage of the vessels capacity. For container call sizes ranges from
25% to 100% the expected handling performance ranges from 14 to 30.4 boxes per ship per
hour. Than, the container handling capacity can be assessed as:

(4.2) capacity =BO
opt
* number of berths*days per year * hours per day*handling rate

thus for two berths and a call size of 50% the capacity comes at:
70%*2*365*24*19.5 =239,148 boxes. See table 4.3.

The relation between handling rate and call size can be expressed according to a multiplicative
relationship and a value of the elasticity can be estimated with regression analysis. It appears
that the elasticity has a value of approximately 0.5, which means that if the call size percentage
doubles the handling rate increases with a factor 2
0.5
=1.41. If the volume to be loaded and
unloaded per call is bigger, the possibility that more cranes are used becomes bigger. If only a
small volume is loaded and unloaded per call it is likely, that all these cargoes are put in one
hold. If the volume is bigger the cargo can be distributed more evenly over the holds, so that
more cranes can be deployed.

The cargo-handling rate further depends on the size of ships. The bigger the ship, the more
holds and the greater the opportunity to deploy more cranes. Drewry measured that for 500 TEU
ships typical rates of 17 moves/hour can be achieved and for 2500 TEU ships 26 moves per
hour. Assuming a multiplicative relation between handling and ship size yields a value for the
elasticity of 0.26. A more theoretical foundation of such a relationship is given by J anson and
38
World Container Terminals: Global growth and Private Profit, Drewry Shipping Consultants Ltd, 1998, see pages 62-68
74

Shneerson
39
. They state that the number of cranes working a ship is related to the number of
hatches and the hatches proportionally related to the length of the ship. Provided that the ship
dimensions are in constant ratios to one another, the handling capacity becomes proportional to
the one-third power of ship size.

Table 4.3 Container terminal throughput capacity as function of number of berths and call size (in boxes)
Quay length
(m)
Call size/handling rate
a)
25%/14 50%/19.5 75%/24.9 100%/30.4
no of berths BOR
opt

250 1 60% 73,584 102,492 130,874 159,782
500 2 70% 171,696 239,148 305,374 372,826
750 3 85% 312,732 435,591 556,216 679,075
Note: example based on table by Drewry
a: call size in % of ship size and handling rate in containers per ship per hour



4.2.6 Use of tables based on queuing theory
In many port expansion projects the major type of benefits concern avoided waiting time costs.
In such a case the port capacity concerns the economic trade-off between the costs of an
additional berth and the costs of vessel waiting times. The benefits from avoided waiting times
can be assessed by multiplying the average service time of a ship in the terminal with the
waiting time/service time (W/S) ratio available from published tables. This can be done for the
situation with and without the envisaged port expansion. Very popular in this respect are the
tables with W/S ratios of the UN Handbook
40
. For more details on the use of queuing models
see Frankel Section 6.2.

For general cargo terminals the UN handbook advises for the assessment of the average waiting
of ships in the queue the table M/E
2
/n. See Table VIII in Annex 1. If this table would apply for
the case of the container terminals as discussed by Drewry, one can calculate the average
waiting time for a 2500 TEU container ship calling at a terminal with two berths and having a
call size of 50% and when reaching the maximum capacity of 70%. As the containers handled
are a mixture of 20 and 40 containers we need to know the ratio of both. We therefore assume
that the ratio of containers per TEU is 0.7.

From the table one can read that the W/S ratio is 72%.
The call size in containers is 50% * 2500 TEU *0.7 =875 boxes.
The service time comes at 875/19.5 =45 hours.
The average waiting time thus comes at 72%*45 =32 hours.

It should be noted that this average waiting time of more than one day is in the modern practice
unacceptable, certainly for ports that experience high competition. It should be noted that in the
39
J anson, J .O. and Shneerson, D., Liner shipping economics, Chapman and Hall Ltd.,London 1987, see page 125
40
Port development, A handbook for planners in developing countries, Second edition, UNCTAD New York, 1985
75

practice of the West European main ports berth occupancy ratios are generally in the order of 40
to 50%.

The disadvantage of the application of these tables is that there may be a great difference
between the values presented in the tables and reality, as the published tables refer to a few
well-defined hypothetical situations. If one makes a comparison of the waiting times in an actual
situation and the ones calculated according to the model, it often appears that the latter are
greater. As ship operators often know in advance that they have to wait, they avoid waiting in
the port either by steaming slower or calling first at another port of call.

Simulation techniques, however, make it possible to deal with a great range of situations, using
for instance the distribution of variables (service time, inter-arrival time), as observed in the
situation being studied.


4.3 The Maasvlakte-2 project
The Maasvlakte-2 (MV-2) project of the port of Rotterdam concerns the expansion of the
existing Maasvlakte in the direction of the sea and is a multi-billion EURO project. The MV-2 is
be reclaimed and part of it is reserved for container operations. See Section 6.3.

The studies in the framework of the MV-2 project offered the opportunity to reach both width
and depth with respect to analysis. With respect to the demand side of the container terminal a
logit model was tested and applied and discussed Section 3.5. In order to produce a supply curve
of port services also a costing model was developed.

With the model the costs of a set of container terminals in the Maasvlakte-2 area are calculated
on the basis of the newest container handling techniques presently existing and expected to
become operational in the next decades. Within the planned new breakwaters space is scarce, so
that not only quay length but also areas for storage and inland transport are limited. A
deterministic simulation model was developed involving many aspects of the terminal.

Simulations were applied for increasing values of container throughput. By systematically
increasing container throughput terminal handling costs decrease and after reaching a minimum
at about 21.5 million TEU, they will start to increase slightly. Port user costs are quite stable up
to a level of 11 million TEU and then start to increase steeply reaching a maximum throughput
level of 21.5 million See figure 4.10 and also figure 4.7 in the beginning of Section 4.2.

User costs concern waiting time costs as discussed before and are based on the UN W/S time
ratios as given in Annex 1. Vessel waiting times are not only limited to the waiting times at the
MV-2 terminal, but are also assumed to include waiting times in the other ports of call in West
Europe through knock-on effects.

Taking user and producer costs together shows that a minimum is reached somewhere in the flat
range from 18 to 20.5 million TEU as given in figure 4.10.

76
Up to a throughput of 11.4 million TEU marginal costs (the costs of an additional container
remain the same at NLG 120 per TEU. From than on they start to increase progressively and
exceed NLG 150 when a technical maximum throughput of 22.3 million TEU is reached.

Figure 4.10 Terminal handling and waiting time costs as a function of terminal throughput

NLG/TEU
throughput in 1000 TEU
x: total user and producer costs
*: terminal-handling costs


Figure 4.11 User costs of Maasvlakte-2 as function of container throughput
as a
Throughput in million TEU


77
4.4 Puerto America project
4.4.1 Queuing theory
The Puerto America project in West Venezuela concerns a project to transfer the maritime
terminals in the Maracaibo area located around the entrance of the Maracaibo Lake to a new
location closer to the sea. This transfer is aimed to restore the environmental situation of the
Lake and to enable larger ships to serve the maritime trades of West Venezuela such as the
exports of crude oil, petroleum products and coal containers and some other products. The
arrival of large coal and crude oil carriers in the new port is influenced by tidal conditions which
complicates the arrival and departure patterns of ships, making it impossible to apply the WS-
ratios as discussed in the previous sections. A simulation model
41
is applied in order to assess
the need for berths on the basis of waiting times.

The simulation is carried out for four different alternatives with respect to maximum allowable
draft, viz. 42, 47, 51 and 54 ft in order to assess the optimum draft.


Map 4.1 Project site Map 4.2 Port lay-out for year 5


In general, a relation can be drawn between the Berth Occupancy Rate (BOR) and the occurring
waiting time. The shape of this relation depends on the inter- arrival time distribution of the
vessels, the service time distribution and the number of service points (in this case berths). A
combination of these three elements is a so-called service-system which can be represented as
a three-letter code. The first letter gives a description of the arrival time distribution function.
The second letter describes the service time function and the n corresponds with the number of
service points (berths).

41
The simulation model presented here was developed and applied by Mr. R. Groenveld of Delft University in co-operation with Alkyon.
78

In figure 4.12 an overview is given of the relation between the berth occupancy rate, the number
of berths and the average waiting time for 6 different service-systems. The first 5 lines represent
a so-called M/M/n system for a different number of berths. The 6-th line represents a so-
called D/M/2 system. The M stands for a negative exponential function (derived from
Markov). This function has a large variation around the mean value. The D stands for
deterministic. In case of a deterministic function, there is no variation around the mean value.
The number n represents the number of berths.

Generally, it can be said that the more berths, the less sensitive the system is of the BOR.
Besides of this it can be said that in case of a wide variation around the mean value of the
distribution functions, the occurring waiting time will be more sensitive of the BOR. These two
relations can be found in figure 4.12.

Figure 4.12 Average waiting time of ships in the queue under varying

In simple waiting time problems where only the inter arrival time, the service time and the
number of berths are determinative for the occurring waiting times, the above described
relations can be used to determine the number of required berths. In case of the Puerto Amrica
project, also the limitations of the entrance channel, with respect to the horizontal and vertical
dimensions (in relation to tide), are a part of the whole system. In that case, a simulation
program is necessary.

4.4.2 Components of the simulation model
The behaviour of the different components of a harbour is described in different modules of the
model. In figure 4.13 a graphical overview is given of the general configuration of a harbour
0,0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
0,9
1,0
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
berth occupancy rate
a
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M/M/2
M/M/3
M/M/4
M/M/5
M/M/6
D/M/2

79
simulation model according to the process simulation method. In this overview, the relations of
the different modules are given in broad lines.

In the description method permanent and temporary components are distinguished. Permanent
components are always present in the port, for instance the harbourmaster, while temporary
components (ships) are generated when the process of this component starts and removed from
the model when the process is completed.

A distinction is drawn between a single component and a class of components. For instance, a
ship belongs to the class of components Ship. All ships are following the same process
description. Obviously, each ship has its own characteristics or attributes (such as length,
draught, service time, dwell times in the different channel sections and terminal destination).

The simulation model consists of two parts:

1. the definition and model set-up part; this part is carried out in separate modules;
2. the dynamic part where the behaviour of the different components of the model are
specified. Simply said: the dynamic part shows how the model works.


80
Figure 4.13 General configuration of the harbour according to a process simulation model

4.4.3 Schematisation of the wet infrastructure of the harbour
The wet infrastructure of the harbour is schematised in different sections. Each section has its
own characteristics with respect to 1) traffic rules for each defined vessel type, 2) currents, 3)
tide and 4) depth. The characteristics of each section with respect to traffic rules exist of: sailing
time, possibility to overtake and to encounter.
A generator assigns for each fleet the values of the ships attributes. The values of some
attributes are determined by using distribution functions. For instance for the service times and
inter arrival times.
81
In figure 4.14 an overview is given of the schematisation of the harbour of Puerto Amrica in
which: 1 is the outer channel till the breakwaters at San Bernardo and Zapara and 2 is the
channel between the two breakwaters. Section 2 represents the section of the channel in which
the incoming vessels start to slow down and get connected to the tugs.

Section 3 is defined as a manoeuvre area where the vessel starts its manoeuvre to go to the coal
jetties, or the liquid bulk jetties. Section 4 and 6 are the link between manoeuvre area 3 and the
manoeuvre areas 5 and 7 in front of the jetties.

Figure 4.14 Schematisation of the harbour



4.4.4 Description of the simulation process
After the pre-processing of the program (this consists of initialisation of the program and
reading in all the input data) the actual simulation starts. The simulation consists of different
processes. The procedures that are followed to simulate the movement of a vessel are described
below.

A component called Generator, generates vessels of a certain fleet according to an inter-arrival
time distribution and assigns the attributes of the vessel. After a vessel is generated, the vessel is
1
2
3
4
5
6
7

82
put into the anchorage area. In the next step, the availability of the berth will be checked. This is
done by the Qmaster. When the berth is available, the nautical situation in the different channel
sections will be checked. With this check, the tidal conditions and the incoming and outgoing
ship traffic are determined. With the check of the tidal conditions, the available water depth is
checked and compared with the draught of the vessel. If the different conditions are ok, the
vessel will sail to the berth. This procedure is carried out by the harbourmaster 1. The terminal
operator manages the procedures at the berth with respect to (un-)loading times. After a vessel is
ready, the harbourmaster 2 will check, like harbour master 1, the different conditions with
respect to the tidal situation and the ship traffic in the different channel sections. If possible, the
vessel will leave the berth.

Because all vessels will arrive in ballast condition and will leave (partly) loaded, only the largest
outgoing vessels are tide-dependent. Arriving at the end of the channel the vessel will be
removed from the model.


4.4.5 Input data
Overtaking and encountering
The channel sections 1 and 2 (see figure 4.14) are single lane channels for vessels with a beam
larger than 27 meter, which correspond with vessel of 35,000 DWT. This is derived with the
PIANC
42
rules for designing an entrance channel and is according to the present situation of the
channel. Overtaking is not possible because it is assumed that the speed of all vessels is more or
less the same.
For safety reasons only 1 vessel may be at the same time in the manoeuvring areas 3, 5 and 7. If
for example a vessel is manoeuvring in area 7 and at the same time a vessel wants to depart
from an oil jetty, the vessel at the oil jetty has to wait until the other vessel is out of area 7.

Arrival pattern
No data are available with respect to the arrival patterns of the vessels. Based on experience
with similar situations a rather irregular inter-arrival time distribution has been chosen, viz. a
N.E.D. distribution (
t
e 1 F(t)

= ).
Where:
F(t) = Chance density function (c.d.f.)
= Number of arrivals per time unit
t = Inter arrival time
Because of this assumption, the waiting times of the vessels will be on the conservative site.
More scheduled arrival patterns would lead to shorter waiting times.

Vessel size distribution
In table 4.7 an overview is given of the vessels calling at the port by ship type, available
maximum draft alternative, lot size class and target year. The distribution of the lot sizes within
the various classes is assumed to be uniform.
42
PIANC, the International Navigation Association is the international authority that defines rules for navigation channels
83

Sailing time in the different channel sections
The sailing times in the different channel sections are based on the navigation simulations,
environmental conditions and nautical aspects. The sailing time in section 1 depends on the
depth of the channel, because the length of section 1 depends on the depth of the channel.

Service time of the different vessels
The service times of the different vessels consist of the time a vessel requires for loading or
unloading and the additional service time, which is necessary for berthing and unberthing.

The time for loading and unloading depends on the loading rates of the different vessels and the
parcel size of the vessel. These rates are depending on the size of the vessel. In the first set of
runs the loading rates are taken as constants. In the second set of runs the loading rates for the
coal and oil vessels are varied.

The additional service time for the oil vessels larger than 100,000 DWT is estimated as follows:

Manoeuvring/berthing 1.5 hour
Connecting manifold 0.5 hour
Other 1.0 hour
Disconnecting manifold 0.5 hour
De-berthing/manoeuvring 1.5 hour
Total 5.0 hour


For vessels less than 100,000 DWT, it is assumed that the additional service time is one hour
less.

For the petrochemical vessels, an additional service time of 4 hours is taken into account for all
vessel sizes.

For coal vessels larger than 100,000 DWT the estimation of the additional time is as follows:

Manoeuvring/berthing 1.0 hour
Removing the hatches 0.5 hour
De-berthing/manoeuvring 1.5 hour
Total 3.0 hour


For coal vessels smaller than 100,000 DWT it is assumed that the extra service time is one hour
less than described above.


84
Figure 4.15 W/S relations including simulation results for coal and oil vessels
0,0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
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M/M/2
M/M/3
D/M/2
Coal (M/M/2)
Oil (M/M/3)

The manoeuvring and berthing time for a coal vessel is less than for the oil vessels,
because an oil vessel has to be completely moored before she can start connecting the manifold.

With good weather, the hatches of a coal carrier can be removed during manoeuvring. During
bad weather, they will remove the hatches when the vessel is at the jetty. The average time for
removing the hatches will be approx. 0.5 hours.
The different time parts for the extra service time have been estimated in consultation with a
former captain of a VLCC oil tanker.

Mooring directions
It is supposed that a vessel can moor bow-in (with the bow to the south) or bow-out (with the
bow to the north). So there are no restrictions in the mooring directions.


4.4.6 Description of the output
There are many ways to represent the results of the simulation. The two main items that
will be used will be the berth occupancy rate and the occurring waiting times.

Berth occupancy rate
The Berth Occupancy Rate (BOR) can be expressed in many ways. In this simulation-model the
BOR for a specific berth is the ratio between the total used berth time at that berth and the total
available berth time. Herewith the total used berth time consists of the sum of the berth time of
85
each vessel for that berth types viz. oil, coal or petrochemicals. The total available berth time in
minutes for a specific berth is 365*24*60.

Waiting time
The occurring waiting times will be expressed in an average waiting time - average service time
ratio. This is a common method to represent the occurring waiting times. For this study as a rule
of thumb, an average waiting time of 30% for bulk carriers is considered as a maximum. In case
of a very short service time (which applies for small vessels), an average waiting time of 4 hours
is used.


4.4.7 Simulation runs
Two sets of runs are made. The main objective of the first set of runs is to get insight in the
effect of the channel depth on the required number of jetties for each commodity in each phase
of the project. The results of the first set of runs have been used as a base for the second set of
runs.

With the second set it is tried to get insight in the possibility to reduce the number of oil jetties
by increasing the loading rates of the different vessels. Moreover, a sensitivity analysis was
carried out of the waiting times of the coal and oil vessels as a function of the loading rate of
these vessels.

First set of runs
The first 5 runs of this set were made with a channel with a maximum allowable draft of 42 ft.
See table 4.x. In run 1 there was use made of the assumptions made so far with respect to the
number of jetties for the different commodities viz. 2 coal jetties, 4 oil jetties and 1
petrochemical jetty. In run 2 and 3 the number of coal and petrochemical jetties was changed in
order to get insight in the effect of the number of jetties on waiting times.


4.4.8 Results of the first set of runs
Coal
In table 4.4 an overview is given of the results of the waiting times for the different runs.

86
Table 4.4 Results first set of runs for the coal vessels

Coal
Run # Year Maximum draft # jetties BOR Waiting time WS-ratio
1 5 42 2 26% 1:40 0.15
2 5 42 2 26% 1:40 0.15
3 5 42 1 52% 18:10 1.80
4 13 42 2 38% 4:00 0.35
5 13 42 2 38% 4:00 0.35
6 5 47 2 25% 1:40 0.15
7 13 47 2 36% 4:00 0.32
8 5 51 2 24% 1:50 0.16
9 13 51 2 35% 4:00 0.25
10 5 54 2 24% 2:05 0.14
11 13 54 2 35% 4:30 0.26
BOR: Berth Occupancy Rate


For year 5 the conclusion can be drawn that two jetties are required for the coal vessels. In case
of one jetty, the average waiting time will be more than 18 hours, which is not acceptable. In
case of two jetties, the average waiting time varies between 1 hour and 40 minutes and 2 hours
in case of a channel with a maximum allowable draft of respectively 42 ft and 54 ft. The relative
average waiting time does not vary much between the different channel depths. This because of
the increasing vessel size with an increasing channel depth and therefore the increasing average
service time. Therefore, the ratio between the average waiting time and the average service time
stays more or less the same.

In year 13, the average waiting time is increased to approx. 4 hours in case of a channel with a
maximum draft of 42 ft, and 4 hours and 30 minutes with a channel with a maximum draft of 54
ft. In the second set of runs, a sensitivity analyses is made of the influence of the loading rates
on the occurring average waiting times.

Oil
In table 4.5 an overview is given of the results of the waiting times for the different runs.
87
Table 4.5 Results first set of runs for the oil vessels
Oil
Run # Year Maximum draft # jetties BOR Waiting time relative w. t.
1 5 42 4 36% 2:10 0.14
2 5 42 4 36% 2:10 0.14
3 5 42 4 36% 2:10 0.14
4 13 42 4 50% 3:10 0.20
5 13 42 4 50% 3:10 0.20
6 5 47 4 37% 1:20 0.09
7 13 47 4 41% 1:50 0.12
8 5 51 4 37% 1:10 0.06
9 13 51 4 40% 1:40 0.08
10 5 54 4 36% 1:15 0.07
11 13 54 4 40% 1:40 0.08

For the oil vessels, the average waiting time in year 5 is about 2 hours in case of a maximum
allowable draft of 42 ft and four jetties. This corresponds with about 28% of the service time for
the smallest vessels and 11% for the largest vessels. In case of a maximum allowable draft of 54
ft, the average waiting time is approx. 1 hour and 10 minutes.

In year 13, the average waiting time is about 3 hours in case of a maximum allowable draft of
42 ft and four jetties. In case of a maximum allowable draft of 54 ft, the average waiting time
decreases to about 1 hour and 10 minutes. In the second set of runs the number of oil jetties will
be decreased to 3 because of the very low average waiting times in the first set of runs. Besides
of this, an analysis will be made of the influence of the loading rates on the occurring waiting
times.

Petrochemicals
In table 4.6 an overview is given of the results of the waiting times for the different runs.

Table 4.6 Results first set of runs for the petrochemical vessels
Petrochemical
Run # Year Maximum draft #jetties BOR Waiting time relative w. t.
1 5 42 1 28% 4:00 0.45
2 5 42 2 14% 0:32 0.05
3 5 42 1 28% 4:00 0.45
4 13 42 1 28% 4:00 0.45
5 13 42 2 14% 0:36 0.06
6 5 47 1 28% 4:00 0.45
7 13 47 1 28% 4:00 0.45
8 5 51 1 28% 4:00 0.45
9 13 51 1 28% 4:00 0.45
10 5 54 1 28% 4:00 0.45
11 13 54 1 28% 4:00 0.45
88
In all cases, the number of petrochemical vessels will be equal. The average waiting time will be
approx. 4 hours in case of one jetty. This corresponds with 52% of the average service time of
the smallest vessels and 37% of the average service time of the largest petrochemical vessels. In
case of two jetties the average waiting time will be about 30 minutes, which corresponds with 7
and 4% of the average service time of respectively the smallest, and the largest vessels.
Therefore it can be concluded that two jetties will not be economical feasible. One jetty will be
sufficient for both phases of the project.

After the first set of runs, some additional runs are made of the most likely scenario with respect
to the maximum allowable draft. These runs were made in order to refine the results of the first
set of runs and to get insight in the sensitivity of the waiting times depending on the loading
rates of the oil and coal vessels.

In figure 4.14, a graphical overview is given of the course of the registered berth utilisation and
relative waiting time as results from the simulations, see points in graph for coal and oil. In the
same figure, the theoretical course of the waiting time in relation to the berth utilisation is given
as explained in section 4.4.1. The points are on the left side of the corresponding curves,
meaning that the waiting times of the simulations are greater than those based on the WS curves.
This is to be expected, as the curves do not include the impact of waiting because of
manoeuvring constraints.


4.4.9 Conclusion
Channel
A single lane channel for vessels larger than 35,000 DWT is sufficient to accommodate all
vessels in all phases of the project.

Coal
For year 5, two jetties will be sufficient with an average loading rate of 3500 t/h. However, in
year 13 the combination of 2 jetties and a loading rate of 3500 t/h will not be sufficient. A
loading rate of 4250 t/h is needed to make sure that the waiting times stay within the acceptable
limits.
The occurring waiting times do not only depend on the service time (loading rate) and the
number of jetties, they also depend on the chosen inter arrival time of the vessels. For the
simulations, there is been chosen for a rather irregular inter-arrival time viz. a N.E.D.
distribution. Because of this assumption, the waiting times are on the conservative site. By
choosing a more scheduled arrival pattern, the waiting times will be reduced.

Oil
In the first phase of the project, 3 jetties will be sufficient for the oil vessels independent of the
channel dimensions.
It must be kept in mind that the occurring relative waiting times in year 5 (approx. 28%) are
close to the maximum considered waiting time (30%). Looking at the prognoses for the oil
export, an increase of the oil export, and therefore the number of vessels, can be expected
between year 5 and year 13. Because of this, there is a possibility that short after year 5 (say one
89
year later) the maximum considered waiting time would be reached. Therefore, 4 jetties will be
advised for year 5.
In year 13, 4 oil jetties are required. Even with increasing loading rates, it is not possible to do
with 3 jetties.

Conclusion on methodology
The interactions between the handling of ships at the service points, the berths, and in the
approach channel makes that simulation is needed to assess the proper values of waiting
time/service time ratios. These values are judged to be acceptable or not acceptable, so that
optimum number of berths can be assessed per terminal. This means that the exact number of
berths is assessed for each of the main terminals. The cutting point of supply-demand functions
were not calculated explicitly, as was done with the example discussed with respect to the
Maasvlakte project of the port of Rotterdam. The reasons for this were that it posed some
problems with the allocation of joint costs of all the terminals.





90

Table 4.7 Vessels calling by size class, type and target year


Max. Draft 42 2007 2015
OIL perc cum [%] abs OIL perc cum [%] abs
fleetnbr 1 1 5.000 35.000 20% 20% 187 1 5.000 35.000 20% 20% 205
fleetnbr 2 2 35.000 84.000 20% 40% 189 2 35.000 84.000 20% 40% 208
fleetnbr 3 3 65.000 97.500 60% 100% 561 3 65.000 97.500 60% 100% 615
total 937 total 1028
Petrochemical perc cum [%] Petrochemical perc cum [%]
fleetnbr 9 1 5.000 30.000 41% 41% 98 1 5.000 30.000 41% 41% 98
fleetnbr 10 2 30.000 50.000 59% 100% 143 2 30.000 50.000 59% 100% 143
total 241 total 241
COAL perc cum [%] abs COAL perc cum [%] abs
fleetnbr 7 1 5.000 35.000 20% 20% 56 1 5.000 35.000 20% 20% 80
fleetnbr 8 2 58.500 77.625 80% 100% 221 2 58.500 77.625 80% 100% 318
total 277 total 398
Max. Draft 47 2007 2015
OIL perc cum [%] abs OIL perc cum [%] abs
fleetnbr 1 1 5.000 35.000 23% 23% 187 1 5.000 35.000 23% 23% 205
fleetnbr 2 2 35.000 84.000 23% 47% 189 2 35.000 84.000 23% 47% 208
fleetnbr 3 3 65.000 97.500 17% 64% 140 3 65.000 97.500 17% 64% 154
fleetnbr 4 4 95.000 138.750 36% 100% 291 4 95.000 138.750 36% 100% 319
total 807 total 886
Petrochemical perc cum [%] Petrochemical perc cum [%]
fleetnbr 9 1 5000 30000 41% 41% 98 1 5000 30000 41% 41% 98
fleetnbr 10 2 30000 50000 59% 100% 143 2 30000 50000 59% 100% 143
total 241 total 241
COAL perc cum [%] abs COAL perc cum [%] abs
fleetnbr 7 1 5000 35000 26% 26% 56 1 5000 35000 26% 26% 80
fleetnbr 8 2 76500 114750 74% 100% 157 2 76500 114750 74% 100% 225
total 213 total 305
Max. Draft 51 2007 2015
OIL perc cum [%] abs OIL perc cum [%] abs
fleetnbr 1 1 5000 35000 24% 24% 187 1 5000 35000 24% 24% 205
fleetnbr 2 2 35000 84000 25% 49% 189 2 35000 84000 25% 49% 208
fleetnbr 3 3 65000 97500 18% 67% 140 3 65000 97500 18% 67% 154
fleetnbr 4 4 95000 138750 13% 80% 97 4 95000 138750 13% 80% 106
fleetnbr 5 5 125000 168750 20% 100% 155 5 125000 168750 20% 100% 170
total 768 total 843
Petrochemical perc cum [%] Petrochemical perc cum [%]
fleetnbr 9 1 5000 30000 41% 41% 98 1 5000 30000 41% 41% 98
fleetnbr 10 2 30000 50000 59% 100% 143 2 30000 50000 59% 100% 143
total 241 total 241
COAL perc cum [%] abs COAL perc cum [%] abs
fleetnbr 7 1 5000 35000 32% 32% 56 1 5000 35000 32% 32% 80
fleetnbr 8 2 99000 158625 68% 100% 117 2 99000 158625 68% 100% 167
total 173 total 247
Max. Draft 54 2007 2015
OIL perc cum [%] abs OIL perc cum [%] abs
fleetnbr 1 1 5000 35000 25% 25% 187 1 5000 35000 25% 25% 205
fleetnbr 2 2 35000 84000 25% 50% 189 2 35000 84000 25% 50% 208
fleetnbr 3 3 65000 97500 19% 68% 140 3 65000 97500 19% 68% 154
fleetnbr 4 4 95000 138750 13% 81% 97 4 95000 138750 13% 81% 106
fleetnbr 5 5 125000 168750 10% 91% 77 5 125000 168750 10% 91% 85
fleetnbr 6 6 145000 198750 9% 100% 66 6 145000 198750 9% 100% 72
total 756 total 830
Petrochemical perc cum [%] Petrochemical perc cum [%]
fleetnbr 9 1 5000 30000 41% 41% 98 1 5000 30000 41% 41% 98
fleetnbr 10 2 30000 50000 59% 100% 143 2 30000 50000 59% 100% 143
total 241 total 241
COAL perc cum [%] abs COAL perc cum [%] abs
fleetnbr 7 1 5000 35000 36% 36% 56 1 5000 35000 36% 36% 80
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize] range [lotsize]
range [lotsize ton] range [lotsize ton]
range [lotsize] range [lotsize]
range [lotsize m3] range [lotsize m3]
range [lotsize m3] range [lotsize m3]
91
5 Costs of transport
5.1 Introduction

The objective of this chapter is to provide some insight in the assessment of maritime and road
transport costs for a practical application in West Europe. The example chosen concerns ro-ro
and road transport between Northwest Europe and Portugal. For ro-ro transport formulas are
used directly relating costs and productivity to ship size and ship design speed. This is done in
order to explicitly deal with economies of ship size. The costs and transit times of the examples
were used as input for the modal split model discussed. The costs concern producer or operator
costs. The costs of the users of these services are related to transit time, service frequency of and
so on and are dealt with implicitly in the demand choice as used for the Portuguese ro-ro trades
in Section 3.6.

The second objective is to show a number of issues with respect to external costs. To this end
some findings of the UNITE
43
project are presented.


5.2 Operator costs and time of transport services
5.2.1 Costs and time of ro-ro services
Ro-ro ships have a great variation in purpose and design including vessels such as landing craft
requiring minimal facilities and operating generally in sheltered areas, ro-ros special designed
for forest products, rail ferries, passenger car ferries, new car carriers and trailer vessels
specially designed for ro-ro trailers. In the deep-sea trades there are ro-ro/containerships, ro-ro
conventional ships and bulk ro-ros. For these purposes ro-ro is in fact the means to
accommodate cargo for ports without proper equipment and facilities.

For the purpose of this study we concentrate on ro-ro trailer ships designed for the carriage of
trailers. Examples of these ships are those operated by Norfolk Lines in West Europe such as the
Maersk Flanders of 5700 dwt, with a carrying capacity of 120 trailers and a design speed of 18
knots. The carrying capacity concerns 50 trailers on the main deck, 50 on the whether deck and
43
UNITE is an acronym for UNIfication of accounts and marginal costs for Transport Efficiency. The UNITE project was funcned by the
European Commission under the 5th Framework Transport RTD. The project was finaished end 2002 and is expected to be published
in 2003.
92

20 below. At present the ship is employed on the route Scheveningen Felixstowe. The vessels
specifications according to Lloyds Register Book are:
Gross tonnage: 13,073
Length over all (m) 142.5
Breadth moulded (m) 23.2
Maximum draught (m) 5.5

Other operators in this trade are Stena Lines, Cobelfret, Commodore in the North Sea and Baltic
and Visenti, Grimaldi and Transmeta operating in South Europe. For a description of the types
of ro-ro ships and their trades see for instance (Drewry 1998
44
).

In this Section data on costs and operational performance of ro-ro services are expressed as a
function of the particulars of the ships and their operational environment. The ship particulars
include:
ship size in deadweight (dwt), in car linear metres and in trailer carrying capacity;
design speed and operational vessel speed in knots; and
main engine capacity and fuel consumption.

The information is modelled in such a way that by changing ship size and speed the
corresponding costs and operational data are adapted simultaneously by using broad
mathematical relationships. To this end information of the Fairplay Shipping database was used
to statistically estimate such relationships. Background information on these types of statistical
relationships can be found with J anson and Shneerson
45
, from page 117. The price of a ro-ro
vessel (p) can be expressed as a function of the vessels capacity (s) and her design sailing speed
(v):

(5.1) p =
0
s
1
v
2

For ro-ro ships the capacity s is expressed in the maximum number of trailers that can be
carried. For
1
a value of 0.445 was estimated indicating that the ships price increases less than
proportional with her size and for
2
a value of 2.291. For a ro-ro trailer ship with a carrying
capacity of 126 trailers and 6000 dwt and a design vessel speed of 18.1 knots the price is 33.5
million.

Generally, larger ships have a higher design speed and therefore the parameters of the following
relation between vessel speed and size were estimated with regression analysis:

(2) v =
0
s
1


For
1
a value of 0.106 was estimated meaning that larger ships have on average a slightly
higher design vessel speed. This will be used for the construction of a starting set of ship
particulars to be used for the cost calculations. The vessel design speed varies from 17.3 to 20.0
44
Ro-Ro Shipping, The Flexible Alternative to Containerisation, Drewry Consultants Ltd 1998
45
J anson, J .O. and Shneerson, D., Liner shipping economics, Chapman and Hall, London, 1987
93

knots for the range of ships studied, i.e. with a trailer capacity ranging from 84 to 337 or
expressed in dwt from 4000 to 16,000. The results of the regression analyses are based on the
same range of ships. It should be noted that later on also other combinations of ship size and
speed are applied, depending on what combinations fit a particular operational environment in
the best way.

Consumption of heavy fuel oil (HFO) in tons per day can be expressed as:

(5.3) hfo =
0
s
1
v
2


For
1
a value of 0.384 was estimated and for
2
a value of 2.187, which correspond both fairly,
well with results of studies on other types of ships. The consumption concerns the vessel design
speed, which ranges from 29.8 to 69.9 tons per day for the range of ships mentioned above.

If the type of ship chosen for a particular service has some slack capacity in its schedule, the
sailing speed is reduced accordingly (v
a
) and fuel consumption (hfo
a
) is adapted by applying a
factor:

(5.4) factor =(v
a
/v)
2.75

For example, with a reduction of the sailing speed with 10%, fuel consumption will decrease
with {1-(0.9)
2.75
}=25%. For the analyses it is assumed that the ships sail on average at 80% of
their design vessel speed.

The operational environment concerns shipping service particulars such as:
The port call pattern: the sequence of ports called per roundtrip, which may be a point-to-
point or multi-porting roundtrip. The latter type of services may be needed to enlarge the
catchment area and to attract more cargo. It should be noted that multi-porting practices are
at present less frequent in West European ro-ro shipping services.
For service frequency at least weekly services, but even better (week) daily services.
The time windows for some crucial ports, dealing with weekend arrivals and departures.
Minimum amounts of slack and idle time in ports and in the roundtrip schedule.

The main design parameters of the service are the size and the speed of the ships and the
relevant cost and operational parameters can be derived using the above-mentioned statistical
relationships.

Cost data
Capital costs: annuity basis, 15-year lifetime, 8% interest
Insurance costs: 1% new price
MRS costs: 1.5% new price
Annual crew cost: 400,000
Management fee: 35% annual fixed costs
HFO price: 150/ton
Fuel costs auxiliaries: 10% of total fuel bill
94
Main operational data
For the shipping routes studied roundtrip distances are such that weekly roundtrips are possible.
The vessel design speed serves as balancing factor to make the schedule fit. The impact of slow
steaming on fuel consumption can be assessed by applying equation 5.4. The equations above
are applied to maintain consistency between costs and operational data. Further assumptions are:

For a 5 weekly services a tariff is based on the cost of 6000 dwt ships with a capacity of 126
trailers.
Number of ports per roundtrip: 2 for base case; for the sensitivity analysis also multi-porting
services are analysed
Average headway time: for five weekly service is 7/5 =1.4 days
Fixed time spend in port: 2 hours per call
Variable time spend in port: based on handling rate of 30 trailers per hour
Off-hire days per year: 15
Tons per loaded trailer: 15
Load degree of ship: 80% each way
Of which percentage full trailers: 70% (i.e. paying trailers)
For Portugal on the trade route West Europe Portugal imports dominate; exports generally
concern agricultural products transported predominantly in the summer season
Roundtrip duration: 7 days
Slack time in a roundtrip schedule is put at least at 0.5 days
Roundtrip distance for base route: 1,848 nautical miles; alternative multi-porting itineraries
are analysed
Stevedoring costs: 93 per move Northwest European and Mediterranean ports and 86 for
Portuguese ports
Port costs per ship call: for both Portuguese and West European and Mediterranean ports
1 per dwt

The quay-to-quay shipping costs per trailer are given in table 5.1.

95
Table 5.1 Ro-ro operational and cost data as a function of ship size
Ship size Design Shipping cost Transit Headway Annual volume
in dwt in trailers speed per trailer per ton time Time Loaded 000
In knots In EURO In EURO in days In days Trailers tons
4.000 84 15.2 1,522 101 3.2 1.4 4,904 74
5.000 105 15.6 1,426 95 3.2 1.4 6,131 92
6.000 126 15.9 1,355 90 3.2 1.4 7,357 110
8.000 168 16.4 1,257 84 3.1 1.4 9,809 147
10.000 211 16.8 1,190 79 3.1 1.4 12,261 184
12.000 253 17.1 1,141 76 3.1 1.4 14,713 221
14.000 295 17.4 1,102 73 3.1 1.4 17,165 257
16.000 337 17.6 1,071 71 3.1 1.4 19,618 294
Note: for the three-port route Leixoes Zeebrugge Southampton Leixoes

5.2.2 Costs and time of road transport
This section describes the operational and cost data of road transport. Data for container and
general cargo is presented; the latter will be used for the comparison with intermodal ro-ro sea
transport. For pure road transport the data of international road transport of general cargo will
be used. For the road transport to and from the port in the case of ro-ro the data regarding
national road transport of general cargo is used.

Transport time
Modes distinguish themselves by transport times and characteristics of the vehicle.
The distinguished transport times are:
Loading and unloading time
Waiting time
Rest time

The following table presents the transport times for container- and general cargo road transport.
General cargo transport needs longer load and unload time. The waiting time for both transports
is 30 minutes, equally divided over waiting for loading and unloading.

Table 5.2 Transport times
Container General cargo
Loading time (minutes) 48 72
Unloading time (minutes) 42 60
Waiting time (minutes) 30 30
Rest time (hours) 10 10
Operating time (hours) 14 14

(NEA, 2001)

96
The average speed of international road transport is 68 km/hour. Loading time, unloading time,
waiting time and rest time are not included in this average speed. The average speed of road
transport from and to the seaports, generally passing urban areas, is 55 km/hour.

Transport costs
The transport costs of road transport consists of:
Fixed costs: these costs consists of depreciation, interest charges, other vehicle costs
(insurance of cargo, road tax) other business costs and drivers costs. These costs are
divided by the paid hours a vehicle is driving in a year.
Variable costs: these are costs of lubricant, repair, maintenance and tires and are divided by
the number of vehicle kilometres.
Energy costs: the average energy costs per kilometre are the fuel costs per year divided by
the number of kilometres.
Loading and unloading costs: the average costs depend on the load and unload time and the
fixed costs per hour.
Waiting costs: the average waiting time also depends on the constant costs per hour.

The following table presents the transport costs of road transport. A distinction is made in
container and general cargo transport and national and international transport.

Table 5.3 Transport costs road transport
Transport costs Container General cargo
National International National International
Fixed costs (Euro/vehicle/hour) 29.72 30.17 32.66 33.76
Variable costs (Euro/vehicle/km) 0.24 0.25 0.26 0.29
Energy costs (Euro/vehicle/km) 0.17 0.16 0.16 0.16
Average load costs (Euro/hour) 23.78 24.14 39.20 40.51
Average unload costs (Euro/hour) 20.80 21.12 32.66 33.76
Average waiting costs (Euro/hour) 14.86 15.09 16.33 16.88
(NEA, 2001)

For transport to and from the ports in Northwest Europe the data for national general cargo is
used as presented above. For transport within Portugal a correction factor of 0.82 is used
allowing for lower labour costs.

Frequency of service
The frequency of service for road transport has been set on six trips per week. This leads to an
inter-arrival time of 1.17 days.


97
5.3 Issues on socio-economic costs
5.3.1 The Unite project
The UNITE project is designed to support policy-makers in the development of pricing and
taxation policies for transport infrastructure use. UNITE contains three components: transport
accounts, marginal costs and integration of approaches.

The marginal costs component of UNITE is dealt with here and relates to:
The development of the marginal cost methodology for all relevant transport modes and
cost categories and identification of the best practice methodology.
Implementation of these methodologies by means of case studies and provision of new
empirical evidence and building on existing empirical evidence.
Examination of the possibilities of generalisation and transferability of methodology and
results to other contexts and elaboration of guidelines for the generalisation of the marginal
costs estimates.


5.3.2 Internalising external costs
The road congestion can be easily explained as follows: when the volume of vehicles on a road
infrastructure is higher that a certain level, vehicles are disturbing each other. Their speed is
diminishing. The travel time spent to achieve the trip is increasing and the cost of the trip is
increasing too. As a consequence, congestion has a cost.

Engineers and economists have been analysing the congestion phenomena. Traffic engineers
have shown the relation between the flow of vehicles on a road and their speed. The economists
have identified the congestion problem as a problem of externalities. When vehicles are
disturbing each other, the marginal driver induces a cost to the rest of the society, because all
other vehicles are getting slower. He does not pay anything for this cost that he is producing: he
is then generating a negative externality. Hence this uncorrected market is bringing too many
vehicles on the road.

Figure 5.1 provides the classical economic analysis. The demand curve (D) shows the trips
demand in vehicle*km for a typical road depending on the generalised cost (usually time and
distance cost). The marginal individual cost curve (P), which can be considered as the supply
curve, represents the individual cost supported by one vehicle related to the trips volume. When
the level of trips volume is low, this cost equals the vehicle operating cost and the cost of the
travel time with a high speed. When the level of trips volume is increasing, the speed is
diminishing, the travel time cost and the operating cost are increasing and the slope of the
marginal private cost curve too. The market equilibrium is located in the intersection of the
demand curve (D) and the supply curve (P) with a trip volume of Qo. At this point the driver is
supporting a cost equal to the benefit of his trip. Further, he is supporting a cost higher than his
benefit and does not realise the trip.
98
Unfortunately, this equilibrium is not optimum from the point of view of the society. This is
easily understandable by considering the marginal social cost curve (S), which represents the
social cost induced by a vehicle depending on the level of trips volume. This cost equal the
individual cost increased by the cost of the time losses endured by all the other vehicles. The
intersection point of the demand curve (D) and the marginal social cost curve (S) defines the
optimum situation from the point of view of the society and corresponds to a trips volume Qn.
Further, and for example in Qo, the society gains QoB for one additional trip and loses QoC
for this trip.

Figure 5.1 Individual and social cost of transport


It is important to note that:
The internalising tax is equal to AH, at the optimum level of traffic Qn and not at the
equilibrium point Qo;
The internalising tax AH cannot be defined considering only congestion. The other
externalities have to be taken into account (operating, pollution, noise, accidents marginal
cost non considered in the insurance premium) and the level of taxes already paid by the
vehicle and included in the curves P and S.

If a general agreement exists concerning the analysis of the congestion and of the measures to
be taken to reduce it, there is not yet a unique theory concerning the way to measure it and to
estimate its cost.

The definition of the congestion induces the comparison between the congestion scenario and a
reference scenario. The congestion scenario is quite easy to define: in this scenario, the
congestion cost has to be measured. The difficulty is the assumptions to be taken in the
reference scenario. Three definitions can be envisaged:

the most common one: the most frequently proposed and used one is the free flow situation:
there is quite no vehicle on the road; this definition is not realistic because it would induce
non-acceptable road capacity investment road are not build to be empty!
99
the engineers one which correspond to the maximum flow of the road; this definition is
also critical because it completely ignores the trips demand curve: it is independent of the
user utility;
the economists one which has been defined above before and which is illustrated at the
figure 5.1. The total congestion cost is here the cost that would be avoided, if the congestion
were reduced at its optimal level. It seems to be the most satisfying one: this cost is related
to the transport demand, to the capacity of infrastructure, to the speed flow curve and to the
value of time of the users.


5.3.3 Cost categories
The five cost categories covered by UNITE are: infrastructure costs, supplier operating costs,
transport user costs and benefits, accident costs, and environmental costs.

Marginal infrastructure costs are the costs to infrastructure managers of additional traffic using
it, principally maintenance and renewal but potentially other aspects of operating cost such as
administration.

Marginal supplier operating costs are understood as the increased costs of operating transport
services as a result of an additional transport unit entering the flow.

The marginal external transport user costs relate to the increased operating costs/ benefits and
the impact of increases/decreases in journey time caused by increased traffic flow. In the
negative case, e.g. when the activity of one user causes extra costs for others, we talk of
congestion costs. In the positive case, when users activities improve the welfare situation of
other users we talk about the Mohring effect.

The marginal accident cost is the economic value of the change in accident risk when a user
enters the traffic flow (this risk relates to the user himself as well to other users). Marginal
external accident costs are understood as the difference between the marginal accident cost and
the private marginal cost (a part of the marginal accident cost which is internalised by the user).
These costs include repair costs, medical costs, suffering and delays imposed on others as a
result of an accident. UNITE deals with external accident costs.
Environmental external effects of transport cover a wide range of different impacts, including
the various impacts of emissions of noise and a large number of pollutants on human health,
materials, ecosystems, flora and fauna. Most early studies on transport externalities followed a
top-down approach, giving average costs rather than marginal costs. The basis for the
calculation is a whole geographical unit, a country for example. For such a unit the total cost
due to a burden is calculated. This cost is then allocated based on the shares of total pollutant
emissions, by vehicle mileage, etc. But marginal environmental costs of transportation vary
considerably with the technology of the vehicle, train, ship or plane and site (or route)
characteristics. Only a detailed bottom-up calculation allows a close appreciation of such site
and technology dependence. The above-mentioned facts are the reason why the largest number
of the case studies was for the estimation of the marginal environmental costs.
100
The transport modes covered in UNITE are: road transport, public transport, railway transport,
aviation, inland waterway transport and maritime shipping. Table 5.1 presents the UNITE case
studies by mode and the cost category they cover.

Table 5.1 Overview of UNITE case studies by mode and cost category

Category

Road

Rail

Ai r
Inland
Waterways

Maritime
Total by cost
category
Infrastructure costs 2 2 1 1 2 8
Supplier operating costs 0 2 1 0 0 3
Congestion costs 6 1 1 0 0 8
Mohring effect 0 1 1 1 0 3
Accident costs 3 2 0 1 1 7
Environmental costs 6 3 0 1 1 11
Total by mode 17 11 4 4 4 40


5.3.4 Relationship between marginal, average and total costs
Why are marginal costs not standard practice as a starting point when it comes to transport
pricing? Economic theory clearly indicates that pricing policies starting from a marginal costs
perspective lead to better usage of the available transport capacity than pricing practices based
on average costs and or cost recovery rules. The reason for this is manifold, but four important
reasons why average cost is estimated are:
In the back of the minds of many policy makers the issue of cost recovery plays an implicit
role when it comes to price setting
Pricing of transport often serves more interests (public budget requirements, etc) than solely
the most efficient use of available transport capacity
Marginal costs are difficult to calculate, average costs easier. In many pricing cases there is
not enough willingness to invest in elaborate price schemes based on sound economic
analysis.
Technology and investment burdens do not always allow for efficient implementation of
elaborate pricing schemes based on marginal costs.

This overview of reasons should however not divert our attention from the fact that marginal
social costs indeed form the best price incentive for optimal use of transport capacity. In the
following paragraph, the essential differences between total costs, average costs and marginal
costs are presented.

Within UNITE the total social costs (TSC) of the transport sector cover 5 cost categories
included in the expression below:
(5.5) TSC=TSC
infrastructure
+TSC
operating
+TSC
user
+TSC
accidents
+TSC
environment


For all modes and cost categories the transport accounts developed within UNITE contain
information on total social costs at a national level. This information may be used to monitor the
101
development of costs, the financial balance and the structure and level of prices. For pricing
purposes, information on average costs (AC) and marginal costs (MC) is of interest.

In addition to total social costs, information on average costs is available from the transport
accounts. Average social cost represents the total social cost divided by the traffic output (Q):
(5.6) ASC=TSC/Q.

Marginal social costs (MSC) on the other hand are the social costs of transport arising when one
additional traffic unit/vehicle joins the existing traffic flow. In mathematical terms this can be
presented by the following equation:
(5.7) MSC=TSC/Q.

There is a useful relationship between the two in that the cost elasticity (the percentage change
in cost resulting from a 1% increase in output) is TSC/Q*Q/TSC, which is MSC/ASC

For pricing purposes it is the marginal social cost, which is of interest. However, the existing
empirical values are not comprehensive and do not provide in all cases sufficient information
for setting prices. Average costs are therefore used in many pricing cases as an approximation or
proxy for marginal costs. The case studies undertaken in UNITE are to extend the set of
available marginal costs estimates. The analysis of the estimates and analysis of their potential
transferability should contribute to assisting policy-makers in development of more adequate
pricing policies.


5.4 Socio-economic costs by category
A few examples of results are given in order to show what type of information was produced by
the more than 40 case studies conducted for this project and to what extent the results can be
transferred to other settings and used for other purposes. See table 5.2a.

The costs shown are those that can be related to clear cost drivers such as passenger or vehicle
kilometres and the like. This does not concern external costs specifically related to a geographic
situation such as those related to the construction of a port or a road on a certain location with a
specific flora or fauna.


5.4.1 Infrastructure costs
The case studies on road maintenance show in the third column that for trucks the marginal
costs of road maintenance range from 0.02-0.05 per vehicle kilometre. In the fourth column it
is stated that the higher values of maintenance costs also include costs of renewal and upgrading
of roads, which better can be considered as re-investments.

The ratio of marginal costs on average costs, which is equal to the elasticity of costs with
respect to use of roads by trucks, shows a large variation with values ranging from 0.1 to 0.8.
102
This means that a one percent increase of truck traffic leads to an increase in maintenance costs
ranging from 0.1 to 0.8 percent. The lower values apply for roads with strength and the higher
values for roads with less strength. Similar observations were made for maintenance costs with
respect to railways, airports and inland waterways.

The interesting point of this study is that it produces state of the art information to be applied in
other situations, where possible. If one really wants the best information available one can read
the accompanying text or the background documents annexed to the report, which will be
available on the Internet in the near future.

Three main approaches were used to estimate the marginal infrastructure costs and also the
supplier operating costs being dealt with in the next section:

1. The econometrics approach where costs are the dependent variable and transport outputs
are among the independent variables. Cross sectional and/or time series analysis produces
parameters that may be directly interpreted as marginal costs, or used to construct the total
cost function from which marginal cost may be derived;
2. The engineering approach where total costs are disaggregated into sub-categories, and for
each of these categories, separate analyses provide the technical relationships between
inputs and output measures.
3. Cost allocation methods traditional methods to allocate variable infrastructure costs to
different cost drivers (axle load, vehicle kilometres, etc), according to engineering, empirical
and expert evaluation, following a top-down approach.

It is stated that from a theoretical point of view the econometric method is the preferred one and
the cost allocation method the least preferred one. For practical reasons regarding data
availability, however, often not much choice is left, so that the other approaches have to be
used.


5.4.2 Supplier operating costs
As information for these costs is less scarce than for the other cost categories relatively few case
studies were done. Some examples with respect to passenger transport are given in table 5.2.
Only for air transport the costs appear to be transferable for the situation in Europe. The
marginal costs appear to amount to 31.86 and 26.35 per plane-kilometre according to the
results with respectively the engineering and econometric method.

The elasticity of costs with respect to the produced number of ton-km appears to range from
0.90 to 0.93. This means that a one percent increase of produced ton-km leads to an increase in
costs ranging from 0.90 to 0.93 percent according to the results with respectively the
engineering and econometric method. This means that economies of scale are very modest.

It should be noted that the method applied in Section 5.1 for the assessment of ro-ro shipping
costs shows most resemblance with the engineering method. Application of the econometric
103
method where the Translog model is the preferred method is rather rare. An example known by
the writer is from Talley
46
.


5.4.3 User costs and benefits
The marginal transport user costs relate to the increased operating costs/ benefits and the impact
of increases/ decreases in journey time and transit time caused by increased traffic flow. In the
negative case, e.g. when the activity of one user causes extra costs for others, we talk of
congestion costs. In the positive case, when users activities improve the welfare situation of
other users we talk about the Mohring effect.

Of the four case studies conducted to assess congestion costs it appears that only for one case
the congestion costs are transferable, i.e. can be used for applications elsewhere. This case
concerns airport traffic for European airports, where congestion costs appear to vary from 5-15
Eurocents per passenger.

The results on urban road transport and passenger rail transport appear not to be transferable as
they are too specific for situation concerned. The application for inter-urban road transport
produces some transferable results under special conditions.

Transport user benefits, the Mohring benefits, apply to scheduled transport only. If the volume
of transport increases, the frequency of service of public transport (trains, busses, ferry boats,
airplanes, ro-ro ships) increases and the time-span between two consecutive services decreases,
as a result waiting times decrease. This reduction of waiting time costs can be considered as
Mohring benefits.

The examples concerning rail and inter-urban freight transport are not the transferable. Those of
passenger air transport range from 0.304 to 1.78 per plane kilometre and a transferable
considering the traffic volume of the origin-destination pair. If the traffic volume increases the
level of marginal benefits decreases.

Note that Mohring effects are also adopted in the port choice model in Section 3.5 and are
included in the market share variables. See tables 3.3 and 3.4. The Mohring effects in the case
study on inter-urban freight transport
47
were assessed by estimating the parameters of a logit
model with regression analysis. The data used were obtained from an extensive Stated
Preference analysis.


46
Talley, W.K., Optimal containership size, Maritime Policy and Management, Vol. 17, No 3, pp. 1965-175, 1990
47
UNITE Case Study 7J , Mohring benefits in freight transport
104

5.4.4 Accident costs
The estimation of marginal accident costs raises, among others, two basic issues: which cost
components should be considered as external (versus internal), and how to estimate the accident
risk elasticity, i.e. the impact of an additional vehicle on accident risk rates. The former issue
relates to methodology, i.e. whether the users WTP for safety has to be considered as an
external cost or, on the contrary, whether it is internalised in the user decision. The latter, how to
estimate risk elasticity, is deemed to have a direct impact on the calculation of marginal accident
cost.

The risk elasticity method and theory presented is summarised in the equation for marginal
external accident cost below:

(5.8) ( ) [ ] rc E c b a r + + + + = 1 ) ( MC
e
j


where r represents accident risk, a the value of statistical life (VOSL), b ditto for relatives and
friends, c the costs for the rest of society, the injurers risk and E the risk elasticity (i.e. the
relationship between accidents and traffic volume).

It is clear from this that marginal external costs of accidents will differ when any of these
parameters differs, and that direct transfers of values from one context to another may only be
done, if it is believed that all these parameters are unchanged.

We expect the external marginal cost to be high if:
the accident risk r is high
the cost per accident is high (a+b+c);
most of the costs fall on other user groups (0);
the risk increases when the traffic increases (E>0);
or a large part of the accident cost is paid by the society at large (c).
We believe that this method is suitable for all modes in all member states. We cannot foresee
any more general form of the external marginal accident cost, except that risk-avoiding
behaviour should be introduced. This involves formidable practical issues in terms of
estimation, however.

In table 5.5 the results are given of the accident costs per mode of transport as experienced in 4
case studies expressed in Euro per unit: vehicle per road kilometre, for railways per level
crossing, for inland waterway transport per ship ton kilometre and per ship per sea transport. It
is stated that outcomes are not transferable as the risks differ per country and the unit values are
linked to the countries Purchase Power.


5.4.5 Environmental costs
The environmental costs are split into air pollution, global warming and noise costs. For all
these aspects detailed studies were done. For air pollution this leads to costs in Euro per vehicle
105
kilometre (passenger car, passenger train, freight train, river barge and passenger ferry. These
values are in general transferable, although adaptations need to be made for the local
circumstances. See table 5.6. This also applies to global warming costs where costs are assessed
per vehicle kilometre. See table 5.7. A number of situations were studied for noise costs
resulting in costs per vehicle kilometre. The costs cannot be transferred easily from one situation
to the other as noise impact varies strongly per location. See table 5.8.








106







Table 5.2a Results on infrastructure costs
Typeof
transport
Key cost drivers Rangeof values
1)
Specific remarks on transferability
Road
Maintenance
Vehiclecharacteristics
Type, axleweight, speed
Infrastructuretype
-infrastructurecharacteristics
-construction and maintenance
standards and practice

Traffic volume
Location: weather conditions, wage
levels
For trucks
0.02-0.05
per vkm
MC/AC
Ranging
from0.1 to 0.8

Higher values in caserenewals and
upgradings areincluded

ON ratio MC/AC
Higher values for greater traffic density
Lower values for roads with greater strength
Rail
maintenance

Vehiclecharacteristics
-freight and passenger trains
-axleweight
-number and typeof wagons
-quality of maintenanceof
wagons
-speed
-construction standards

Infrastructuretype
-track geometry, no of sleepers
-operating requirements
-construction and maintenance
standards and practice
Traffic type
-traffic volume
Location type
-wagelevels
For all types of tracks
Cent
0.014-0.027

MC/AC
Ranging from
0.14 to 0.30
For Nordic conditions




ON ratio MC/AC
Thehigher values relateto higher levels of
traffic and speed
107
Typeof
transport
Key cost drivers Rangeof values
1)
Specific remarks on transferability
Airport
operations
Airport traffic
- Passenger/aircraft
movements
- Mix internat/nat
traffic
- passenger/freight
mix)
Vehiclecharacteristics
typeof plane

Infrastructuretype
typeof infrastructureelements
Personnel costs
Operational costs
Location type
-climateconditions
-ongoing expansion programme
38 per aircraft movement Development activities pushed cost up.

Inland
waterway
maintenance
Vehiclecharacteristics
-vessel type/ size
-speed and draught of vessel
Waterway type
Free-flowing or canal
Infrastructuretype
-geometry and construction of the
waterway
-typeof bank stabilisation system
-electric power for operating
locks/ship canal lifters
Marginal costs of embankments for free-
flowing rivers presumably negligible.
For canals or canalised rivers such costs
and costs of bridges and sluices may not
benegligible.




Table 5.2b Results on infrastructure costs
108

Table 5.2 Results on supplier operating costs
Typeof mode Key functions

Key cost drivers Rangeof values Specific remarks on
transferability
Urban public
transport





With econometric
methods thepreferred
function is the
translog cost function

With theengineering
method specific
functions very
specific per situation
Vehiclecharacteristics
- Typeof vehicle
- Intensity of use
Location specific datageographical
environment, wages and infrastructure
charges
MC
8.12 per train kmpeak
2.01 per train kmoff-peak
MC/AC
Per train in peak: 0.866
Per train in off-peak: 0.440
Not transferable
given specific
situation
Inter-urban passenger
transport by rail
Vehiclecharacteristics
- Typeof vehicle
- Intensity of use
Location specific datasuch as wages
and infrastructurecharges
MC

3.31 per train kmoff peak
10.85 per train kmpeak

MC/AC
0.5 per passenger km
Based on all costs of traffic
operations minus overhead
costs
Transferablefor
specific situation on
of Nordic intercity
railways
Air transport

Vehiclecharacteristics
- Typeof vehicle
- Intensity of use
Location specific datasuch as wages,
airport fees and on routefees
MC
31.86 pkm(Engineering)
26.35 pkm(Econometric)
MC/AC
0.90-0.93 for availableton-km
Transferablefor
European air
transport



109
Table 5.3 Results on congestion costs
Typeof
transport
Recommended method Key functions

Key cost drivers Rangeof values Specific remarks
on transferability
Further research
needs
Inter-urban
road transport
At road corridor level
using simulation model
including routechoice,
modechoiceand so on
Speed flow
relation
Vehicle
characteristics
-vehicletype
-fuel consumption
functions
-other vehicle
operating costs
-vehicleload rate
Infrastructure type
-road capacity use
-speed-flow relationships
Traffic type
-traffic mix and volume
-travel alternatives
For cars .0-0.15 per
vehiclekm.

For HGVs 0 -0.7 per
vehiclekm.
Partly possible
with careful
considerations

Urban road
transport
At urban network level
using simulation
models including
choices of trip,
destination, routeand
timeof departureand
so on
Speed flow
relation
0.02 0.4 per
PCUkm
Not transferable Assessment of the
outcomeof
different models
on sameurban
situation
Passenger rail
transport
Regression analysis to
estimatedemand delay
function

Simulation to model
supplier behaviour
Demand-delay
relation
Vehicle
characteristics
-train load rates
-train class
Infrastructure
type
-rail track/station
capacity use
Traffic type
-traffic mix
-travel alternatives
-demand-delay
relationships

0.298-0.719 per train
kmpeak
1)

0.077 0.191 per
train kmoff-peak
Not transferable Research on
methodology
needed
Air port traffic

Regression analysis to
estimatekey function
Demand-delay
relation
Vehicle
characteristics
-airport capacity use
-in-vehiclecapacity
use
Traffic type
-traffic mix
-travel alternatives
-demand-delay
relationships
0.015 - 0.05 per
passenger. Km
1.92-6.85 per plane
km
2)

Transferable
considering the
sizeof theairport

1) Based on theassumption of 300 passengers per train and a39.2kmround trip. 2) Based on therangeof flight km525-1817, 1s.d. around European mean of 1170
110


Table 5.4 Results on Mohring benefits
Typeof transport Recommended
method
Key functions

Key benefit drivers Rangeof values Specific remarks on
transferability
Further research
needs
Passenger rail
traffic
Combination of
regression and
simulation models
Frequency demand
relation
Traffic type
- Passenger volume
- Frequency level
- Traffic growth rate
Economies of train
length
Location type
- Capacity reserve
Investment limitations

0.075 0.525 per
train km
No, depending too
much on network,
timetables and
operating policy.
Further, outcometo
beevaluated in
conjunction with
supplier costs.

Passenger air
traffic
Combination of
regression and
simulation models
Frequency demand
relation
Traffic type
- Passenger volume
- Frequency level
- Traffic growth rate
Economies of planesize
Location type
Situation and roleof
OD-pair in air line
network

-0.304 to 1.78
per planekm
1)

Possible,
considering OD-
pair density

Inter-urban
freight transport
Revealed
preferenceanalysis
to estimate
parameters of logit
model (Stated
Preferences used
here)
Modal split
function including
frequency variable
Traffic type
- Freight volume
- Frequency level
- Model split options
Critical mass scheduled
transport
Location type
Availability of rail,
IWW and SSS options
and potential
No values given Not transferable Modal spilt studies
for corridors
including rail, SSS
or IWT
1)
Based on linedensity of 150000-250000 per year, flight length of 525-1815 kmand occupancy of 130.

111
Table 5.5 Results on the accident costs
Typeof
transport
Recommended method Key
functions

Key cost drivers Rangeof values
(marginal external cost)
fromthecasestudies
Specific remarks on
transferability
Further research needs
Road
transport
Risk elasticity approach.
Scope: Relationship
between HGV vehicle
weight and marginal
external cost
Accident
function
(risk & risk
elasticity)
Cost of accident
Accident risk (traffic
volume, composition of
traffic, speed of
vehicles, road
conditions, weather,
timeof day,
consumption of alcohol,
safety regulation)
Risk elasticity
Proportion of cost
already born by theuser
/vkm
HGV
Average: 0.0084
Fromlight to heavy axle: (-
0.00081)-0.032
All types
1)

All roads: -0.031/ 0.012
Motorway: -0.004/ 0.002
Outsidesettlements: -0.022/
0.014
Insidesettlements: -0.004/ 0.048
Generalisation is generally
not recommended. The
accident risk differs across
EU countries and unit values
arelinked to Purchase
Power.
Further research to
support thefindings in
respect to:
-liability aspects,
-amount of internalised
costs,
-risk avoiding
behaviour,
-traffic safety policy,
-accident function,
-other than trip decision
typeof behaviour.
Moreresearch should be
carried out in order to
suggest aset of reliable
and transferable
elasticities. Improvedata
availability necessary for
estimation of risk for
somemodes.
Rail transport Risk elacticity approach.
Scope: Allocation of costs
between different users
/passage
All level crossings: 0.034
Barriers: 0.062
Open cross: 0.108
Unprotected: 0.007
IWW Risk elacticity approach 0.0019 /ship tonnekm
16 /ship movement
Maritime
shipping
Risk elacticity approach.
Scope: How well thelegal
systemensureex post
internalisation of maritime
accidents
73-10000 annually per
registered ship
Note: -
1)
Result baseon assumptions: internalisation of averageaccident risk; averageaccident risk internalised by thecauser.
112
Table 5.6 Results on air pollution costs
Typeof
transport
Recommended method and
key functions
Key cost drivers Rangeof values fromthecasestudies
cent/vkm
Specific remarks on
transferability
Further research
needs
Road
transport
Method: Impact Pathway
Approach
)
:
-emission calculation
-dispersion & chemical
conversion modelling
-calculation of physical
impacts
-monetary valuation of
physical impacts
Functions:
Exposureresponsefunctions
Dispersion models
Emission factors
Fuel type
Vehicletype
Emission standard
Driving pattern
Geographical
location
Environment
conditions next to
road
Fuel mixture
Urban (interurban) passenger car
Petrol: 0.12-0.25 (0.11-0.37)
Diesel: 0.26-1.45(0.26-1.91)
Urban (interurban) HGV
Euro2: 4.69-17.52 (2.09-7.46)

Costs cannot betransferred based
on thepopulation density only.
General rulecan bederived given
theenginespecification and
taking into account:
- correction for actual emission;
- in urban areas adjustment for
local population density and
meteorology;
- in extra-urban areas adjustment
for geographical location and
routecharacter.
-regional costs per toneof
pollutant in acertain area
Further research
may beoriented
to:
- finding theset
of correction
coefficients for
thegeneralisation
of results;
- initiateabroad
statistical analysis
to develop
operational
formula(s) for
transfer of MC
estimates
- estimateMC for
missing
categories of
vehicles.
Rail
transport
Geographical
location of power
plant and emission
factors

Passenger train
High speed: 41.756
Intercity: 25.41-31.65
Local: 16.23-23.261
Freight train
14.758-32.03 cent/train-km

Geographical location
Shareof different fuels in the
electricity production
Fuel consumption of thecountry
for which they arecalculated
IWW Population density
Emission factors
1.2-1.8 cent/TEUkm Transferablefor similar vessel,
route, fuel characteristics.
Maritime
shipping
Population density
Wind direction

Passenger ferry at open sea(at berth)
Direct: 12.959 /vkm(1.524-1.589 /visit)
Fuel chain: 1.38 cent/vkm(15 cent/visit of 8.5 hrs)
Transferablefor similar:
-vessel traffic, -port location, -
routelength, -vessel type, -fuel
characteristics.
Notes:
1)
All casestudies used IPA with theexception of Florenceurban road and rail which used astatistical analysis.
113
Table 5.7 Results on global warming costs
Typeof
transport
Recommended
method and key
functions
Key cost drivers Rangeof values fromthecasestudies
cent/vkm
Specific remarks on
transferability
Further research needs
Road transport Multiplication of
emission level by
acost factor
1)


Emission factor
of thevehicle
Electricity
production
process
Urban (interurban) passenger
car
Petrol: 0.35- 0.69 (0.34-0.47)
Diesel: 0.31-0.43 (0.25-0.36)
Urban (interurban) HGV
Euro2: 2-3.28 (2.03-3.28)

Global warming costs are
not location specific, since
they arerelevant on global
scale. Generalisation does
not poseaproblem, because
thecost factors per unit of
greenhousegas emitted are
applicableto all countries of
EU. Consequently,
generalisation is possiblein
thecaseof comparable
emission factors for exhaust
emissions, and emission
factors for production and
transport of fuel for fuel
production.
Further exploration of
results
Rail transport Passenger train
High-speed: 0.731
Intercity: 0.554-16.83
Local: 0.407-10.75
Freight train
0.149-21.22 cent/train-km

IWW n.a.
Maritime
shipping
Passenger ferry
At open sea: 5.935 /vkm

Passenger ferry
At berth: 81.2 cent/visit
(8.5 hrs)
Notes:
1)
All casestudies used IPA with theexception of Florenceurban road and rail which used astatistical analysis.

114


Table 5.8 Results on noise costs

Typeof
transport
Recommended method
and key functions
Key cost drivers Rangeof values fromthecasestudies
cent/vkm
Specific remarks
on transferability
Further research needs
Road
transport
Method:
Impact Pathway
Approach
1)

Functions:
Exposure-response
functions
Density of the
exposed population
Distribution and
distanceof the
exposed persons
fromthesource
Existing noiselevels
(traffic volume,
traffic mix, speed)
Timeof theday Fuel
mix fromwhich
electricity is
produced
Urban (interurban) passenger car
Day: 0.22-1.50 (0.001-0.12)
Evening: 0.24-2.0 (0.001-0.12)
Night: 0.53-4.5 (0.002-0.19)
Urban (interurban) HGV
Day: 7.67-25.75 (0.006-3.04)
Evening 10.17-34.25 (0.008-3.04)
Night: 23.33-78.25 (0.021-5.06)

Broad variation in
estimates reflects
thepopulation
distribution,
number and speed
of vehicles etc.
Generalization is
difficult dueto
non-linearity and
variability of local
characteristics.
Costs can be
generalised for
vehicles on the
samerelation as
studied, adjusting
for differences in
specific emissions
(i.e. cost for a
petrol car
complying with
another emission
standard can be
derived for the
sameurban area
fromexisting
results).
Sinceapplication of
Impact Pathway
Approach in the
context of noiseis a
relatively new tool, it
might besubject to
revision and extension
in future. Particular
attention may be
applied to exposure-
responsefunctions.
Rail
transport
Passenger train
day: 0.04-6.17
evening: 0.2-3.99
night: 0.03-4.63
Freight train
day: 0.3-22.25
evening: 0.37-14.1
night: 0.59-15.74
IWW Negligible
Maritime
shipping
N.A.
Negligible
Notes:
1)
All casestudies used IPA with theexception of Florenceurban road and rail which used astatistical analysis.
115

6 Evaluation of infrastructure projects
6.1 Cost benefit analysis
6.1.1 Role of cost benefit analysis
The government of a country generally has a large influence on the financial and institutional
position of its ports, sometimes directly through the existence of state port companies or
indirectly through some sort of subsidies. This influence reflects the importance ports have
or are supposed to have for the national or regional economy. If large investments in port
infrastructure take place the government general gives financial support. The evaluation of
investments in ports therefore is a prime concern for national or regional governments and
the costs and benefits have a wider scope than the evaluation of the financial position of a
port company itself.

This chapter is concerned with a macro or socio-economic (in short hereafter economic)
evaluation of a port project. This analysis investigates the costs and benefits of the project
from a broad, welfare economic perspective. This means that not only the direct costs and
benefits of the project are taken into account, but also all possible indirect effects in other
sectors of the economy or in the environment within the society concerned. The project is, in
other words, judged from the perspective of the national society rather than only from the
narrow perspective of the few economic agents directly affected.

As the economic evaluation is important from a national point of view, in many countries the
methodology of such an evaluation has been worked out such as in the Netherlands for
instance. The international financial institutes (IFI) such as the World Bank, the Asian
Development Bank and the African Development Bank finance projects that have a positive
impact on the economic development of developing countries and that would otherwise not
be financed by commercial banks. The projects financed include large infrastructure works
such as roads, bridges and ports. For the evaluation of such projects economic evaluations
have to be conducted as a standard procedure and as a project appears to be economically
viable the next step is a financial and funding analysis. The IFIs have defined the
methodology of economic evaluation, which is published by the World Bank.

Most member countries of the Organisation for Economic Cooperation and Development
(OECD) have facilities to provide aid to developing countries. A popular one concerns the
provision of soft loans or grants for their exports of capital goods to developing countries.
The measure therefore is a combination of export promotion and development aid. For
exports to be eligible for such soft loans or grants a number of criteria have to be met. The
most important of these criteria are generally that the projects have to be economically
116


viable, commercially unviable and financially sustainable
48
. The criterion on economic
viability is important in order to avoid projects being implemented for prestige or other
uneconomic reasons.

The Netherlands government gives grants varying from 35% to 65% for Dutch export
transactions to developing countries. The aim is to promote the Dutch industries and
simultaneously help developing countries. The exports in the maritime sector concern
exports of hardware such as dredging materials, tug boats, pilot ships and infrastructure
works such as breakwaters, approach channels and quays. The criteria and methodology on
cost benefit analysis have become practically standard. See ORET/MILIEV review
49
on the
Internet.

The economic viability of the project can be assessed in an economic Cost Benefit Analysis
(CBA). This CBA deviates from a financial CBA, in that:
all taxes, subsidies and duties paid and received as a consequence of the project are
excluded from the analysis;
prices are corrected for distortions; and
external effects of the project are internalised by including the monetarised costs and
benefits in the calculation.

From the economic cash flows thus generated, an internal rate of return can be computed
called the economic internal rate of return (IRR). Then, a project can be found to be
economically viable, if the IRR exceeds the opportunity cost of capital for the receiving
country. The period of analysis is equal to the economic lifetime of the project. Other criteria
to express a projects economic viability are the Net Present Value (NPV, present value of
benefits minus present value of costs) and the Benefit Cost Ratio (BC-ratio, present value of
benefits divided by present value of costs). The definitions used in this chapter for the
assessment of the IRR and the present values are the ones included in the corresponding
functions of Microsoft Excel.

The opportunity cost of capital is the rate of return separating the feasible from the
unfeasible projects and is used as the interest rate to assess present values. This means that a
project is also feasible, if the NPV is greater than zero or the BC-ratio is greater than one.
Generally all these measures of merit are calculated, when evaluating a project.


6.1.2 Producer and consumer surplus
Generally one can state that, if the price of a good decrease, demand for this good will
increase. See line D in figure 6.1. If the price of a good decreases, the supply of the good will
decrease. See line S in figure 6.1. Through interaction of supply and demand they will reach
48
Other criteria concern the projects impact on the role of woman, on the environment, on employment and on the position of the
poorest of the community. If a project scores well on these aspects, its eliigibility for soft loans or grants improves.
49
ORET/miliev Review 1994-1999, Assisting developing countries to buy investment goods and services in the Netherlands, on
Internet
117


a level where they are equal resulting in an equilibrium price P. This equilibrium price,
however, also values the consumers and producers surpluses.

The consumers surplus is represented by the area below the demand curve, but above the
price and is a measure of indirect benefit to the consumer. It represents the difference
between the money that the consumers in total are prepared to pay for goods and the money
actually paid.

The producers surplus is the area above the supply curve, but below the price and represents
the difference between the amount at which a producer is prepared to supply a certain level
of output and the amount at which he actually does supply that level of output. It may be
regarded as the difference between the money obtained for goods and the direct costs of
producing them.


Figure 6.1 Consumers and producers surplus


As a result of a project the situation is improved resulting in reduced costs of the services
provided to the users of the services. Economic benefits can be measured by applying the
consumers surplus concept. If as a result of the project the price is dropped from P1 to P2
the consumer surplus increases from AP1E1 to AP2E2 and the net change is given by the
area P1P2 E1E2.

118


Figure 6.2 Consumers surplus due to a price decrease




6.1.3 Economic costs and benefits
Economic costs and benefits of a project can be assessed by systematically contrasting costs
and revenues for the national economy in the situation with and without the project. In this
incremental analysis the costs generally consist of the investment in port infrastructure and
related maintenance and operational costs. In case of ports the benefits generally come from
revenues from port charges that additionally accrue to the national economy and cost savings
because of lower shipping costs of the countrys imports and exports. These costs savings
occur for instance, because waiting times of ships become too long or because the port in its
present situation is unable to accommodate the larger ships, which would reduce the costs of
imports and exports.

The benefits related to cost savings because of shorter waiting times of ships and because
lower shipping costs, generally are not recovered from port charges and therefore accrue to
the importers and exporters. A similar treatment is applied to environmental issues, which
are generally neither included in the tariff.

For the economic evaluation, in fact two forecasts are needed: one for the situation with the
project and one for the situation without the project. The possible benefits of a port project
consist of:
1. Direct benefits to the port such as additional revenues from charges on ships, from
charges on cargo handling or from rental of land made available by the project.
2. Benefits to users of the port such savings on inland transport costs, on cargo handling
costs, on insurance costs, on interest costs of cargo in transit, on savings in ships costs
in port, on costs of ships operations by for instance employment of larger ships and from
increase in output of the port user industry.
3. Indirect benefits to suppliers of input factors such as increase in income to port-related
labour, increase in come to port related industries and increase in benefits through a
multiplier effect.
4. Non-quantifiable benefits: these include (negative) benefits such as external costs related
to human life (nautical safety), air pollution, noise and national defence.

119

6.2 The Puerto America project in Venezuela
6.2.1 Project description
The project has a combined objective:
to rehabilitate the natural environment of the Maracaibo Lake by stopping dredging of
the entrance; and
to provide a deepwater port facility by shifting the port system from the lake entrance to
outside the lake on two islands nearer to the sea.
See Map 4.1 and 4.2 in Section 4.5 on port capacity assessment.

The objective of the economic analysis is to assess the resulting flows of investments and
operational costs and the corresponding flows of benefits over the economic lifetime of the
project's infrastructure.

The project can be defined as the relocation of port services and some production activities
from the lake area to a deepwater facility outside the lake area and consists of the following
main activities:
the stop of dredging activities as soon as the main terminals will be operational;
the provision of deep sea port access;
the provision of deep sea berths; and
the provision of port areas.

The first investments start from 2002 and the various terminals are envisaged to become
operational at the following dates:
2005 First Phase, coal terminal
2007 First Phase all other terminals; and
2015 Second Phase coal terminal, Second Phase Container terminal and some smaller
investments in the coal, grain and cement terminals.

The impact of the project is great as it influences not only the provision of port services and
thereby a shift in the ports hinterland, but also the location of some industries. The long run
impact of the project will be that West Venezuela will have a better access to the sea and as a
result will have lower costs and better quality of service of its overseas transport links.

The traffic forecast provides the basis for an assessment of the optimum draft of the fairway
to the port and of the impact of draft alternatives in excess of the present maximum draft of
37 ft to maximum drafts of:
42 ft;
47 ft;
51 ft; and
54 ft.



120


6.2.2 Economic benefits
The figures shown hereafter concerns realistic orders of magnitude, but are not the real
figures of the study.

The project benefits consist of two broad categories: those related to the improving
environmental situation of the lake because of reduced dredging and those to the change of
the West Venezuelan transport system. Reduced dredging leads to a reduction of slat water
entering the lake and subsequently to low salinity levels. This will lead to improvements for
the fishery industry and possibly also for the agricultural and tourist sector. Only those for
the fishery sector could be quantified and included in the evaluation.

Reduction of water salinity has however direct benefits to society as a whole as it is
generally acknowledged that lower salinity will restore the aquatic ecosystem of the lake
area and thus the quality of life for the population of the State of Zulia in the medium and
long term.

Map 6.1 Sea water flows into Maracaibo Lake


121

Transport related project benefits concern the following broad categories:
a) Revenues from the use of port facilities, i.e. the use of maritime access, berthing space
and land. These benefits concern avoided costs of maritime access, berthing space and
land elsewhere either in Maracaibo or elsewhere in Venezuela.
b) Transport efficiency benefits related to cost and time savings. This also includes
negative benefits related to the doubling of terminal facilities in the case of crude oil and
products.
c) Indirect benefits related to additional economic activity generated by the project. These
concerns coal mining in particular and further, in conjunction with the other projects
along of the Maracaibo Guazdalito axis, the long-term development of the Western
Venezuela. The latter type of impact cannot be quantified in monetary terms.

6.2.3 The optimum port draft alternative
The projects economic feasibility, as far as the quantifiable benefits are concerned, can be
expressed in the Economic Internal Rate of Return (EIRR). The EIRR varies per alternative
and ranges from:

Alternative 1: 42 ft draft: 9.4 percent
Alternative 2: 47 ft draft: 10.6 percent
Alternative 3: 51 ft draft: 10.8 percent
Alternative 4: 54 ft draft: 10.4 percent

The EIRR values are in excess of the economic cut-off rate of 8% and it can be concluded
that even based on quantifiable benefits only the project can be considered as economically
feasible.

The projects economic feasibility, as far as the quantifiable benefits are concerned, can also
be expressed in the NPV based on a discount rate of 8%, which varies as follows:
Alternative 1: 42 ft draft: US$ 244 million
Alternative 2: 47 ft draft: US$ 498 million
Alternative 3: 51 ft draft: US$ 557 million
Alternative 4: 54 ft draft: US$ 504 million

The outcome clearly shows that alternative 3 is the optimum one.


6.2.4 Importance of benefits by category
The importance of benefits by category, for the optimal Alternative 3, can be expressed on
the basis of the present value, based on a discount rate of 8%. Benefits for sea-born transport
with a total present value of US$ 1,021 million are by far the largest category, followed by
benefits related to inland transport cost savings (US$ 515 million), benefits from port
revenues with US$ 309 million, indirect benefits derived from coal production (US$ 193
million), costing savings related to terminal handling costs, to avoided dredging costs,
increased fishery activities (all between US$ 100 and 170 million). See Figure 6.3.
122



Figure 6.3 Importance of benefits per category

Proportion of total benefits
(Present Values)
additional port
revenues
13%
inland transport
cost savings
21%
terminal handling
cost savings
4%
seaborn transport
cost savings
41%
indirect benefits
8%
environmental
benefits
7%
avoided dredging
costs
6%


6.2.5 Sensitivity analysis
Sensitivity analysis on investment costs
For the optimum alternative 3 a sensitivity analysis is needed in order to assess the
sensitivity of the outcome, the EIRR of 10.8 percent, for higher investment costs.

By increasing the investment costs with 20% the EIRR will be as follows:

Civil construction costs +20%: 9.9%
Mechanical construction costs +20%: 9.8%
All construction costs +20%: 9.0%

Sensitivity analysis on trade and traffic forecast
Three separate forecasts were made: a low, medium (considered as the most probable one
and presented throughout this report) and high scenario. The outcomes for Alternative 3
were as follows:


Table 6.1 Results of economic evaluation

Traffic Scenario EIRR in % NPV in million USD
Low Scenario 9.7% 323
Medium Scenario (base case) 10.8% 557
High Scenario 11.9% 801
123


Sensitivity analysis on size of crude oil tankers to be accommodated
Under the base case set of assumptions it was assumed that not all tankers of the largest size
class can be accommodated due to port draft conditions at the receiving end in the United
States. To reflect this a sliding scale was applied. The impact of alternative schemes was
assessed including a pessimistic one providing less room for large tankers and an optimistic
scheme providing more room. The description of the scheme and the impact on the EIRR
and the NPV is given in the table below, showing that the project is feasible under the
pessimistic scenario with an EIRR of 9.2% and NPV of USD 231 million.


Table 6.2 Measures of merit by scenario and alternative

Draft
restri ction in ft
Pessimisti c
Scenario
Base case Scenario Optimistic Scenario
Percentage of tankers accommodated by maximum draft size
<37 ft 60% 20% 20%
<42 ft 10% 20% -
<47 ft 10% 20% -
<51 ft 20% 40% 80%
Measures of merit
EIRR 9.2% 10.8% 11.6%
NPV in USD million 231 557 726


Conclusion of sensitivity analysis
The conclusion of the sensitivity analysis on scenarios concerning investment costs, trade
and traffic demand and accessibility of large tankers is that the project is feasible and that
this conclusion is rather robust.


6.2.6 Incidence of benefits
As soon as the benefits of the project become effective, the question arises which party is
reaping the benefits and to what extent: the Venezuelan economy and/or parties abroad. So
far it is assumed that all benefits will accrue to the Venezuelan economy. This will not
happen automatically. For commodities such as coal and oil the Venezuelan exporters, who
are supposed to run their own terminals, can change their export prices in correspondence
with the benefits as soon as the project becomes operational. They can perfectly discriminate
between the situation before and after the change.

In general one can state that affected importers and exporter of bulk cargo can adapt their
prices in accordance with the change in the situation. This is different for heterogeneous
cargo groups such as containerised cargoes. The port authorities are the usual party trying to
recover the investment costs through adaptation of berthing dues, wharfage and/or port dues.
They are not in a position to perfectly discriminate and often do not even change the tariff
after an improvement. In such a situation it is difficult to state who is reaping the benefits, as
124


this depends of the shapes of the supply curves of goods from an exporting country and the
demand curve of an importing country. As the shapes of such curves are not known, it is
often stated that the benefits accrue 50/50 to domestic and foreign parties. If the benefits
related to container shipping are divided that way the EIRR becomes 9.9%.

Cost and benefits per sector
Costs and benefits were assessed for each of the main port sectors separately and give an
indication of the importance of each. The investment and operational costs of ports
approaches, which cannot be attributed to one of the four main sectors (oil, coal container
and the aggregate of the remaining sectors) were allocated to each in proportion to the
sectors own costs. The resulting NPVs per sector for alternative 3 show that:

The oil sector has the highest investment (USD 931 million) and operational costs (USD
158 million). Despite the high cost savings in shipping (USD 652 million) the NPV is
negative with a value of USD 491 million.
The coal sector has an NPV of USD 822 million and thereby is the greatest generator of
benefits related to sea born transport costs, inland transport costs and indirect benefits
related to the mining industry.
Also the container sector will generate a substantial flow of benefits with an NPV of
USD 466 million.
All other sectors taken together show a negative NPV of USD -240 million. If only the
transport related benefits are taken in consideration and environmental aspects are
disregarded, the NPV goes further down to USD 406 million.

It can be concluded that the situation of costs and benefits per sector shows a great variation.


6.3 The Maasvlakte-2 Project of the Port of Rotterdam
In the future without land reclamation the Port of Rotterdam will experience a shortage of
port capacity. The CBA of the land reclamation project shows that with the present port tariff
there will be a positive NPV. The advantages of the project relates in particular to container
transit, so that the advantages of the project are of a European scale. With the existing tariff
the project will yield a negative result. With higher tariffs there appear to be good
possibilities for an improvement. For the financial evaluation see also Section 6.5.

For the economic forecast of the West European and world economy up to 2020 three
scenarios were developed and used:
A low one: Divided Europe (DE) with GDP growth rate of 1.5% (0.8%) annually;
A medium one: European Coordination (CE) with GDP growth rate of 2.75% (1.9%)
nnually; and
A high one: Global Competition (GC) with GDP growth rate of 3.25% (2.4%)
annually.
Figures between parentheses concern annual growth rates after 2020.

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Map 6.1 Reference design I, Port Access via MV-1 and map 6.2 Reference design II, Own Port Access


For the EC (Medium) Scenario there is predicted a demand of 1090 ha in 2020 and of 1750
ha in 2035, which will be used for container handling, container and empty distribution
depots, chemical industries and some other sectors. See table 6.2

Table 6.3 Potential demand for new port areas from 2000 onward (in hectares)

Port land use
Total demand Land shortage without
project
2020 2035 2020 2035
Container terminal 210 420 80 230
Distribution and empties 130 180 20 50
Chemical industries 410 560 70 170
Other industries and services 70 80 10 10
Total 820 1240 180 460
Based on EC Scenario

The land reclamation will be done in 5 phases with a total investment value of NLG 4.4
billion for Reference Design I. For the EC Scenario the first phase has to be ready in 2013
and the DE Scenario after the year 2035. The present value of the investments according to
this scenario with a discount rate of 4% comes at NLG 1.7 billion for the year 2003.


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Table 6.4 National results of land reclamation project (present values in 2003)

GC Scenario EC-Scenario DE-Scenario
Start phase 1 2010 2013 After 2035
Port exploitation
Investment -2.4 -1.7 -0.4
Of which break-water (-1.3) (-1.0) (-0.3)
Operational result 0.1 -0.1 -0.1
Avoided costs 0.3 0.3 0.3
User effects
Containers 1.2 0.3 0.0
Chemical 0.3 0.2 0.1
Other 0.1 0.0 0.0
External effects
Nature 0.0 0.0 0.0
Environment -0.2 -0.2 -0.1
Indirect effects 0.0 0.1 0.0
Subtotal 2035 2.3 0.7 0.0
Rest value 1.7 -0.4 -0.2


The categories of transport costs and benefits of the Maasvlakte 2 project can be assessed by
comparing supply (see figure 4.11 in Section 4.3) and demand (see figure 3.4 in Section
3.5.3) of container services. Some categories are given in figure 6.4 below.

After scaling the curves supply and demand appear to cut each other with a combination of
23 million TEU and a container-handling rate of NLG 23 per TEU above the average cost
level. The monetary benefit of the project for the users (the consumer surplus) consists of the
areas A, B and C. The additional profit for the producers without the project (the producer
surplus) consists of the area above the curve, the area A. The total contribution to the
economy consists of the balance of both effects and consists of the area B and C.

The area B gives the additional costs for containers, which keep to be routed via the port of
Rotterdam, despite the congestion problems in the port. The area C concerns welfare losses
related to containers, which are re-routed to competing ports.

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Figure 6.4 Supply and demand of container throughput as a function of container handling tariff

tariff in NLG/TEU


throughput in million TEU


6.4 Small scale example: removal of shoal in the port of Abidjan -
6.4.1 Background
The port of Abidjan is the largest harbour on the Sub-Saharan West African coast. It serves
the imports and exports of Ivory Coast and of the landlocked countries such as Burkina Faso
and Mali. During 1996 the port handled 13.4 million tons of commercial cargoes, an increase
from 10 million tons in 1991. This corresponds with an average annual increase of 6 percent.
Within this, total container traffic doubled over the last 4-5 years and the success of the port
in this respect is shown by an increasing share of transhipment traffic from 3 percent in 1991
to 23 percent in 1997.

The 11 terminals of the port of Abidjan are situated inside a lagoon, which is connected to
the sea by a channel. See Map 6.3. The terminals concern specialised berths for oil products,
fruit, timber and other bulky cargoes and berths for container and ro-ro vessels, able to
accommodate containerships up to 2,500 TEU. With two gantry cranes the container port of
Abidjan is the most modern of the region.

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Map 6.3 Port of Abidjan




With a container throughput of 416,000 TEU per year in 1997 Abidjan is the busiest regional
container port of West Africa and is reaching the 500,000 TEU mark. With this level of
traffic the port of Abidjan has reached its maximum capacity. The port of Tema in Ghana
comes second with less than half this volume. The West African coast ranging from Sierra
Leone to Congo is increasingly becoming part of the worldwide container-shipping network.
Containers are more and more being shipped by fully cellular containerships, which are
gradually replacing the slower, smaller and thereby, more costly semi-containerships. As
these containerships are used to call at less port, they are transhipping cargoes via regional
hub-ports, feeding from there the smaller ports. At present Abidjan is the major hub-port. In
the future the port of Tema in Ghana might become a competitor in this respect.

The containers handled in Abidjan are carried by a great variety of ships such as
conventional general cargo ships, ro-ro ships, semi-container ships and full containerships.
The larger containerships from 1200-1800 TEU, however, have reached an important share
in the market and it is expected that these ships will increase their share further, leading to a
rapid further containerisation of West-African imports and exports.
To meet demand in the short term the Port Autonome dAbidjan (PAA) is increasing its
capacity by refurbishment of cranes and acquisition of new ones. To meet demand in the
long term various plans exist. The PAA is said to be developing a Masterplan at present,
where future expansion of the container capacity and bulk handling capacity is planned to
take place on the Isle of Bouley, located in the middle of the Ebrie Lagoon. The island will
be connected with the mainland by a new bridge. No details are available about the
dimensions of the berths, capacities and the construction schedule of the new facilities.

129

Another plan by the PAA is to increase port capacity by constructing a new two-berth
container terminal at Locodrjo and deepen the channel and the lagoon to 14 metres to
accommodate ships of around 3,500 TEU. This will more than double capacity and open
Abidjan for considerably larger ships. A British consortium headed by technology group TCI
Corporation has been named preferred bidder for this USD 100 million project. The contract
will be awarded on a Build, Operate and Transfer basis. The new terminal is expected to be
fully operational in 2003.

It is not clear why the PAA is planning to expand its container handling capacity at two
different locations, at Locodrjo and at the Isle of Bouley. Concentration in one location
would have clear advantages from an operational point of view.

Vessel traffic to and from the existing container and ro-ro terminal, the South Quay, is
hampered by a shoal opposite the berth. Vessels sailing to and from the berths sometimes
face problems with manoeuvring and it is reported that occasionally vessels run aground or
touch bottom at the shoal as result of black-outs or mis-happenings in navigating through the
curved approaches to the berths. In a number of cases this has resulted in damage. For large
ships the problem is less serious than for the smaller ones. This project has the objective to
improve the dangerous situation by removing the shoal by dredging.

The newly planned terminals at Locodjro and later also at the Isle of Bouley most probably
will take over some traffic by the larger ships, thereby relieving the problem to some extent.
Also some dredging will be needed for these new terminals. It is not clear to what extent
these matters interfere. At present a port Masterplan is being developed on behalf of the
PAA and it may be expected that this plan will deal with said problems.

6.4.2 Project definition
The project50 concerns the improvement of the navigational situation of the South Quay,
where the container and ro-ro berths of the port of Abidjan are located, by removing a shoal
opposite the South Quay.

6.4.3 Trade and traffic developments
In 1996 350 containerships entered the port for the major part using route A. See Map 9.2. If
the shoal is removed, these ships will experience a time saving of 1.5 hours. In the same year
327 ro-ro ships entered the port generally using route B. If the shoal is removed the time
saving will be small to negligible. In both situations the general nautical situation will
improve.

The container trade in the port of Abidjan showed a strong increase in the recent past from
180,000 TEU in 1991 to 416,000 TEU in 1997, i.e. an annual growth rate of 15 percent. It is
1. According to the Consensus group of the OECD a project may be defined as: the smallest complete productive entity,
physically and technically integrated, that fully utilises the proposed investment and captures all financial benefits that can
be attributed to the investment.

130



mentioned that Abidjan passed the 500,000 TEU mark in 1998. As major West African
container port, Abidjan is developing a function as a transhipment port, seeing its container
volume increasing from practically nil in 1991 to 96,000 TEU in 1997.

Ro-ro trade shows a lower but still impressive increase from 487,000 tons in 1991 to 713,000
tons in 1996, i.e. an annual growth rate of 8 percent per annum. At present a Masterplan is
being drafted including a traffic forecast. As it is not available for this study, an ad hoc
forecast needs to be made. It is generally expected that containerisation of West African
imports and exports is coming off the ground and it may be expected that high growth
figures will continue for some time.

The increase in demand cannot be fully met by the existing facilities at the Southern Quay.
The capacity of the container berth is under present operational circumstances practically
fully utilised, but can be extended somewhat by the installation of new equipment and other,
low investment measures to a level of about 600,000 TEU. With the assumed growth rates
this situation will be met soon. It may be assumed that the increase will subside for some
time and will increase again as soon as the new facility at Locodrjo will be operational.

The new facility at Locodrjo will offer greater depth and new equipment and it may be
expected that it will take over the transhipment role of the Southern Quay and attract the
larger ships. As a result the ships berthing at the Southern Quay will be the smaller ones and
therefore not show any increase in size.

It is not clear to what extent the capacity of the ro-ro berths is a limiting factor. For the
calculations hereafter it is assumed that it is not. This issue will be taken up again later.

The number of container ships calling in 1996 was 350 and is assumed to increase in
proportion with container throughput. The number of ro-ro ships calling was 327 and will
increase in line with the ro-ro trades.

Table 6.5 Development of throughput potential in the port of Abidjan

year container throughput in 1000 TEU ro-ro trade in 1000 tons
total potential transhipment
1991 180 6 487
1992 189 12 542
1993 239 41 575
1994 248 41 515
1995 261 39 489
1996 310 46 713
1997 416 96 not available
total potential via South Quay ro-ro trade
1999 436 802
2007 967 1098
2012 1528 1335
2017 2504 1625
Source: Annual Report Port of Abidjan; Containerisation International Monthly

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6.4.4 Port charges
The project will improve the access of ships for the container and ro-ro quay. The costs of
the provision of this access are in most ports recovered from the so-called port or harbour
dues. The port of Abidjan has no price for the provision of access and has a charge called
Redevance de sejour, a charge in English generally referred to as quay dues. This charge is
intended to recover the costs of the use of the quay. It is not clear whether the costs of the
provision of port access are going to be recovered and, if so, in what way. Some elaboration
is therefore needed.

A great number of countries has the view that the costs of construction and maintenance of
general infrastructure are the responsibility of the public authorities and should be paid from
public funds and therefore not recovered from the users. The costs of dredging of waterways
and vessel traffic services in ports are part of this. Continental European countries such as
France, Belgium and Germany adhere to this view. The high costs of dredging in these
countries are not recovered from port dues. The UK has a different view and is of the
opinion that the users have to pay for the services concerned. The Netherlands practice is
somewhere in between.
Countries such as Ivory Coast, most probably, have inherited a system from their old
colonial power and do not even have a charge for the service. In the European Union the
issue of full port cost recovery is at present on the agenda. It is not likely, however, that the
above-mentioned countries will change their view.
Coming back to Ivory Coast. There is no charge for the provision of port access, as
mentioned above, which most probably has a historic background.


6.4.5 The types of economic benefits
The port of Abidjan is located in the Ebrie lagoon and the ships entering or leaving have to
pass the Canal du Vridi. The ships coming from or going to the container terminal and the
adjacent ro-ro berths have to avoid a shoal in front of it. The larger and less manoeuvrable
ships have to take a route via the north of the shoal (route A) and the smaller and more
manoeuvrable ships have to take the route via the south of the shoal (route B).

It is reported that occasionally vessels run aground or touch bottom at the shoal as a result of
blackouts or mis-happenings in navigating through the curved approaches to the berths. In a
number of cases this has resulted in damage. This situation is unfavourable from a nautical
point of view. The intended removal of the shoal will improve the nautical situation and
simultaneously shorten the distance ships have to sail.

The projects economic benefits to be discussed hereafter concern:
time costs savings for ships and tugboats;
increase in traffic safety; and
land reclamation.


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6.4.6 Time costs savings
An analysis of the nautical situation shows that removal of the shoal will save 1.5 hours per
call of ships passing route A. See Technical Report. As the ships require tugboat assistance,
the accompanying tugboats will make the same saving in time. Smaller ships, usually ships
with a length of less than 125 meters or better manoeuvrable ro-ro ships with a length of less
than 200 meters, generally take route B. The removal of the shoal will improve the nautical
situation and will lead to small savings in time up to some 15 minutes per call.

The average size of a containership is 1,200 TEU and costs USD 10,000 per day or USD 400
per hour, resulting in a cost saving of USD 600. The size of the ro-ro ships and the smaller
ships is less and comes at about 500 TEU. Daily costs amount to about USD 6,500 per day
or USD 270 per hour, resulting in a cost saving of USD 67.5 per vessel call.

The five tugboats of the PAA vary in size with three ships of about 1600 horsepower with a
bollard pull of about 27 tons. The larger ships passing route A generally use one or two tugs,
depending on their size and whether or not they have a bow thruster. For the calculations
hereafter it is assumed that they use on average 1.5 tugboats. The smaller ships generally do
not use tugboat assistance for the passage of route B.

The annual costs for depreciation and interest of such tugboats amount to about USD
260,000 costs and the corresponding operational costs to USD 200,000. Annually, a tugboat
makes about 2000 productive hours, so that the hourly costs arrive at some USD 230 per
tugboat.

Summarising, the cost saving for a containership entering and leaving the port comes at 1.5 x
(USD 400 +1.5 x USD 230) = (rounded off) USD 1,120.- and for ro-ro ships at USD 0,25 x
(USD 270) =USD 67.5. As a result, these time cost savings for containerships come to NLG
1.17 million for the first year (assumed to be the year 2000) after the shoal has been
removed, increasing to NLG 1.44 million in the fourth year and remaining stable at that
level. As discussed in chapter 3, by then the container berths will have reached their
maximum capacity. For ro-ro and small ships the resulting annual benefits are considerably
less and will increase from NLG 49 million in the first year to NLG 116 million in the 20-th
year.


6.4.7 Increase in traffic safety
By removal of the shoal, the nautical situation in the port will be improved, which will lead
to a reduction of the costs of damages caused by collisions and groundings. In many cases
the impact and costs of groundings will be little given the muddy structure of the bottom. In
other cases it may be more, leading to the costs of inspections, repairs and loss of time. In
other more rare cases it may lead to collisions involving heavy damage. Theoretically, these
costs can be assessed by multiplying the probability of such event with the costs of it. The
information provided by the supplier and the PAA is not sufficient to provide said
probabilities.

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It should be noted that the probabilities could be assessed by making mathematical
simulations of the passage of the approaches by typical ships under typical hypothetical
circumstances. By systematically varying the nautical behaviour of the vessels navigating the
approaches of the berths, insight can be gained in the values of the probabilities. This can be
done for the situation with and without the project. These types of analysis seem not to have
been made.

It should be noted further that it is not clear whether the nautical situation cannot be
improved by low cost measures such as through the installation of additional aids to
navigation or additional inputs of pilots and tugboats.


6.4.8 Land reclamation
As a by-product the project produces an estimated 1.2 million tons of valuable sand that will
be used for the reclamation of 5 hectares of land behind the container terminal. See Map.
The sand used for the reclamation will be levelled and needs to be prepared for further use.
With a net price of USD 10 per m2, which seems not to be unreasonable under the local
circumstances, the total value of the land comes at USD 0.5 million.




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Map 6.4 Alternative access routes within the harbour basin





Map 6.5 Land reclamation area


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6.5 Financial evaluation and port finance
This chapter of the reader serves as informative background reading to the lecture given on
the subject of port finance. Not all elements will be treated in the lecture though their
purpose here is to broaden the understanding of the students on the subject of port finance.

6.5.1 Introduction
What is port finance?
Port finance concerns the funding of investments in the port sector. In the abstract, finance
boils down to bridging the timing gap between a negative cash flow, which is often the case
when big investments are done, and a positive cash flow, which occurs when the asset
invested in is in full use. It can be either of a public or private nature. If it is the former type
finance is not only provided on purely commercial terms, often government objectives
interfere. Private finance on the other hand is purely on commercial terms.

Finance can take on many different forms with two main categories equity and debt, in
principle regardless of its public or private source. However, private finance is much further
developed and in developed financial markets a wealth of financing instruments exists
mixing equity and debt features.

Although finance may appear an exclusively economic issue, in practice, whether or not to
be able to attract finance is also highly dependent on the legal, institutional and political
setting in which one operates. Financiers focus on certainty and security, elements that can
be provided through a legal framework that guarantees for example legal and economic
ownership. Lack of transparency in the legal position of a financier hampers development of
financial markets, which is the case in many developing countries and which also time and
again holds back port development, investment and the finance thus needed.

Trends
Rough estimates show that global investment needs in ports could exceed US$ 50 billion
during the current decade, with container terminal accounting for the majority of investment
need. As ports world-wide continue to face significant capital demands for marine terminal
and associated infrastructure development, they have intensified the use of alternative
funding mechanisms, including off-balance sheet and non-recourse project financings.
Over the past 20 years a paradigm shift has occurred in the port industry. A worldwide trend
towards greater private sector involvement in ports has become apparent. While wholesale
privatisation has occurred in a few cases, what is more common is the introduction of private
finance, operation and management in place of state funds and administration. This is done
through granting concessions and using the infamous BOT concept. The BOT Build
Operate Transfer concept combines private investment, operation, finance and often
temporary ownership necessary to secure finance. In short, the port sector shows evidence of
a shift away from public finance towards private finance and from public responsibility
towards private sector responsibility for investment in and operation of an efficient port
system. This change in the way the port sector is organised and financed brings about that
136


finance in the port sector is currently predominantly concerned with this shift from public to
private finance of port sector investments.


6.5.2 Some lingo
As all sectors, also financial markets have their own language and idiosyncratic words when
talking and writing about finance. Thus, a brief explanation of some crucial words.

Fundamental is the distinction between equity and debt. Equity is provided by shareholders
of a company, whilst debt is provided by financiers often banks. The main distinction is in
the risk profile of both financing instruments. Debt has a fixed return called interest
whilst the return on equity called dividend depends on the profit of the port company.

Interest is the cost of a loan (debt) to a company. It is a combination of a base interest rate,
that is the general market rate for a risk free loan with a certain term (period over which
finance is provided), plus a so-called margin. The latter is usually expressed in basis points
and depends on the risk of the loan, with one basis point being equal to 1/100
th
percent point.
Together, the base rate plus the margin make the cost of finance to a company. The period
over which finance is provided is called the term or maturity of a loan. Usually, the longer
the maturity the higher the interest rate.

The risk of a loan (or debt in general) to a financier basically is the probability of default of a
port company on its loan. In other words, the chance that a port company is not able to pay
its interest and repayment together called debt service on the loan. The default risk is the
main risk for a bank. For a shareholder risks are numerous, all having an impact on profit
and thus dividend.

Envisaged project risks determine the ratio between equity and debt. If financiers assess high
risks (operational, commercial, others) they may require a larger proportion of equity and/or
a higher interest margin. This will increase the Weighted Average Cost of Capital (WACC)
of a project. The WACC is the weighted costs of debt (interest) and of equity (required
return/dividend) used to finance the project investments.


6.5.3 Finance and port management models
Type and structure of finance in the port sector highly depends on the institutional structure
of the port sector. In particular the following issues are of relevance:
the division of activities and associated investments between public or private
parties or companies; and
the ownership of assets, which forms the basis of finance (public or private).

To further the understanding of the relation between finance and the organisation of the port
sector one can use the following typology of Port Management Models (PMM), which
contains 4 archetype PMM which have evolved over time in the international port scene:
137

1. (Public) Service Port;
2. Tool Port;
3. Landlord Port;
4. Privatised Port (or Private Service Port).
It should be kept in mind that not every port perfectly fits in the above classification of
PMM. Many ports exhibit characteristics of more than one of the above PMM.

As a general observation, Public Service and Tool ports are focused on the realisation of
public interests whereas Landlord Ports have a mixed character. This type of port aims at
striking a balance between public (Port Authority) and private (port industry) interests. Fully
Privatised Ports are solely focused on private interests.

Public Service Ports have a predominantly public character. They are often remnants of a
time when Governments considered ports as strategic assets, not allowing any private
interference in their management and operations. From a historic perspective, this view
frequently coincided with a socialist view on economic development, based on strong public
interference in the economy. Many ports in developing countries have long time been
managed according to the Public Service Port model (India, Sri Lanka, Singapore, UK,
Venezuela and Tanzania). The name reflects the situation in the port: the Port Authority
offers the complete range of services required for the functioning of the seaport system. The
port owns, maintains and operates all assets (immovable and movable) and stevedoring
activities are executed by labour, employed by the Port Authority.

The basic characteristic of the Tool Port is the Port Authority owning, developing and
maintaining the infrastructure as well as the superstructure (including stevedoring equipment
such as quay cranes, forklifts, trucks, etc). Due to the ownership, such equipment is usually
operated by Port Authority staff. Other stevedoring activities, on board vessels as well as on
the apron and on the terminal areas, are usually carried out by independent private
stevedoring firms, contracted by the shipping agents and licensed by the Port Authority. The
Tool Port is in many aspects similar to the Service Port, both in terms of its public
orientation and the way the port is financed. This type of ports used to dominate in countries
around the Mediterranean such as Croatia, Italy, France and Spain.

The Landlord Port is characterised by its mixed public-private orientation. The Port
Authority acts as regulatory body and as landlord, whilst port operations (especially
stevedoring activities) are carried out by private companies, operating their own terminals.
Because of their public character and their relation with the Harbour Masters tasks and
responsibilities, marine operations (VTS, pilotage) are usually performed by the Port
Authority. There are, however, landlord ports where pilotage is privatised. Examples of ports
managed along the principle of the Landlord Port model are Rotterdam, Antwerp, New York
and, since 1997, Singapore. The Landlord Port is the dominant port model in larger and
medium sized ports.

In the Landlord Port model the infrastructure is leased to private terminal operators and / or
to industries, such as refineries, tank terminals, chemical plants. The private operators
provide and maintain their own superstructure, including buildings. They also install their
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own equipment on the terminal depending on their core-activities. In Landlord Ports, private
terminal operators employ stevedores, be it that in some ports part of the labour force may be
provided through a labour pool system (Rotterdam).

Privatised ports (often in the form of a Private Service Port) can mainly be found in the
United Kingdom and New Zealand, but also new examples can be found in India.
Comprehensive privatisation can be considered an extreme form of market reform. It implies
that the government has no longer any direct involvement in its port sector other than
through regulation. In Privatised Ports, port land is privately owned, contrary to the situation
in other port management models.

Comprehensive port privatisation can also be achieved through issuance of a Master
Concession. In this situation the Public Port Authority is dismantled and all tasks and
responsibilities including public tasks such as harbour masters office and maritime safety are
transferred to a private party. Since a Concession always has a fixed duration, this form of
full privatisation can be considered temporary. Attempts to introduce this system are
currently undertaken in Mozambique.


Example of master concession


In Mozambique, the state firmMozambiquan Portos e Caminhos de Ferro de Moambique (CFM) performs a
mix of public and private functions. The Mozambique example cannot be fitted into any known port management
model. All differences between public and private interests are eliminated and there exists a latent propensity for
conflicts of interests.

CFM has been transformed in 2000. CFM has created a holding company for the development and management
of shareholdings in various joint ventures and other business centers. It is responsible for identifying private
sector partners for rail and port activities and other joint ventures. It also grants operation and management
concessions, as authorized by, and on behalf of, the Government of Mozambique to private investors. It will
liquidate activities for which no private investor can be found after a reasonable period of time.

In the port of Maputo CFM has awarded a Master Concession (including port management, Harbor Masters
function, marine services and terminal operations) to Mersey Docks and Harbor Company Ltd (MDHC) from
Liverpool (UK). This concession, however, has not yet come to financial closure. The port assets will not be
transferred to MDHC. Yet, the Concessionaire has the obligation to upgrade the assets during the concession
period.

In the port of Nacala a Concession Agreement for all terminal and rail link operations has been awarded to a joint
venture called SDCN Ltd including Malawi Railways and CFM. It should be mentioned that CFM also has a
substantial equity stake in Malawi Railways. The Harbor Masters function and the marine services remained
with CFM.





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6.5.4 Factors influencing type of private finance
Private finance in the port sector is predominantly dependent on the following two factors.
Of course an investment opportunity should be commercially sufficiently attractive to
warrant private finance, that is financial returns should be sound and high enough to cover
the required returns for financiers. In many cases however, in particular in developing
countries, this is only part of the story, as also legal and institutional requirements should be
satisfied in order to be able to raise finance at all.

These two elements stand out in determining whether (a) private finance is an option and (b)
what type of finance is most suitable for what type of investment.

(a) Ownership of the asset
(b) Economic lifetime of the asset

Ownership of assets
In order to raise finance ownership of the asset is crucial for a port company. In raising
finance assets serve as collateral to financiers. That is to say, if a port company owning the
asset would default, i.e. would not pay its interest and repayment on its debt to its financiers,
these would then be able to obtain the asset and sell it to repay the outstanding debt.

Ownership of movable assets is possible in almost all countries, making way for private
finance of for example equipment such as cranes, forklifts or vessels. In case of problems
financiers such as banks would have no difficulty in selling the asset and thus repaying the
debt outstanding.

Ownership of immovable assets in some countries proves more difficult, as it is tied to the
ownership of the land or is a derived right such as a right of occupancy of the land on which
the asset is built. A substantial part of the total port assets often the largest chunk of capital
outlay are immovable such as quays and sheds. If a clear ownership right of such assets
can not be vested by the port company raising finance, banks or other financiers usually have
problems providing the finance. For if the port company would default on its debt the banks
would have no asset to use as collateral.

In circumstances where the ownership of the port assets is problematic, concessions or
leaseholds may provide a solution as they give the holder a right to create income from for
example terminal operations. Such rights usually can be transferred and sold, making it
suitable as collateral for finance. A port company holding a concession may be able to attract
finance on basis of its future income and the concession right, the latter may serve as
collateral for debt.

Lifetime of asset
Raising finance also depends on the economic lifetime of the assets of the port company.
Generally speaking it is easier to finance assets with a short economic lifetime such as
equipment than assets with a long economic lifetime such as quays. This can be explained by
looking at the risk profile for the financier. The longer the period of finance the longer the
140


financier is exposed to the risk of default by the port company or by adverse interest rate
movements.

Long-term finance is often difficult to obtain, even in countries with a well-developed capital
market. The time horizon of private financiers is habitually shorter than that of governments,
marking a distinction between the roles of public and private finance. The former may in
some cases be necessary as a supplement in the port sector to private finance based on short
time horizons.
With regard to the port sector private finance concentrates primarily on assets with a
relatively short economic lifetime such as superstructures and equipment. Although it is
possible to raise long-term finance in the international market assets with a relatively long
economic lifetime will in some cases require public finance to supplement the insufficient
private finance.


6.5.5 Key elements of financial analysis
Cash flows
Cash flows are different from accounting profits and losses. The moment of recognising an
outlay for accounting purposes may differ in time from the time of expenditure. Capital
expenditure may serve as a clear example as the timing of expenditure is quite different from
the depreciation included in the financial accounts. In financial evaluation Cash is King. In a
financial analysis the following cash flows can be identified, although these will be specific
to each port project or port company depending of course on the nature of its business and
activities.

Capital expenditure (investments) (Capex)
Operating expenditure (Opex)
Personnel costs;
Materials and stocks;
Services;
Maintenance dredging;
Taxes.
Revenues
Marine services (towage, pilotage, bunkering);
Port / berthing dues;
Handling fees.
Financing flows
Equity participation;
Loan drawdowns;
Debt service (interest & loan repayments);
Dividend.

Every financial analysis makes use of financial parameters such as NPV, IRR and pay back
periods. Below a brief definition of each parameter is given.

141

Net Present Value
The net present value is defined as the value obtained by discounting the capex, opex and
revenue cash flows of a project or company, thus excluding the financing cash flows, at a
discount rate which represents the weighted average cost of capital. The discount rate
reflects the financing structure of the company or project.

If the NPV of a project or company is positive the investment is from a financial point of
view worthwhile. If the discount rate is a sound reflection of the terms and conditions of the
necessary finance the project is financeable.

IRR
The Internal Rate of Return (IRR) is the discount rate at which the NPV of the project is
exactly zero. In fact it the IRR is the annual rate of return on an investment. A general rule of
thumb is that a project is feasible if its IRR is higher than its interest rate.

Pay Back Period
The simple pay back period is defined as the length of time required for the cumulative net
operating cash flow i.e. the sum of Opex and revenues to equal the capital expenditure of
the project.


6.6 Practical applications on pricing of infrastructure
6.5.1 General
Economic efficiency requires that infrastructure is priced at marginal costs. Marginal cost
pricing would lead to optimal use of infrastructure. The practice, however, is far from this
and differs from country to country and it will take a long time to adopt this policy in
practice. In the European Union a great amount of effort is made to design a common policy
on the matter in order to come to a phased approach for a common transport infrastructure
framework
51
. In this Section a number of issues on pricing are put forward as they appear in
practice.

6.5.2 Roads
Congested infrastructure
Optimal pricing would mean that all external costs of accidents and the environment, as
discussed in Section 5.3 would be internalised generally leading to an increase of the price
and a decrease of demand. See figure 5.1.

The instruments to include external costs are fuel duties, which are fixed with distance, and
license fee, which are fixed with ownerships. These instruments are fairly adequate to
51
European Commission, Fair Payment for Infrastructure Use: A phased approach to a common transport infrastructure framework
in the EU, Brussels, 22.07.1998, COM (1998) 466 final.
142



recover costs infrastructure and environmental costs. Congestion costs are, however, related
to the links of a road network and consist of:
electronic tolls that can be off-vehicle (central) or on-vehicle; and
point pricing such as toll plazas, bridge tolls, tunnel tolls or continuous stretches
through zoning.

The use of toll revenues can be for different purposes for general public funds, for road only
or for public transport or combinations. Tying of the revenues to use in the road or transport
sector is not necessary and can even work out sub-optimal, when it would lead to over-
investment. The decision in new infrastructure should be governed by the outcome of cost
benefits analyses and not by budget availability.

Application of tolls for congestion pricing is at present rather rare. Some examples are:
in London: a daily fee to enter the city.
In Singapore: zoning combined with PT facilities and high parking charges.
Many failed attempts such as


6.5.3 Waterways
West European waterways
At present there are no charges on the use of the West European inland waterways. In the
1960ies some studies were done to assess the relation between the use of waterways and the
costs of maintenance. For free-flowing rivers such costs are low and negligible, but not for
canals where damage to the embankments is causally related to type, size and speed of
vessels passing. For practical reasons, however, marginal infrastructure cost pricing was not
applied. The International Act of Mannheim of the 19-th century allows free passage of the
Rhine River and would most probably would have to be adapted, if charges are levied. A
second reason relates to the difficulty to separate Rhine river traffic from the traffic on the
canal network linked to the river. A third reason is the general opinion that the
environmentally friendly inland waterway traffic (IWT) should not be discouraged by
additional charges. It should be noted that IWT is further helped as the use of the inland
terminals is priced very low.

To improve the environment of the river, charging systems are developed to reduce
contamination of the water by setting more stringent regulations with respect to disposal of
waste, bilge water, oils and fats and to set up collection systems. The costs of such systems
are planned to be recovered by charges on fuel and on the ships. Implementation of this
charging system, however, meets the same problems as with the charging of infrastructure:
some of the charging system variants are considered being against the Act of Mannheim.

Chao Phya river in Thailand
Infrastructural projects in developing countries often are financed by the International
Financial Institutions (IFI), which are than in a position to put some pressure on
implementation of cost recovery systems. Some of the projects concerned infrastructural
works such as river ports and river training works. The requirements put forward by the
143

UNDP at that time, mid 1980ies, were to apply recovery of total costs for the ports and long
run marginal costs for river maintenance.

Suez Canal toll
The Suez Canal toll is set by the Suez Canal Authority (SCA) and in such a way that it yields
a net profit after allowing for maintenance and administrative costs. The SCA is not obliged
by international law to adhere to marginal cost pricing and instead may, to some extent,
maximise its net revenues. This can be done by applying 'value of service' pricing, where the
toll is set marginally below the value a service has to the users.

The pricing policies to choose from include:
marginal cost (MC) pricing, where the price is set equal to the marginal costs of
producing a service; and
value of service (VAS) pricing, where the tariff is set marginally below the value a
service has for the users.

Application of MC-pricing would lead to an optimal use of the investments of the canal at
the level of the whole world. This could be called 'world optimal tolls'.

VAS pricing, also known as 'what the traffic can bear', would maximise the profits for the
operator, the SCA, and thereby the country of Egypt. Such 'maximum' tolls assure that the
SCA would require perfect discrimination between users (as to type/size of ship, cargo and
origin-destination) and hence would siphon off the consumer surpluses users might enjoy. In
reality this is not possible.

The present toll contains various aspects of price discrimination, by differentiation according
to:
Laden and ballast trips;
Type of ships;
Type of cargo aboard; and
origin and destination through the so-called Long Haul arrangement.

The value a canal passage has for a user is equal to the sailing cost savings, the inventory
cost savings of cargo in transit minus additional time costs of passing the canal and some
service costs for passing the canal other than the toll.

The sailing cost savings depend on the origin and destination (OD) of the shipment and vary
from a very great advantage for OD pairs located just north and south of the canal (a distance
advantage of more 7000 n.m.) and a very small advantage for OD-pairs in the Middle East
and the Caribbean with a distance advantage of less than 1000 n.m. These extremes
correspond with the distances between gravity points of 16 maritime regions as used for the
Suez Canal traffic study. See Map 6.4.

It may be clear that for certain OD-pairs, where the costs of the Suez route (inclusive of the
toll) and the Cape of Good Hope route are very close, the toll level becomes very sensitive
for a user. In practice it appears that for distance advantages of about 1500 n.m. the cost
savings are close to the toll level. Therefore, the SCA has adopted the so-called Long Haul
144


arrangement in order to attract shipments in this critical category. In certain cases the SCA
will allow a rebate on the toll for potential users who can show that they have a cost
advantage by using the Suez Canal, but where the advantage is less than the toll. This rebate
is a form of price discrimination on the basis of OD pairs.

If the toll would be zero, all ships having a distance advantage compared to the alternative
route via the Cape of Good Hope, would choose for passing the canal. Implicitly, herewith of
course we also assume that draft limitations do not apply. It is assessed that 2850 tankers
(based on traffic levels as experienced in the beginning of the 1990ies) would pass the Suez
Canal with a total carrying capacity of 356 million dwt. By increasing the toll, demand will
decrease. If the toll would exceed USD 184,000 the important trade of the Middle East to the
Caribbean would shift, than with USD 272,000 the trade with the American North Atlantic
coast and with USD 430,000 the most important trade with west Europe. See the resulting
demand curve in figure 6.5.

Map 6.4 World regions as used for Suez Canal study

By multiplying demand with the price, the revenues can be expressed as a function of the
constructed toll. From the shape of this curve it can be shown that the highest revenue of
USD 750 million is achieved with a price of USD 405,000 per passage. See point P
o
in figure
6.6. It should be noted that this is a price marginally below the cost advantage of the users
and not discriminating users. The actual price is much lower at about USD 184,000. See
point P
c
in figure 6.6.

Figure 6.5 Potential Suez Canal tankers passages in tons as a function of the toll level


145

Figure 6.6 Potential Suez Canal tankers revenues as a function of the toll level



Maximising revenues by origin and destination
In figure 6.7 a theoretical smooth demand curve is depicted comparable with one of figure
6.5 that is based on the actual 16-by-16-region OD table of potential crude oil flows for the
Suez Canal.
The actual level of the tariff at point P
c
corresponds with a traffic level of T
c
and the
optimum tariff being the one leading to the maximum revenue without discrimination is
presented in point P
o
with a corresponding traffic volume of T
0
. It can be proven that for a
demand curve being a straight line as given in the figure, the maximum corresponds with a
value of P
o
having half the value of P
m
. This is the point where the demand line intersects the
horizontal axis.

Higher revenues can be achieved by applying a tariff that discriminates according to the
origin and destination of the shipment. To some extent price discrimination is already
applied. The rebates under the so-called Long Haul system offer the SCA the opportunity to
effectively siphon off part of the additional consumer surplus caused by price discrimination.
In the present situation with a tariff of P
c
the canal traffic for which the toll is too high, i.e.
the category corresponding with demand T
m
-T
c
, can be attracted by offering a price lower
than the toll P
c
. The SCA may decide to split the consumer surplus between themselves and
their customers. This effect can be depicted by the line T
1
A
c
and than the area T
1
A
c
T
m

represent the consumer surplus going to the customers. The area T
1
A
c
T
c
is than the
additional revenue for the SCA. This effect is presented in figure 6.7.

In a similar way the SCA can also siphon off more of the consumer surplus from traffic
already passing by discriminating on origin and destination. Given the existing tariff of P
c
a
higher tariff can be applied corresponding with the line A
c
P
l
, as a result additional revenues
are assessed corresponding with the area P
c
P
l
A
c
.


146



Figure 6.7 Suez Canal demand as a function of the toll without price discrimination

Figure 6.8 Suez Canal demand as a function of the toll with price discrimination

The impact of low charter rates on Suez Canal demand
The costs of bulk shipping are not fixed and vary over time in line with market conditions. In
times of oversupply on the tanker market when charter rates are very low, the Suez Canal
advantage is also very low and it happens that the time value of ships in fact is zero or even
less
52
. For oil shipments between for instance the Middle East and Northwest Europe the
distance advantage of passing the Suez Canal is about 4,700 n.m. For this important trade it
is for bulk ship operators worthwhile to take the longer route via the Cape of Good Hope
rather pass the Suez Canal and pay toll. To minimise their marginal (mainly fuel) costs the
operator maintains sailing speeds of about 10 knots and less to save fuel. See equation 5.4 in
Section 5.2 on slow steaming.




52
If the rates are very low operators will at a certain level consider laying their ships up. This means that operators may consider
applying charter rates below their marginal costs of shipping.
147



6.5.4 Ports (1) The ATENCO project
Background
The overall objective of the ATENCO study was to investigate the considerations that need
to be taken into account and the probable impacts of the implementation of a common
European financing and pricing system for seaport infrastructure.
The reform of transport pricing is one of the main instruments in European policies to
improve the efficiency of transport and to achieve sustainable mobility. The present pricing
system has been found to display a number of serious flaws:
Charges to users of transport services do not reflect real costs to society. In
particular, the external costs of pollution, accidents and congestion are covered
only partly or not at all.
There are large disparities between the pricing systems and the level of taxes and
user charges in different Member States, resulting in a distortion of competition
between transport service providers belonging to different Member States.
The different transport modes are likewise subject to unequal pricing and taxation
regimes, leading to unfair competition among them and creating barriers to
intermodality.

The result of all this is an inefficient transport system. Indeed, if transport operators and
users do not face prices that reflect the real costs to society, they will not make the optimal
choices for transport technology, infrastructure investments, modal distribution, routes, etc.
that would minimise costs. On the basis of a number of studies it has conducted, the
Commission estimates that the adoption of a more efficient transport pricing system in the
European Union could result in savings to society of the order of 30-80 billion a year.
To remedy this situation the European Commission does not intend to set charges for
transport services. It has instead proposed to develop and implement a common framework
for the charging of transport infrastructure. Two basic principles underlie this framework:
the user-pays principle, which prescribes that the cost of transport infrastructure
and services should be charged to the users benefiting from them;
the marginal social cost pricing principle, which requires that the level of the
user charge corresponds to the cost to society caused by an additional user of the
transport infrastructure.
Both principles were first proposed in the Commissions Green Paper "Towards fair and
efficient pricing in transport policy", published in 1995.
53
The subsequent White Paper Fair
Payment for Infrastructure Use, issued in 1998,
54
laid down specific measures and a
timetable for the implementation of a common pricing framework based on the principle of
marginal social cost pricing.

53
COM(95) 691.
54
COM(98) 466.
148



The ATENCO project conclusions
Short-run marginal cost pricing is in theory the most efficient pricing principle. At an
optimal level of capacity, short-run and long-run marginal costs coincide. However,
especially in the context of seaports where capital is very chunky, the probability of excess
capacity is high. The optimal price is then equal to short run marginal cost, which fails to
cover capital costs and results in losses.
The standard textbook solution to this problem of cost recovery is to subsidise the losses of
ports, arguing that the public interest justifies subsidisation.
55
Nowadays, particularly in
ports, this solution is no longer well accepted. Subsidisation, and the collection of the taxes
needed to finance the subsidies, is found themselves to be sources of great inefficiencies. As
will be shown below, even fully publicly owned ports aim for some degree of cost recovery.
Therefore, long-run marginal cost pricing can instead be chosen as a benchmark. Although
inefficient in the short run in circumstances of excess capacity, it is optimal in the long run
and recovers marginal capital costs. However, problems with cost recovery still arise in the
case of economies of scale, because long-run marginal cost then lies below long-run average
cost. There is indeed evidence, cited above, that seaports are characterised by economies of
scale.
Another solution is to abandon marginal cost pricing in favour of approximately efficient
schemes of average cost pricing, such as the normal cost pricing method proposed by
Gardner. This method approximates long-run marginal cost pricing, and achieves full cost
recovery at normal output levels. An additional advantage is that normal costs are much
easier to determine using accounting information than marginal costs. In fact, the difference
between an actual measurement of long-run marginal cost and normal cost may be
inexistent, so that both pricing methods are in practice indistinguishable. Robinson cites
evidence on average cost based pricing in Australian ports, which concluded that the welfare
losses due to departure from efficient pricing were negligible.
56



6.5.5 Ports (2): Some examples
General
Governments, Supra-national organisations such as the EU, and IFIs are the parties striving
for an effective port tariff. Marginal cost pricing is generally the advised solution and in case
costs recovery is needed, the solution to combine both is then apply Ramsey pricing.
Hereafter a number of issues on port pricing are raised such as the impact of the ongoing
shift towards, privatisation, the importance of a transparent and simple tariff.

Projects on modernisation of port tariffs are generally conducted in a situation of port reform
(privatisation of part of the port services) and/or port renewal. With port reform in
developing countries in particular clearly identifiable parts of the port are given in
concession to terminal handling operators, such container and specialised terminals. The port
operators are assumed to obtain a reasonable profit and at the same time to improve the
55
See for instance Rees, R (1984) Public enterprise economics (8th ed.). London: Weidenfeld & Nicolson.
56
Robinson, R. (1991) Pricing port services in Australia The issues. Paper presented to New thinking on port pricing, Executive
Development Programme. University of Wollongong. Centre for Transport Analysis.
149


efficiency. The issue for the concessionaire (the landlord or other party) is to maximise their
revenues from concession fees. These fees sometimes purely contain payments for the
availability of open and closed storage space, equipment and cranes. Quite often these fees
also include payments for berths and also of basins and access channels and the concession-
taker is then obliged to maintain and re-invest in infrastructure.

In the latter case the landlord or other type of concessionaire in fact has delegated pricing of
infrastructure to the concession-taker and the latter is generally free to recover the costs. In
the case of the container terminals in the port of Rotterdam ECT has leased the land areas
and the berths and ECT charges the container lines for berth hire. The port of Rotterdam still
charges for the costs of maritime access, i.e. maintenance dredging and maintenance of
breakwaters.

The container terminal operators and specialised terminal operators charge their users and
often these tariffs are not published. The structure of such tariffs is very simple with rebates
as an incentive for large users. The tariff consists of an amount per container handled, a
guarantee for an annual amount of containers, a scaled set of rebates and no berthing
charges.

One of the main tasks of the concessionaire is to achieve that the terminal operator works
efficient and does not make larger than normal profits. In a competitive environment such as
with the North Sea container main ports and with the big transhipment ports in for instance
the Mediterranean, it is for the operators a matter to survive. The concessionaire than has
sufficient means to check, whether a good price for money is offered. In a non-competitive
environment such as most often in developing countries not engaged in the container
transhipment trades, competition is not very strong and the concessionaire has to check if the
operator works efficient and dos not make a more than normal profit. These checks can be
built-in in the terms of the contract and/or by taking sufficient shares in the operating
company and thus achieve sufficient insight in the concessions financial position.

In case the ports have given the clearly identifiable parts in concession to operators, a less
clearly identifiable part is left consisting of non-containerised general cargo. In this situation
the tariff book is generally thick. These books are also often input-based, which means that
the unit rates vary with all types of situations, where particular charges have to be added. See
the general cargo sections in the tariff books of Mozambique, Tanzania, Benin, Indonesia
and The Gambia. Port users dont like that, as it becomes difficult for them to calculate their
costs accurately in advance and make quick quotations. The main issue in this case is to
simplify the tariff structure.

Maasvlakte 2 (MV-2) Project
In the economic analysis of the MV-2 project the assumption was made that the port prices
for the use of infrastructure such land leases (the charge for land use), quay dues (the charge
for berthing) and port dues (the charge for maritime access), where left constant. Further
analysis shows that these charges should have to be increased in order to fully recover the
costs. In particular the quay dues for sea transport need to be increased in real terms.
Compare present and upgraded prices in table 6.x.
150



Table 6.6 Existing and upgraded price for the use of infrastructure (in prices of 2000)

Type of tariff Present prices Upgraded prices
Land leases NLG per hectare per year
- Container, ro-ro and dry bulk 90,000 160,000
- Distribution, empty depots 120,000 160,000
- industry and chemical throughput 65,000 160,000
- trade a.o. 120,000 160,000
Quay dues NLG per meter per year
- sea transport 1600 4600
- inland waterway transport 700 920
- slopes (industrial) 200 200
- slopes (ro-ro transfer) 300 300
Port dues NLG per unit
Container (per TEU) 15.0 15.0
Ro-ro per ton 0.6 0.6
Other per ton 1.0 1.0

Higher prices will stimulate more effective use of land and/or lead to a shift to locations in
competing ports. The high prices of land in Hong Kong for instance have lead to a very high
turnaround of containers per hectare.

Another effect is that the shift of activities to other competing ports such as Antwerp and
Flushing. This substitution effect varies per type of land use. For container handling
activities this effect is measured by estimation of the parameters of a port choice model as
discussed in Section 3.5 and the impact is expressed in the curve for container throughput
demand in figure 3.4. This applies to demand generated by both the continental hinterland
and the oversea hinterland (transhipment demand). For the sectors other than container
terminal operations a number of assumptions were made based on empirical information of
other comparable situations or on literature.

For the EC Scenario the net present value with the present tariff was NLG 1.49 billion. See
table 6.2. The impact of higher tariffs will be a decrease in demand for port services. The
combined effect of higher prices and less demand will be a better net financial result of NLG
0.10 billion. The NPV of the cost benefits analysis will slightly deteriorate from NLG -.44
billion to NLG 0.59 billion. The example shows that the impact of the price increase is not
great.




151

7 Miscellaneous issues
7.1 Liner shipping networks

7.1.1 Introduction

The worldwide network of liner shipping services is becoming more fine-meshed with the
fast increase of container trades, container port throughput, the construction of container
ports on new locations and the increase in size of containerships. The network is served by
some 2000-3000 shipping services, 350-400 container ports and about 7000 container-
carrying ships with a capacity of 6 million TEU.

Given the increase of the market it is logic that there is a great need for market studies for
ports and shipping services. Information on container port throughput, the world fleet of
containerships and new ports is abundantly available from sources such as Containerisation
International Yearbook, Drewry Consultants, Ocean Shipping Consultants and from the
Internet.

Information on liner shipping services, however, poses a problem as liner shipping services
are continuously changing with respect to their geographical coverage (ship call patterns),
the ships allocated and the companies involved (mergers, consortia, slot charters). It is
therefore difficult and time-consuming to assess for instance the shipping capacity offered on
the Europe Far East trade or the Europe South Asia trade. Another difficulty is that
information on the demand side is lacking. There are no statistics on region-to-region
container flows and such information, if needed, is to be constructed from various different
sources.

In this Chapter a method is presented as to how systematically arrange information on liner
shipping services systematically in order to be useful for the assessment of the function of a
port in a network of liner shipping services. Once the present role of a port and its
competitors is established this information can be used to investigate the ports potential for
future development. The approach can be used to assist in the assessment of the types of
shipping lines calling and the corresponding size of ships.

In general liner-shipping services connect ports between two coastlines, which provide the
major volume of cargo on that route. In the ports located in areas between these coastlines
(often referred to as way ports) they pick-up and drop also cargoes, but these volumes are
generally of marginal importance for the route itself (not for the ports concerned!). The main
152


world trade routes are the so-called axial or east-west routes connecting the world main
industrial zones (1: Europe, 2: North America and 3: the Far East).

Europe Far East 1-3-1
Europe North America (TransAtlantic) 1-2-1
North America Far East (TransPacific) 2-3-2

The Europe Far East trade route is the most important one in terms of carrying capacity
and the number of ships involved. It is the trendsetter with respect to the development of the
size of the containerships allocated.

The exceptions to this rule are the Round-The-World (RTW)-services which connect the
three world industrial zones either eastbound (1-3-2-1-3-2 etc.) or westbound (1-2-3-1-2-3
etc). The so-called pendulum services connect the three zones in both directions, but avoid
passage of either the Suez Canal or the Panama Canal. Both categories can be considered as
the sum of connections between coastlines: RTW Eastbound (1-3-2-1-3-2 etc.) is the sum of
1-3, 3-2, 2-1, 1-3 etc. and thus do not connect zone 1 and 2 via zone3.

It should be noted that these services are compared to the east-west axial routes in terms of
carrying capacity relatively unimportant. Examples of RTW-services are those of
Evergreen/Lloyd Triestino and CMA/CGM/Contlines and Pendulum services in the past
those of Zimlines and Hanjin.

A second type of routes concerns those connecting the three main industrial regions with the
rest of the world. These are often referred to as north-south routes, which are often less
developed. Not all ships allocated are fully cellular containerships and generally have a
smaller TEU capacity. The services also do not always apply fixed day weekly schedules,
which are the standard of the market on the east-west routes.

For a systematic analysis of the supply of shipping services its useful to divide the world in
coastal regions in such as way that they correspond with vessel routing practices. An
example of a convenient division is given in Map 7.1.

153

Map 7.1 An example of regions based on suitable coastlines



In order to assess the function of a port in the worldwide network a two step approach is
applied. The first step is to see how the region wherein the port is located is connected with
other regions. The second step is to see what the ports position is vis--vis its competitors in
the region.

For the analysis of a regions position it is convenient to make a distinction between:
End-to-end or region-to-region (in short end) services, i.e. services connecting the
region concerned with one of the other regions.
Passing services: services passing the region concerned and sometimes also calling at the
region (as a way port), but in fact being services connecting two other regions.
Intra-regional services: feeder and intra-regional services where only ports located inside the
region are called at.

In the first step inventories are made of each of the types of services. A service is than
defined as the sequence of parts called at on a regular basis. Generally these are weekly
schedules such as the strings offered by the alliances on the east-west routes, but also
fortnightly or monthly services offered on the northwest routes. The inventory contains the
number of services and their capacity expressed in their annualised capacity. This is the
product of the frequency (number of roundtrips per year) and the average size of ships in
TEU. The capacity of a trade route is then the sum of the capacities of all services offered on
that trade route. The annualised capacity can be defined in either one direction or in both
directions (incoming/outgoing or eastbound/westbound) together.

The above mentioned RTW and pendulum services can be split in respectively three and two
services, as they in fact are respectively the sum of three east-west (either east or westbound)
and two east-west services connecting the main industrial areas mentioned above. The RTW
Eastbound (1-3-2-1-3-2 etc) connects successively 1 3, 3 2 and 2 1, which can be
154


considered separately. This type of services therefore can easily be fitted in the inventory of
coast-to-coast routes.

The position and function of the port concerned is assessed in the second step. If a port is
only called at by intra-regional services one may call it a feeder port. If the port is called at
by all three services it is a hub-port, as the port is fulfilling a role as transhipment port and as
the port is important for passing services to be called at. If the port is called at by intra-
regional and end routes only (and if passing lines apply! This does not apply for all regions
given their location on the world) one may call it a main-port.

Once the ports role in the region is established one can further analyse it, investigate its
potential and assess what can be done and what should be done to improve its importance.

The type of transhipment mentioned above concerns hub-spoke systems, i.e. between
mainlines connecting regions to feeder lines operating within a region. It should be noted
that the regional borders fit such distinctions in broad terms only. Further, there is also
transhipment between main lines. This inter-linkage of mainlines, often referred to as relay
transhipment does not fit in precisely.

Some applications of the approach, to be referred to as PortScan are shown with respect
respectively the Arabian Sea Area, South Africa, West Europe and Southeast Asia.


7.1.2 The position of the ports in the United Arab Emirates (UAE)
The UAE ports are situated in the Arabian Sea Area (ASA) which is defined here as the ports
located along the coastline from Aden on the Arabian peninsula via the Arabian Gulf to
Colombo on Sri Lanka. During the analysis it became clear that this coastal area can be seen
as one coherent basin. The region thus contains the Middle East as given on the Map minus
the Red Sea area and west part of the Indian Subcontinent including Colombo on Sri Lanka.
See Map 7.2.

End services
In an analysis of end services calling the ASA in the beginning of 1997 a total of 44 were
identified. With respect to the number of ports being called at the services shows a great
variation, ranging from two to eight ports of call with an average of about five calls. The
annualised capacity of these services is about 1.7 million TEU.

The ships employed range in size from small semi-container ships of about 500 TEU
operated by national shipping lines of Iran, India, Pakistan and the Arabian company UASC
to larger fully cellular ships up to 3,500 TEU of Maersk/Sea-Land (on their Europe route)
and APL (on their Asia route).

The UAE ports have a strong position and are called at by most of these services. The
relative importance of this type of services vis vis the passing services connecting West
Europe with Asia is increasing, in line with the growing importance of the ASA as generator
of sea-borne containers. The type of services is improving with the employment of larger
155

containerships and with the adoption of fixed day per week schedules. In line with these
developments it may be expected that the importance of hub-port operations will increase
too.

Examples of the end services connecting the region with West Europe and the Far East are
given on Map 7.2.

Map 7.2 Example of end-to-end services connecting the Arabian Sea Area




Passing services
The services of the east-west trade route Europe Far East are an important category of
passing routes. See Map 7.3. An analysis of the itineraries of services passing the ASA in the
beginning of 1997 identified a total of 62 services/strings with an annualised capacity of 6.6
million TEU. Of this capacity the ASA is called at by 22 percent eastbound and by 5 percent
westbound. In most cases only one call is made in the ASA, in Dubai or Colombo or both.

In the Arabian Gulf region incoming cargoes are dominating and there is little outgoing
cargo for Europe and the Far East. Ships on passing routes discharging in the Gulf have little
cargo to be loaded for the remaining part of the trip, leaving the unloaded capacity of the
ship empty. This imbalance makes calling at the ASA less attractive. It should be noted,
however, that the subcontinent offers more outgoing containers. On the Europe - Far East
trip eastbound cargoes dominate, leaving spare capacity westbound. This capacity can be
filled and in fact is partly also filled by containers eastbound from Europe to the Far East.

Table 7.1 Frequency of passing lines calling at the ASA ports

Port of call Number lines of calling Annualised capacity of lines calling (million
TEU)
Eastbound Westbound Eastbound Westbound
J eddah 17 7 2.23 0.71
Khor Fakkan 4 2 0.44 0.14
Dubai 8 3 1.05 0.28
Colombo 10 18 1.27 2.04


156


Map 7.3 Europe - Far East trade route



Feeder services
A total of 29 feeder and short sea liner routes could be identified with a total annualised
capacity of 0.7 million TEU. The estimated capacity is most probably an under-estimation of
the real capacity. Of this capacity some 58 percent connects the Arabian Gulf ports with each
other and the remainder connects the Gulf area with the Subcontinent and Sri Lanka. Data on
the services connecting Subcontinent ports with Colombo are estimated to amount to some
100,000-200,000 TEU.


7.1.3 Relative advantage of the various container ports
The costs of liner services connecting groups of ports in different regions can be minimised
by employing large ships on the long distance connecting the regions and by employing
smaller ones on the shorter distances between the ports within a region. To minimise total
shipping costs the following aspects play a role and some statements are made on the relative
importance of transhipment ports in the Arabian Sea Area.


Costs of main-line services
The good location of the hub-port vis vis the mainline service leads to little deviation of the
mainline ship from her main navigation course. On the Europe-Far East trade route a call at
Aden means a deviation (one-way) of 7 nautical miles only, for Colombo 34 miles, for
Salalah 163 and for the ports in the Arabian Gulf the deviation is with 1,307 miles considera-
bly longer, see table 2.2.


157

Table 7.2 Deviation from main navigation course

Hub-port deviation in nautical miles
Aden 7
Colombo 34
Salalah 163
Dubai 1307
Abu Dhabi 1400

Costs of feeder-line services
The location of a hub-port vis vis the feeder ports it is serving, is of great importance. A
good location leads to short distances for feeder ships. To serve the Upper Gulf region from
Dubai the roundtrip distance of a feeder service easily comes at 1350 nautical miles,
depending on the actual choice of feeder ports. For a feeder service home-based in Salalah,
the roundtrip distance is 3,131 nautical miles, from Aden 4,303 and from Colombo 5,067
nautical miles.

The UAE ports thus have a clear advantage for feedering the ports in the Upper Gulf area
and also for the Hormuz area, defined here as the ports of the UAE, Bandar Abbas and Port
Sultan Qaboos.

The UAE ports are less good situated for feedering the ports of the Indian Subcontinent,
ranging from Karachi in the North to Tuticorin/Cochin in the south. Compared to Salalah the
location is the same, compared to Aden the location is better, but compared to Colombo the
situation is worse. See examples of feeder line distances in table 7.3.

Table 7.3 Roundtrip distances of feeder line connections (in nautical miles)

Home-base/
Feeder region
Upper Gulf region Hormuz
region
Subcontinent
Dubai 1,349 686 3,551
Salalah 3,131 1,737 3,554
Colombo 5,067 3,684 2,909
Aden 4,303 2,909 4,581

Port related costs
Port related costs consist of costs of ships during their stay in port and charges for port
services during this time. The costs depend on the prices for port services and the time
vessels spend in port. The latter depends on the performance of the ports services.

The prices of the services concern Terminal Handling Charges (THC) and Port Access
Charges (PAC). Port operators can use the prices of port services to attract shipping lines. It
may be expected that with the start of new transhipment facilities competition will increase
strongly, possibly forcing operators to set tariffs below costs.

At present tariffs are already under pressure. It may be expected that when the new capacity
of Aden and Salalah will become operational, a price war will come up probably leading to
major changes in charges.
158



It is assumed that tariffs will come close to costs and will not be different for the hub-ports.

The level of captive cargoes
A higher level of cargo generated by a hub-port implies a lower volume of cargo that has to
be transhipped and feedered. In 1996 the new ports of Salalah and Aden had negligibly small
amounts of captive cargo. The Port of Bahrain, where a new transhipment terminal is under
construction, has more captive cargo, Colombo has considerably more while the UAE beat
all with much faster increasing volumes. Volumes of captive cargoes in 1996 were:

Salalah less than 1,000 TEU
Aden 13,000 TEU
Port of Bahrain 104,000 TEU
Colombo 392,000 TEU
UAE 1,560,000 TEU

It is not expected that the relative positions will change much in the near future. It will, for
instance, take a very long time to develop the hinterland of Salalah situated in the sparsely
populated Dofar area. The potential is therefore very limited. Aden has a much greater
potential given, compared to the other countries of the Arabian peninsula, the large hin-
terland. The new of Port of Bahrain, which is presently under construction on Hidd Island, is
included in this list as a new transhipment port. Situated in the North of the Gulf area, its
hinterland is limited.

Level of local shortsea liner cargoes
The volume of local shortsea container shipments other than feeder traffic has an indirect
impact on the costs of feeder services. Shipments of intra-regional containers between a hub-
port and its neighbouring feeder ports can be added to feeder shipments, leading to larger
consignments and to the employment of feeder ships larger than for each category separ-
ately. This will lead to employment of larger ships resulting in lower costs per unit of
service.

There are no statistics on the volumes of short sea container shipments. Only some broad
indications can be made. In the UAE, the re-export trading facilities (in particular the facility
to have import duties repaid after re-export within a certain period of time) together with the
Free Zone processing and trading activities, have generated a substantial volume of intra-
area trade with Iran and the Subcontinent in particular.

Some preliminary conclusions on the position of UAE ports
The strong and weak points of the UAE's transhipment ports are summarised in table 7.4.

159

Table 7.4 The position of UAE transhipment ports compared to their competitors

Position of UAE
versus
Location for
Mainlines
location for
feeder areas
captive
cargoes:
liner
network
Salalah -- + +++ +++
Port of Bahrain ++ + ++ ++
Bandar Abbas 0 0 ++ +++
Aden --- ++ ++ +++
Colombo --- + + +
'+': indicates a positive score
'-': indicates a negative score
'0': neutral
repeated symbols indicate stronger effect


Map 7.4 Feeder-line patterns with Dubai as hub-port






Map 7.5 Feeder line patterns with Salalah as hub port






160


Map 7.6 Feeder line pattern with Colombo as hub port




7.1.4 Sample data PortScan South Africa
Table 7.5 Trade routes serving South Africa

PortScan Region 5 South
Africa
Trade route
from to I-A
time
days
frequenc
y
Ave
Size
TEU
Annualise
d
cap.1000
TEU
ship type company
1 europa-zuidafrica 1 5 7 104 2000 208 fc/dc/sc dal
2 europa-zuidafrica-
oostafrica
1 5 60 1380 83 rc/sc mac
3 europa-zuidafrica 1 5 7 52 1500 78 fc msc
4 europa-far east 1 10 12 1600 19 dc gearbulk ag
5 europa-australasia 1 11 7 52 2500 130 fc msc
6 mediterane-zuidafrica 2 5 7 52 0 0 roro/dc gcl
7 mediterane-zuidafrica 2 5 15 24 520 12 sc mar
8 mediterane-zuidafrica 2 5 14 26 1200 31 roro cargo mes
9 mediterane-zuidafrica 2 5 7 52 1700 88 fc msc
10 mediterane-zuidafrica 2 5 15 24 700 17 sc/dc zim
11 west africa-zuid africa 4 5 48 300 14 3 dc/ 1fc asl
12 west africa-zuid africa 4 5 7 52 1560 81 fc mol
13 west africa-zuid africa 4 5 5 72 1175 85 fc/dc msk
14 zuid africa-east afrika 5 6 30 48 900 43 sc delmas
15 zuid africa-oost africa 5 6 12 750 9 sc cnt
16 zuid africa-oost africa 5 6 10 36 335 12 sc mea
17 zuid africa-oost africa 5 6 3 104 470 49 fc moz
18 zuid africa-oost africa 5 6 5 73 400 29 dc/sc msc
19 zuid africa-india/pakistan 5 8 30 12 900 11 sc delmas
20 zuid africa-india/pakistan 5 8 7 52 650 34 fc Laurel
21 zuid africa-india/pakistan 5 8 7 52 760 40 dc/fc msc
161

PortScan Region 5 South
Africa
Trade route
from to I-A
time
days
frequenc
y
Ave
Size
TEU
Annualise
d
cap.1000
TEU
ship type company
22 zuid africa-india/pakistan 5 8 28 13 734 10 fc msk
23 zuid africa-india/pakistan 5 8 7 52 400 21 sc/fc qud
24 zuid africa-SE asie 5 9 10 36 680 24 sc fuh
25 zuid africa-india/pakistan 5 9 12 30 1000 30 fc gsl
26 zuid africa-far east 5 10 25 15 732 11 sc als
27 zuid africa-far east 5 10 7 52 0 0 roro hua
28 zuid africa-far east 5 10 7 52 2190 114 fc mol
29 zuid africa-australasia 5 11 15 24 0 0 bb/roro wil
30 zuid africa-westcoast
USA
5 13 12 1118 13 bb gal
31 zuid africa-westcoast
USA
5 13 15 24 500 12 sc/dc lykes
32 zuid africa-westcoast
USA
5 13 15 24 500 12 sc lykes
33 zuid africa-westcoast
USA
5 13 7 52 1520 79 fc msc
34 far east-westcoast USA 10 13 7 52 1425 74 fc Kien hung
35 far east-westcoast zuid
america
10 15 7 52 1613 84 fc qud
36 far east-europa of
westcoast america
10 ? 30 12 0 0 roro hmm
37 westcoast usa-east
coast zuid america
13 16 30 12 1500 18 fc Kien hung
total annual capacity 1533 1576

FC=Fully cellular container ship
SC=Semi-containership
DC =Dry cargo ship
BB=breakbulk ship
roro=Ro-ro ship

162


7.1.5 Sample data PortScan South East Asia
Table 7.6 End services connecting Southeast Asia with other regions
NEAsia Easia IndSub Aus
WCNA &
WCSA
Total number of strings 83 31 30 15 7
Annual capacity aboard 8.864.506 3.109.254 3.540.879 2.285.031 2.562.248
Maximum ship size (TEU) 3.842 3.660 4.890 2.976 5.762
Minimimum ship size (TEU) 50 108 180 700 1.120
No. Of string calling at Singapore 44 16 29 15 7
No. Of string calling at Tanjung Priok 25 4 1 2 -
No. Of Ports ins SEA being called 250 93 89 36 17
No. Of calls in Singapore 65 27 54 19 13
No. Of Calls in Tanjung Priok 26 5 2 3 -
ME &
Emed
Africa Neur Pacific
Total number of strings 6 5 4 3
Annual capacity aboard 448.664 334.763 549.761 98.605
Maximum ship size (TEU) 1.200 554 5.006 1.022
Minimimum ship size (TEU) 381 2.238 178 215
No. Of string calling at Singapore 5 5 2 3
No. Of string calling at Tanjung Priok - - 2 2
No. Of Ports ins SEA being called 17 13 10 16
No. Of calls in Singapore 9 9 2 4
No. Of Calls in Tanjung Priok - - 2 3
Source: modified from Containerisation International yearbook 2001


163

Table 2.7 Feeder routes serving Indonesian ports
Ship size
Ave
1 APL, HMM Straits 2 2 x 1 week 1.140 237.120 FC Singapore-Tg. Priok-Panjang-
2 APL, HMM Straits 3 1 x 1 week 859 89.336 FC Singapore-Tg. Priok-Singapore
3 APL, HMM Straits 4 1 x 1 week 372 38.688 SC Singapore-Tg. Perak-Singapore
4 APL, HMM Straits 5 2 x 1 week 859 178.672 FC Singapore-Semarang-Singapore
5 APL, HMM Straits 6 2 x 1 week 250 52.000 FC
Singapore-Belawan-Phuket-Penang-
Port Klang-Singapore
6
APL, MISC, RCL,
Advance Cont, PIL
Perdana 3 x 1 week 372 116.064 FC
Singapore-Penang-Singapore-Belawan-
Singapore
7 Evergreen SID 1 x 1 week 536 55.701 FC
Singapore-Panjang-Tg. Priok-
Semarang-Singapore
8 Evergreen SSD 1 x 1 week 760 79.040 FC Singapore-Tg. Priok-Panjang-
9 Maersk Sealand J SX 1 x 1 week 1.346 139.984 FC
Singapore-Tg. Priok-Tg. Perak-
Singapore
10 Maersk Sealand SMF 2 2 x 1 week 550 114.400 FC
Singapore-Port Klang-Penang-Port
Klang-Belawan-Singapore
11 MISC, RCL SMF Loop A 1 x 1 week 668 69.472 FC
Singapore-Port Klang-Penang-Port
Klang-Singapore-Port Klang-Belawan-
Port Klang-Singapore
12 MISC, PIL J SX 1 x 1 week 1.346 139.984 CC
Singapore-Tg. Priok-Tg. Perak-
Singapore
13 NYK, RCL
ASEAN Pendulum
Express
7 x 1 week 320 232.960 FC
Singapore-Pasir Gudang-Singapore-
Tg. Priok-Singapore
14 OOCL J KT1 3 x 1 week 1.560 486.720 FC Singapore-Tg. Priok-Singapore
15 OOCL J KT2 3 x 1 week 1.560 486.720 FC Singapore-Merak-Tg. Priok-Singapore
16 OOCL SBS 3 x 1 week 900 280.800 FC Singapore-Tg. Perak-Singapore
17 OOCL SRG 2 x 1 week 500 104.000 FC Singapore-Semarang-Singapore
18 RCL, MISC, APL SMS 2 3 x 1 week 640 199.680 FC
Singapore-Port Klang-Penang-Port
Klang-Singapore-Port Klang-Belawan-
Port Klang-Singapore
19 RCL, MISC SMS 3 1 x 1 week 600 62.400 FC Belawan-Singapore
20 RCL, MISC J PX 2 x 1 week 600 124.800 FC
Singapore-Port Klang-Singapore-Tg.
Priok-Singapore
21
RCL, APL, MISC,
NYK, OOCL
J SX 6 x 1 week 1.650 1.029.600 FC
Singapore-Tg. Priok-Tg. Perak-
Singapore
22 RCL PLX 2 x 1 week 500 104.000 FC Singapore-Palembang-Singapore
23 RCL, APL, HMM PJ X 2 x 1 week 719 149.448 FC Singapore-Tg. Priok-Panjang-
24 RCL SRX 3 x 1 week 545 170.040 SC Singapore-Semarang-Singapore
25
Advance Cont,
RCL
J EX 1 x 1 week 635 66.030 FC
Singapore-Panjang-Tg. Priok-
Singapore
26
Advance Cont,
RCL
SBYX 2 x 1 week 500 104.000 SC Singapore-Tg. Perak-Singapore
27
Advance Cont,
RCL
SRGX 1 x 1 week 520 54.080 CC
Singapore-Semarang-Tg. Priok-
Singapore
28
Advance Cont,
MISC, RCL
SMS 1 x 1 week 700 72.800 CC
Singapore-Port Klang-Belawan-Port
Klang-Singapore
29
Advance Cont,
RCL
PPS 1 x 1 week 460 47.840 FC
Singapore-Palembang-Singapore-Pasir
Gudang-Singapore
30 Advance Cont J PX 1 x 1 week 589 61.256 FC Tg. Priok-Port Klang-Tg. Priok
Service Name Operator/Alliance
Shipe
Type
Port Call
Annual
Capacity
Frequency No.



164


Feeder services calling Indonesian ports (continued)

Ship size
Ave
31 Uniglory PSB 1 x 1 week 208 21.632 SC
J ohor-Singapore-Belawan-Port Klang-
Singapore-J ohor
32 PT Samudera 4 x 1 week 761 316.576 FC Singapore-Tg. Priok-Singapore
33 PT Samudera 3 x 1 week 761 237.432 FC Singapore-Tg. Perak-Singapore
34 PT Samudera 2 x 1 week 761 158.288 FC Singapore-Palembang-Singapore
35 PT Samudera 3 x 1 week 761 237.432 FC Singapore-Semarang-Singapore
36 PT Samudera 3 x 1 week 761 237.432 FC Singapore-Panjang-Singapore
37 PT Samudera 2 x 1 week 761 158.288 FC Singapore-Belawan-Singapore
38 PT Samudera 1 x 1 week 122 12.688 FC Singapore-J ambi-Singapore
39 PT Samudera 2 x 1 week 761 158.288 FC Singapore-Pontianak-Singapore
40 Sea Consortium J akarta Shuttle 1 x 1 week 1.050 109.200 FC Singapore-Tg. Priok-Singapore
41 Sea Consortium Surabaya Shuttle 1 x 1 week 1.050 109.200 FC Singapore-Tg. Perak-Singapore
42 Batamindo 5 x 1 week 48 24.960 TB Singapore-Batam
43 Perdana Perdana 1 x 1 week 508 52.797 FC
Singapore-Tg. Priok-Semarang-
Singapore
44 Perdana Perdana 1 x 1 week 508 52.797 FC Singapore-Tg. Perak-Singapore
45 J oo Tat 2 x 1 week 153 31.720 SC
Singapore-Tg. Priok-Semarang-
Singapore
46 Nortrans 1 x 16 days 371 16.927 RR
Singapore-Bangkok-Laem Chabang-
Tg. Priok-Port Klang-Singapore
47 OK 1 x 1 week 114 11.856 SC
Singapore-Tg. Priok-Tg. Perak-
Semarang-Singapore
48 Nusantara 1 x 1 week 120 12.480 SC Singapore-Tg. Priok
49 Nusantara 1 x 1 week 120 12.480 SC Tg. Priok-Banjarmasin
50 Pul 3 x 1 week 200 62.400 FC
Singapore-J ohor-Singapore-J ohor-
Singapore-Palembang-Singapore
51 Pul 1 x 1 week 200 20.800 FC Singapore-Panjang-Singapore
52 Pul 2 x 1 week 200 41.600 FC
Singapore-Penang-Belawan-Penang-
Singapore
53 Pul 2 x 1 week 200 41.600 FC
Singapore-Port Klang-Belawan-Penang-
Port Klang-Singapore
54 Pul 1 x 1 week 200 20.800 FC Singapore-Semarang-Singapore
55 Pul 2 x 1 week 200 41.600 FC Singapore-Tg. Priok-Singapore
56 Pul 1 x 1 week 200 20.800 FC
Singapore-Tg. Priok-Panjang-Tg. Priok-
Singapore
57 Pul 1 x 1 week 200 20.800 FC
Singapore-Tg. Priok-Semarang-
Singapore
58 Pul 2 x 1 week 200 41.600 FC Singapore-Tg. Priok-Singapore
59 Pul 2 x 1 week 200 41.600 FC
Singapore-Tg. Priok-Tg. Perak-
Singapore
60 Pul, RCL 1 x 1 week 200 20.800 FC
Singapore-Port Klang-Singapore-
Palembang-Singapore
61
Anchor, Sea
Consortium
1 x 1 week 250 26.000 FC Singapore-Belawan-Singapore
Total Annual Capacity 7.520.508
Annual
Capacity
Shipe
Type
Port Call No. Operator/Alliance Service Name Frequency
















165



7.2 Costing transhipment port options

7.2.1 Introduction
Forecasting port throughput concerning transhipment appears to be a difficult matter,
especially in case of ports located in areas with rapidly changing transhipment patterns
such as for instance in the Eastmed, the Arabian Gulf Area, Southeast Asia and the
Caribbean. The shift of a worldwide operator from one port to the other implies great
changes for the ports concerned. See the development of throughput of typical
transhipment ports such as those on Malta and Cyprus and the ports of Damietta,
Colombo, Dubai and Port Kelang. The changes in volumes are bigger than those in areas
with maturer hub-spoke systems such as in Northwest Europe, North America and the Far
East.

In this Chapter a transhipment costing model is presented that is aimed to assist decision-
making by transhipment port and shipping line operators to decide on the choice of
transhipment port. In the model a comparison is made between competing main line
feeder line options. The model is intended to provide in a quantitative manner insight in
the impact of different factors such as geography, ship size economies of scale, captive
hinterland cargoes, minimal critical mass of liner shipping services on the competitive
position of main line - feeder line options and thereby on the choice of transhipment port.

It should be noted that the model does not lead to optimum solutions in terms of optimum
market shares of transhipment ports and does neither deal with user costs. Other models
to deal with these issues concern the port choice and routing choice model discussed in
Chapter 3, which explicitly deals with both user and producer costs
57
.



7.2.2 The cost model
The model focuses on the choice of one transhipment port against the other or of adding
one additional transhipment port to the system, given a fixed market share on a world
trade route offered by a set of liner shipping services or strings. Two examples of such
cost comparisons are shown: one for the choice of a transhipment port in the Arabian Sea
Area and the other in Southeast Asia. In both cases the choice of transhipment port
concerns a port of call by a liner service of the east-west or axial trade route Europe Far
East. For both these regions these services are passing services. See Section 7.1 Liner
shipping services.

57
Producer costs can be defined as the costs to producer a door-to-door transport service and user costs as all other costs
incurred by the user of the service to have the good shipped from one stage of production/consumption to the other. It is most
convenient to define such costs as inventory carrying costs. See J ansson, J .O. and Shneerson, D., Liner Shipping
Economics, 1987, Chapman and Hall Ltd London. See Chapter 7.
166



The issue of the example of the Arabian Sea Area was to get insight as to what extent the
existing transhipment ports of the United Arab Emirates have advantages and
disadvantages vis a vis new ports to be located closer to the main navigation course such
as Salalah in Oman and Aden in Yemen. The issue of the example of Southeast Asia is to
explore to what extent ports other than Singapore such as Tanjung Priok/Bojonegara
could be port of call on these axial, passing routes.

The fixed cargo package is defined as the set of containers aboard the mainline service
that is loaded or unloaded at the transhipment port when calling at the region concerned.

Given a fixed cargo flow package the model makes a comparison of the related
mainline costs;
feeder line costs;
port access costs; and
cargo handling cost.

The model gives the difference in producer costs when choosing:
port A against port B as a transhipment port for a given cargo package and routing
environment; and
port A against port A and B as transhipment ports.

The following inputs are needed.

Mainline service
size of mainline ship in teu;
number of round trips per year: one or more strings of services with Fixed Day per
Week schedules; and
number of calls at hub-port per round trip.

Feeder services:
division of total feeder area in smaller ones;
share of each feeder area in total feeder cargo volume;
description itinerary feeder lines serving feeder areas;
length of each feeder service in nautical miles;
number of feeder line ports of call and
load-degree feeder services: the ratio of cargo aboard and the vessel's nominal teu
capacity.

Operational data cargo volumes
load-degree mainliner: the ratio of cargo aboard and their nominal teu capacity;
nomination of alternative hub-ports.

Operational data mainliner ships and hub-ports
sailing speed in knots;
cargo handling speed given as the product of crane productivity, number of cranes
working a ship and number of working hours per day;
fixed port time per call;
daily cost by category as a function of ship size.
167


Operational data feeder liner ships, hub-ports and feeder ports
sailing speed in knots;
cargo handling speed hub-ports and feeder ports;
fixed port time hub-ports and feeder ports per call;
daily cost by category as a function of ship size.

The size of the feeder ship per feeder line area is a function of the annual cargo volume of
the feeder services considered and a given frequency of service.


7.2.3 The case of the Arabian Sea Area
Mainline costs
In the case of the Arabian Sea Area the deviation from the main navigation course of the
Europe Far East trade route, ranges from only seven nautical miles (n.m.) for Aden to
34 n.m. for Colombo, to 163 n.m. for Salalah to 1307 n.m. for Dubai/J ebel Ali.

The PortScan for the ASA based on data of 1996 showed that in 22 percent of the
Eastbound trips and 5 percent of the Westbound trips, passing services had a call in the
ASA, in either Dubai/J ebel Ali or Colombo. The Europe Far East liner services have
only one call or no call at all in the ASA. The fact that there were less calls on the
westbound trip presumably had to do with the fact that these trips were in partly loaded
condition.

The study focussed on the impact of the competition of the transhipment ports to be
constructed in Salalah (with a 30% participation of Maersk- Sealand) and Aden (high
participation of PSA, the Ports Authority of Singapore).

The mainliners are passing the area and have the choice of serving the ASA via Dubai,
Salalah or Colombo. The system consists of 8 mainline strings served by 4000 TEU ships
calling at the hub-ports once per round trip. It was assumed further that the services had
load degrees of 1.45 in both directions and 10 percent of the volume aboard was loaded
and discharged in the ASA transhipment port. Of this 4 percent was generated in the
UAE, 1 percent in Sri Lanka and 5 percent in all other ports of the ASA, which are
mainly the Arabian Gulf and the West side of the Indian sub-continent. Thus they are
calling 8 x 52 =416 times at the hub-port. On each round trip they carry 4000 x 1.45 =5,800
TEU and on all round trips together 5,800 x 416 =2,412,800 TEU. Of this annual volume 10
percent, or 241,280 TEU, is loaded and unloaded in the hub-port.

The resulting mainline shipping costs of each of the three systems being compared is
given in table 2. From the results it appears that a hub-port in Dubai leads to higher
mainline costs: USD 47.5 million compared to Colombo and USD 42.7 million compared
to Salalah. With respect to mainline shipping costs the ports of Dubai are clearly in a
disadvantageous position. See table 7.8.

168


In both cases the calculations are done in such a way that the basic parameters such as
number of strings, ships size, load degree and volumes generated by the relevant parts of
the region can de adapted easily.

The price of a 3,500 TEU mainline ship is USD 52 million. Annual capital charges were
based on an annuity value of 10% interest and an economic lifetime of 15 year, resulting
in an annuity of 13.15 percent. Annual costs of maintenance repairs and supplies and of
insurance were respectively 2.5 and 2 percent of the vessels new value. Overhead costs
were put at 25 percent of all fixed annual costs.

Other sizes of mainline ships can be taken easily and the relationship between daily
shipping costs at sea and in port was subject of discussion in Section 6.6 Example of
economies of ship size. The values of the coefficients discussed are given in the table
5.1. The resulting daily costs have an elasticity with respect to the size of ships of less
than 0.5, which means that a doubling of the size of ships corresponds with an increase of
(2
0.5
=1.41) of 41% of the costs against a doubling of the carrying capacity and therefore
in a decrease of the costs per ton carried.


Table 7.7 Coefficients main daily cost categories

coefficient\equation capital related costs fuel related costs
coefficient ship size 0,6666 0,48
coefficient vessel speed 0 3,13


Port time spend in the transhipment port was based on a cargo handling speed of 1,080
moves per day, which is based on a productivity of 18 moves per crane per hour, on an
average of three cranes working per ship and 20 working hours per day and a ratio of 0.75
of boxes per TEU. The fixed time spend in port was for preparing for loading and
unloading and for departure was 0.15 days in the transhipment ports.

Time spend at sea was based on a sailing speed of 21.5 knots, equal for all ships. Fuel
consumption was based on a function of ship size and vessel speed according to a
multiplicative relationship, with parameters as given in table 5.1, where fuel consumption
of a 3,500 TEU containership was 106 tons of HFO per day. The fuel price was 95 USD
per ton.

The calculations show that mainline costs for the Dubai ports are USD 47.5 million more
or USD 197 per TEU more than for Colombo. Compared to Salalah the Dubai ports are
USD 42.7 million more costly or USD 177 per container. This result is rather obvious
given the distance advantage of the ports.


Feeder line costs
By choosing Dubai/J ebel Ali as transhipment port, all containers generated by the UAE,
the captive cargo of the port, do not have to be transhipped anymore. This volume is high
compared to the captive cargoes of the competing ports of Salalah and Colombo.

169

An analysis of the feeder routes in the Arabian Sea Area (ASA) showed three distinct
types of feeder routes depending on the areas being served: the Arabian Gulf, the entrance
of the Arabian Gulf referred to as Hormuz area and the west side of the Indian
Subcontinent. In terms of captive cargoes these three areas generate respectively 25%,
25% and 50% of the total volume of captive cargoes in the region. The feeder routes
home-based in each of the three transhipment ports were designed and each of them serve
each of these three feeder regions separately. The roundtrip distances are given in table
2.3 and the roundtrip patterns on Maps 2.4-2.6.

The costs of feeder shipping depend on the roundtrip distance and also on the size of
ships being used. The larger the volume the lower the costs per unit of service. Weekly
feeder services are the standard of the market, which means that at least 52 trips have to
be made per year. The structure of incoming and outgoing container flows is such that the
ships employed can achieve average load degrees of 130% per roundtrip. This means that
for a 200 TEU feeder ship the annual amount of shipments will amount to 52 x 200 x
130% =13,250 TEU. If volume to be shipped is 26,500 a feeder ships with a double size
of 400 TEU could do the feeder service.

The number of feeder roundtrips to be offered is put at 4 x 52. Thus, the size of the feeder
ships employed can be set equal to the total annual feeder volume divided by 4 x 52 times
the average volume per roundtrip.

Container demand in the Upper Gulf Area has 60,320 TEU annually and is being served by
four feeder services each with a weekly frequency, i.e. 4 x 52 =208 calls. The average load
degree of the ships of these services is 1.3. The average size to serve the volume amounts to
60,320/(1.3 x 208) =223 TEU. Thus, the average size of ships employed is a function of the
annual volume. The larger the annual volume, the larger the size of ships and (given the
economies of scale of ships being employed) the lower the costs per container carried.

The feeder shipping costs itself could be based on a round trip cost calculation. The
relationship between daily shipping costs at sea and in port was subject of discussion in
Section 6.6 Example economies of ship size. The values of the coefficients used are
given in the table 5.1. The resulting daily costs have an elasticity with respect to the size
of ships of less than 0.5, which means that a doubling of the size of ships corresponds
with an increase of (2
0.5
=1.41) of 41% of the costs against a doubling of the carrying
capacity and therefore in a decrease of the costs per ton carried.

The constant of the equations is chosen in such as way that the price of a 300 TEU feeder
ship is USD 8 million. Annual capital charges were based on an annuity value of 10%
interest and an economic lifetime of 15 year, resulting in an annuity of 13.15 percent.
Annual costs of maintenance repairs and supplies and of insurance were respectively 2.5
and 2 percent of the vessels new value. Overhead costs were put at 25 percent of all
fixed annual costs.

Port time spend in port was based on a cargo handling speed of 180 boxes per day and
ratio of 0.75 of boxes per TEU. The fixed time spend in port for preparing for loading and
unloading and for departure was 0.15 days in the transhipment ports and 0.25 days in
feeder ports.
170



Time spend at sea was based on a sailing speed of 14 knots, equal for all ships and fuel
consumption was based function with parameters as given in table 7.7. Daily
consumption of a 223 TEU containership was 9.7 tons of HFO.

Feeder costs for the Upper Gulf area and the Hormuz area is considerably cheaper for the
Dubai ports and feedering of the Subcontinent is more expensive compared to Colombo.
All feeder routes together lead to a cost reduction of USD 47.8 million (USD 198 per
TEU) which is roughly the same as the increase in mainline costs. Transhipment via
Salalah shows a similar picture. Feeder costs are lower for all three feeder routes and cost
saving of all three services together is rather much the same as the cost increase of the
mainline service. See table 7.8.

Port access and terminal handling charges
The port tariff is split into the tariff for the port authority and related to the access of the
port (port dues, light and buoys dues) and the rates charged by the port operator which
generally includes terminal handling costs and the costs of the use of a berth and land for
storage.

The terminal handling charges were put equal for all ports concerned at USD 90 per TEU
for two transhipment moves and at USD 70 per TEU for single non-transhipment moves.
The differences in the system therefore apply to the degree at which transhipment is
needed. As a result the system with the Dubai ports, with the highest degree of captive
containers, have the lowest costs. The impact of this on the total comparison, however, is
little. See table 7.8.

Port access charges were not available for all port concerned and therefore put equal, so
that their impact is nil.

Table 7.8 Shipping cost differences of alternative hub-ports(cost advantage in US$ million)

Cost category Dubai versus Colombo Dubai versus
Salalah
US$ million USD per TEU US$ million USD per TEU
Main line service -47.5 197 -42.7 177
Upper Gulf area - 21.5 - 89 - 11.2 - 46
Indian
Subcontinent
- -8.1 - 34 - 16.1 - 67
Hormuz area - 34.4 - 142 - 18.9 - 78
All feeder services 47.8 198 46.2 191
Double handling 1.4 6 1.9 8
Port access 0 0 0 0
Total 1.7 7 5.4 22
Note: a negative figure indicates higher costs for Dubai


171

Sensitivity analysis
From the calculations it appears that the long deviation works at the disadvantage of
Dubai. The assumed share of cargo aboard is 10%. If the share would higher, the
mainline deviation costs would not change, but the amount of feeder cargo and thus
feeder costs would increase. By changing the share from 5% to 20% the cost savings will,
compared to the Colombo option range from USD 119 to USD 110 per TEU and
compared to the Salalah option from USD -88 to USD 52 per TEU. In both cases the
options break even with a share of about 9 percent.


Figure 7.1 Cost savings Dubai transhipment option as a function of share (un)loadings

-150
-100
-50
0
50
100
150
5,0% 7,5% 10,0% 12,5% 15,0% 17,5% 20,0%
share (un)l oadi ngs
U
S
D
/
T
E
U
Salalah option Colombo option



Conclusion
The total cost advantage of Dubai is small in relative terms. The total shipping costs are
about USD 1.1 billion and the cost savings in the order of USD 1.7-5.4 million, which is
up to a half percent of the total shipping costs of the route systems. The shipping
companies involved look at the issue in an incremental way and optimize their net
revenues where possible. The outcome, however, shows that the advantage for Dubai
strongly depends on the set of assumptions chosen and that small changes easily shift the
balance from one transhipment port to the other.

If one company chooses for one port, this means that other company may easily have a
preference for the other transhipment port. A company with a strong position in the
Arabian Gulf region may have preference for Dubai and those with a strong position on
the Indian Subcontinent will have a preference for the Colombo or Salalah. This in fact
means that none of the ports is strong enough to become the dominant transhipment port
and that this position may be, given the outcome above, rather equally divided over ports
on the various coastlines of the ASA.

As discussed in Sectio 7.1, the ASA region is served by both passing routes and end
routes. While on passing services shipping lines will call only once per trip at a port in the
region or call not all, on end services shipping lines make about 5 calls by smaller ships. In
172


this case hub-spoke systems compete with multi-porting systems. Only recently modern end
services with fixed day per week schedules (EPIC consortium, Maersk/Sealand, HMM,
Uniglory) employing relatively large containerships connect the ASA with Europe and the
Far East. They compete directly with the hub-spoke systems. This development is the result
from the increasing importance of the ASA and leads to an increase in the quality of service
offered.


7.2.4 The case Southeast Asia
Mainline costs
The PortScan of Southeast Asia shows that at end 2001 Singapore is called at on 91
percent of the shipping services of the Europe - Far East trade route in both Eastbound
and West bound direction and that the other ports of call are Port Klang (41 percent) and
(since very recently by Maersk-Sealand and at this time it is rumoured that Evergreen
may follow) Tanjung Pelepas in Malaysia just opposite of Singapore. No Indonesian ports
are called at and the important question is to what extent Indonesian ports can play a role
on this route. It should be noted that Tanjung Priok is called at three times on the six
strings (Eastbound and Westbound) of the RTW services of Evergreen/Lloyd Triestino.

It may appear difficult for Indonesian ports to replace the port of Singapore as port of call
on the passing routes, in a similar way as Tanjung Pelepas has done recently. Therefore
the calculations concentrate on the case that Bojonegara (a new port on the tip of West
J ava to be considered as an extension of the port of Tanjung Priok which is located near
or better within the city J akarta) will be an additional port of call in a similar way as Port
Klang in Malaysia at present. A roundtrip including Bojonegara in one way leads to an
extra sailing distance of 717 n.m.

In the cost analysis a comparison was made between 8 weekly mainline string served by
5000 TEU ships calling at each roundtrip. It was assumed further that the services had
load degrees of 1.80 in both directions and 25 percent of that was underway loaded and
discharged in the Southeast Asia of which 7 percent was generated by Indonesia and 18
percent by Singapore and other Southeast Asian countries.

173

Map 7.7 Europe Far East liner service via and not via Bojonegara




Feederline costs
By calling additionally at Bojonegara transhipment port, all containers generated by the
island of J ava, the captive cargo of the port, do not have to be transhipped anymore. In
the study by Firmanto Hadi58 Indonesia was divided in regions and three scenarios of
feeder route patterns were designed to serve these regions. From Map 7.8 it clearly
appears that Singapore is very suitably located to serve west Indonesia and that
Bojonegara is well located to serve J ava (no transhipment needed) and East Indonesia.

Map 7.8 Feeder routes from Singapore serving Indonesia




58
Firmanto Hadi, On forecasting market share of container terminals, MSc in Maritime Economic and Logistics, 2000/2001
174



The calculations by Firmanto show that there is a clear advantage for Bojonegara to
become a port of call additional to Singapore and that it is just a matter of time that this
advantage will be materialised. Not studied is the case under which conditions
Bojonegara can replace Singapore at main port of call in a similar way as Tanjung
Pelepas. It would not be surprising that it can be shown that such cases may be viable to a
limited extent.






175

Annex 1


176