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PORT COMPETITION AND
HINTERLAND CONNECTIONS

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Concentration among shipping lines andterminal operators may generate market
power. National competition authorities havethe power to address this but might not fully
appreciate the international dimension.
Greater port throughput meets with increasing
resistance from local communities because ofpollution and congestion. In addition, local
regulation is warranted but made difficult by
the distribution of bargaining power among
stakeholders. Higher-level authorities could
develop more effective policies.

PORT COMPETITION AND
HINTERLAND CONNECTIONSThe sector has changed tremendously in recent
decades with technological and organisationalinnovation and a powerful expansion of
trade. Although ports serve hinterlands thatnow run deep into continents, competition
among ports is increasingly intense and theirbargaining power in the supply chain has
consequently weakened. Integration of supplychain operations on a global scale has greatly
increased productivity but raises issues of bothcompetition and sustainability.

C E N T R EThis Round Table publication discusses
the policy and regulatory challenges posed by
the rapidly changing port environment.

PORT COMPETITION
AND HINTERLAND
CONNECTIONS

ROUND
TABLE

14 3

ROUND
TABLE

14 3

C E N T R E
R E S E A R C H
T R A N S P O R T

PORT COMPETITION
AND HINTERLAND
CONNECTIONSORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENTThe OECD is a unique forum where the governments of 30 democracies work together to address
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Also available in French under the title:

OCDE/FIT Table Ronde n° 143
CONCURRENCE ENTRE LES PORTS ET LES LIASONS TERRESTRES AVEC L’ARRIÈRE-PAYS

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INTERNATIONAL TRANSPORT FORUM

The International Transport Forum is an inter-governmental body within the OECD family. The
Forum is a global platform for transport policy makers and stakeholders. Its objective is to serve politicalleaders and a larger public in developing a better understanding of the role of transport in economic
growth and the role of transport policy in addressing the social and environmental dimensions ofsustainable development. The Forum organises a Conference for Ministers and leading figures from civilsociety each May in Leipzig, Germany.
The International Transport Forum was created under a Declaration issued by the Council of
Ministers of the ECMT (European Conference of Ministers of Transport) at its Ministerial Session in May
2006 under the legal authority of the Protocol of the ECMT, signed in Brussels on 17 October 1953, andlegal instruments of the OECD. The Forum's Secretariat is located in Paris.
The members of the Forum are: Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium,
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Further information about the International Transport Forum is available on Internet at the following address:www.internationaltransportforum.org

TABLE OF CONTENTS –5

TABLE OF CONTENTS

SUMMARY OF DISCUSSIONS .......................................................................................................... 7
THE RELATIONSHIP BETWEEN SEAPORTS AND THE INTERMODAL HINTERLAND
IN LIGHT OF GLOBAL SUPPLY CHAINS: EUROPEAN CHALLENGES,BY T. NOTTEBOOM (BELGIUM) .................................................................................................. 25
1.
2.
3.
4.
5.
6.
7.

Introduction: Gateways and Hinterlands ................................................................................ 29
Global Supply Chains, Port Selection and Hinterland Connections ...................................... 31
Trade Patterns, Distribution Networks and Locational Shifts in Europe ............................... 34
Throughput Dynamics in the European Container Port System ............................................ 37
Key Hinterland Developments for the Competition in and Between Gateway Regions........ 43
The Role of Relevant Actors in the Structuring of Hinterland Networks .............................. 52
Conclusions and Avenues for Future Research ...................................................................... 66

RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES: LESSONSFROM LOS ANGELES/ LONG BEACH AND OTHER US PORTS AND HINTERLANDS,BY GENEVIEVE GIULIANO AND THOMAS O’BRIEN (USA) ................................................. 77
1.
2.
3.
4.
5.

Introduction ............................................................................................................................ 82
Trends in Port-Related Trade and Impacts on US Metro Areas............................................. 83
The Los Angeles Region: Changing Responses to Port-Related Trade ................................ 87
Two Examples: AB2650 and OFFPeak ................................................................................ 94
Conclusions .......................................................................................................................... 103

ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES,BY P. DE LANGEN (THE NETHERLANDS) .................................................................. 109
1.
2.
3.
4.
5.
6.

Introduction .......................................................................................................................... 113
The Role of Landlord Port Authorities................................................................................. 114
The Role of PAs in Enhancing Co-ordination...................................................................... 116
Port Hinterlands.................................................................................................................... 119
The Role of PAs in Improving Hinterland Access ............................................................... 120
Conclusions .......................................................................................................................... 123

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – © OECD/ITF, 2009

6 – TABLE OF CONTENTS

THE IMPACT OF HINTERLAND ACCESS: CONDITIONS ON RIVALRY BETWEENPORTS, BY A. ZHANG (CANADA) ............................................................................................... 129
1.
2.
3.
4.
5.

Introduction .......................................................................................................................... 133
Background .......................................................................................................................... 136
An Analytical Model ............................................................................................................ 138
Case Examples ..................................................................................................................... 146
Conclusion and Future Research .......................................................................................... 150

LIST OF PARTICIPANTS ............................................................................................................... 161

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – © OECD/ITF, 2009

SUMMARY OF DISCUSSIONS –SUMMARY OF DISCUSSIONSPORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – © OECD/ITF, 20097

SUMMARY OF DISCUSSIONS –9

SUMMARY CONTENTS

1.

INTRODUCTION ......................................................................................................................... 11

2.

THE CHANGING INDUSTRIAL ORGANIZATION OF SUPPLY CHAINS AND THE
IMPACT ON PORTS .................................................................................................................... 122.1. Containerization, larger vessels, and expanding hinterlands.................................................. 122.2. The emergence of global supply chains ................................................................................. 13
2.3. The rising importance of transshipment hubs ........................................................................ 13
2.4. Impacts on ports ..................................................................................................................... 14
2.5. Impacts on modal split and on congestion in the hinterland .................................................. 15

3.

PORT AUTHORITIES’ RESPONSES ......................................................................................... 17

4.

PUBLIC POLICY FOR PORTS AND SUPPLY CHAINS .......................................................... 18
4.1. Local authorities ..................................................................................................................... 18
4.2. Higher level authorities .......................................................................................................... 20

5.

CONCLUSION ............................................................................................................................. 21

NOTES .................................................................................................................................................. 23
REFERENCES ...................................................................................................................................... 24

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SUMMARY OF DISCUSSIONS –11

1. INTRODUCTION

Maritime freight transport has experienced strong growth and profound change over recent
decades. Freight volumes and container traffic in particular have grown with the intensification of
global trade and the geographical dispersion of production. The industrial organization of the sector
has evolved rapidly. These changes have rendered the ports business environment more challenging.
Many agents along the supply chain have engaged in horizontal and vertical integration of activities.
This has lead to more efficiency in the movement of cargo, but has reduced the number of players,
with an attendant risk of abuse of market power. The market power of the ports vis-à-vis shippers andshipping companies has become correspondingly weaker.
The rapid expansion of trade has led to fast growth of throughput in many ports. As a result, inmany large gateway ports, local communities are increasingly concerned about the negative impacts ofport activity, including local pollution and congestion. The greenhouse gas emissions generated byfreight traffic are also a growing policy concern. This paper explores the economic framework inwhich potential regulatory intervention to address the issues of competition, air pollution, congestion,
greenhouse gas emissions, and financing and provision of infrastructure should be considered. It
begins with an overview of the main changes in the sector, emphasizing how they have affected therole of ports and of other players in the supply chain (Section 2). Section 3 asks if ports’ current
responses to the changing environment are appropriate, or whether ports could and should play a more
active role in shaping the supply chain. It is argued that there may be ways for ports to strengthen theirpositions within the supply chain, but that their actions may not always serve the public interest, evenwhen ports effectively pursue a mix of public and private goals. Section 4 examines the policy issues
that result. We first look at local authorities’ scope for reducing negative local impacts, and conclude
that some agents along the supply chain are sufficiently influential to affect policy design andpotentially defeat its aims. At the same time purely local regulation of these impacts is likely to ignore
the benefits of trade that occur outside the local economy. These observations highlight the need forbetter regulation at a national or multilateral level. Unfortunately, there is little evidence of systematic
national – let alone transnational – policy frameworks towards ports or towards supply chains ingeneral. This is problematic, given the emergence of large transnational conglomerates that havecreated agile and footloose supply chains with sufficient power to withstand or evade attempts toregulate them at national level.

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12 – SUMMARY OF DISCUSSIONS

2. THE CHANGING INDUSTRIAL ORGANIZATION OF
SUPPLY CHAINS AND THE IMPACT ON PORTS

This section briefly discusses three of the major changes in the way maritime-based freighttransport is organized: containerization, the emergence of global supply chains, and the rising
importance of transshipment container terminals. The impact of these changes on the role and powerof ports in the supply chain is then discussed.
2.1. Containerization, larger vessels, and expanding hinterlands
Containerization was a major technological innovation that revolutionized the nature of maritimebased freight transport of manufactured goods. It caused a substantial degree of standardization of port
services, implying that ports cannot rely on specialization to maintain market share and generate
revenues as much as they used to. With containerization, ports in the same region become closer
substitutes, and hence are more exposed to competition from other ports and other routes. Thistendency is reinforced by two other factors. First, the use of ever larger container vessels1 implies thatfewer port calls are required for the same freight volume. This move to larger ships reduces shippinglines’ dependence on particular ports and intensifies competition among ports for the remaining calls(assuming each port can handle the larger vessels2). Second, the emergence of intermodal rail andbarge corridors has extended gateway ports’ geographical reach. The extension of hinterlands leads tomore overlap among ports’ hinterlands and hence to stronger competition.
These technological factors imply that the exposure of ports to competition has increased. At thesame time, there has been widespread adoption by governments of new public management principles
and the ensuing devolution of port management has resulted in a more commercial approach to the
management of port operations (Brooks and Cullinane, 2007); this has led to intensified port
competition as well. This is not to say that all ports behave like private firms as, in many cases, they
pursue a mix of private and public objectives and there is considerable public sector involvement ininfrastructure supply. The change in port behavior has been facilitated by a rather passive policy
context; in section 3, the question to be tackled is: is a more active public policy towards port andsupply chain developments now required?
Port competition is intense, but ports are not “perfect substitutes”, i.e. they are notinterchangeable perfectly or without cost. First, gateway ports still have a strong position in at least
some of their service area, as hinterlands do not overlap completely. Second, the intensifying effect ofcontainerization on port competition may be muted by congestion in ports or in their hinterlandtransport networks. When a port or its hinterland facilities are more strongly congested than is the casefor competing ports, the quality of that port’s service may be lower in that it takes more time to accessand egress the port and the reliability of service declines, and this weakens its competitive position.
The interaction between port competition and congestion is discussed in more detail later in thissection. Third, switching ports is costly, although more from a terminal operator’s point of view thanfrom the perspectives of shipping lines or manufacturer-controlled supply chains. There is noconsensus in the literature on the degree of inertia in port choice from shipping lines’ point of view. It

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SUMMARY OF DISCUSSIONS –13

is widely accepted that supply chains are increasingly footloose, but it is less clear which elements ofinertia remain.
2.2. The emergence of global supply chains
The second driver of change that directly affects the role of ports is the development of global
supply chains. These chains link strongly dispersed production and sourcing sites to moregeographically concentrated consumption regions. What matters from the point of view of shippers
and customers is the performance of the supply chain in terms of price, service quality and reliability.
This focus on the chain as a whole is reflected in efforts of the players in various segments toconsolidate, vertically integrate or otherwise enter into long-term contracts, in order to drive costs
down but also to increase the level of coordination and synchronization. Such concentration andrestructuring carries a risk of generating excessive market power for some of the actors in the chain. It
has also increased volatility, meaning that small deviations from expected or planned processes havelarge consequences for system performance. Volatility increases uncertainty and induces logistics
providers to build in redundancy by using more than one of a set of routing options, so as to mitigate
route risk. This trend further weakens the shipper or customer’s reliance on a specific port.
The increase in levels of concentration, along several dimensions, is quite spectacular. In 1980,
the top 20 of the world’s shipping lines controlled 26% of TEU-slot capacity; by 2007 their share had
increased to 81% (Notteboom, 2008).3 Many of these top 20 further concentrate effort by engaging inalliances. Shipping lines also vertically integrate, in some cases working towards “extended gates”
where shipping lines take control of inland transport and inland terminals and depots. At the level ofport terminal operations, the market share in terms of throughput of the top 10 players rose from 42%
in 2001 to 55% in 2005. This raises concerns over increasing market concentration. Some terminal
operators have extended vertically in the direction of “terminal operator haulage”. With respect tovertical integration, the current picture is one of widespread experimentation with ways of organizing
the supply chain (see Notteboom, 2008, for an overview). While it is not clear exactly which models
will persist, the emerging picture is one of market dominance by a handful of large players at eachsegment of the supply chain, combined with fringe firms specialising in profitable niche markets.
Despite the small number of players, competition in and for the market (within and between ports) isstrong, and may be strong enough to alleviate concerns about market power in the supply chain inmany circumstances. Concerns were expressed by participants that the market power of integrated,
global transport and logistics companies is a concern for ports themselves. Finally, geographicalconcentration of flows is increasing as well. For example, the North-South imbalance among ports in
Europe is growing larger, and this is largely because of more favourable hinterland transportconditions in the North.
It is noteworthy that many actors along the supply chain are involved in attempts to verticallyintegrate, but that ports as such have not strongly engaged in this trend. In combination with thetechnological trends discussed earlier, this further weakens ports’ market and bargaining power.
2.3. The rising importance of transshipment hubs
A third key change is the changing role of transshipments. Gateway ports become more engaged
in transshipments, and pure transshipment hubs have emerged. More than 20 of the 100 largest ports
worldwide are transshipment hubs, in the sense that at least half of traffic is ship-to-quay-to-ship(Baird, 2007). This evolution is related to increasing vessel size and fewer port calls per service
discussed before, and is taking place in many regions. Major gateway ports are increasingly profiling
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14 – SUMMARY OF DISCUSSIONS
themselves as transshipment terminals, because the fragmentation of production tends to pull
production out of (relatively expensive) gateway cities.
Shifting transshipment to pure transshipment hubs reduces the pressure on gateway port
capacity, which can then focus on serving expanding hinterlands. There is no such hub in Northern
Europe at present, so that some 30% of activity in gateway ports in the region concerns transshipment.
While these ports may have little incentive to shed this traffic, it is less clear whether maintaining thecurrent port configuration is optimal from a broader point of view. The idea to construct a hub at
Scapa Flow (Orkney Islands) is thought superior by Baird (2008). At the same time, transshipment
hubs in the Western Mediterranean are currently moving towards more direct calls, a trend that may
extend to the Eastern Mediterranean. More in general, the hub-and-spoke model is attractive when thedensity of demand is low, but becomes less attractive as market volumes rise. Assuming continued
growth of demand, this suggests that the pure hub port model may not remain viable as, ultimately,
handling costs are lower for direct service than for transshipment connections.
2.4. Impacts on ports
One consequence of the three drivers of change in the organization of supply chains is thatgateway ports have in many cases become a replaceable element of the chain, with relatively weakbargaining power. A port that provides service of a given quality at the lowest price does notnecessarily gain market share, as other factors – that are not under the port’s control – also affect port
choice. The focus shifts from port performance to supply chain performance. Among the other factors,
hinterland transport costs have become relatively important, as the cost per kilogram per km on thehinterland is 5 to 30 times as high (depending on the hinterland transport mode) as the maritime
shipping cost (Notteboom, 2008). Routing choices, and to some extent port choices, are strongly
dependent on hinterland transport conditions and reliability of the total route has become increasingly
important to those in the supply chain making the routing decisions.
This is not to say that port price and “internal performance” are irrelevant. For example, Blonigen
and Wilson (2006) find that port efficiency affects port choice. Also, efforts to improve the reliabilityof port services can have a substantial payoff and, consequently, reduce the incentives for shippinglines to acquire dedicated terminal capacity. Ports can increase their attractiveness by exploiting
complementarities with other parts of the supply chain, for example through closer ties with inland
distribution centers, as well as by making efficient use of capacity in the port and the hinterland where
they can (De Langen, 2008).
One way of increasing effective port capacity is through technological and operationalinnovations within the port. Rodrigue (2008) claims that improvements are available to double thethroughput of existing terminal facilities4. A second way to effectively increase port capacity is to
move some functions into the hinterland. For example, ports’ distribution function is being
decentralized by the creation of truck based inland distribution centers in the nearby hinterland (“portregionalization”, Notteboom and Rodrigue, 2005), so relieving pressure on port capacity. In sum, it
seems that port capacity is not a major constraining factor in determining a port’s attractiveness, as noexcessive levels of congestion should systematically arise there. This assessment is reinforced by theobservation that capacity use in ports is organized in a more coordinated way than in general purposetransport networks (as usage patterns are less fragmented), leading to better (though not necessarily
optimal) congestion management.

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SUMMARY OF DISCUSSIONS –15

2.5. Impacts on modal split and on congestion in the hinterland
Hinterland transport uses a mix of road freight, rail, and marine (barge and short sea shipping
variants). Rail and barge operators require cargo consolidation in order to provide an economically
viable service. The combination of increased concentration at the level of shipping lines and terminal
operators and increased vertical coordination should therefore provide conditions favourable todevelopment of rail and barge transport, in the sense that it promotes carrier haulage and not merchanthaulage. Nevertheless, it is likely that the success of rail and barge will be limited to a fairly small
number of corridors where densities of traffic are sufficient, and should not be expected to change
drastically port impacts on hinterland road networks5. Short sea shipping is another potential
competitor for road haulage. The “Motorways of the Sea” initiative in the European Union aims tostimulate sea-based hinterland services. The competitive position of sea-based hinterland transport
depends to a large extent on the prevailing prices and infrastructure subsidies for other modes.
Distortions in the pricing of infrastructure use may hamper its development, e.g. where road freightuses infrastructure at a price below marginal social cost. Furthermore, outside of Europe, thedivergence of regulatory policies applicable to short sea shipping restricts its development by industry,
with cabotage in US waters protected by the Jones Act.
It is noteworthy that inland distribution centers (port regionalization) increase pressure on
hinterland road and rail networks in Europe, with adverse effects on congestion and air pollution. This
form of port decentralization discourages a modal shift from truck to rail or barge (or from rail to shortsea), an effect likely to persist in the long run given the land-use decisions involved. Ports tend to opt
for regionalization because cheap land is available outside the port and externalities are notinternalized, so that port regionalization is cheaper than increasing in-port capacity. If relatively cheap
options to increase in-port capacity are available but ports nevertheless choose regionalization, there
may be a role for public policy to stimulate the development of in-port capacity, preferably bybringing the costs of truck-based inland distribution centres in line with social costs throughinfrastructure pricing policies. Land-use policies may be used as well, but fragmentation of
responsibilities and the risk of unexpected and unintended side effects make them less attractive.
The social costs of ports include not only congestion effects, but also local and global pollution.
Global pollution matters because the decentralized port region model is likely to be more greenhousegas-intensive than the centralized model and possibilities for carbon capture are smaller (e.g. plans tostore carbon in gas fields in the Port of Rotterdam were mentioned during the discussion). There isconsiderable consensus that scale and integration of port and logistics activities support thedevelopment of rail alternatives to road haulage and are, therefore, more likely to be “sustainable”
than decentralized and small scale development. Scale alone may not generate sustainable patterns, sothat steering policy will be required.
The interaction between competing ports’ pricing and investment strategies is studied in recent
economic literature on competition between congestible facilities (De Borger et al., 2008; Zhang,2008). A basic insight is that congestion in the port or in its hinterland increases costs and hence
weakens a ports’ competitive position. The hinterland congestion problem is particularly relevant.
Figures for the Los Angeles/Long Beach ports presented in Zhang (2008) provide prima facie
evidence that port growth and market shares suffer where congestion levels are high, and a survey ofport managers by Maloni and Jackson (2005) highlights that their concerns on capacity expansion are
mainly related to the hinterland, not the port. Hinterland congestion of course is not a pure port
problem, as the networks serve a heterogeneous set of users and the share of port traffic often is fairly
small. In fact, from the port and supply chain perspective, reliability – which is correlated with but
different from congestion – may matter more than congestion itself.
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16 – SUMMARY OF DISCUSSIONS
It is clear that concerns about port and hinterland congestion are stronger when ports compete.
Hence, calls for more capacity in the port or its hinterland to alleviate congestion are stronger in acompetitive setting, and this may result in investment levels exceeding those where ports face lessintense competition (Zhang, 2008). Whether these investments are closer in line with sociallydesirable levels is less clear, although the answer is likely to be yes. In general, one would expect
private ports to invest more when there is competition than when the port is a pure monopoly, witholigopolistic market structures falling between those polar cases. However, since decisions ininvestments in port capacity frequently are at least partly made by public authorities, insights about
private port behaviour provide little guidance. In this regard, De Borger et al. (2008) find that privately
owned competing ports invest less in port capacity than ports that set commercial prices but whose
capacity is publicly financed, because the public investor has broader objectives than just port profits.
Port and hinterland congestion may be expected to affect the degree of ports’ market share
Specifically, one might assume that growth in traffic and rising congestion in the hinterlands of large
gateway ports would lead to an increase in the market share of smaller and less congested ports in thesame port range. The evidence, however, shows that this has not so far been the case. To the contrary,prevailing patterns of concentration prevail or are strengthened. For example, the share of traffic
handled by the large ports within the Northern European range is stable between 1975 and 2007 (butlarge upstream ports gain at the expense of large coastal ports; Notteboom 2008), and the Northernrange has gained market share on the Mediterranean ports. Similarly, traffic on the US West coast
remains strongly concentrated in the Los Angeles – Long Beach ports, with a reasonably constant 70%
share of west coast container traffic over the last two decades. This is not to say that congestion has no
impact on routing, and switching major container flows to smaller ports could have a large impact on
local congestion. While up to now it appears that the benefits from further concentration still outweighthe decision-makers’ costs, in some cases congestion does intensify the search for alternative routings.
The US west coast is an example, where possibilities to substitute these routes with services via
Panama and Suez to serve non-local markets are under consideration. Environmental constraints on
capacity expansion nevertheless appear a more critical factor for growth in the ports of Los Angeles
and Long Beach.
The geographical concentration of flows reflects the concentration patterns in supply chains justmentioned, and suggests that the costs of hinterland congestion generally do not outweigh supply
chain benefits from increased concentration (internal returns to scale, or external sources such as
agglomeration economies), at least from a supply chain operators’ point of view. Whether the costbenefit analysis is the same when broader social benefits (including congestion and other adverse
effects incurred by non-port activities) are taken into account is a different question, to which theanswer is unclear. On the one hand, concentration and centralization may be more amenable tomanaging congestion (and air emissions to the extent they are increased by congestion) thanfragmentation of the supply chain but, on the other hand, the spatial concentration of the negative
impacts of supply chain activity may excessively affect local communities. Irrespective of whether the
local impacts are excessive or not, the concentration of negative impacts provokes strong resistance incommunities adjacent to mega-gateway ports, and this may effectively constrain further growth. The
benefits of concentration and scale need to be weighed against both the concentration of local
environmental impacts and the potential costs of abuse of market power.

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SUMMARY OF DISCUSSIONS –17

3. PORT AUTHORITIES’ RESPONSESDe Langen (2008) argues that port authorities can and should become more strongly involved
with hinterland access infrastructure and operations. They can become involved because port
authorities control decision margins that affect the efficiency of hinterland access. Specifically, port
authorities can provide infrastructure inside and outside of ports (for example, through the creation ofinland terminals); they can manage infrastructure access to improve the efficiency of use of port andhinterland capacity (for example, Key Rail was created in Rotterdam to allocate slots for quaysideaccess more efficiently); and they can improve data exchange among the various agents involved inmoving a container from ship to hinterland. While it has been suggested that concession contracts canbe used to stimulate the use of some of these innovations, many ports have awarded very long-term
concessions without clauses for re-opening, and so their use is often constrained.
De Langen (2008) argues that port authorities should introduce better coordination along the
supply chain because other private and public parties have weaker incentives to do so. There can also
be social benefits from improved coordination. Landlord port authorities that pursue a mix of private
and public goals have an interest in providing efficiency-improving coordination of parts of the supply
chain, as coordination can contribute to their net revenues from land leases and throughput growth.
Even if not all benefits accrue to the port directly, the partly public role of the port suggests they might
be interested in generating broader benefits as well. It was pointed out, however, that the businessmodel underlying this view is unclear on exactly which public objectives are included and how they
are traded off against narrower commercial concerns. Moreover, the landlord port authority model
followed in Rotterdam is not universally applicable due to differences in governance and politicalcultures. When the model does work, it may help narrow the gap between responsibility for the strong
impacts that port activities have outside the port area and the rather narrow set of competencies of aport in a traditional landlord port model.
Concession agreements with terminal operators are one lever that port authorities might use topursue objectives regarding modal split, environmental impacts, and the like. The Port of Rotterdam
uses them to influence the use of port space and transport modes, setting targets for the rail, barge androad shares in container movements out of terminals in the new Maasvlakte 2 development. The
Antwerp Port Authority, in collaboration with cargo handlers, has developed an alternative approach,acting as a facilitator to develop the use of the rail mode through “Antwerp Intermodal Solutions(AIS)”. This role may be extended in an Antwerp Intermodal Agency. The power of concessionagreements is limited by the practice of renegotiations, which introduces considerable flexibility inthese agreements. Concession agreements are also not always amenable to influencing business-tobusiness processes and decisions affecting the choice of transport mode.
However, it should not be taken for granted that a port authority’s interest coincides with thebroader public interest. For example, port authorities can become actively involved with thedevelopment of inland dry ports, to help decongest the seaport and possibly its adjacent transport
network, but this is not necessarily ideal to improve hinterland access in as it may merely relocate thecongestion.

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18 – SUMMARY OF DISCUSSIONS
Notteboom (2008: 25) noted that the policy push to achieve changes in modal split in the EU,
through gradual liberalization of barge and rail markets, new pricing approaches and subsidy andsupport programmes, has to date failed, in the sense that modal shifts occur only when transformationsin the supply chain make them attractive to those involved, and not by simply declaring the policy
objective. Policy removed obstacles, but the actual change came about through “market pull” insteadof through “policy push”. As the decentralization issue suggests, market pull does not always work insocially preferable directions, in particular when external costs are present6.
Conflicts of interest may also arise because the port authority cares about negative side effects
such as congestion and air pollution only to the extent that they affect its own performance. Portauthorities’ actions to limit such negative impacts do not necessarily reduce overall congestion and air
pollution, and may indeed make them worse. The next section deals with policy-making to curb
negative local impacts of port-related traffic in more detail.

4. PUBLIC POLICY FOR PORTS AND SUPPLY CHAINSThe overall principles for public policy towards ports and supply chains are no different fromthose for other sectors of the economy. Intervention may be indicated when market failures arise, e.g.
to price external costs or preserve competition. Public investment may be merited where very long
investment cycles make demand risk difficult for private investment to handle. A balance has to be
struck in creating a climate for both competition and investment. High and increasing levels ofconcentration in the industry may generate substantial market power and suggests that vigilanceagainst the abuse of market power is a growing policy imperative. Research is far from conclusive on
the scale of the potential problem. As Slack (2007) points out, terminal ownership and access models
are very diverse. There are even cases of shipping lines running terminals at which their own ships do
not call. A more detailed understanding of market power is required to draw conclusions and this willbe the subject of a companion report (OECD ITF 2009). Industry concentration also has an impact on
the treatment of congestion (the external component of congestion costs is smaller than in a morecompetitive environment), and on the possibilities to shape public policy (see section 4.1). On ageneral level, policy towards supply chain activities currently is ad hoc. The adoption of more
systematic, transparent and uniform policy frameworks is desirable. Given the extended geographicalreach of supply chains and of some players in the market, and given that some of the policy issues(e.g. greenhouse gas emissions) are global, such policy frameworks need to be defined at central rather
than local levels of government, and involve inter-governmental or multilateral consultation. Whilethese recommendations seem straightforward, they are not always reflected in current policy (section
4.2).
4.1. Local authorities
Local communities near mega-port sites are confronted with the adverse impacts of increased
port throughput. Port-generated traffic contributes to congestion on transport networks, and to safety
risks, noise, and local air pollution7. As incomes in these communities grow, sensitivities to these side
effects grow as well. From a public policy point of view, the question is: are these side effects
excessively high? The answer is yes, in the sense that congestion and air pollution are external costs,
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SUMMARY OF DISCUSSIONS –19

i.e. they constitute real costs for local communities (as well as for port traffic) that are often ignored indecisions regarding port and hinterland traffic volumes.
There is thus a case for policy intervention, and the standard prescription is to find least cost waysof reducing these external costs to socially desirable levels. In some cases, e.g. for congestion, thismeans internalizing external costs through charges that reflect these costs. In other cases, technology
regulation or defensive expenditures may turn out more effective than the use of charges. Theinternalization principle should not be applied to port traffic in isolation, and because the externalcosts mentioned are just one of many market distortions, it is not obvious which structure and level ofcharges or other policies would maximize benefits. Even if the “optimal” policies were known, it is
not clear whether they are a practical – politically feasible – option.
The experience with policy-making to contain negative local side effects in the Los Angeles–
Long Beach port region, described in Giuliano and O’Brien (2008), provides insight on how citizen
concerns about such externalities shape policy outcomes. A study on the health impacts of pollution
from diesel engines, and the experience with the port shutdown in 2002, changed the local public
perception of the ports and stimulated regional policy to contain negative impacts. As a result, there iscurrently no public support for further port expansion. The policies introduced to deal with these have
had mixed success.
Specifically, the contrast between the failure of Assembly Bill 2650 and the success of the
PierPass Program – both of which had the objective of stimulating the use of extended gate hours to
reduce port traffic’s impact on hinterland road congestion8 – suggests that, in order to be successful,any attempt to implement measures that reduce negative impacts must take account of the interests ofport related businesses and, in this particular case, labour union demands and terminal operators’interests. Assembly Bill 2650 was passed in 2002, and prohibited truck queuing for more than 30
minutes at terminal gates. Terminals could respond by extending gate hours, but instead chose to
introduce truck appointment systems. The impact on the time distribution of port traffic wasnegligible.
The PierPass Program started in 2005 and successfully spread port traffic over more of the day,most notably shifting a significant share of the traffic to evening hours. The program is a form ofcooperation between terminal operators, made possible by a Federal Maritime Commission rulingexempting this discussion from antitrust policies in the public interest, and implying that revenues
from the program accrue to operators (with no public financial records). The PierPass fee is calculatedon the basis of the incremental costs to terminal operators of operating a second shift, and bears no
relation to marginal external costs. The program can also be seen as pre-empting the establishment of
a new public authority charging for environmental impacts and using the revenue for mitigation. In
this sense, the threat of regulation was sufficient to provoke a response.
The PierPass program gave the “dominant” players in the port-related business environment(including ports, terminal operators, shipping lines, port workers’ unions, and large freight-generatingclients) the opportunity to shape policy to serve their interests, so that the incidence of policies’ costs
is on more weakly represented and organized parties, mainly truckers. There seems to be a strong
positive correlation between market power (vs. price-taking) and influence on policy (vs. “policy
taking”).
It was noted in section 2 that concentration in the logistics industry is increasing, and that theposition of individual ports in exerting influence on traffic flows is weakening. The Los Angeles–
Long Beach examples suggest that strong economic power translates into strong influence on local
policy. One interpretation is that this makes ambitious environmental and transport policy in port
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20 – SUMMARY OF DISCUSSIONS
regions difficult, especially where one port can potentially be replaced by another. However, a morenuanced view seems warranted as the examples also show that there has been a response to increased
local demand for action. The powerful players have strong influence on the nature of policy measures,
but that does not mean these measures will necessarily be ineffective. Hence, there is some scope for“self-regulation”, also in the presence of limited rivalry among ports and terminal operators. To enableprivate parties to overcome competitive concerns, communication and coordination on the specificissue being regulated is required. Such self-regulation will not produce the textbook ideal of
regulation, but is preferable over a situation where a regulator proposes measures, the regulated parties
insist the market works without intervention, and the compromise result is poor and ineffective
regulation. Whatever the merits of the Los Angeles – Long Beach policy, it is not clear if the model of“self-regulation” at the local level can be exported to regions where port competition is more intensethan along the US West coast. The San Pedro Bay ports serve a huge and affluent hinterland withmuch better connections to the main markets than neighbouring ports. Port rivalry is stronger inEurope.
While the incidence of costs of policies to reduce external costs may not meet common equity
criteria, the current policy-making constellation does provide some balance between business interestsand local community objectives. A more powerful local community may give insufficient weight tobusiness interests, leading to ‘nimby-ism’; but ignoring local community interests may impose
excessive costs on port regions.
4.2. Higher level authorities
There is at present a mismatch between levels at which policy is initiated and the scale at which
regulated parties operate. The fragmentation and decentralization in governance contrasts with thewider geographic reach of (at least partially integrated) large conglomerates. Local governments are
not very powerful vis-à-vis these conglomerates. Higher level (national) governments are better placed
to handle them, and in some cases transnational approaches are desirable. There is also a risk thatleaving port policies in the hands of local governments leads to the dominance of local issues overeconomic benefits of wider interest. This holds true for maritime transport in particular, as for example
in Asia trade is seen as a primary engine of growth, and any regulation that slows it down as an
impediment to growth. For global issues, such as climate change, a supranational approach clearly isdesirable. Climate change policy as it relates to ports needs to be shaped at the highest level9.
High level policy responses may also be needed for other goals, such as avoiding any negative
consequences of strong concentration in supply chains. Horizontal concentration is strong in several
segments of the supply chain, and close scrutiny of mergers and acquisitions is warranted. Vertical
integration raises additional concerns for competition, as fully or semi-integrated companies control
several segments of the chain. The markets in which these companies operate are hard to define andtheir boundaries are vague. Baird (2008) labels global logistics companies as “new empires”, withstrong control over trade routes and prices, and sufficient power to withstand or bypass fragmented
policy approaches. Here too, a systematic high level approach seems warranted.
On a more strategic policy level, higher level authorities need a vision on the likelihood and thedesirability of continued growth in volumes and geographical span of supply chains. Until recently,
the general expectation was one of further fast growth of freight volumes within the current
geographical pattern of “globalization”. This expectation has triggered massive investments intransport infrastructure. However, it is not straightforward that this expectation will be realized.
Rodrigue (2008) argues that containerization has matured so that future growth rates are likely to be
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SUMMARY OF DISCUSSIONS –21

lower than in the recent past. In addition, the medium term economic outlook implies moderate
growth, translating in limited or even negative growth in traffic.
High energy prices also affect the organization of the supply chain. Some European and US
manufacturers are re-relocating manufacturing closer to home market from overseas locations, in
response to rising transport costs due to higher energy prices (Wall Street Journal Europe, 17 June
2008, US jobs return home as shipping costs from Asia rise; Financial Times, 27 June 2008). Crossborder security concerns are another factor in deciding on where to produce and upward pressure on
overseas wages and in some cases on the value of local currencies may very well induce further rerelocation and restructuring of global supply chains. This evolution puts pressure on domestictransport systems, indicating that returns to infrastructure investment depend strongly on highly
flexible production and trade patterns. The Asian trade model of the past two decades, characterizedby Chinese imports of intermediate goods from other parts of Asia and exports to Western countries, isunder pressure as well, reliant as it is on cheap transport. The share of Chinese exports based on
imported intermediate goods has declined from 57% in 2001 to 44% in 2007 (Morgan Stanley
Research, 2008).
The strategic policy stance with respect to the development of supply chains also depends on thewider, normative economic perspective adopted. For example, it is sometimes argued that supply
chains are too stretched out geographically, and that there is excessive growth in transport. There areseveral reasons why this may be the case. For example, ports aim to maximize throughput, and can doso by charging low prices for the use of infrastructure and dredging that is often publicly provided.
The consequence is that shippers and supply chain operators do not face the full cost of infrastructure,
let alone the full social cost of their decisions. Transport infrastructure pricing structures that do notreflect marginal costs, including externalities, in the hinterland exacerbate these problems. More costbased pricing approaches are likely to improve the balance between overall costs and benefits of port
and supply chain activity, and may result in growth rates below those observed in recent decades.

5. CONCLUSION

The supply chain industry is subject to increasing vertical and horizontal concentration. Thisarguably has lead to more efficiency in the movement of cargo, and possibly the concentrated model ismore favorable in some respects towards sustainable development than a more fragmented landscapein the sense that it facilitates the development of rail and the internalization of port congestion costs tosome extent. These benefits of concentration in terms of sustainable development would be smaller if
hinterland transport prices were more in line with marginal social costs, for all modes. A downside ofconcentration is that there are fewer players, which increases the risk of abuse of market power, andrequires close oversight by competition authorities.
From the ports point of view, the main consequence of developments in supply chains is that theirmarket power has declined. Ports operate in an increasingly competitive environment within theirrange as well as in their function as nodes in supply chains increasingly prone to switch routings (routecompetition). From the perspective of welfare economics, there is little reason to deplore theweakening of ports’ influence, as the economic benefits depend on supply chains’ performance morethan on a particular port’s performance. However, when countries think of their ports as instruments
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22 – SUMMARY OF DISCUSSIONS
for defending strategic economic interests, the weaker influence of ports vis-à-vis shipping lines
becomes an issue of concern. The round table heard divergent views on how ports should respond totheir weakening market power, with some supporting increased involvement with hinterland activities,
and others doubting the social desirability of such an extended role for ports. Given the competitive
context, ports need sufficient operational independence to respond to changing demands from theircustomers, in order to retain market share.
The growth in port throughput has triggered strong reactions from local communities, and insome cases (such as Los Angeles and Long Beach) policies to mitigate negative impacts have been
implemented. Large supply chain players clearly influence policy design, and although this does notmean that policy is impossible or necessarily ineffective, it does suggest that local authorities are notalways sufficiently powerful to handle port-related policy issues. Similarly, experience with policy
efforts to change the modal distribution of hinterland transport in the EU suggests that the attainmentof targets requires that the policy needs to be compatible with business interests. Concessionagreements between ports and their clients have some potential to reduce local congestion andenvironmental impacts, but this is a piecemeal approach that intrinsically lacks transparency.
The current diversity in governance models and management arrangements in the port and supply
chain business poses a problem for the development of systematic responses to negative impacts. In
order to deal with these impacts, higher level authorities need to be involved and appropriate incentive
structures are required. This holds for local impacts and to a stronger extent for regional or global
effects. Local effects such as congestion and air pollution affect local communities and not just theport area. Local governments may be in a relatively weak bargaining position to design and enforce
policy, particularly when port competition is strong, leading to ineffective policy. When local
authorities are in a strong position, they may ignore part of the economy-wide benefits of port activity
in policy design. A higher level response thus is called for. High-level, transnational responses are
ideal for dealing with climate change, but there is little agreement on which supranational agency isbest placed to handle this problem.
While the general principles for port and supply chain policies are fairly obvious (ensure a levelplaying field in the provision of infrastructure and in the handling of externalities between ports andbetween modes), these principles are far from systematically applied. A failure to price the social costsof hinterland transport use and land development may result in many ports preferring to develop
inland distribution centres rather than more efficient port organization in response to increasing traffic.
When the implicit subsidy to road is larger than for rail, this also undermines the performance of rail
investments even in major hinterland corridors such as Los Angeles’ Alameda corridor. Unfortunately,
piecemeal, and not very effective policy is the norm. Globalisation increases the case for measures(such as road pricing) to internalize congestion costs on hinterland roads and develop explicit policy
towards market power in logistics businesses10.

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SUMMARY OF DISCUSSIONS –

23

NOTES

1.

The capacity of the world cellular container fleet increased by more than factor 4 between 1991
and 2006, and the share of ships with more than 4 000 TEU increased from 8% to 47% (Wilson,
2007: 11).

2.

Accessibility is an issue for upstream ports such as Antwerp and Hamburg, and both ports
respond by engaging in dredging programmes.

3.

Increased concentration partly replaces the weakening impact of conferences (which set rates for
specific routes), so that the effect of concentration on market power may be weaker than indicatedby the percentage change.

4.

Examples of such innovations are on dock rail facilities, barge services or high volume container
flows between dock and storage areas, as well as better stacking through operations research, etc.
In addition, if information collected for security purposes were no longer proprietary, then it
could be put to productive use in ports and along the supply chain.

5.

It was mentioned during the discussion that this is corroborated by the Australian experience withcomprehensive pro-rail policies, which were made ineffective by innovations in road freight
alternatives. Subsequently, policy shifted to support for specific projects.

6.

In addition, the increased levels of concentration makes designing effective policies harder, as
powerful private entities may have considerable political bargaining power or can develop
strategies to bypass policies.

7.

Port traffic also contributes to regional and global pollution (e.g. greenhouse gas emissions), butthese are ignored here.

8.

Interestingly, the programme focussed on moving traffic to the off-peak, not on changing themodal split.

9.

Such a broad and high-level approach may also help attain abatement goals at the lowest
economic cost.

10. To be addressed in a subsequent Round Table on Integration and Competition in Transport andLogistics Businesses.

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24 – SUMMARY OF DISCUSSIONSREFERENCES

Baird, Alfred J. (2007), The development of global container transshipment terminals, in: Wang, J. et al.
(eds.), Ports, cities, and global supply chains, Ashgate, Aldershot, 69-87.
Baird, Alfred J. (2008), Written contribution to the JTRC OECD/ITF Round Table on Port
Competition and Hinterland Connections, Paris, 10-11 April 2008.
Blonigen, Bruce A. and Wesley W. Wilson (2006), International trade, transportation networks, andport choice, manuscript
http://www.nets.iwr.usace.army.mil/docs/PortDevInternalTransport/PortChoice114.pdf
Brooks, Mary R. and Kevin Cullinane (2007), Introduction, in: Brooks, Mary R. and Kevin Cullinane(eds.), Devolution, Port Performance and Port Governance, Research in Transport Economics,
17, 3-28.
De Langen, Peter (2008), Ensuring Hinterland Access: The Role of Port Authorities, JTRC OECD/ITF
Discussion Paper 2008-11.
Giuliano, Genevieve and Thomas O’Brien (2008), Responding to Increasing Port-related Freight
Volumes: Lessons from Los Angeles/Long Beach and Other US Ports and Hinterlands, JTRC
OECD/ITF Discussion Paper 2008-12.
Morgan Stanley Research (2008), High transport costs to ‘un-flatten’ the world, Report, June 26 2008.
Notteboom, Theo and Jean-Paul Rodrigue (2005), Port regionalization: towards a new phase in port
development, Maritime Policy and Management, 32, 3, 297-313.
Notteboom, Theo (2008), The relationship between seaports and the intermodal hinterland in light ofglobal supply chains. European challenges, JTRC OECD/ITF Discussion Paper 2008-10.
Slack, Brian (2008), The terminalisation of seaports, in: Ports, Cities and Global Supply Chains,
J.Wang et al. (eds.), Ashgate, 2007.
Rodrigue, Jean-Paul (2008), Written contribution to the JTRC OECD/ITF Round Table on Port
Competition and Hinterland Connections, Paris, 10-11 April 2008.
Wilson, William W. (2007), Review on previous studies on container shipping: infrastructure,projections and constraints, NETS report;
http://www.nets.iwr.usace.army.mil/docs/ContainerModelAnalysis/ContainerRevLiterature11v4-1.pdf
Zhang, Anming (2008), The Impact of Hinterland Access Conditions on Rivalry between Ports, JTRC
OECD/ITF Discussion Paper 2008-8.

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SEAPORTS AND THE INTERMODAL HINTERLAND –THE RELATIONSHIP BETWEEN SEAPORTS AND THE
INTERMODAL HINTERLAND IN LIGHT OF GLOBAL SUPPLY CHAINS:EUROPEAN CHALLENGES

Theo NOTTEBOOM
ITMMA
University of Antwerp
Belgium

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25

SEAPORTS AND THE INTERMODAL HINTERLAND –27

SUMMARY

ABSTRACT .......................................................................................................................................... 29
1.

INTRODUCTION: GATEWAYS AND HINTERLANDS .......................................................... 29

2.

GLOBAL SUPPLY CHAINS, PORT SELECTION AND HINTERLAND CONNECTIONS ... 31

3.

TRADE PATTERNS, DISTRIBUTION NETWORKS AND LOCATIONAL SHIFTS IN
EUROPE ........................................................................................................................................ 34

4.

THROUGHPUT DYNAMICS IN THE EUROPEAN CONTAINER PORT SYSTEM .............. 37

5.

KEY HINTERLAND DEVELOPMENTS FOR THE COMPETITION IN AND BETWEENGATEWAY REGIONS ................................................................................................................. 43
5.1 The immediate hinterland as the backbone for port rivalry in a gateway region ................... 43
5.2 Gateway regions increasingly vie for distant contestable hinterlands.................................... 43
5.3 The North-South balance in perspective ................................................................................ 45
5.4 Transhipment hubs under scrutiny and its impact on inland freight distribution ................... 47
5.5 The challenge of the periphery ............................................................................................... 49
5.6 Port competition and the role of upstream ports .................................................................... 50

6.

THE ROLE OF RELEVANT ACTORS IN THE STRUCTURING OF HINTERLAND
NETWORKS ................................................................................................................................. 52
6.1 Co-operation, logistics integration and market pull in the intermodal offer .......................... 52
6.2 Shipping lines and the hinterland ........................................................................................... 54
6.3 (Independent) terminal operators and the hinterland ............................................................. 58
6.4 Rail transport operators .......................................................................................................... 61
6.5 Barge operators ...................................................................................................................... 62
6.6 Port authorities and the hinterland.......................................................................................... 63

7.

CONCLUSIONS AND AVENUES FOR FUTURE RESEARCH ............................................... 66

ANNEXES............................................................................................................................................. 68
BIBLIOGRAPHY.................................................................................................................................. 71

Antwerp, March 2008

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SEAPORTS AND THE INTERMODAL HINTERLAND –29

ABSTRACTThe seaport-hinterland interaction plays an increasingly important role in shaping supply chain
solutions of shippers and logistics service providers. Scarcity concerns, combined with concerns over
the reliability of transport solutions, have led seaports and hinterland corridors to take up a more activerole in supply chains. This contribution looks at port developments and logistics dynamics in Europe
and proposes some steps towards a further integration between seaports and the hinterland. The key
point put forward in this paper is that the competitive battle among ports will increasingly be fought
ashore. Hinterland connections are thus a key area for competition and coordination among actors.
The paper approaches port-hinterland dynamics from the perspective of the various market
players involved, including port authorities, shipping lines, terminal operators, transport operators(rail, barge, road and short sea) and logistics service providers. The paper will address the impact ofhorizontal and vertical relations in supply chains on the structure of these chains and on therelationships between seaports and the intermodal hinterland. Who takes or should take the lead in thefurther integration of ports and inland ports, and what actions have been taken so far by the market
players in this respect, will be examined. The incentives for market players to vertically or
horizontally integrate will be analyzed against the backdrop of the nature of the market in which thevarious players operate.

1. INTRODUCTION: GATEWAYS AND HINTERLANDS

A hinterland is the area over which a port draws the majority of its business. It is very hard, oreven not feasible, to delimit the hinterland of a port; the hinterland varies with respect to commodity(cf. bulk versus containers), the time (cf. seasonal impact, economic cycles, technological changes,
changes in transport policy, etc.) and transport mode. Moreover, market dynamics make it dangerous
to have a static concept of port hinterlands as being god-given and everlasting.
Literature on gateway-hinterland relationships acknowledges that containerisation has expanded
the hinterland reach of ports and has thus intensified interport competition (see, e.g., Hayuth, 1981,
and Starr and Slack, 1995). The expanding hinterland coverage and the associated shift from captive
hinterlands to shared or contestable hinterlands has changed the perception of port markets from being
monopolistic or oligopolistic to competitive. As a result, most European container ports now act as
gateways to often extensive inland networks. These gateways are nodal points where intercontinental
transport flows are trans-shipped onto continental areas and vice versa (Fleming and Hayuth, 1994;
Van Klink et al., 1998).
A number of factors have facilitated the rise of gateways that vie for contestable hinterlands.
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30 – SEAPORTS AND THE INTERMODAL HINTERLAND
First, containerisation and the deployment of ever larger container vessels have gone hand inhand with a concentration of vessel calls in a limited number of load centres, especially on the main
long-distance routes where economies of scale at sea are most apparent. Price-fixing systems ensured
that the reduction of port calls had no negative price impacts on the customer base (Gilman, 1997). For
example, shipping lines put port equalisation systems in place to compensate inland customers for the
longer inland transport distances they might incur when sending or receiving cargo via container load
centres.
Figure 1. Discontinuous hinterlands and corridor-based “island” formation

Port A

Continuous hinterland Port A

Discontinuous
hinterland Port A'Island' formation
Discontinuous
hinterland Port B

Port B

Continuous hinterland
Port B

Core of the service area
Middle section of the service area
Outer section of the service area

Maritime load centre
Inland terminal

Source: Notteboom and Rodrigue (2005).
Second, the development of intermodal corridors by rail and barge, and of inland terminals,
allowed for a deep hinterland penetration via shuttle trains and barges. The full liberalisation of bargetransport in Europe from 2000 and the advanced stage of liberalisation in European rail (which started
in 1991 and whose stage of completion depends on the member state considered) proved to be
instrumental to increasing the efficiency of transport services on inland corridors. The rise ofintermodality and associated transport corridors had a major structuring effect on the hinterland reachof seaports. Not only did intermodality give ports incentive to expand their hinterland reach, buthinterlands also became more discontinuous in nature, especially beyond the immediate hinterland of
the port (Figure 1). Such a process can even lead to the formation of “islands” in the distant hinterland
for which the load centre achieves a comparative cost and service advantage vis-à-vis rival seaports(Notteboom and Rodrigue, 2005). Conventional perspectives based on distance decay are ill-fitted to
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SEAPORTS AND THE INTERMODAL HINTERLAND –31

address this new reality. Hence, high-volume intermodal corridors typically offer a more favourable
relation between transport price, lead time and distance than the conventional continuous inlandtransport coverage. A port’s service area in terms of rail and barge now consists of sets of overlapping
service areas of individual inland terminals. The size of each of the inland service areas depends on theservice frequency and tariffs of intermodal shuttle services by rail and or barge, the extent to which theinland terminal acts as a gateway and the efficiency and price of pre- and end-haul by truck. The moreintermodality serves as a weapon in port competition, the more ports become dependent on theintermodal carriers offering services along the intermodal corridors. High volatility of intermodal
markets, in terms of organisational and operational factors, is thus not very conducive to creating astable and sustainable competitive position of a port vis-à-vis the hinterland segments served throughthe corridors.
The rise of corridors is highly relevant to any policies aimed at generating a modal shift fromroad haulage to inland navigation, rail and short sea shipping. Intermodal solutions based on barge orrail prove to be competitive on a number of high-density traffic corridors (e.g. the Rhine axis andsome Alpine routes) or in specific niche markets, but cannot serve as a Europe-wide alternative to road
haulage.

2. GLOBAL SUPPLY CHAINS, PORT SELECTION AND
HINTERLAND CONNECTIONSAcademic literature on port selection identifies a multitude of service-related and cost factors that
influence shipping lines’ and shippers’ decisions: see, e.g., Murphy et al. (1992); Murphy and Daley(1994); Malchow and Kanafani (2001); Tiwari et al. (2003); Nir et al. (2003); Chou et al. (2003);
Song and Yeo (2004); Lirn et al. (2004); Barros and Athanassiou (2004); and Guy and Urli (2006).
The traditional view on port selection primarily considers stand-alone physical attributes of a port,such as:
−
−
−
−
−
−
−
−
−
−
−

physical and technical infrastructure (nautical accessibility profile, terminal infrastructureand equipment, hinterland accessibility profile);
geographic location (vis-à-vis the immediate and distant hinterlands and vis-à-vis the main
shipping lanes);
port efficiency;
interconnectivity of the port (sailing frequency);
quality and costs of auxiliary services such as pilotage, towage and customs;
efficiency and costs of port management and administration (e.g. port dues);
availability, quality and costs of logistic value-added activities (e.g. warehousing);
availability, quality and costs of port community systems;
port security/safety and environmental profile;port reputation;
and, very relevant in the context of this paper,
reliability, capacity, frequency and costs of inland transport services by truck, rail and barge.

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32 – SEAPORTS AND THE INTERMODAL HINTERLAND
The focus on stand-alone physical attributes when assessing the competitiveness of a port does
not mirror the reality of (global) supply chains. The container facilitated the adoption by multinational
enterprises of flexible multifirm organisation structures on a global scale. Many of the world’s largest
enterprises manage extensive networks of globally dispersed inputs. The broad geographic distributionof sourcing and production (back end) versus less broad geographic distribution of sales (customerend) is reflected in trade patterns, supply chain management needs and shipping requirements. Service
expectations of customers are moving towards a push for higher flexibility, reliability and precision.
Average product life cycles and supply chain cycles have decreased. There is growing demand fromthe customer for “make-to-order” or “customised” products, delivered at maximum speed, withmaximum delivery reliability, at the lowest possible cost. The focus is on supply chain excellence,with superior customer service and lowest cost to serve.
As a result, European ports are increasingly competing not as individual places that handle ships
but as crucial links within (global) supply chains (Robinson, 2002; Carbone and Gouvernal, 2007;
Notteboom and Winkelmans, 2001). The need for a more supply chain oriented approach to port
selection is echoed in recent work. More than ever, the supply chain has become the relevant scope foranalyzing port competitiveness. This implies that a port’s competitiveness becomes increasingly
dependent on external co-ordination and control by outside actors. Port choice becomes more afunction of network costs. Port selection criteria are related to the entire network, in which the port isjust one node. The ports that are being chosen are those that will help to minimise the sum of sea, port
and inland costs, including inventory considerations of shippers. Along the same lines, Magala andSammons (2008) and Sammons and Magala (2007) argue that port choice is to be considered as aby-product of a choice of a logistics pathway. Port choice becomes more a function of the overall
network cost and performance.
The supply-chain focus on port competition holds clear implications on the role of hinterlandconnections. Port hinterlands have become a key component for linking elements of the supply chain
more efficiently – namely, to ensure that the needs of consignees are closely met by the suppliers interms of costs, availability and time in freight distribution. Through a set of supply/demand
relationships involving physical flows, efficiencies and thus economies are achieved through theprinciple of flow (Hesse and Rodrigue, 2004).
In this setting, the out-of-the-pocket costs of transporting goods between origins and destinations
and the port (including cargo handling costs) constitute just one cost component in supply chainrouting decisions. The more integrated supply chain decision-making becomes, the more the focus isshifted to the generalised logistics costs. The implications on port and modal choice are far-reaching:shippers or their representatives might opt for more expensive ports or a more expensive hinterland if
the additional port-related and modal out-of-the-pocket costs are more than offset by savings in otherlogistics costs. These other costs typically consist of:−−−time costs of the goods (opportunity costs linked to the capital tied up in the transported
goods and costs linked to the economic or technical depreciation of the goods);
inventory costs linked to the holding of safety stocks;
indirect logistics costs linked to the aggregated quality within the transport chain and thewillingness of the various actors involved to tune operations to the customer’s requirements,
e.g. in terms of responsiveness to variable flows, information provision and ease ofadministration (see also Ojala, 1991).

These three cost categories have gained in significance as more and more high-value products arebeing shipped worldwide (i.e. impact on time costs) and as market players show increasing concerns
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SEAPORTS AND THE INTERMODAL HINTERLAND –33

over perceived inefficiencies in segments of the chain as well as reliability issues. There are two major
points to be made in relation to this shift.
First, growing concerns on capacity shortages in ports and inland infrastructure have made supply
chain managers base their port and modal choice decisions increasingly on reliability and capacity
considerations next to pure cost considerations. Port congestion along the US West Coast and in many
European ports, e.g. in the summer of 2004, has demonstrated how scarcity of port facilities andintermodal throughput capacity can impact a broader economic system. Freight transport has become
the most volatile and costly component of many firms’ supply chain and logistics operations.
Managers have to deal with delays in the transport system, rising oil prices, complex security issues
and labour and equipment shortages and imbalances. Each of these problems adds risk to the supply
chain, and the problems are likely to worsen before they improve. Managers in the logistics industry,including the port and maritime industry, are spending more and more of their time handling freighttransport missteps and crises. Scarcity in markets can lead to more efficient use of resources, which is
positive. But when scarcity reaches a continuous high level, logistics players start to consider capacity
problems as the new normal. They can adjust their logistics networks by increasing time buffers in thesystem (a measure which comes at an extra cost) or by finding alternative routes with lower“resistance” to their needs in terms of costs and reliability. Seaports on inefficient or capacity-tightcorridors obviously are in a disadvantageous position.
Second, the logistics actors and transport operators have designed more complex networks thatneed a high level of reliability. The current development and expansion of global supply chains andthe associated intermodal transport systems relies on the synchronisation of different geographic
scales. The efficiency of transport systems can be seriously hampered if, despite low transport costs,
shipments would be delayed significantly. But when the synchronisation level increases, the sea-land
network as a whole becomes less stable (Rodrigue, 1999). This leads to extra costs to find alternativeroutes. In view of reducing the risk of major disruptions, logistics players tend to opt for a flexible
network design offering various routing alternatives. This “not all eggs in one basket” approach
implies that a specific port-corridor combination is seldom in a position where the market will forgive
major flaws in system performance.
The multitude of port selection factors and modal choice criteria implies that modelling portrelated hinterland flows and associated port market shares remains a very difficult exercise. For
example, Veldman et al. (2005) developed a logit model for the routing of western European container
flows in the context of the assessment of the economic impact of a river deepening project. Variablesin the model include the hinterland transport cost and the transit time of routing via port p andhinterland mode m, a maritime resistance cost of port p and the quality of service aspects of port p
related to the frequency of services offered. The model attempts to explicitly incorporate many
dimensions of a generalised logistics cost approach. But, obviously, one should always take into
account the assumptions and simplifications that lie at the heart of a model when interpreting themodel results.
To add to the complexity, it is worth mentioning that the competitive position of a port vis-à-vis a
specific hinterland region cannot always be narrowed down to cost and quality factors only (Van
Klink and Van den Berg, 1998). Historical, psychological, political and personal factors can result inrouting of container flows that diverges from a perfect market-based division. Bounded rationality,
inertia and opportunistic behaviour are among the behavioural factors that could lead to a deviationfrom the optimal solution (Notteboom, 2001).
Given all of the above considerations, it becomes clear the success of a port will depend on theability to integrate the port effectively into the networks of business relationships that shape supply
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34 – SEAPORTS AND THE INTERMODAL HINTERLAND
chains. In other words, the success of a seaport no longer exclusively depends on its internal
weaknesses and strengths. It is more and more determined by the ability of the port community to fully
exploit synergies with other transport nodes and other players within the logistics networks of which
they are part. The synergies that can be envisaged relate to efficient capacity utilisation and efficient
operational synchronisation and integration. To be successful the port community has to think alongwith the customer, trying to figure out what his needs are, not only in the port but throughout the
supply chains and logistic networks.

3. TRADE PATTERNS, DISTRIBUTION NETWORKS
AND LOCATIONAL SHIFTS IN EUROPE

The previous sections provided a conceptual approach to the issue of port competition andhinterland connections. From this section onwards, this paper will discuss the European situation in
more detail. Europe’s economic development and external trade forms the starting point forunderstanding port competition and hinterland connections in Europe. A closer look at external trade
data and GDP data provided by Eurostat (Annexes 1 and 2) leads to the following conclusions:First, rising external trade of European countries seems to go hand in hand with increasing
concerns over trade imbalances. The extra-EU trade of the European Union has increased significantly
over the last decade in terms of the volume and the value of the goods exchanged. Only a handful ofcountries (i.e. Germany, the Netherlands, Ireland and Sweden) realise rather substantial trade
surpluses, while a lot of countries (including the United Kingdom, Greece and Spain, to name but afew) are facing substantial trade deficits relative to total external trade volumes.
Second, intra-EU trade represents two-thirds of the EU’s trade total, meaning that despite theglobalisation trend intra-European trade remains very significant. The volume of intra-EU trade
increased significantly with the consecutive rounds of enlargement of the EU, since the newest
member states are typically strongly geared to the EU market. The share of intra-EU trade varies
widely from one member state to another. For small open economies such as the Benelux countries,
the Czech Republic and Denmark, the shares of intra-EU trade in total exports are very substantial. On
the import side, the overall picture is mixed: the Netherlands, Greece, Italy and the United Kingdom
are among the countries with a strong reliance on non-EU imports, while for most other countries theshare of non-EU imports ranges between 20% and 30%.
Third, the western European markets are becoming mature. The total market volume in Europe’s
most important countries and in traditional market sectors such as consumer goods and automotive areshowing moderate growth rates, which contrast with the boom in these markets of the 1970s and1980s. GDP growth rates in the core of the EU are expected to reach between 1.5% and 2.5% incoming years (see Annex 2). Greece, Luxemburg and Ireland are some of the fastest growers among
the former EU-15 countries. After the crisis that followed the dissolution of Comecon, the central andeastern European countries (CEECs) quickly redirected their trade towards the EU markets. Economic
development in newer EU member states in central and eastern Europe and in the Baltic is expected tocontinue its strong growth path in the near future, with annual GDP growth rates typically between 5%
and 7%. The enlargement of the European Union from 15 to 25 members states in 2004 meant a 20%
rise in population (an additional 75 million citizens, according to Eurostat) but only a 5% rise (€500
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SEAPORTS AND THE INTERMODAL HINTERLAND –35billion) to real GDP. The economic gap remains substantial. However, at the current growth rates,
more advanced countries such as the Czech Republic could reach the GDP per capita level of western
European countries in fifteen years.
In trade, two categories of CEECs can be identified: Hungary, the Czech Republic and Slovakia
are increasingly exporting more technology-driven or high-skill products. By contrast, countries like
Latvia remain focused on low-skill or labour-intensive products. As the EU market has expanded andwill add some high growth markets it is not unlikely that international companies will be keen toinvest in the new Europe. This might imply, for instance, a move of global plants to the European
Union. This tendency will generate larger bidirectional east-west flows within the European Union of
raw materials and consumer products. The east-west flows require extensive infrastructure to be inplace (road, rail, inland waterways and short sea). A large part of this transport will be on inland
waterways, especially the Danube River. Germany, the Czech Republic, Poland, Slovenia andHungary have access to elaborate rail networks while road networks in the eastern European countries
are less developed. Transport in eastern European countries will therefore favour rail. A rise inmultimodal transport infrastructure is expected on the frontiers between eastern and western Europe,
particularly on the borders of Germany, which has well-developed infrastructure for both road and rail.
Given the trends outlined above, the traditional “blue banana” is approaching the shape of aboomerang as a result of extensions to central and eastern Europe and significant investment in the
Mediterranean (Spain in particular), as Figure 2 shows. The expansion of the “blue banana” goes handin hand with a strong development of trade flows in the Baltic area, central Europe and the Latin arc(stretching along the coastline from southern Spain to northern Italy).
Figure 2. The “blue banana” and its extensions

Source: Cushman & Wakefield, Healey & Baker.
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36 – SEAPORTS AND THE INTERMODAL HINTERLAND
The enlargement of the European Union and the strong economic growth of regions situatedsomewhat at the periphery of the internal market might have implications for the design of European
distribution networks. When it comes to European distribution of EU countries’ overseas goods, nogenerally applicable distribution structure exists. Companies can opt for direct delivery without going
through a distribution centre, distribution through European distribution centre (EDC), distribution
through a group of national distribution centres (NDCs) or regional distribution centres (RDCs) or atiered structure in which one EDC and several NDCs/RDCs are combined to form a European
distribution network. The choice between the various distribution network configurations depends on,among other things, the type of product and the frequency of deliveries. In the fresh food industry, forexample, worldwide or European distribution centres are rare because the type of product (mostly
perishable) dictates a local distribution structure. In the pharmaceuticals industry, EDCs are common
but regional or local distribution centres are not present, because pharmaceutical products are often
manufactured in one central plant and delivery times are not very critical (hospitals often have theirown inventories). However, in the high tech spare parts industry, all of the distribution centre
functions can be present because spare parts need to be delivered within a few hours and high techspare parts are usually very expensive (which would require centralised distribution structures).
Before the creation of the EU, the distribution structure of most companies was based on a
network of NDCs in the major countries in which the companies were present. Over the last fifteen
years or so many barriers for cross-border transactions between countries within the EU havedecreased. As a result many companies have consolidated their distribution operations into one central
EDC covering all EU countries. The rise of EDCs has meant longer distances to the final consumers,
and in some market segments local market demand has led companies to opt for RDCs. A certain
degree of decentralisation of European distribution structures has taken place. At present, the tiered
structure consisting of one EDC in combination with some smaller local warehouses, merge-in-transit
concepts or cross-docking facilities offers the best results for many companies in terms of high level ofservice, frequency of delivery and distribution cost control. Companies today often opt for a hybrid
distribution structure of centralised and local distribution facilities. For instance, they use an EDC for
medium- and slow-moving products and RDCs for fast-moving products. These RDCs typicallyfunction as rapid fulfilment centres rather than holding inventories. The classical or multicountry
distribution structures are being replaced by merge-in-transit, cross-docking or other fluid logistics
structures.
The geographic centre of gravity within the expanded EU has slightly moved eastwards from the
Benelux region to Germany, and this is causing some companies to reconsider their use of EDCs. The
relatively recent waves of EU enlargement might further promote a two-tiered European distribution
structure consisting of an EDC together with RDCs in northern Europe, UK/Ireland, southern Europe,
eastern Europe and Italy/Greece. Favourite regions for locating such RDCs include northern Germany
and Finland for northern access, Hungary, southern Germany and Austria for central access, northern
Italy and the north Adriatic region for southern access, and the Czech Republic and Poland for eastern
access. The new European Union is much larger, making it more difficult to deliver all EU countries
out of one EDC within two to three working days. Northern ports, in particular Hamburg, are likely tobenefit the most from the recent waves of EU enlargement, whereas new development opportunities
arise for secondary port systems in the Adriatic and the Baltic Sea.
Some observers argue that growth of investment in EDCs in north-western Europe might slow.
At the moment, this region still offers the best access to the EU core markets and infrastructure. The
majority of EDCs still opt for a location in the Benelux or northern France. Next to dedicated transport
service companies, companies in the automotive, food, retail, chemicals, electronics andpharmaceuticals industries are the main investors in distribution activities. Flanders, northern France
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SEAPORTS AND THE INTERMODAL HINTERLAND –37

and the Netherlands remain the top locations for EDCs, but more and more regions are vying for aposition as attractive locations for RDCs and potentially EDCs.
Supply chains across Europe are being redesigned to respond to varying customer and productservice level requirements. The variables which affect site selection are numerous and quite diverseand can be of a quantitative or qualitative nature: centrality, accessibility, size of the market, trackrecord regarding reputation/experience, land and its attributes, labour (costs, quality, productivity),
capital (investment climate, bank environment), government policy and planning (subsidies, taxes) andpersonal factors and amenities. Many companies fall back on intuition and rules of thumb in selecting
an appropriate site.
In order for the established EDC regions to retain their attractiveness, it is primordial to keep
labour costs within acceptable margins, to overcome the land scarcit issue and to guarantee a smooth(congestion-free) transfer through the maritime gateways and associated inland corridors. Northwestern Europe has to deal with the likelihood that no new major corridor infrastructure will be
developed in the foreseeable future (the Betuweroute for rail in the Netherlands being one of the last
major projects). The focus will thus be on stretching existing capacity on the corridors via advanced
traffic management systems and effective cargo bundling and cargo coordination systems. In eastern
Europe the focus is more on developing the much-needed corridors in the first place, a need that isreflected in the list of priority axes and projects of the Trans-European Transport Network (TEN-T) of
the European Commission. Efficient long-distance corridors can have a downside for well-established
EDC regions: they make it easier for logistics service providers to move distribution facilities inlandcloser to the customer base without having to sacrifice good accessibility to the maritime gateways.

4. THROUGHPUT DYNAMICS IN THE EUROPEAN
CONTAINER PORT SYSTEM

To accommodate maritime trade flows, both extra-EU and intra-EU, Europe is blessed with along coastline reaching from the Baltic to the Mediterranean and Black Sea. The European port systemcannot be considered as a homogenous set of ports. It features large established gateway ports, hub
ports, and a whole series of medium-sized and smaller ports, each with specific characteristics in termsof location qualities, hinterland markets served and commodities handled. This unique blend ofdifferent port types and sizes combined with a vast economic hinterland shapes port competition in theregion. There is no lack of port competition in Europe. Battles are fought on many fronts: maritimeand hinterland access, terminal capacity, and, above all, accommodation of supply chains.
With a total maritime container throughput of around 90 million TEU in 2007, the European
container port system ranks among the busiest in the world. Growth has been particularly strong in thelast few years, with an average annual growth rate of 10.5% in 2005-2007, compared to 6.8% in 19851995, 8.9% in 1995-2000 and 7.7% in 2000-2005. Europe counts many ports. For example, there areabout 130 seaports handling containers, of which around 40 accommodate intercontinental container
services (ESPO/ITMMA, 2007). In the US and Canada there are only 35 seaports involved incontainerisation and only 17 of them are involved in the deep-sea container trade.

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38 – SEAPORTS AND THE INTERMODAL HINTERLAND
Table 1. The top 15 European container ports (1985-2007, in 1000 TEU)
in 1000 TEU
R
1985
1995
2000
2005
2006
1 Rotterdam
2655 Rotterdam
4787 Rotterdam
6275 Rotterdam
9287 Rotterdam
9690 Rotterdam
2 Antwerp
1243 Hamburg
2890 Hamburg
4248 Hamburg
8088 Hamburg
8862 Hamburg
3 Hamburg
1159 Antwerp
2329 Antwerpen
4082 Antwerpen
6488 Antwerpen
7019 Antwerpen
4 Bremen
986 Felixstowe
1924 Felixstowe
2793 Bremen
3736 Bremen
4450 Bremen
5 Felixstowe
726 Bremen
1518 Bremen
2752 Gioia Tauro
3161 Algeciras3245 Gioia Tauro
6 Le Havre
566 Algeciras
1155 Gioia Tauro
2653 Algeciras
2937 Felixstowe
3080 Algeciras
7 Marseille488 Le Havre
970 Algeciras2009 Felixstowe
2700 Gioia Tauro
2938 Felixstowe (**)
8 Leghorn
475 La spezia
965 Genoa
1501 Le Havre
2287 Valencia
2612 Valencia
9 Tilbury
387 Barcelona
689 Le Havre
1465 Valencia
2100 Barcelona
2317 Le Havre
10 Barcelona
353 Southampton
683 Barcelona
1388 Barcelona
2096 Le Havre
2310 Barcelona
11 Algeciras
351 Valencia
672 Valencia
1310 Genoa
1625 Genoa
1657 Zeebrugge
12 Genoa
324 Genoa
615 Piraeus
1161 Piraeus
1450 Zeebrugge
1653 Marsaxlokk (**)
13 Valencia
305 Piraeus
600 Southampton
1064 Marsaxlokk
1408 Southampton
1500 Genoa
14 Zeebrugge
218 Zeebrugge
528 Marsaxlokk
1033 Southampton
1395 Marsaxlokk
1485 Southampton (*)
15 Southhampton
214 Marsaxlokk
515 Zeebrugge
965 Zeebrugge
1309 Piraeus
1399 Constanza
TOP 1510450 TOP 15
20841 TOP 1534698 TOP 1550067 TOP 1554217 TOP 15
TOTAL Europe 17172 TOTAL Europe 33280 TOTAL Europe 51000 TOTAL Europe 73729 TOTAL Europe 79840 TOTAL Europe
Share R'dam
Share top 3
Share top 10
Share top 15

15% Share R'dam
29% Share top 3
53% Share top 10
61% Share top 15

14% Share R'dam
30% Share top 3
54% Share top 10
63% Share top 15

12% Share R'dam
29% Share top 3
57% Share top 10
68% Share top 15

13% Share R'dam
32% Share top 3
58% Share top 10
68% Share top 15

12% Share R'dam
32% Share top 3
58% Share top 10
68% Share top 15

2007 R
10791 19890 28177 34912 43445 53415 63200 73043 82641 92610 102021 11
1900 121855 131800 141411 15
61111
89990
12%
32%
58%
68%

(*) Estimate based on growth first 8 months(**) Estimate

Source: Author, based on traffic data from respective port authorities.

Table 1 provides an overview of the fifteen largest container load centres in Europe. Three ofthese ports (Gioia Tauro, Marsaxlokk and Algeciras) act as almost pure trans-shipment hubs with atrans-shipment incidence of 75% or more, while other load centres can be considered as almost puregateways (e.g. Valencia, Genoa, Barcelona) or a combination of a dominant gateway function withsea-sea trans-shipment activities (e.g. Hamburg, Rotterdam, Le Havre, Antwerp and Constanza).
About two-thirds of the total container throughput in the European port system passes through the top
fifteen load centres, compared with 61% in 1985. One-third of all containers is handled by the top
three ports, compared with 29% in 1985. It is worth noting that the dominance of market leader
Rotterdam has somewhat weakened, while upstream ports Antwerp and Hamburg strengthened theirposition (from 7.1% and 6.7%, respectively, in 1985 to 9.1% and 11% in 2007). Concentration studies
indicate that the cargo concentration index in Europe is rather high compared to the US/Canada andAsia, but has slightly decreased in the last decade, implying an increasing number of European ports ispresent on the competitive scene (Notteboom, 2006). This is in sharp contrast to North America,
where more and more cargo is being channelled through only a few ports. The European port scene istherefore becoming more diverse in terms of number of ports involved and the scope of port functions
and services, leading to more routing options being open to shippers.

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SEAPORTS AND THE INTERMODAL HINTERLAND –39

Figure 3. The European container port system and logistics core regions in the hinterlands
Gateway port
Transhipment/interlining port
(transhipment incidence >75%)
Gateway port also handling
substantial transhipment flows
Logistics core region
Multi-port gateway region

Multi-port gateway regions
1. Rhine-Scheldt Delta
2. Helgoland Bay
3. UK SE Coast
4. Spanish Med
5. Ligurian Range
6. Seine Estuary
7. Black Sea West
8. South Finland
9. Portugese Range
10. North Adriatic
11. Gdansk Bay

8

Inland corridor
Main shipping route

11
2
1

3

Americas6

Americas
7
10
5

9

4

Main shipping route
Middle East – Far East

Source: Notteboom – ITMMA.

Comparisons of container throughput figures are typically based on individual ports. This might
be misleading when analysing the gateway function of specific port regions. An alternative approachconsists in grouping load centres within the same gateway region together to form multiport gateway
regions. The locational relationship to nearby identical traffic hinterlands is one of the criteria that canbe used to cluster adjacent load centres. In cases there is no coordination between the ports concerned,
the hinterland is highly contestable, as several neighbouring gateways are vying for the same cargoflows. The often complex linkages in the governance and management of port areas and terminals
within the same multiport gateway region has received quite a lot of attention in academic literature. A
good example is the port governance book edited by Brooks and Cullinane (2006) discussing thesituation in many gateways and hubs, also in Europe. Charlier (1996) and Notteboom (2007) paid
special attention to the Rhine-Scheldt Delta in the Benelux.
Figure 3 provides an overview of the main multiport gateway regions in Europe, as well as transshipment hubs and stand-alone gateways. Table 2 gives the associated container volumes, while
Figure 4 contains pie charts for 1985 and 2007. The following conclusions can be drawn:

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40 – SEAPORTS AND THE INTERMODAL HINTERLAND−

The Rhine-Scheldt Delta and the Helgoland Bay ports, both part of the so-called Le HavreHamburg range, together represent 40% of the total European container throughput. The
market share of the Rhine-Scheldt Delta is quite stable, while the northern German ports
have gained market share, mainly because of Hamburg’s pivotal role in feeder flows to theBaltic and land-based flows to the developing economies in east and central Europe.

−

The Seine Estuary, the third region in the Le Havre-Hamburg range, suffered a long decline
in its market share. The tide was turned only very recently as a result of the “renaissance” of
Le Havre after the opening of the first Port 2000 terminals, combined with port productivity
improvement. Le Havre’s revival goes hand in hand with the ambition of the port to stretch
its hinterland reach beyond the Seine basin (its core hinterland) and even across the Frenchborder, mainly supported by rail services.

−

Among the major winners, we find the Spanish Med ports (from 3.9% in 1985 to 6.3% in2007) and the Black Sea ports (from virtually no traffic to a market share of 1.7% in 2007).
These ports have particularly benefited from the extension of the “blue banana” as outlined
earlier (see later in this paper for a more detailed analysis).

−

The Gdansk Bay ports and the Portuguese port system have been less successful so far. The
Polish load centres are still bound by their feeder port status, competing heavily with main
port Hamburg for the Polish hinterland. Portuguese ports Lisbon and Sines are trying very
hard to expand business by developing a modest trans-shipment role as well as tapping into
the market surrounding Madrid through rail corridor formation and dry port development(e.g. Lisbon’s Puerta del Atlântico logistics platform in Móstoles on the outskirts of Madrid).

−

Ligurian and northern Adriatic ports are typically challenged by the physical limitations toterminal capacity extensions (i.e. the locked-in geographic situation of the respective coastal
port cities) and by the limited success so far in attracting a lot of business from the Alpine
region and southern Germany.

−

Many of the load centres along the south-eastern coast of the United Kingdom faced capacity
shortages. To avoid delays, many shipping lines opted for the trans-shipment of UK flows in
mainland European ports (mainly the Rhine-Scheldt Delta and Le Havre) instead of callingat UK ports directly. With the prospect of new capacity getting onstream soon (e.g. London
Gateway, Bathside Bay and Teesport) there is hope for more direct calls and potentially aslight increase in market share. Much will depend on whether the UK economy remains
strong and is not affected too much by the economic hiccups of its main trading partner, theUS.

−

Except for Piraeus, the larger stand-alone gateways in Europe have lost market share, forvarious reasons. For example, despite its proximity to the economic centres along the Rhône
corridor and southern France, Marseille suffered from labour disputes and its rather remotelocation vis-à-vis the main shipping route (high diversion distance).

−

Trans-shipment hubs in the Mediterranean have substantially increased their role in thecontainer market. After a steep increase in market share from 5.1% in 1995 to 11.2% in
2000, the market position further evolved to a peak of 12.2% in 2005. However, the last few
years have brought a small decline to 11.4%. A more detailed discussion of the mechanism
underlying this observation follows later in this paper.

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SEAPORTS AND THE INTERMODAL HINTERLAND –41

Table 2. Container throughput figures for the main multiport gateway regions in Europe,
the European trans-shipment hubs in the Mediterranean and a number of important,stand-alone gateways (1985-2007, in 1000 TEU)
R
1985
1995
2000
2005
2006
2007 R
Main multi-port gateway regions in Europe
4241 RS Delta
7747 RS Delta
11388 RS Delta
17327 RS Delta
18749 RS Delta
21463 1
1 RS Delta
2145 Helgoland Bay
4430 Helgoland Bay
7110 Helgoland Bay 11871 Helgoland Bay 13382 Helgoland Bay
14802 2
2 Helgoland Bay
3 UK SE Coast
1508 UK SE Coast
3543 UK SE Coast
5080 UK SE Coast
5722 UK SE Coast
6405 UK SE Coast (*)
7100 3986 Ligurian Range
2051 Ligurian Range
2949 Spanish Med
4490 Spanish Med
4942 Spanish Med
5700 44 Ligurian Range
701 Spanish Med
1398 Spanish Med
2742 Ligurian Range
3528 Ligurian Range
3683 Ligurian Range (*) 4070 5
5 Seine Estuary
6 Spanish Med
676 Seine Estuary
1090 Seine Estuary
1610 Seine Estuary
2280 Seine Estuary
2295 Seine Estuary
2800 6376 South Finland
562 South Finland
773 South Finland
1120 South Finland
1221 Black Sea West1561 7
7 North Adriatic
8 Portugese Range
266 Portugese Range
470 Portugese Range
670 Portugese Range
916 Black Sea West1182 South Finland
1395 8200 North Adriatic
468 North Adriatic
606 Black Sea West902 Portugese Range 1013 Portugese Range
1138 99 South Finland (*)
10 Gdansk Bay
83 Gdansk Bay
142 Gdansk Bay
206 North Adriatic
663 North Adriatic
688 North Adriatic (*)
788 10n.a. Black Sea Westn.a. Black Sea West143 Gdansk Bay
470 Gdansk Bay
540 Gdansk Bay
711 11
11 Black Sea West
Transhipment/interlining hubs in West and Central Med
Med Hubs
393 Med Hubs
1711 Med Hubs

5732 Med Hubs

9017 Med Hubs

9251 Med Hubs

10293

Some important stand-alone gateways
Marseille
488 Piraeus
Gothenborg
317 Marseille
Piraeus197 Gothenborg
Bilbao150 Liverpool
Liverpool
133 Bilbao

1161 Piraeus
722 Marseille
686 Gothenborg
540 Liverpool
434 Bilbao

1395 Piraeus
908 Marseille
788 Gothenborg
626 Liverpool
504 Bilbao

1399 Piraeus
941 Marseille812 Gothenborg
645 Liverpool
523 Bilbao

n.a.
987
n.a.
n.a.
555

600 Piraeus
498 Marseille461 Gothenborg
406 Liverpool
297 Bilbao(*) Estimate
Notes:
Rhine-Scheldt Delta: Rotterdam, Antwerp, Zeebrugge, Amsterdam, Ghent, Zeeland Seaports, Ostend
Helgoland Bay: Hamburg, Bremen/Bremerhaven, Cuxhaven, Emden, Wilhelmshaven
UK South East Coast: Felixstowe, Southampton, Thamesport, Tilbury, Hull
Spanish Med: Barcelona, Valencia, Tarragona
Ligurian range: Genoa, Savona, Leghorn, La Spezia
Seine Estuary: Le Havre, Rouen
Black Sea West: Constanza, Burgas, Varna
South Finland: Helsinki, Kotka, Rauma, Hamina, Turku
Portugese range: Lisbon, Leixoes, Sines
North Adriatic: Venice, Trieste, Ravenna
Gdansk Bay: Gdynia, Gdansk

Source: Author, based on traffic data from respective port authorities.

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42 – SEAPORTS AND THE INTERMODAL HINTERLAND

Figure 4. Breakdown of container throughput in the European container port system:
an individual port perspective (left) versus a gateway region perspective (right)
Share of multi-port gateway regions - 2007

Share of top 15 ports - 2007

Total European container traffic = 90 mln TEU

Total European container traffic = 90 mln TEU
Rotterdam
12.0%

Stand-alone gateways
20.2%

Other
32.1%

Hamburg
11.0%

Antwerpen
9.1%
Constanza
1.6%

Zeebrugge
2.2%

BarcelonaLe Havre
2.9%
2.9%

Valencia
3.4%

Gdansk Bay
0.8%

Helgoland Bay
16.4%

Portugese Range
1.3%

Gioia Tauro
3.8%

Genoa
2.1%

Med Hubs
11.4%

North Adriatic
0.9%

Bremen5.5%Southampton
2.0%

Marsaxlokk
2.1%

Rhine-Scheldt Delta
23.9%

Algeciras
Felixstowe 3.8%
3.6%

Seine Estuary
3.1%

South Finland
1.6%

Spanish Med
6.3%
Ligurian Range
4.5%

Black Sea West
1.7%

UK South-East Coast
7.9%

Share of multi-port gateway regions - 1985

Share of top 15 ports - 1985

Total European container traffic = 17.2 mln TEU

Total European container traffic = 17.2 mln TEU
Rotterdam
15.5%

RS Delta
24.7%
Stand-alone gateways
32.6%
Antwerp
7.2%

Other
39.1%

Hamburg
6.7%

Bremen5.7%

Southhampton
1.2%

Felixstowe
4.2%

Zeebrugge
1.3%
Valencia
1.8%

Le Havre
3.3%
Genoa
1.9%

Algeciras Barcelona
2.1%
2.0%

Tilbury
2.3%

Leghorn
2.8%

Marseille
2.8%

Med Hubs
2.3%
Helgoland Bay
12.5%

Black Sea West
0.0%
Gdansk Bay
0.5%South Finland
1.2%
Portugese Range
1.5%
North Adriatic
2.2%

Spanish Med
3.9%

Ligurian Range
Seine Estuary 5.7%

UK SE Coast
8.8%

4.1%

Source: Author, based on data from the respective port authorities.

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SEAPORTS AND THE INTERMODAL HINTERLAND –43

5. KEY HINTERLAND DEVELOPMENTS FOR THE COMPETITION
IN AND BETWEEN GATEWAY REGIONS

5.1 The immediate hinterland as the backbone for port rivalry in a gateway region
While corridor development to distant hinterlands attracts more and more attention, local or
immediate hinterlands remain the backbone of ports’ cargo bases. Even large European gateways suchas Rotterdam and Antwerp have a high proportion of container flows that is generated by the port cityand its immediate region. About 40% of containers leaving or arriving at Antwerp by truck are comingfrom or going to markets within a 50 km radius of the port. The most significant distance class forRotterdam is the 150-200 km radius. This is directly related to the port's role as a cargo generating
location linked to the strong manufacturing base of the immediate hinterland.
A major concern in many ports is the strong reliance of more local container volumes on trucks.
While road haulage has always played a major role in shaping competition among load centres of thesame multiport gateway region for the immediate hinterland, intermodal transport is slowly but surely
acquiring a strategic role as well, particularly as a means to create cargo islands (see Figure 1).
Logistics sites in the immediate hinterland typically value the flexibility a multiport gateway system
offers in terms of available routing options for import and export cargo. In a logistics world confronted
with mounting reliability and capacity issues, routing flexibility is one of the keystones for thelogistics attractiveness of a region. For example, the logistics attractiveness of large parts of Belgium
and the Netherlands for EDCs is partly due to the reality of having several efficient gateways at one’s
disposal.
A port with a strong local cargo base will sooner or later be tempted to increase the inland
penetration of its intermodal offer so as to broaden its capture area. From that moment on the existing
dense network of direct shuttles to nearby destinations might be complemented by indirect inland
services to more distant destinations built around one or more inland hubs. Extensive cargo
concentration on a few trunk lines opens possibilities for economies of scale in inland shuttles(through the deployment of longer trains or larger inland barges) but even more likely are higher
frequencies. Containers for the more distant hinterland benefit from a port’s strong local cargo base, as
local containers often provide the critical mass for allowing frequent deep-sea liner services.
5.2 Gateway regions increasingly vie for distant contestable hinterlands
In line with the first section of this paper, port competition in Europe has intensified as inland
corridor formation has allowed load centres to access formerly captive hinterlands of other ports.
Moreover, the rise of economic centres in eastern and central Europe creates opportunities fordifferent multiport gateway regions and stand-alone gateways to develop water-based and land-basedtransport networks to these areas. Major contestable hinterlands are increasingly being served not by
the ports of one gateway region, but by several multiport gateway regions (Table 3). The Black Sea
port region, Constanza in particular, could develop into a new gateway region to Europe. Constanza is
strategically located at the eastern end of the pan-European waterway transport Corridor VII, which
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44 – SEAPORTS AND THE INTERMODAL HINTERLAND
links the North Sea and Black Sea, as well as pan-European transport Corridor IV, linking Berlin and
Istanbul by land. From the Suez Canal to Constanza is only 950 nm, compared with 3400 nm toRotterdam, and many shipping lines have introduced direct services from the Far East with vessels in
the range of 2000 to 3500 TEU (e.g. Bosporus Express of CMA-CGM and Tiger Service of MSC).
The trend for Constanza to develop further into a major gateway for the region worries its Bulgariancompetitors, but also opens up opportunities for landlocked countries such as the Czech Republic,
Hungary and Austria to connect developing gateways in the east.
The multiplication of corridors brings about a change in the relationship between gateways andtheir hinterlands. On the one hand, the inland penetration strategy is part of maritime gateways’
objective of increasing their cargo base. On the other hand, interior regions are recognising that it is in
their interest to establish efficient links to as many gateways as possible. For example, the Czech
Republic is upgrading its trans-European travel corridors intensively (in particular, the fourth corridor
connecting Germany with south-eastern Europe (Istanbul). This strategy not only prevents theseregions from becoming captive to one specific gateway, it also improves the locational qualities ofthese interior economic centres. Hence, linking up to more gateways implies more routing options andflexibility for shippers and logistics service providers who want to set up business in the region. The
performance profile of each of the corridors in terms of infrastructure provision (capacity), transport
operations (price and quality of the shuttle services) and the associated logistical control (i.e. themanagement in a supply chain context) is a key attribute for this kind of competitive play among
various multiport gateway regions.
Table 3. The position of major multiport gateway regions vis-à-vis important contestablehinterland areas in Europe

Rhine-Scheldt Delta
Helgoland Bay

West Germany(Ruhr area, BadenWürttemberg, ..)South Germany
Alpine countries

Madrid andsurroundings

+
+

+
+

+

°

x/°
°

Spanish Med
Ligurian Range
Seine EstuaryBlack Sea West

Gdansk Bay

Northern Italy

Southern France+ (Rott.) / °++++ (Antw.) / - / + (Barc.)
x
+

+
°/+
°

Portugese Range
North Adriatic

Southern Poland
Czech RepublicHungary

x/°

x/°
x/°

+

+ = major hinterland region for gateway region, successful intermodal services
x =potentially major hinterland region for gateway region, but success limited- = minor hinterland region for gateway region° =potential hinterland region for gateway region, intermodal services planned or started-up recently

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SEAPORTS AND THE INTERMODAL HINTERLAND –45

5.3 The North-South balance in perspective
Figure 5: The relative shares of iso-distance zones for the Hamburg-Le Havre range
and the Algeciras-Livorno range (1996 versus 2005)

Iso-distance zone – 500 km
Hamburg-Le Havre range 2005 (1996)% of population EU27= 32% (32%)% of GDP EU27= 40% (46%)% of TEU traffic EU27= 43% (39%)
Hamburg
Bremerhaven
Rotterdam
Zeebrugge

Antwerp

Le Havre

Algeciras-Livorno range 2005 (1996)% of population EU27= 27% (26%)% of GDP EU27= 32% (31%)% of TEU traffic EU27= 16% (16%)

GenovaLa Spezia
LivornoMarseille
Barcelona
Valencia

Algeciras

Iso-distance zone – 500 km
Hamburg-Le Havre range 2005 (1996)% of population EU27= 32% (32%)% of GDP EU27= 40% (46%)% of TEU traffic EU27= 43% (39%)
Hamburg
Bremerhaven
Rotterdam
Zeebrugge

Antwerp

Le Havre

Algeciras-Livorno range 2005 (1996)% of population EU27= 27% (26%)% of GDP EU27= 32% (31%)% of TEU traffic EU27= 16% (16%)
Marseille

GenovaLa Spezia
LivornoBarcelona
Valencia

Algeciras

Source: Compiled on the basis of Eurostat GDP and population statistics (NUTS II level) and traffic
figures provided by the respective port authorities.

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46 – SEAPORTS AND THE INTERMODAL HINTERLAND
The dominance of ports in the Le Havre-Hamburg range (particularly the Rhine-Scheldt Delta
and Helgoland Bay) in Europe is very apparent when looking at throughput statistics (see earlier). Thisobservation fuels a decades-old debate on what some see as an “unhealthy” balance between Northand South. Evidence provided in Figure 5 demonstrates the imbalance not only exists, it has evengrown stronger in the last decade despite an increasing degree of participation by mainland Med ports
in international shipping networks. While the share of the immediate hinterlands of the northern range
ports in the GDP of the EU27 decreased in 1996-2005, the container cargo share increased
significantly. The joint market share of the Le Havre-Hamburg range ports in liner services between
the Far East and Europe is estimated at 76%, compared to 24% for western Med ports (Milà, 2008). In
the 1980s the Europe-Far East trade was still totally concentrated on northern range ports. The more
local gateway function of mainland Med ports versus the sometimes European-wide gateway position(including trans-shipment flows and land-based intermodal corridors) of ports such as Hamburg,
Rotterdam and Antwerp is a major cause of the observed imbalance.
In theory, mainland Med ports offer transit time advantages over the northern European ports foraccommodating cargo flows between Asia/Middle East and large parts of southern and central Europe(time savings for vessels of up to five days). In practice, only Spanish Med ports have been successful(in large part due to the strong economic growth in Catalonia) while Italian and French Med ports lag
behind in growth (see figures outlined earlier).
Italy is somewhat a special case for intra-Med trade. While France and Spain are mainly involvedin north–south trade, Italy could also represent a gateway for trade with eastern Europe (Ferrari et al.,2006). However, Cazzaniga and Foschi (2002) demonstrate that northern Italian ports collect only avery small portion of the merchandise of the area extending from Bavaria to Hungary. Even worse,
significant flows of Italian cargo sail not from Italian ports but from ports in the Rhine-Scheldt Delta
and Helgoland Bay. There has been improvement, though. Cazzaniga and Foschi (2002) indicate that
northern Italian ports increased their market share in total northern Italian container flows on the Far
East trade from 70% in 1995 to 81% in 2001 while the market share of the northern ports fell from
30% to 19% (no later figures are available). About half of the flows between northern Europe andnorthern Italy) goes by rail (the share is still increasing) and the remainder by truck. Note that rail has
a market share of 25% in Genoa and La Spezia. The percentages of cargo shipped via northern Europe
are thus showing a tendency to decrease, but some observers argue this process is far too slow
considering that many shipping lines now have direct mainline vessel calls in the Med.
Gateway ports in the western Med have indeed improved their connectivity in the global shipping
networks, which gives these ports the opportunity to benefit from a higher critical mass and theeconomies linked to larger vessels. But so far, they seem to be having difficulties in substantiallyextending their hinterland reach north through rail services (Gouvernal et al., 2005). While Spanish
ports face a major technical problem in setting up rail shuttles to France (i.e. the difference in gauge),
the North-South paradox for northern Italian cargo is mainly linked to a weaker intermodalorganisational performance for intra-Italian rail products, and existing (but converging) differences in
port efficiency between northern ports and northern Italian ports. Moreover, a smaller critical rail
volume makes it hard to maintain frequent rail services, which sometimes disappear soon after
introduction.
Several initiatives are under way with the objective of improving the position of the Med ports.
Next to major terminal expansion plans in ports such as Barcelona, Valancia, Marseille and Genoa,
western Med ports’ latest investment strategies include a range of logistics platforms both in seaports
and in strategic inland locations (e.g. the “tm concept” of the Barcelona port authority, discussed laterin this paper), but at the moment the inland operations are mostly modest, generating only small
volumes. To attract Asian trade distribution to the region, the ports of Barcelona, Marseille and Genoa
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SEAPORTS AND THE INTERMODAL HINTERLAND –47

have joined their marketing efforts under the umbrella of the association Intermed. The range ofactions also includes corridor formation. Next to south-north corridors (mainly rail) included in DG
TREN’s TEN-T program, the FERRMED association aims at the development of a reticular andpolycentric railway axis reaching from southern Spain all the way to the core economic regions in the
Benelux and Germany and further north to Stockholm. The FERRMED axis aims to offer analternative to the high-volume Rhine-Rhône-Occidental Mediterranean axis.
All these initiatives are taken in a market environment where northern range ports are also very
active in intensifying their intermodal networks, mainly to inland service areas in France, Germany,
the Alpine region and eastern and central Europe. The range and diversity of the intermodal service
offer of the large load centres in the north are still far bigger and more established than their
Mediterranean counterparts. As it is highly unlikely this gap is going to be bridged in the foreseeable
future, the presence of northern load centres in south European container markets remains a marketdriven reality.
5.4 Transshipment hubs under scrutiny and the impact on inland freight distribution
Not all ports in Europe are gateways. A number of terminals mainly rely on their role as
turntables or hubs in extensive maritime hub-and-spoke/relay/interlining networks. In the
Mediterranean, extensive hub-feeder container systems and short sea shipping networks have emergedsince the mid 1990s to cope with the increasing volumes and to connect to other European port regions(Figure 6). Terminals are typically owned, in whole or in part, by carriers which are efficiently using
these facilities. Marsaxlokk on Malta, Gioia Tauro, Cagliari and Taranto in Italy and Algeciras inSpain act as turntables in a growing sea-sea trans-shipment business in the region. These sites wereselected to serve continents, not regions, for trans-shipping at the crossing points of trade lanes, andfor potential productivity and cost control. They are typically located far away from the immediate
hinterland that historically guided port selection.
The market share of the trans-shipment hubs in total European container throughput peaked in2005 (12.2%) but since then has started to decline, reaching 11.4% as volume growth in mainland
ports allowed shipping lines to shift to direct calls. While some shipping lines still rely on the hub-andspoke configuration in the Med, others have decided to add new line-bundling services calling at
mainland ports directly. Maersk Line, MSC and CMA-CGM are modifying their service patterns,
giving increasing priority to gateway ports. In reaction, mainly Italian trans-shipment hubs are
reorienting their focus, now serving central and eastern Med regions. Algeciras (stronghold of APM
Terminals of the AP Moller Group) relies a lot on east-west and north-south interlining and is facing
competition from newcomer Tangermed where APM Terminals has also set up business recently. The
net result of the above developments has been a slight decline in the market share of the western Med
hubs in recent years (Figure 6). The trans-shipment business remains a highly “footloose” business.
This has led some trans-shipment hubs such as Gioia Tauro and Algeciras to develop inland rail
services to capture and serve the economic centres in the distant hinterlands directly, while at the sametime trying to attract logistics sites to the ports.

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48 – SEAPORTS AND THE INTERMODAL HINTERLAND
Figure 6. The market shares of ports in the western Mediterranean
Ports grouped according to the diversion distance from the main shipping route (1975-2007)
West-Mediterranean ports with one-way diversion distance > 250 nm
West-Mediterranean ports with one-way diversion distance 100-250 nm
West-Mediterranean ports with one-way diversion distance < 100 nm
100%

Share in TEU throughput West-Med

90%
80%
70%
60%
50%
40%
30%
20%
10%

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

0%

Source: Aggregation by author based on statistics of respective port authorities.

The creation of “offshore” hubs does not occur in all port systems. Northern Europe up to now
has not had any real trans-shipment hub, let alone an offshore hub. Hamburg, the northern European
leader in terms of sea-sea flows, has a trans-shipment incidence of merely 40%, far below the elevatedtrans-shipment shares in the main southern European hubs (85% to 95%). It is generally expected thatthe trans-shipment shares of future newcomers Flushing and Wilhelmshaven might slightly exceed
40%. The only somewhat concrete plan for a real northern European offshore hub relates to a
proposed trans-shipment facility at the natural deep-water harbour at Scapa Flow in the Orkney
Islands. Baird (2006) argued that alternative port sites such as Scapa Flow could provide superior andmore competitive locations from which to support the fast expanding trans-shipment markets ofnorthern Europe. Nevertheless, market players have not adopted the idea of bringing a northern
offshore hub into reality.
The dynamics in the trans-shipment business have implications on freight distribution patterns in
Europe. A hub and spoke-based network means less cargo concentration in mainland destination ports
and, as such, a more dispersed or fragmented inland transport system. Alternatively, traffic growth canlead to an undermining of the position of trans-shipment hubs in favour of a limited number of largescale mainland ports, each connected to intermodal corridors. This brings us back to the discussion on
inland services of the Med ports as outlined in the previous section.

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SEAPORTS AND THE INTERMODAL HINTERLAND –49

5.5 The challenge of the periphery
The geographic literature on development patterns in seaport systems suggests an increasing levelof port concentration as certain hinterland routes develop to a greater extent than others in association
with the increased importance of particular urban centres (Taaffe et al., 1963). The geographic system
would evolve from an initial pattern of scattered, poorly connected ports along the coastline to a main
network consisting of corridors between gateway ports and major hinterland centres. These models
thus suggest that large ports, which invested early in container infrastructure, would attract more andmore container traffic. The resulting port concentration would cause degradation of minor ports in the
network. In the 1980s, some authors suggested cargo concentration would reach a limit, allowing
smaller ports or new ports to acquire a place in the market (Barke, 1986, and Hayuth, 1981). The
challenge of the periphery supports the transition from a single gateway situation to a multiportgateway region. Many gateway regions in Europe have witnessed a recent multiplication of load
centres or will do so in the future. The main challengers in each gateway region are listed in the lastcolumn of Table 4.
Table 4. Evolution of the share of the market leader in the multiport gateway region(%, 1985-2007)

RS Delta

1985

1995

2007 Trend for market share of leader

Main challengers in the periphery

62.6

61.8

50.3 Decreasing, leader unchanged (Rotterdam)

Zeebrugge (+), Amsterdam (-), Flushing (?)

Helgoland Bay

54.0

65.2

66.8 Increasing, leader unchanged (Hamburg)

Wilhelmshaven (°), Cuxhaven (x)UK SE Coast

48.1

54.3

47.3 Fluctuation, leader unchanged (Felixstowe)London Gateway (°), Bathside Bay-Harwich (°)

Spanish Med

52.2

49.3

53.4 Fluctuation, change in leader (Valencia overtook Barc.)-

Ligurian Range

48.2

30.0

45.6 Fluctuation, change in leader (Genoa overtook Leghorn)-

Seine Estuary

80.8

89.0

94.3 Increasing, leader unchanged (Le Havre)-

Black Sea West

n.a.

n.a.

90.4 Increasing, leader unchanged (Constanza)-

Dibden Bay (X), Teesport (?)

South Finland

n.a.

60.3

40.9 Decreasing, change in leader (Kotka overtook Helsinki)

Kotka (+)

Portugese Range

57.9

58.4

48.7 Recent decrease, leader unchanged (Lisbon)

Sines (+)

North Adriatic

50.5

41.3

41.3 Fluctation, change in leader (Venice overtook Ravenna)

Trieste (+)

Gdansk Bay

100.0

99.6

86.4 Decreasing, leader unchanged (Gdynia)-(+) (some) terminal(s) already in operation; strong results(-) (some) terminal(s) already in operation; moderate results(°) Terminal under construction(?) No container terminal yet, planning phase(x) Container terminal was planned, but plans abandonned or rejected

Source: Based on data from respective port authorities and specialized press.

Centrifugal forces that support the so-called “peripheral port challenge” include (a) the newrequirements related to deep-sea services (e.g. good maritime and inland accessibility, availability ofterminal and back-up land and short vessel turnaround times), (b) strong growth in the container
market and (c) potential diseconomies of scale in the existing load centres in the form of lack of spacefor further expansion or congestion (see, e.g., Hayuth, 1981, Slack & Wang, 2002, Notteboom, 2005,
Frémont & Soppé, 2007). The markets also exert a range of centripetal forces favouring a sustained
strong position of established large load centres vis-à-vis medium-sized and new terminals. First, theplanned additional terminal supply in small and medium-sized ports is typically overshadowed bymassive expansion plans in established larger ports. For example, Notteboom (2007) demonstrated
that in the best case scenario, the market share of the small and medium-sized ports in the Le HavreHamburg range could increase from 7.1% in 2006 to approximately 16% past 2015, with 75% of the
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50 – SEAPORTS AND THE INTERMODAL HINTERLAND
capacity bring added by the large load centres. Major shifts in existing port hierarchy are unlikely.
Second, new entrants in the terminal market often have to overcome major issues such as the need tosecure hinterland services, relative inexperience in dealing with stakeholder-related procedures linked
to large terminal projects and weak cargo-generating and cargo-binding potential (typically as a resultof a lack of associated forwarders’ and agents’ networks). New trans-shipment hubs generally faceless of these problems given their remote locations, their weak reliance on hinterland connectivity andtheir strong link with one or few shipping line(s) that will use the facilities as turntables in their liner
networks (operational push instead of market pull).
The hinterland connectivity issue deserves special attention. Large load centres to a varying
extent experience a virtuous cycle. The concentration of large deep-sea container volumes in one placemakes it easier to build up an extensive network of intermodal services and this in itself attracts evenmore cargo (partly triggered by economies of scale and density). Small-scale container ports often lackthe volumes needed to develop a network of frequent shuttle trains. This in itself can contribute to aperceived lower attractiveness of the port. To escape this imminent vicious cycle, smaller ports tend to
shuttle substantial container flows to larger ports in the region (interport traffic) so as to link up withthe extensive hinterland network available. The development of inland hubs in the immediate
hinterland opens opportunities for smaller ports to use the extensive hinterland networks even without
having to rely on the established load centres directly. The inclusion of such bundling points in thehinterland thus promotes the formation of a multiport gateway region and increases the complexity
and range of possible routing patterns. The minimum cargo volume needed to set up a network of
direct shuttles is affected by the level of cargo dispersion in the service area of the port. A port that
only serves a dense local economic cluster will obviously face less difficulty in developing a regularinland service than a port handling containers for a large number of final destinations dispersed over avast hinterland.
5.6 Port competition and the role of upstream ports
With demand growing for a good nautical accessibility and a fast turnaround time for the everlarger container vessels, one could assume that the days of upstream ports are counted (see, e.g., Baird,1996). While in the Med trans-shipment hubs with a low diversion distance have succeeded in gaining
a position in the market, the northern European port system seems to have been going anotherdirection. Large upstream ports, i.e. basically Antwerp and Hamburg, have gradually gained market
share at the expense of coastal ports (Figure 7). Since 2003, however, the share has stabilised ataround 46%, mainly due to the rise of Zeebrugge, the recent revival of Le Havre and a regained
growth path in Rotterdam after several years of stagnation.
Although the discussion on downstream versus upstream load centres can not be generalised,
there exists a competitive potential for upstream ports in northern Europe. First, the growing gap
between inland transport costs and maritime freight costs supports direct calls at an upstream port,
certainly when the port’s immediate hinterland has a strong cargo-generating power (as is the case for
Antwerp and Hamburg) and when the upstream port succeeds in outperforming downstream ports interms of terminal productivity, prices and integrated value-added services, all this in order tocompensate for the extra sailing time. Antwerp and Hamburg have become “must call” ports in theeyes of quite a number of shipping lines. A relatively high proportion of container traffic is handled
for a multitude of smaller shippers. Major freight forwarders use these ports as major groupage
centres. Merchant haulage is particularly strong in Antwerp, where small and large forwarders
controlling about 70-75% of the inland movements, attracting shipping lines to this cargo base. Draft
limitations remain the worst threat to the position of upstream ports mainly on the Europe-Far East
trade. Both Antwerp and Hamburg have responded to the realities in the liner market by engaging in
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SEAPORTS AND THE INTERMODAL HINTERLAND –51

extensive dredging programmes to guarantee access for the largest generation of post-panamax
vessels.
Figure 7. Evolution of the market shares in the Le Havre-Hamburg range

Share in TEU throughput Le Havre-Hamburg range

100%
90%

Small and medium-sizedcoastal ports

80%

Large coastal ports

70%
60%

Small and medium-sized
upstream ports

50%

Large upstream ports

40%
30%
20%
10%

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

0%

Source: Aggregation by author based on data of respective port authorities.

The future outlook will largely depend on the balance of power between two principles: “cargofollows ship” versus “ship follows cargo”. Shipping lines are entirely prepared to call at upstream
ports Antwerp and Hamburg in large part because of their high cargo generating performance and thesavings they can make in onward inland transport distances. This demonstrates that the design of liner
services is a function not only of carrier-specific operational factors, but also of shippers’ needs (fortransit time and other service elements) and of shippers’ willingness to pay for better service.

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52 – SEAPORTS AND THE INTERMODAL HINTERLAND

6. THE ROLE OF RELEVANT ACTORS IN THE STRUCTURING
OF HINTERLAND NETWORKS

6.1 Co-operation, logistics integration and market pull in the intermodal offer
As mentioned earlier, the ultimate success of a port will depend on the ability to integrate the port
effectively into the networks of business relationships that shape supply chains. In other words, thesuccess of a seaport is increasingly determined by the ability of the port community to fully exploit
synergies with other nodes and other players within the logistics networks of which they are part. A
study by Song and Panayides (2008) revealed that the most important parameters contributing toport/terminal integration in supply chains relate to technology, value-added services, the relationshipwith clients and liner operators, the facilitation of intermodal transport and channel integration
practices. Many of these factors go beyond the narrow geographic limits of the port, thereby
confirming the need for an increasing focus on the notion of the borderless mainport (Van Klink,
1995) and on port regionalisation as the newest phase in the functional development of load centres
and port systems (Notteboom and Rodrigue, 2005). Regionalisation expands the hinterland reach of
the port through a number of strategies linking it more closely to inland freight distribution centres.
The port regionalisation phase is characterised by a strong functional interdependency and even joint
development of a specific load centre and (selected) multimodal logistics platforms in its hinterland,
ultimately leading to the formation of a regional load centre network or logistics pole. The port systemconsequently adapts to the imperatives of distribution systems as supply chain management strategies
finally permeate to transport operations and transport infrastructure.
This plea for creating synergies beyond the port perimeter and across market players isparticularly relevant in the context of hinterland connections. In an attempt to expand the port’s cargobase, to generate revenue and to add value for customers, ports have all adopted ways of moving cargo
as efficiently as possible through the port and on to intermodal corridors. No port has been able toachieve these outcomes alone. They are all dependent on the development of an innovative range ofrelationships and network formations with transport operators, logistics service providers and othertransport nodes. Co-ordination and co-operation are needed to form an integrated intermodal service
that complies with the requirements imposed by the supply chains that pass through the port. Van Der
Horst and De Langen (2008) made a detailed analysis of the co-ordination problems in hinterland
chains of seaports and the arrangements to resolve these problems. They distinguished four maincategories of arrangements to improve co-ordination: the introduction of incentives (e.g. a bonus or
penalty), the creation of an interfirm alliance (e.g. through the introduction of standards for quality andservice or a joint capacity pool), alteration of the scope of the organization (e.g. through vertical
integration or the introduction of a chain manager) and collective action (e.g. through governance by aport authority or a concerted action by a branch association; see also De Langen and Chouly, 2004).
The dynamics in contemporary port-hinterland relationships are thus not taking place in a
vacuum, but are articulated by the joint strategic and operational decisions of the actors involved. The
need for co-ordination is also rooted in a belief that the private interests of individual companies will
not lead to the creation of efficient and extensive pan-European intermodal networks (Stone andVerbeke, 1997). Companies cannot be expected to be the promoters of an intermodal network systemthat leads to higher efficiency at the macro level rather than the level of the firm.
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SEAPORTS AND THE INTERMODAL HINTERLAND –53

The call for co-operation and co-ordination is materialising against the backdrop of large scaleconsolidation and vertical integration in the logistics industry. Most actors have responded to theglobalisation and outsourcing trends by providing new value-added services in an integrated package,
through vertical integration along the supply chain, and by significantly expanding the scale ofoperations via a series of mergers and acquisitions. The observed vertical integration strategies of themarket players have blurred the traditional division of tasks within the logistics chain but at the sametime improved the co-ordination between segments of the chain; see, e.g., Robinson (2002) and
Notteboom and Winkelmans (2001). Customers’ need for a wider array of global services and for truly
integrated services and capabilities (design, build and operate) triggered a shift from transport-based
3PLs to warehousing and distribution providers, and at the same time opened the market to innovative
forms of non-asset-based logistics service provision, i.e. 4PL (fourth party logistics). Mergers andacquisitions have permitted the emergence of large logistics operators that control many segments ofthe supply chain. Through vertical and horizontal integration of their activities, market players such as
shipping lines, forwarders, transport operators and logistics groups seek to reduce costs, improve
efficiency, generate revenue and deliver value and a “one-stop shop” service to the customer. The
provision of integrated services does not always need to coincide with the ownership of the related
assets. In many cases, the integration is achieved through close partnerships with other players.
All the actors involved approach hinterland issues from their respective viewpoints andobjectives. Logistics service providers and transport operators have their specific operational andcommercial reasons to get involved in the shaping of hinterland networks. Notwithstanding potential
objective struggles and varying levels of logistics integration, they have some shared interests when it
comes to hinterland issues. First, logistics service providers, shipping lines, terminal operators andtransport operators are facing major challenges in the cost structure (e.g. pricing systems, fuel costs)
and the reliability and synchronisation of inland transport services. Second, all these market players
expect government regulation and liberalisation to support their efforts to create efficient hinterlandtransport networks.
In the 1990s, European and national policy makers showed a strong inclination to almost “force”
a modal shift, backed by the liberalisation (or at least the start of it) of the barge and rail markets, newpricing tools and extensive subsidy and supporting programs (e.g. PACT). The market players reacted
only moderately to the incentives in this “policy push” phase, even at the peak of the modal shift hype
(Figure 8). As a result, the modal split trends remained almost unchanged. Recent years have seen amore bottom-up approach mirroring a clear market-driven interest from the users and suppliers ofintermodal services (market pull) and more initiatives aimed at better co-ordination. The market
players are spontaneously launching new intermodal initiatives or jointly tackling existing obstacles,
while at the same time the push component on the policy side has somewhat softened. In more recent
policy documents, the European Commission has adopted the idea of “co-modality” so as to moveaway from the “road against all other modes” connotation associated with the modal shift concept.

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54 – SEAPORTS AND THE INTERMODAL HINTERLAND
Figure 8. Policy push and market pull in achieving a modal shift and co-modality
Public interest/attention to intermodal offer
High

Moderate

Actual intermodal results
Low

Awareness
phase
Modal shift

Big bang
modal shift
policyTIME

Peak inexpectations

Policy push phase

Period ofdisillusion

Market-driven incremental
implementation of intermodal offer

Plateau of max.
intermodal potential

Co-modality

Market pull phase

Source: Author, combining insights from the Gartner Group on the hype cycle of emerging
technologies and Button (2007) on transport policy development (big bang versus
incremental).

The transition to more of a market pull environment has allowed some ports to achieve a partial
modal shift in hinterland transport in recent years, but rail and inland navigation still have not reachedtheir maximum potential (see modal split figures in Annex 3). For example, container transport bybarge is slowly becoming more important in navigation areas outside the Rhine and the Benelux
countries, with positive effects on barge traffic in ports such as Hamburg, Le Havre and Marseilles.
Container transport by rail has seen spectacular development in German ports and Zeebrugge, whileother ports both small and large are implementing strategies (backed up by infrastructure and rail
liberalisation) to significantly increase the market share of rail in the modal split after years ofstagnation or relative decline. As mentioned earlier, smaller ports and new terminals often findthemselves confronted with a vicious circle in the organisation of hinterland transport, which
complicates a further modal shift in many ports around Europe and could impede the development of
new multimodal corridors.
The following sections will discuss the impact of horizontal and vertical relations in supply
chains on the structure of these chains and on the relationships between seaports and inland ports.
They will identify who takes or should take the lead in the further integration of ports and inland ports
and what actions have been taken so far by the market players in this respect. It will analyse, inparticular, the roles of shipping lines, terminal operators, land transport operators and port authorities.
6.2 Shipping lines and the hinterland
In recent years, substantial takeover activity has occurred on the shipping lines’ side, where
mergers have created a handful of gigantic companies controlling several hundred ships. The top
twenty carriers controlled 26% of the world TEU-slot capacity in 1980, 41.6% in 1992, 54% in 1999
and 81.4% in 2007. AP Moller-Maersk started the latest consolidation wave with the takeover of P&O
Nedlloyd in August 2005. TUI AG (Hapag-Lloyd’s parent company) responded with the purchase of
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SEAPORTS AND THE INTERMODAL HINTERLAND –55

CP Ships, while French line CMA CGM acquired the shipping interests of Bolloré (including Delmas,
OTAL, Setramar and Sudcargos). Maersk Line had a market share of more than 16% in 2007 based on
the number of TEU slots deployed worldwide, and has more than double the fleet size of runner-up
MSC and more than three times the fleet size of CMA CGM. Between them, these three carriers
controlled more than 33% of the cellular TEU capacity in 2007 (according to ASX Alphaliner). Thisobviously gives them enormous bargaining power vis-à-vis terminal operators and port authorities.
Some industry observers argue that further consolidation in the liner shipping industry can be
expected. In March 2008, TUI announced that it might consider selling Hapag-Lloyd, with NOL/APL
as the most likely buyer. However, a further massive consolidation would be unlikely to escape thescrutiny of regulatory bodies such as the European Commission.
Container shipping lines are well aware of the growing importance of the land leg. Scale
increases in vessel size and alliance co-operation have lowered ship system costs, but at the same timeintermodal costs share an increasing part of the total cost. The portion of inland costs in the total costsof container shipping typically ranges between 40% and 80%. The shift from vessel costs to land-side
costs is enhanced by transport price evolutions. For example, the freight rate and additional charges(including BAF, CAF and THC, but excluding administrative and time costs) on a port-to-port basiswith a post-Panamax vessel between Shanghai and the Rhine-Scheldt Delta amount to some €0.12 per
FEU-km (€2300 for 11000 nm), while inland haulage by truck from northern European ports usually
ranges from €1.50 to €4 per FEU-km depending on distance and weight. By barge the price ranges
between €0.50 and €1.50 per FEU-km (excluding handling costs and pre- and end-haul by truck; CCS
figures). The price difference per FEU-km between inland transport and long-haul liner shipping
ranges from a factor 5 to a factor 30, further supporting the notion that inland logistics could be one of
the most vital areas still left to cut costs.
Moreover, shipping lines have to meet shippers’ requirements in terms of frequency, punctuality,
reliability and geographic coverage (Slack et al., 1996). Shipping lines are facing poor schedulereliability, mainly caused by port terminal congestion (Notteboom, 2006b). Drewry (2006b) reportsthat on the Far East-Europe trade only 44% of the vessels made it on schedule. Among the latearrivals, 50% were one day late, 20% two days late, roughly 10% three days late and the remaining
20% four or more days late. Maersk Line recorded an average worldwide schedule integrity of 70%.
MSC is amongst the poorest performers with only 41%. In an effort to better control costs andoperational performance and as a measure to remedy the effects of ever-decreasing schedule integrity,container shipping lines have been very active in securing (semi-)dedicated terminal capacity instrategic locations in recent years. Nowadays a substantial number of container terminals in North andSouth Europe feature a shipping line among their shareholders (in most cases as a minority
shareholder). In particular MSC and CMA CGM, the world’s second and third biggest container
shipping lines, are very active in this field, with involvements in 15 and 10 container terminals,
respectively. Maersk Line’s parent company, AP Moller-Maersk, operates a large number of container
terminals in Europe (and abroad) through its subsidiary APM Terminals. APM Terminals is involvedin the management of container terminals in the ports of Aarhus, Bremerhaven, Rotterdam,
Zeebrugge, Dunkirk, Gioia Tauro, Algeciras, Constanza and Le Havre.
But the ambitions of many shipping lines do not stop at the terminal. Much literature hasaddressed the involvement of container shipping lines in inland transport and logistics (see, e.g.,
Konings, 1993, Baird & Lindsay, 1996, Graham, 1998, Cariou, 2001, Frémont, 2006). A number ofshipping lines stick to the shipping business and try to enhance network integration through structuralor ad hoc co-ordination with independent inland transport operators and logistics service providers.
They do not own inland transport equipment. Instead they use trustworthy independent inland
operators’ services on a (long-term) contract basis. Other shipping lines combines a strategy of
selective investments in key supporting activities (e.g. agency services or distribution centres) with
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56 – SEAPORTS AND THE INTERMODAL HINTERLAND
subcontracting of less critical services. With only a few exceptions, the management of pure logistics
services is done by subsidiaries that share the same mother company as the shipping line but operate
independently of liner shipping operations, and as such also ship cargo on competitor lines (Heaver,2002). A last group of shipping lines are increasingly active in the management of hinterland flows.
The focus is now on the efficient synchronization of inland distribution capacities with port capacities.
A number of shipping lines, such as Maersk Line, have gone fairly far in providing rail services.
Maersk Line owns European Rail Services (ERS) and has a shareholding in BoxXpress (joint venturewith Eurogate). ERS operates a vast network of shuttle trains mainly out of the port of Rotterdam toinland destinations across Europe. Started at 3 shuttles a week in 1994, ERS now offers 200+ shuttles
a week and handled a rail volume of 620,000 TEU in 2006. CMA CGM and MSC are moving along
the same path. For example, Rail Link, the CMA CGM rail subsidiary, was founded in 2001 andhandled 51,000 TEU in 2006 on links from Marseille/Fos, Lyon, Dourges and Le Havre todestinations in France, the Benelux and Germany. Carriers often buy capacity from national railway
companies. They often complain about the elevated traction cost and the long preparations andnegotiations with the railway companies needed to install fast direct rail services.
In the past, barge services were solely maintained by independent barge operators (Charlier and
Ridolfi, 1994), but recently a few deep-sea carriers have become directly involved in inland
navigation. For example, CMA CGM set up River Shuttle Containers a few years ago and now offers
barge services on the Seine and the Rhône-Saône (volume of 59,736 TEU in 2006). MSC and Maersk
also offer barge services from Le Havre. These shipping lines develop their own rail, barge and truck
products through their own companies or through strategic partnerships with major third party
operators, to safeguard quality and efficiency.
The inland strategy of shipping lines also includes inland terminals and inland depots. Inland
terminals and rail and barge services are combined to push import containers as fast as possible fromthe ocean terminal to an inland location, from where final delivery to the receiver is later initiated. The
push concept is initiated by the shipping line, yet prioritised based on the required delivery date.
Export containers are pushed from an inland location to the ocean terminal, initiated by the shippingline, yet prioritised based on available inland transport capacity and the ETA of the mother vessel. The
function of inland terminals thus changes to a distribution node, where containers will be accumulated
until customer required delivery (customer pull process). Rodrigue and Notteboom (2008) provide anextensive analysis of this extended gate concept.
In order to streamline such as an inland distribution system, shipping lines and alliances between
them seek to increase the percentage of carrier haulage on the European continent. The share of carrier
haulage is about 30% on average, but large differences can be observed among routes and regions: theUK is a typical example of a strong carrier base, while merchant haulage remains very dominant in the
Benelux and especially in Switzerland. Carrier haulage has a positive influence on the modal split (seeTable 5 for an example), as it provides shipping lines with a better overview of the flows so thatintermodal bundling options come into play. If the inland leg is based on merchant haulage then the
carrier often loses control of and information on its boxes.

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Table 5. Modal split for Maersk volumes

Maersk Intermodal volumes in ..
Road

Rotterdam
Rail
Barge

Road

Bremerhaven
Rail
Barge

Carrier haulage

25%

42%

32%

35%

64%

0%

Merchant haulage

65%

27%

9%

68%

32%

0%

Source: Maersk Line data 2006 and Q1 2007.

Carriers face important barriers in further improving inland logistics. Land-side operations aremanagement intensive and generally involve a high proportion of bought-in services. Moreover, inland
movements generate some under-remunerated activities such as the repositioning of empty units,
network control and tracking. Other important barriers relate to volume and equipment-type of
imbalances, (unforeseen) delays in ports and the inland transport leg, as well as the uncertainty offorecasts. Carriers have very little room to increase the income out of inland logistics. If the carrier
haulage tariffs edge above the open market rates, the merchant haulage option can become more
attractive. The resulting competitive pressures partly explain the weak level of price contention
between carrier and customer when it comes to charges in the inland leg.
Carriers are using IT solutions to meet the challenges in inland logistics and to manage global
container flows taking into account the effects of global trade imbalances. Operators also try to get
information on other lines’ regular flows, so as to know where useful surpluses and/or deficits may
arise. Moreover, they have learned to lessen equipment surpluses/deficits through container cabotage,interline equipment interchanges, chassis pools and master leases. Container cabotage makes it
possible to considerably cut the costs related to the repositioning of empty containers: carriers willbuild up relationships with inland transport operators which move their equipment to where it isneeded free of charge. In return the inland operator gets free one-way use of the box. Master leases
allow carriers to pick up/drop off equipment at will, placing the repositioning problem to the leasing
company. The pick up/drop off charges reflect imbalances. Equipment interchange agreements areoften, but not always, maintained among some liner conference members and some members of thesame strategic alliance (e.g. New World Alliance). So-called “grey box” agreements are quite rare: theconcept has not proven workable partly because many carriers attach too much importance tocompany branding via the equipment used.
Customer requirements and behaviour often impede carriers from minimising inland logistics
costs. Shippers often insist on receiving/loading containers early in the morning and at the end of theweek. This logistics requirement of the customers leads to money-wasting peaks in inland logistics
costs. Late bookings are costly as well, because instead of going by train or barge, they must go bytruck to catch the ship, for no extra revenue.
The danger of cost under-recovery on second moves is another serious problem in inland
logistics. For example, where the line issues a B/L to Antwerp but the vessel only calls at Rotterdam,
it pays the full cost of moving the cargo to Antwerp. Less ports of call means more second moves andmore substituted service, and as such possibly large landside container interchanges between adjacentports. For instance, large volumes of containers are exchanged over land between Rotterdam andAntwerp.

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58 – SEAPORTS AND THE INTERMODAL HINTERLAND
The formation of global alliances has taken intercarrier co-operation to new heights, withmembers sharing inland logistics information, techniques and resources as well as negotiatingcollectively with suppliers (terminals, rail operators, feeders, barge operators, etc.).
6.3 (Independent) terminal operators and the hinterland
Against the background of supply chains, competitive forces are shifted to groups of spatiallydispersed but functionally integrated terminals in different ports. Large global terminal operators haveemerged in container handling in order to offer the customers a more differentiated service range. The
extensive terminal networks can also be considered an effective means of counterbalancing the powerof carrier combinations, realising economies of scale and optimising the terminal function within
supply chains. Partly in response to the financial and operational needs of modern terminal activities,
the container terminal operating industry has witnessed an increased amount of consolidation in recent
years. Whereas a few years ago the container handling sector was still rather fragmented andcharacterised by about 10 large players, the picture looks drastically different today. The market shareof the top 10 players in terms of throughput increased from 42% in 2001 to 55% in 2005 (Drewry,
2003 and 2006). Recent examples are the acquisition of CSX World Terminals in 2005 and P&O Ports
in 2006 by Dubai-based DP World, and PSA’s stake of 20% in Hutchison Port Holding’s global
terminal portfolio. The worldwide container handling industry is now dominated by four worldwide
operating companies (PSA, HPH, DP World and APM Terminals), representing some 42% of total
worldwide container handling. As far as the concentration of market power is concerned, the current
situation in the terminal operating sector is somewhat comparable to that of the liner shipping industry,where the four largest shipping lines also control some 40% of the market (see earlier). The industry
structure has become so concentrated as to raise a fundamental question about whether market forces
are sufficient to prevent the abuse of market power. EU competition law has already affected
Hutchison’s expansion within northern Europe, and it is likely that any future moves by PSA or DP
World will also be carefully scrutinised by regulatory authorities. More and more financial suitors,
such as banks, hedge funds, private equity groups and investors, are entering the terminals business(for example, Babcock and Brown, Macquarie Infrastructure and American International Group, toname a few).
The consolidation in the container handling industry has had a major impact on port competition.
The large terminal operators are becoming more footloose in spatial terms as the network approachloosens their former strong ties with particular seaports. In many cases, global terminal operators in
upstream ports have extended their operations to medium-sized or new coastal container ports in order
to offer the customers a more differentiated product range. In developing a global expansion strategy,
HPH, PSA, APM Terminals and DP World try to keep a competitive edge by building barriers toprevent competitors from entering their domains or to keep them from succeeding if they do. Thesebarriers are partly based on the building of strongholds in selected ports around the world and on
advanced know-how on the construction and management of container terminals. It is increasingly
difficult for new entrants to challenge the top global terminal operating companies.
Global terminal operators are increasingly hedging the risks by setting up dedicated terminal joint
ventures. The relation between PSA and MSC provides a good example. The recent linkages include
the MSC Home Terminal in the Belgian port of Antwerp (50-50 joint venture), a BOT arrangement in
the Portuguese port of Sines and the MSC PSA Asia Terminal in the Pasir Panjang area in Singapore(50-50 joint venture). Another modern form of enhanced co-operation in the container terminal
industry consists of offering long term contracts to shipping lines with gain sharing clauses. Shippinglines can thus choose the most interesting offer received for the particular node. Shipping lines can andsometimes do make a totally different choice for the next node (footloose behaviour).
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SEAPORTS AND THE INTERMODAL HINTERLAND –59

As terminal operators are urged towards better integration of terminals in supply chains, andshipping lines are acquiring container terminal assets worldwide, leading terminal operatingcompanies are developing diverging strategies towards the control of larger parts of the supply chain.
The door-to-door philosophy has transformed a number of terminal operators into logistics
organisations and/or organisers/operators of inland services.
As discussed earlier, Maersk Line wants to push containers into the hinterland supported by its
terminal branch APM Terminals and its rail branches. HPH-owned ECT in Rotterdam has followed an
active strategy of acquiring key inland terminals acting as extended gates to its deep-sea terminals, e.g.
a rail terminal in Venlo (the Netherlands), DeCeTe terminal in Duisburg (Germany) and TCT Belgium
in Willebroek (Belgium).
DP World is following a similar strategy. It is working in partnership with CMA CGM tostreamline intermodal operations on the Seine and Rhône axes, while the large terminals of Antwerp
Gateway (open since 2005) and London Gateway (future) are both linked to inland centres in thehinterland. DP World has set up Hintermodal in joint venture with the intermodal transport organiser
Shipit to give concrete form to the concept of terminal operator haulage from Antwerp Gateway tothe hinterland. The terminal operator haulage concept is aimed at more active involvement of theterminal operator in hinterland connections by establishing closer relationships with shipping lines andinland operators. Terminal operators can play an instrumental role in bringing together intermodal
volumes of competing lines and thus create a basis for improved or even new intermodal services.
Eurogate has created a north-south axis connecting the rail activities of subsidiary Sogemar in thesouth to its extensive BoXxpress network in the north. The major private terminal of Melzo, owned byEurogate and located in the suburbs of Milan, is where the Hannibal services between northern Europe
and Gioia Tauro and La Spezia are routed. While the intention is to offer a trans-European land bridge
to its customer base, the volumes actually crossing the Alps remain low (see discussion earlier on thenorth-south balance). Singapore-based PSA is the only global terminal operator which has notpresented a clear inland strategy yet, though it are working on one. A first indication is the ambition of
its terminal in Sines to provide direct rail services to the cargo base in the Madrid area. PSA shows anincreasing awareness that the additional volumes generated by its Deurganckdock terminal in Antwerp
and future new terminals in Zeebrugge and potentially also Flushing will put strong pressure on theinland segment of the chain. The exact nature of their future involvement in the provision of inland
services or the operations of inland terminals remains to be seen.

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60 – SEAPORTS AND THE INTERMODAL HINTERLAND
Figure 9. Terminal operators and the hinterland: the hinterland strategy of the main European
container terminal operators
The inland axes of DP World
and
Felixstowe
HPH?
Harwich- Barge and rail
Thamesport- Role Duisburg !

Hamburg
GdyniaBremerhaven
RotterdamSouthampton
Antwerp
The ‘coastal wall’ of APMT
Zeebrugge- Maximum presence in Le
entry
The North-South axis ofZeebrugge
Havre
Tilbury(joint-venture(Port
Synergy met– joint
CMA-CGM)venture with CMA-CGM)
pointsDunkirk- ERS + inland rail hubs

= Eurogate= Hutchison PH= PSA (incl. HNN)
= P&O
DP World
Ports= APM Ports
Terminals

Eurogate:-Rail ! Boxxpress.de, Sogemar(cf. Hannibal Express)
Constantza-Terminal Dortmund, Interporti(Romania)

Voltri: PSA 70%, APM T 30%

Genoa

Ravenna
Marseilles(Port
Synergy met– CMA-CGM)(joint-venture
joint venturewith CMA-CGM)

LisbonSines(Verdere betrokkenheid
PSA is een vraagteken)

Barcelona

PSA’s inland absence ?
- Future: focus on rail ?

Source: Notteboom

Mersin(Turkey)

LivornoLa Spezia
SalernoCagliari
Eurogate 76%, APM T 24%

Algeciras

VeniceCagliari(sinds eind 2002)
Marsaxlokk

Gioia Tauro
Medcenter: Eurogate 67%, APM T 23%(Port Synergy)

Source: Notteboom – ITMMA.

In summary, terminal operators are expected to increase their influence throughout supply
chains by engaging in inland transport. They seem to be doing so mainly by incorporating inland
terminals as extended gates to seaport terminals and by introducing an integrated terminal operator
haulage concept for the customers. Customs can qualify an inland terminal as an extension of a deepsea terminal, so custom clearance can be done there. The terminal operator typically remains
responsible en route between the deep-sea terminal and the inland terminal. The advantages of theextended gate system are substantial: customers can have their containers available in close proximity
to their customer base, while the deep-sea terminal operator faces less pressure on terminals due toshorter dwell times and can guarantee better planning and utilisation of the rail and barge shuttles.
However, the success of both extended gates and terminal operator haulage largely depends on thetransparency of the goods and information flows. Unfortunately, terminal operators often lackinformation on the onwards inland transport segment for containers that are discharged at the terminal.
Close co-ordination with shipping lines, forwarders and shippers is needed to maximise thepossibilities for the development of integrated bundling concepts to the hinterland.

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SEAPORTS AND THE INTERMODAL HINTERLAND –61

6.4 Rail transport operators
European rail logistics are highly complex. A geographically, politically and economicallyfragmented Europe prevented the realisation of greater intermodal scale and scope economies(Charlier and Ridolfi, 1994). Until 1993, cross-border rail traffic of maritime containers in Europe was
the exclusive right of Intercontainer. In the past, ICF initially concentrated its strategy on theintermodal container flows within the blue banana. The ongoing rail liberalisation process should leadto real pan-European rail services on a “one-stop shop” basis. All over Europe, new entrants are
emerging while some large former national railway companies have joined forces (cf. Railion).
The rail operating industry is still somewhat hindered by the shelter-based strategies of former
national railway companies in a number of countries and the high entry costs. Rail operators continue
to face profitability issues. Launching new rail services is very costly and finding the necessary criticalmass is not an easy task, surely when facing a fragmented cargo base controlled by many forwarders.
This has opened the door to increasing involvement by major shipping lines, terminal operators(mainly in Italy and Germany) and port authorities (cf. Barcelona and Marseille). Direct shuttle trains
constitute the backbone of rail services out of European ports. These shuttle trains can only be
exploited in a profitable way on a number of high-density traffic corridors such as the Rhine axis andthe trans-Alpine route. Some rail operators have resolved the problems related to the fluctuating
volumes and the numerous final destinations by bundling container flows in centrally located nodes in
the more immediate hinterland. Numerous hub-and-spoke railway networks emerged in the 1990s. The
nodes within these networks were connected by frequent shuttle trains with capacities for a single train
combination ranging from 40 to 95 TEU. An example was the Qualitynet of Intercontainer-Interfrigo(ICF) with Metz-Sablon in north-eastern France as master hub linking up the Rhine-Scheldt Delta
ports with the rest of western Europe.
Such hub-and-spoke networks were revealed to be vulnerable, as the volumes on the spokes
could be affected by (a) newcomers entering the market in the aftermath of European rail liberalisationand (b) increasing intermodal volumes in seaports. New railway operators often “cherry-pick” byintroducing competing direct shuttle trains on a spoke of a competitor’s established hub-and-spoke
network. This has a negative affect on cargo volumes on the spoke and can lead to collapse of thewhole hub-and-spoke system. That is what happened to ICF’s Qualitynet in 2004. ICF launched its
new strategy in December 2004. The intermodal traffic of the former Qualitynet hub in Metz is now
handled by a set of direct shuttle trains going to fewer destinations. For eastern and south-eastern
Europe, services are cantered around the hub in Sopron (Hungary).
At present, a wide array of rail operators together make up the supply of hub-based networks,
direct shuttles and interport shuttles out of the large load centres. Hamburg’s rail connections
outperform all other ports in numbers (more than 160 international and national shuttle and block train
services per week) and in traffic volumes by rail (over 1 million TEU in 2005). Rotterdam andAntwerp each have between 150 and 200 intermodal rail departures per week. Smaller container ports
in the range tend to seek connection to the extensive hinterland networks of the large load centres by
installing shuttle services either to rail platforms in the big container ports or to master rail hubs in thehinterland.
The market evolution has led to increased competition among operators and a higher degree ofchoice available to customers. For a long time, there were no obvious drivers of change in theintermodal rail industry other than the (former) national railway companies. These companies lacked
commitment and commercial attitude. Major complaints related to their perceived bureaucratic
attitude, unannounced rate changes, the long lead time required to make bookings, the poor
documentation management, the limited tracking and tracing possibilities, limited cost-effective
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62 – SEAPORTS AND THE INTERMODAL HINTERLAND
integration in door-to-door transport chains and the fact that in most cases no service guarantees were
given. The emergence of a new generation of rail operators not only made incumbent firms act morecommercially, but also led to improvement in the endogenous capabilities of the railway sector, which
in time could make rail a more widespread alternative in serving the European hinterlands, at least if
some outstanding technical and operational issues facing cross-border services can be solved.
6.5 Barge operators
Barge container transport in Europe has its origins in transport between Antwerp, Rotterdam andthe Rhine basin, and in the last decade it has also developed greatly along the north-south axis between
the Benelux and northern France (Notteboom and Konings, 2004). Antwerp and Rotterdam together
handle about 95% of total European container transport by barge. Data from the Central Commission
for Navigation on the Rhine shows volumes on the Rhine increasing from 200,000 TEU in 1985 tosome 1.8 million TEU in 2006, leading to higher frequencies and bigger vessels. At present the liner
service networks offered on the Rhine are mainly of the line bundling type, with each rotation callingat three to eight terminals per navigation area (Lower Rhine, Middle Rhine, Upper Rhine). The inland
vessels used on the Rhine have capacities ranging from 90 to 208 TEU, although some bigger units
and push convoys of up to 500 TEU can be spotted occasionally. Rotterdam has a strong position inbarge traffic from/to the lower Rhine and middle Rhine, whereas Antwerp and Rotterdam are equallystrong on the upper Rhine.
The number of terminals in the Rhine basin is steadily increasing as new terminal operators arriveon the market and new terminals appear along the Rhine and its tributaries. The growing realisation of
the potential offered by barge container shipping has led to a wave of investment in new terminals
over the past ten years in northern France, the Netherlands and Belgium. The Benelux and northern
France now have more than 30 container terminals, about as many as in the Rhine basin. In 1991 there
was still no terminal network on the north-south axis (only two terminals). The next step is to establish
a network of liner services connecting the various terminals outside the Rhine basin on a line bundlingbasis.
Barge services and inland terminals are also being developed outside the Rhine-Scheldt-Meusebasins. The barge container market is booming on the Rhône (55,807 TEU in 2005) and the Seine(159,000 TEU in 2007 via barge services operated by Logiseine, River Shuttle Containers, Marfret,
MSC and Maersk). Hamburg is slowly developing barge services on the Elbe, with annual volumes in2006 exceeding 140,000 TEU, compared to only 30,000 TEU in 2000. There are even initiatives tointroduce small-scale barge services on the Mantua-Adriatic waterway in northern Italy.
The bulk of the barge services is controlled by independent barge operators. They have always
shown a keen interest in the exploitation of inland terminals. About two-thirds of all terminals in the
Rhine basin are operated by inland barge operators or the logistics mother company of a barge
operator. The remaining terminals are operated/owned by stevedoring companies of seaports, inland
port authorities (e.g. Port Autonome de Strasbourg) or logistics service providers.
The new millennium brought rising pressure on the existing co-operation agreements on the
Rhine as more and more operators grew eager to start services independently of their partners. For
instance, CCS withdrew from the Fahrgemeinschaft Niederrhein collective on 1 January 2000. In
2006, the Fahrgemeinschaft Oberrhein (OFG) nearly ceased to exist when Rhinecontainer andHaeger & Schmidt decided to step out of the OFG partnership and to start up the Upper Rhine
Container Alliance (URCA). A major restructuring of the barge services within OFG took place once
Interfeeder was taken over by Contargo in October 2006. Collaborative agreements are making their
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SEAPORTS AND THE INTERMODAL HINTERLAND –63

appearance in other navigation areas, such as shuttle services between the Antwerp and Rotterdam.
Joint ventures, mergers and takeovers form a relatively new aspect, aimed at increasing the geographic
scope of the services offered and at developing the operators’ own barge transport networks. Danser
Container Line, for instance, which offers services on the Rhine and Neckar and between Rotterdam
and Oss, acquired Eurobarge from Nedlloyd Rijn & Binnenvaart in 1999. Eurobarge mainly operates
barges on the Antwerp-Rotterdam route. Since January 2006, Danser Container Line has controlled
the barge services of Natural Van Dam AG, an operator formerly owned by the logistics group Cronat
from Basel. In 2000, Rhinecontainer acquired Container Exploitatiemaatschappij (CEM), a main
player on the Antwerp-Rotterdam axis. In the same year, Combined Container Service (CCS) andSRN Alpina came under the same ownership when Rhenus (the parent company of CCS-SRN Alpina)acquired the Swiss holding company Migros. In 2004, Rhenus Logistics integrated CCS in its
container transport division Contargo.
In addition, the leading barge container carriers are increasingly trying to achieve functionalvertical integration of the container transport chain by extending the logistical services package toinclude complete door-to-door logistics solutions. In the 1990s, three logistics holdings got a strong
grip on the barging market. Wincanton controlled 33% of containers moved by barge in the Rhine
basin in 2004. Wincanton is the mother company of Rhenania with subsidiary Rhinecontainer(375,000 TEU in 2004). Rhenus Logistics, mother company of Contargo (including SRN Alpina andCCS), reached a market share of 22% and Imperial Logistics Group, mother company of Alcotrans,
15% (Zurbach, 2005). Alcotrans transported around 220,000 TEU on the Rhine in 2006. The Contargo
network, comprising 19 inland container terminals in Germany, the Netherlands, France andSwitzerland, handled some 840,000 TEU in 2006. The integration of leading barge operatingcompanies in the structures of highly diversified logistics groups further strengthens functional
integration in the logistics chain.
Finally, a fairly new aspect of the vertical integration strategy followed by barge operators is thedesire to fully exploit the complementarity with rail transport by forging closer links with existing rail
companies, or, if required, even acting as rail operators themselves. The present market consolidationin European rail transport leaves a certain limited scope for barge operators to position themselves asrail shuttle operators, allowing them to overcome the restricted geographic coverage of the European
inland waterway network. On top of barge operations via Rhinecontainer, the Wincanton group has set
up its own railway company, Railcontainer, using main hubs in Neuss and Mannheim and cooperating with ERS, IFB, MSC and others. Rhenus Logistics offers similar services through the
RheinRail Service of CCS.
6.6 Port authorities and the hinterland
Nowadays, landlord port authorities are viewed as independent commercial undertakings aiming
at full cost recovery and rapid response to the customer. Port managers aim at making the port
attractive to users by providing a competitive supply of services for carriers and shippers. Inland
services are an integral part of that supply. However, the traditional tools in the hands of port
authorities are confined to the port area itself: investment in docks/berths, concession policy and tariff
policy as regards port dues. Given the local nature of revenue sources, port authorities tend to have arather local focus and strongly promote activities within the port perimeter that could increase thelocal revenue base.
Landlord port authorities throughout Europe are facing some serious challenges with respect tothe hinterland connections. In previous sections it was made clear that market players were very active
in setting up inland services and broader hinterland networks. Market consolidation has resulted in
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64 – SEAPORTS AND THE INTERMODAL HINTERLAND
large port clients that possess strong bargaining power vis-à-vis terminal and inland transport
operations. Loyalty to the home port tends to fade as large players expand their reach over more than
one port. In such an environment, it is up to port authorities to assure the overall efficiency andperformance of the port-hinterland interface, as individual market players will primarily cater for the
performance of specific sectors and or their network, not an individual port.
Port authorities thus have a role to play in shaping efficient hinterland networks. But they have tostart from the knowledge that their impact on cargo flows and on hinterland infrastructuredevelopment is limited to that of facilitator.
Port authorities can add value by setting up task forces together with various stakeholders(carriers, shippers, transport operators, labour and government bodies) to identify and address issues
affecting logistics performance. These issues can relate to the bundling of rail and barge container
flows in the port area and the development of rail and barge shuttles. A successful example of the task
force approach is Antwerp Intermodal Solutions (AIS), a joint project by the Antwerp Port Authority
and the cargo handling companies PSA HNN and DP World, with support from the rail track operator
Infrabel. The project brought all parties round the table with a view to concentrating the rail volumes.
This led to, among other things, the introduction of new rail links by market players. Most of them arecommon-user trains on which anyone can book container space, while a few are closed trains
dedicated to one or more parties. The ultimate objective is for 15% of cross-border shipping containers
to be carried by rail. Although AIS has an important role to play in creating new rail links to and fromthe port of Antwerp, the initiative lies with the rail partners. The port authority acts solely as
facilitator. What AIS does is to concentrate the demand for container transport by rail, inviting themarket players to react accordingly. The rail operators continue to bear the market risks associatedwith the new rail links. Apart from port authorities, branch associations are also adopting a role asfacilitator in dealing with inland transport issues (e.g. Alfaport in Antwerp and Deltalinqs in
Rotterdam).
Most port authorities still stand on the sidelines when it comes to inland terminal developments
and the creation of logistics zones along hinterland corridors. However, the attitude of larger load
centres seems to changing. Ports such as Rotterdam, Barcelona, Le Havre, Marseille and, more
recently, Antwerp and Lisbon have become more active in this field (Table 6). There are a number ofreasons for this change in attitude.
First, port authorities understand that with the creation of logistics poles, port benefits might leakto users in inland locations. A port strategy solely based on the local port area is not suited to address
this threat adequately. An active port regionalisation strategy maximises the benefit from the reshaped
networking among nodes.
Second, port users’ focus on logistics networks makes a wider approach to port management
imperative. As was outlined earlier, the success of a port will depend on its capability to fit into the
networks that shape supply chains. In other words, the port community has to fully benefit fromsynergies with other transport nodes and other players within the networks of which they are part. This
supports the development of a broader regional load centre network, serving the large logistics poles.
Third, port authorities face a wide array of local constraints resulting from external effects of port
activities (e.g. road congestion, lack of available land, environmental issues). These external effects do
not enhance community support. Ports must demonstrate a high level of environmental performanceand sustainability not only to retain community support but also to attract trading partners andpotential investors. A port with a strong environmental record and high level of community support is
likely to be favoured. Inland locations can help the port to preserve its attractiveness and to fully
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SEAPORTS AND THE INTERMODAL HINTERLAND –65

exploit potential economies of scale. The corridors towards the inland terminal network can create thenecessary margin for further growth of seaborne container traffic. Inland terminals thus acquire an
important satellite function with respect to the port, as they help to relieve the seaport area frompotential congestion.
Table 6. A selection of initiatives of port authorities aimed at establishing links
with inland ports and dry ports
Port authority

Project

Antwerp

Trilogiport - Liège
Other locations (future)
Puerta del Atlântico - Mostoles

Aim

Joint development of a 100ha logistics platform along the Albert Canal
Status: joint entity under the legal status of an 'economic interest grouping'
LisbonDevelopment of a logistical platform in Mostoles in the outskirts of Madrid.
Status: contract signed, January 2008
Rotterdam
EIT - European Inland Terminals Minority shareholding in inland terminals in immediate hinterland via
separate holding. Status: abandonned
Barcelona
tm-concept (Terminal Maritima) Joint partnerships to set up dry ports/logistics zones in hinterland
Status: tmT (Toulouse), tmZ (Zaragozza), tmM (Madrid) are operational
New projects in Perpignan, Montpellier and Lyon
Marseille
inland port Lyon
Development of Lyon as a multimodal satellite port of Marseille
Status: Sociéte d'économie mixte founded in 1997. Port authority is oneof shareholders. Joint barge and rail services between Lyon and Marseille.
HHLA - Hamburg Rail terminals
HHLA has participations in rail terminals (Melnik, Budapest, etc..) tosupport its rail products via Polzug, Metrans and HHCE

Source: Port authority websites and specialized press.

The above elements constitute incentives to consider co-operation with inland ports in traffic
management, land use, hinterland connections and services, environmental protection, and researchand development. Notwithstanding these advantages, port authorities have always been rather
reluctant to engage in advanced forms of strategic partnerships with inland ports, e.g. through strategic
alliances, (cross-)participation, joint ventures or even mergers and acquisitions. Port managers fearlosing added value and employment by “giving away” activities, losing captive cargo (as port relatedcompanies in the hinterland are less dependent on one port for their maritime import and export) andlosing clients who might consider co-operation with one specific hinterland location as a market
restriction or distortion. More room is created for forms of indirect co-operation, for example throughjoint marketing and promotion, which are less binding and require less financial means. Large load
centres generally have a broad financial base to engage in a well-balanced port networking strategy,
although substantial differences exist even among the largest container ports. Smaller ports and new
ports have to rely solely on very simple co-ordination actions to substantially improve inland freight
distribution, with benefits for all parties involved. In spatial terms this implies that regional load centre
networks are most likely to be developed around large load centres, whereas smaller ports either
become part of these large regional load centre networks or remain spatially and organisationallyisolated.
The interaction between seaports and inland locations leads to the development of large logistics
poles consisting of several logistics zones. Seaports are the central nodes driving the dynamics in suchpoles. But at the same time seaports rely heavily on inland ports to preserve their attractiveness. A
well-balanced port networking strategy does not imply a loss of port activity. It should enable a port
authority to develop new resources and capabilities in close co-operation with other transport nodes
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66 – SEAPORTS AND THE INTERMODAL HINTERLAND
and with mutual interests served. Sometimes very simple co-ordination actions can substantially
improve inland freight distribution, with benefits for all parties involved.

7. CONCLUSIONS AND AVENUES FOR FUTURE RESEARCH

Container shipping has been the fastest growing sector of the maritime industries for the last two
decades. Organic growth resulting from increasing economic activity, trade liberalisation,
globalisation and outsourcing is compounded by the fact that break-bulk cargo is increasingly carriedin containers (substitution effect), by changes in carriers’ scheduling strategies (for example anincreased focus on trans-shipment) and by port development. The very core object of container port
competition in Europe has become highly complex and dynamic due to structural changes, some ofwhich were outlined in this paper. The organisational and institutional environment in which ports
operate has changed dramatically in recent decades. The World Trade Organization’s impact on free
trade, deregulation in the transport industry and corporatisation and privatisation processes in ports
and inland transport are among the main institutional factors affecting port hierarchy. Logistics
integration, scale increases in vessel size, the emergence of global terminal operators and structuralchanges in logistics and distribution networks are just some of the key organisational trends affecting
port operations and spatial characteristics within Europe. Logistics market developments and thediscontinuous nature of complex logistics networks necessitate a more functional approach to port
competition and hinterland connections.
The key point put forward in this paper is that the competitive battle among ports will
increasingly be fought ashore. It was demonstrated that quite a lot of actors are trying to play a leadingrole in this battle, or even go a step further by vying for a position as general. Rising concerns aboutcapacity issues have led market players to secure terminal and corridor capacity. As intermodality
serves as a weapon in port competition, ports become dependent on the intermodal carriers. A highly
volatile intermodal market, in terms of organisational and operational factors, is not very conducive tocreating a stable and sustainable competitive position for a port vis-à-vis the hinterland segments
served through the corridors. The success of the port is strongly affected by the ability of the port
community to fully exploit synergies with other transport nodes and other players within the logistics
networks of which they are part. This observation demands closer co-ordination with logistics actors
outside the port perimeter and a more integrated approach to port infrastructure planning. A large
number of port authorities promote or should promote an efficient intermodal system in order tosecure cargo under conditions of high competition. This includes, for example, facilitating the
introduction of new shuttle services in close co-ordination with the market players. Port authorities canbe catalysts in improving the port-hinterland interface and the structuring of hinterland networks, eventhough their direct impact on the routing of cargo flows is limited.
A special role is reserved for terminal facilities. Terminals, both in seaports and in inland ports,
are expected to increase their role in supply chains, given increasing levels of vertical integration in
the market and increasing pressure on capacity. Terminals will take up a more active role in supply
chains in the future by increasingly confronting market players with operational considerations
through the imposition of berthing windows, dwell time charges, truck slots, etc., all with the intent of
increasing throughput, optimising terminal capacity and making the best use of the land.

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SEAPORTS AND THE INTERMODAL HINTERLAND –67

The issue of port competition and hinterland connections is certainly not new. But, with thispaper, we hope to have demonstrated that the changing nature of the interplay between markets, port
competition and hinterland connections demands new approaches in dealing with hinterlands. This
paper does not give answers to all outstanding issues. It is more a kind of status questionis combining
various perspectives on the matter. Given the changing market environment, the topic of port
competition and hinterland connections still offers plenty of challenges for further research. This paper
concludes with a few suggestions in this regard, classified under three themes.
Vertical integration and the risk of foreclosure. Vertical integration might create concerns oneither raising the costs of rivals or reducing their revenue. Raising rivals’ costs typically involves input
foreclosure. Input foreclosure occurs when the integrated firm either stops supplying competing
downstream firms (complete foreclosure) or does so at a higher price (partial foreclosure), resulting inboth cases in an increase in the price of the upstream input post merger, raising the costs of competing
downstream firms. This relaxes the competitive constraint on the integrated firm that has access to the
input at a lower cost. The reduction of rivals’ revenues typically involves customer foreclosure.
Customer foreclosure occurs when, post merger, the downstream division of the integrated firm nolonger sources supply from independent upstream firms. If this leads to a reduction in sales volume
and that sales volume reduction leads to an increase in the average cost or marginal cost of upstream
competitors, then the competitive constraint these firms exert on the upstream division of theintegrated firm will be reduced, leading to greater market power upstream and higher input prices. As
far as we know, no research has been done on the impact of vertical integration of shipping lines,
terminal operators and other market players on the risk of foreclosure in the provision of hinterland
services.
Inland terminals. Inland terminals and dry ports are crucial for the further development of
hinterland networks under conditions of high-volume growth. However, the possibilities of deploying
inland cargo centres to relief the problems in seaports are not limitless. An increasing number ofinland locations are facing strict environmental regulations and a lack of spare capacity. It is clear thatboth the problem of limited expansion opportunities and the problem of overcapacity will eventually
result in a worsening of the competitive position of inland ports and the commercial viability ofintermodal transport services. While these issues have been well studied for seaports, the implicationsof a potential growing mismatch between the demand for intermodal services and the supply of inland
terminal capacity needs more attention.
Reliability, port competition and hinterland connections. It was stated in the paper that port andmodal choice is also affected by reliability and capacity issues next the pure cost considerations. Whileservice integrity issues have received considerable attention in operations research in recent years,
research on the impact of low reliability levels on port hierarchy and inland cargo distribution patterns
has only just taken off.

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68 – SEAPORTS AND THE INTERMODAL HINTERLAND

ANNEXES

Annex 1: External trade of the EU Member States and some non-EU states

EU (27 countries)
EU (25 countries)
EU (15 countries)
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
GreeceSpain
FranceItaly
LatviaLithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
PolandPortugal
Romania
Slovenia
Slovakia
FinlandSwedenUnited Kingdom
NorwaySwitzerland
United States
Japan
CanadaChina (excl. Hong Kong)

Extra and intra EU-trade in 1000 million of ECU/EURO
Imports
Exports
1995
2000
2003
2006
1995
2000
2003
993
935
1350
850
869
996
941
1354
858
883
545
1033
993
1430
573
942
980
126
192
208
280
136
204
226
7
10
15
5
7
35
46
74
32
43
35
49
51
69
39
56
59
355
538
534
724
400
597
664
5
6
11
3
4
25
55
48
58
34
84
82
20
36
40
50
8
13
12
87
169
184
252
75
125
138
221
367
353
426
230
355
347
157
259
263
348
179
260
265

23
50
204

3
6
12
35
4
236
78
53
43
14
11
14
37
79
372

5
9
14
42
3
234
88
60
42
21
12
20
38
74
353

9
15
21
61
3
332
112
100
53
41
19
37
55
101
485

25
61
589
257
126
101

37
91
1362
411
260
244

35
89
1154
339
212
365

51
113
1528
461
279
630

127
51
25

Trade balance
Share of EU25 in2006 (Ex-Im) in 2006 Total imports Total exports
1157
-193
1181
-173
63.4
67.3
1310
-120
292
71.4
76.3
12
12
-4
76
80.0
84.0
1
74
71.8
70.7
5
886
63.0
62.7
162
8
74.0
66.0
-3
88
68.2
63.5
30
17
54.8
53.2
-34
164
60.6
70.5
-88
391
68.4
64.5
-35
327
55.3
58.2
-21

3
6
12
38
2
262
86
48
28
16
11
19
47
90
270

5
11
18
59
2
368
112
88
35
26
19
33
61
117
358

-4
-4
-3
-2
-1
37
0
-13
-19
-15
-1
-3
7
16
-127

76.3
62.4
70.2
66.7
67.6
49.5
78.7
72.0
75.5

72.3
63.2
89.5
74.0
50.2
78.9
70.2
77.3
77.2

31
62
182

2
4
9
31
3
252
73
34
26
11
10
13
50
94
309

76.7
75.0
63.7
69.5
58.0

66.7
85.1
57.0
59.8
62.7

32
62
446
339
146
114

65
88
845
519
300
270

60
93
640
417
241
387

97
118
826
515
309
772

46
5
-702
54
30
141

68.7
78.5
17.7
10.3
12.3
11.4

79.3
61.0
20.6
14.5
6.5
18.8

140
44
17

Note: Imports are expressed in value terms and measured CIF (cost, insurance, freight). Exports are
expressed in value terms and measured FOB (free on board).
Source: Based on external trade statistics of Eurostat.

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

SEAPORTS AND THE INTERMODAL HINTERLAND –Annex 2: Real GDP growth rates - percentage change on previous year
EU (27 countries)
EU (25 countries)
EU (15 countries)
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
GreeceSpain
France
Italy

1998
2.9
3
2.9
1.7
4
-0.8
2.2
2
5.4
8
3.4
4.5
3.5
1.4

1999
3
3
3
3.4
2.3
1.3
2.6
2
-0.1
10.4
3.4
4.7
3.3
1.9

2000
3.9
3.9
3.8
3.7
5.4
3.6
3.5
3.2
9.6
9.4
4.5
5
3.9
3.6

2001
2
2
1.9
0.8
4.1
2.5
0.7
1.2
7.7
6.1
5.1
3.6
1.9
1.8

2002
1.2
1.2
1.1
1.5
4.5
1.9
0.5
0
8
6.6
3.8
2.7
1
0.5

2003
1.3
1.3
1.2
1
5
3.6
0.4
-0.2
7.2
4.5
4.8
3.1
1.1
0

2004
2.5
2.4
2.3
3
6.6
4.5
2.3
1.1
8.3
4.4
4.7
3.3
2.5
1.5

2005
1.8
1.8
1.6
1.7
6.2
6.4
2.5
0.8
10.2
6
3.7
3.6
1.7
0.6

2006
3
3
2.8
2.8
6.1
6.4
3.9
2.9
11.2
5.7
4.3
3.9
2
1.8

LatviaLithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
PolandPortugal
Romania
Slovenia
Slovakia
FinlandSwedenUnited Kingdom

4.7
7.5
6.5
4.9
:
3.9
3.6
5
4.9
:
3.6
4.4
5.2
3.8
3.4

3.3
-1.5
8.4
4.2
:
4.7
3.3
4.5
3.8
-1.2
5.3
0
3.9
4.6
3

6.9
4.1
8.4
5.2
:
3.9
3.4
4.3
3.9
2.1
4.1
1.4
5
4.4
3.8

8
6.6
2.5
4.1
-1.6
1.9
0.8
1.2
2
5.7
3.1
3.4
2.6
1.1
2.4

6.5
6.9
4.1
4.4
2.6
0.1
0.9
1.4
0.8
5.1
3.7
4.8
1.6
2.4
2.1

7.2
10.3
2.1
4.2
-0.3
0.3
1.2
3.9
-0.8
5.2
2.8
4.8
1.8
1.9
2.8

8.7
7.3
4.9
4.8
0.2
2.2
2.3
5.3
1.5
8.5
4.4
5.2
3.7
4.1
3.3

10.6
7.9
5
4.1
3.3
1.5
2
3.6
0.7
4.2
4.1
6.6
2.8
3.3
1.8

11.9 10.5
7.7
8.8
(f)
6.1 5.2
3.9
1.4(f)
3.4 3.1
3
3.5(f)
3.3 3.3(f)
6.1 6.5(f)
1.2 1.8(f)
7.9 6.0(f)
5.7 6.0(f)
8.5 8.7
4.9
4.4
4.1
2.6
2.9
3.1

Note: (f) = estimate/provisional figures
Source: Based on Eurostat data.

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

2007
(f)
2.9
(f)
2.9
(f)
2.7
(f)
2.7
(f)
6.3
(f)
5.8
1.8
2.5
(f)
7.8
(f)
4.9
(f)
4.1
(f)
3.8
(f)
1.9
1.5

2008
(f)
2.4
(f)
2.4
(f)
2.2
(f)
2.1
(f)
6.0
(f)
5.0
(f)
1.3
(f)
2.1
(f)
6.4
(f)
3.5
(f)
3.8
(f)
3.0
(f)
2.0
(f)
1.4

2009
(f)
2.4
(f)
2.4
(f)
2.2
(f)
2.2
(f)
6.2
(f)
4.9
(f)
1.4
(f)
2.2
(f)
6.2
(f)
3.8
(f)
3.7
(f)
2.3
(f)
1.8
(f)
1.6

(f)

7.2
(f)
7.5
(f)
4.7
(f)
2.6
(f)
2.8
(f)
2.6
(f)
2.7
(f)
5.6
(f)
2.0
(f)
5.9
(f)
4.6
(f)
7.0
(f)
3.4
(f)
3.1
(f)
2.2

(f)

6.2
(f)
6.3
(f)
4.5
(f)
3.4
(f)
2.9
(f)
2.5
(f)
2.4
(f)
5.2
(f)
2.1
(f)
5.8
(f)
4.0
(f)
6.2
(f)
2.8
(f)
2.4
(f)
2.5

(f)

69

70 – SEAPORTS AND THE INTERMODAL HINTERLAND

Annex 3: Modal split for inland transport of containers (selection of container ports)
Amsterdam(Ceres Paragon)

Antwerp

Bremerhaven(Eurogate)
Constanza

Dunkirk

Hamburg

2004
2005
2006
2007
1998
2000
2002
2007
2002
2005
2006
2000
2002
2004
2005
2006
2002
2002
2005
2006
1998
2000
2002
2005
2006
2007

Road
60
57
54
50
64.5
60.6
59.5
59.8
53.1
43.0
39.6
56.0
53.0
61.6
33.9
47.6
82
72
88
88
70.1
70.0
69.6
67.4
69.0
68.9

Rail
5
2
3
7
7.8
10.1
9.3
8.0
44.4
53.0
56.3
44.0
47.0
38.4
65.8
47.3
14
25
8
8
29.7
28.7
28.7
30.5
28.7
29.0

Barge
35
41
43
43
27.7
29.3
31.2
32.2
2.5
4.0
4.1
0.0
0.0
0.0
0.3
5.1
4
3
4
4
0.2
1.3
1.7
2.1
2.3
2.1

Le Havre

Marseilles-Fos

Rotterdam

Zeebrugge

1995
1998
2000
2002
2005
2006
2000
2002
2005
2006
1998
2000
2002
2003
2004
2005
1990
2000
2002
2005
2006

Road
82.5
84.6
85.1
85.4
87.4
86.8
82.7
82.1
82.0
81.9
51.3
48.0
59.0
59.0
60.0
60.0
70.5
79.8
78.3
62.0
61.2

Rail
16.9
14.3
12.2
11.7
6.2
5.1
16.9
15.6
12.0
12.1
14.5
13.0
9.0
10.0
9.0
9.0
26.9
17.7
20.5
36.6
37.6

Barge
0.6
1.3
2.7
2.9
6.4
8.1
0.4
2.4
5.6
6.0
34.2
39.0
32.0
31.0
31.0
31.0
2.6
2.5
1.2
1.4
1.2

Source: Data from respective port authorities and Schiffahrt Hafen, Bahn und Technik (2/2007)

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

SEAPORTS AND THE INTERMODAL HINTERLAND –71

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PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES:LESSONS FROM LOS ANGELES/LONG BEACH AND
OTHER US PORTS AND HINTERLANDS

Genevieve GIULIANO
School of Policy, Planning and Development
University of Southern California
Los Angeles

Thomas O’BRIEN
Center for International Trade and Transportation
California State University
Long Beach
California
USA

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 200977

RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –79

SUMMARY

ABSTRACT .......................................................................................................................................... 81
1.

INTRODUCTION ......................................................................................................................... 82

2.

TRENDS IN PORT-RELATED TRADE AND IMPACTS ON US METRO AREAS ................ 83
2.1. Impacts of Trade on US Metro Areas .................................................................................... 84

3.

THE LOS ANGELES REGION: CHANGING RESPONSES TO PORT-RELATED TRADE . 87
3.1. Explaining the shift in public perceptions .............................................................................. 88
3.2. Legislative Response .............................................................................................................. 90
3.3. Institutional Relationships in Goods Movement .................................................................... 92

4.

TWO EXAMPLES: AB2650 AND OFFPEAK ........................................................................... 94
4.1. AB 2650 ................................................................................................................................. 94
4.2. Results from AB 2650 ............................................................................................................ 95
4.3. OFFPeak ................................................................................................................................. 97
4.4 Conclusions from AB 2650 and OFFPeak ........................................................................... 102

5.

CONCLUSIONS ......................................................................................................................... 103
5.1. Is Los Angeles Unique? ....................................................................................................... 104
5.2. Implications .......................................................................................................................... 104

BIBLIOGRAPHY................................................................................................................................ 106

Los Angeles/Long Beach, March 2008

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –81

ABSTRACT

Rapid growth in international trade over the last two decades has generated both benefits andcosts. Costs have become increasingly visible in metropolitan areas – growing congestion, air
pollution – and local communities are demanding solutions. Congestion and air pollution associatedwith increased international trade have become so severe in the Los Angeles region that port-relatedtrade is facing increased regulation by both state and local agencies. Historically US ports have beenremarkably autonomous. Their role as economic development engines is well-recognized by local
leaders. Thus recent regulatory efforts represent a significant change in public policy.
This report begins with an overview of trends in port-related trade and its impacts on US
metropolitan areas, and discusses changing public perceptions of port-related trade as impacts haveincreased. Using Southern California as a case study, the report examines responses by the ports,
terminal operators, and allied industries to a changed regulatory regime. Two examples are discussed
in detail: 1) a state regulation requiring appointments or extended hours at terminal gates; and 2) the
OFFPeak extended gate hours program. We use a political economy framework to explain outcomes.
I describe the main economic actors and their competitive positions, and we explain the key aspects of
the US regulatory system affecting these actors. Those with significant market power within theinternational trade supply chain were successful in staving off several regulatory attempts to forcechanges in operating practices. When regulations were imposed, they were able to structure responses
to protect their economic interests. Results suggest that “dominant actors” – ports, terminal operators,
steamship lines, and their major clients – will continue to be a strong influence in efforts to solve
trade-related environmental problems.

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82 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES

1.

INTRODUCTION

Economic restructuring and globalization have vastly increased the volume of both domestic andinternational trade. With the growth in trade, nodes in the global transport network – especiallyseaports and airports – are experiencing rapid growth of traffic volumes as well as economic activity.
Large metropolitan areas, typically the location of the largest seaports and airports, are incurring
significant costs as a result of this growth. Increased traffic congestion, noise, and air pollution are
generating concern and opposition among local residents and governments. In addition, trade growth
generates demand for expanded port facilities, generating competition for scarce coastal resources.
At the same time, the competitive environment in waterborne commerce is changing as scaleeconomies drive development of ever larger ships and reduce transport costs, governance andregulatory structures change, and the global trade industry continues to restructure (e.g. Brooks andCullinane, 2007; Olivier and Slack, 2006). With more flexibility in trade routes, competition amongports intensifies. Thus at a time when local support of increased trade is in decline, ports may be lessable to address externalities while maintaining or growing their market share.
The purpose of this paper is to examine efforts to manage negative local impacts of growinginternational trade in the US and understand the successes and failures of regulatory efforts aimed at
reducing these impacts. In a few metropolitan areas these efforts have resulted in a rapid andsignificant change in the regulatory environment facing ports, steamship lines, terminal operators, andother actors within the international trade supply chain. This changed environment is being driven
primarily by local public concerns. The situation is particularly severe in Los Angeles: state and local
agencies have engaged in many efforts to reduce air pollution and manage congestion at the ports andon the main rail and truck routes connected to the port complex. Therefore Los Angeles provides an
excellent case study for examining responses to a changed regulatory environment.
This report begins with an overview of trends in port-related trade and its impacts on US
metropolitan areas, and discusses changing public perceptions of port-related trade as impacts haveincreased. Using Southern California as a case study, the report examines responses by the ports,
terminal operators, and allied industries to a changed regulatory regime. Two examples are discussed
in detail: 1) a state regulation requiring appointments or extended hours at terminal gates; and 2) the
OFFPeak extended gate hours program. The report concludes with some observations on how local
environmental concerns are affecting international trade interests and what the implications may be forthe competitive position of large US ports.

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –2.

83

TRENDS IN PORT-RELATED TRADE AND IMPACTS ON US METRO AREAS

World merchandise trade growth has outpaced growth of world GDP for now several decades.
The US share of world exports is 14.2 percent, and its share of imports is 21 percent (World Trade
Organization, 2007). US total foreign trade as a share of GDP continues to increase, from 26% in2000 to 27.2% in 2005, with goods making up nearly 80% of total trade (USDOT, 2007). Most freighttransport in the US is domestic, but the foreign share continues to increase. In terms of value, freight
imports and exports increased from 16.2% in 2002 to 19.0% in 2006.
Freight flows by all transport modes have increased. Total US ton-miles of freight increased
from 3.2 billion in 1990 to 3.8 billion in 2001 (Bureau of Transportation Statistics, 2006), but truck
and air transport have increased faster than other modes. In 2001, for example, of the total bill of$579.6 billion the US spent on freight transportation, trucks carried 80.6%, i.e. $467.2 billion(USDOT 2006, Table 3-7). Total US ton-miles of freight increased from 3,584 billion in 1990 to
4,357 billion in 2003. Over the same period truck ton-miles increased from 854 to 1,264 billion, andair ton-miles increased from 10.4 to 15.1 billion (USDOT 2006, Table 1-46B).
Foreign trade is concentrated; the top eight foreign gateways account for 34% of total 2005 US
foreign trade (see Table 1). These gateways include the major port complexes, airports, and landborder crossings with Canada and Mexico. The two largest gateways, Los Angeles and New York, areof course also the two largest metropolitan areas in the US.

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84 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
Table 1: Top 8 US Foreign Trade Gateways by Value, 2005
Gateway
Los Angeles (Port of Los Angeles, Port of Long Beach, LA
Airport)New York (Port of New York and New Jersey, JFK Airport)
Detroit (bridges)
Laredo, Texas (land bridges)
San Francisco (Port of Oakland, SF Airport)
Houston (Port of Houston)
Buffalo/Niagara (bridges)
Seattle (Port of Seattle, Port of Tacoma)

Total Foreign Trade(USD millions)
331 946
265 301130 473
93 67789 81886 13371 49668 780Source: Calculated from USDOT 2007, Figure 3-17.
2.1. Impacts of Trade on US Metro Areas
The growth of international trade has had both positive and negative impacts on metropolitan
areas. The positive impact is economic growth which results in more jobs and tax revenues to local
governments. It is the economic growth benefits that historically have been the basis of local support
for port development (Erie, 2004). Port-related trade relies on an extensive network of warehousing,secondary processing, logistics, shipping, customs, and other services, and hence has a large multipliereffect. For example, it is estimated that port-related trade in the Los Angeles region accounts for about
585,000 jobs, or about 1 in every 12 jobs in the region (Chang, 2005). In the New York/New Jersey
greater metropolitan area, port-related trade is estimated to account for about 233,000 jobs and about$5.8 billion in federal, state and local tax contributions in 2004 (Lahr, 2005). Husing (2004) notes thatthe logistics sector provides well-paid and stable blue collar jobs, in contrast to other growing sectors
such as retail trade. It therefore plays a critical role in regions with large shares of low-skilled workers
such as Los Angeles.
Although local economic benefits are significant, the bulk of benefits of international trade aredispersed throughout the US in the form of lower prices for consumer products. These economic
benefits come with large external costs that are concentrated on local populations. The most visible
external costs include congestion on the surface transport system, truck involved crashes, air pollution,and noise and other impacts on neighborhoods. Congestion and air pollution problems are briefly
described here.
2.1.1.

Congestion

Increasing congestion in US metropolitan areas is well documented by the Texas Transportation
Institute annual reports that estimate congestion based on traffic volumes and road capacity. Hours ofdelay per traveler is highest in the largest metropolitan areas (3 million population or more), and has
increased dramatically: from 21 in 1982 to 54 in 2005. Total delay cost for 2005 is estimated to be$78 Billion, compared to $15 Billion (constant 2005 dollars) in 1982. As demand continues toincrease, peak spreading has occurred, with peak periods extending to several hours each day (Schrank
and Lomax, 2007).

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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –85

Increased demand is the result of growth in both passenger travel and freight transport. Althoughtruck traffic accounted for just 8% of all highway vehicle miles traveled (VMT) in the US, heavy truck
VMT have increased faster than passenger vehicle VMT (USDOT, 2007). Major freight nodes haveexperienced particularly large increases, contributing to congestion. Figure 1 shows 2002 peak period
highway congestion on the US National Highway System. Highly congested roadways areconcentrated along the New York/New Jersey coastal corridor, Los Angeles, San Francisco, Houston
and Chicago, the major US intermodal hub.
In the Los Angeles region, it is estimated that the ports generate about 35,000 daily truck trips,
and the ports are seen as a major contributor to highway congestion. Heavy-duty truck (HDT) miles inthe Los Angeles region (i.e. those trucks with five or more axles) have increased faster than total
vehicle miles traveled. The major routes serving port-related trade carry very large HDT truck shares:
12 to 14% of total daily traffic, compared to 2 – 3% for other highways in the region.1 High volumesof trucks add to congestion problems and contribute disproportionately to incident related delays(Haveman and Hummels, 2004; California Highway Patrol, 2003). The drayage trucking industry is aparticular problem: low compensation is associated with using older, less maintained trucks andpossibly less qualified truck drivers (Monaco, 2004)
Figure 1: Peak Period Congestion, 2002, US National Highway System

Source: Provided by Federal Highway Administration; used with permission.

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86 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMESThe New York/New Jersey (NY/NJ) port complex also generates significant truck traffic.
Container traffic of the Port of New York/New Jersey in 2001 generated 13,000 trucks travels per day.
Unlike Los Angeles/Long Beach, where more than half of all container traffic has destinations outsideof Southern California, most NY/NJ container traffic (75%) is destined for local markets. Thus
options for rail traffic are quite limited. Freight movements across the harbor are limited to two
bridges, George Washington and Verrazano, handling crossings of more than 30,000 trucks per day.
Road congestion is therefore expected to increase by 50% by 2020 (Rodriguez, 2003).
2.1.2.

Air Pollution

Perhaps the most serious impact of increased trade is air pollution. The transport sector accounts
for a large portion of some air pollutants. Freight transport accounts for about 27% of all NOx
emissions. While freight transport accounts for about one third of PM10 mobile source emissions,most particulate emissions are from non-mobile sources. See Table 2.
Table 2: NOx and PM10 Emissions Shares by Freight Transport Mode, 2002
Mode

NOx
All mobile
sources
33.0
7.5
8.8
0.1
49.4

Heavy-duty trucks
Freight Rail
Marine vessels
Air
Total

PM 10
All sources

All mobile
sources
23.3
4.1
8.5
0.1
36.0

17.9
4.1
4.8
0.0
26.8

All sources
0.5
0.1
0.2
0.0
0.8

Source: Adapted from Table 5-12, USDOT 2007.

Figure 2: Contribution of Road and Non-Road Vehicles to Emissions, 1970-2006

100.00
90.00
80.00
70.00
60.00

VOC

50.00

S Ox

40.00

P M2.5 nocondens ibles
P M10 nocondens ibles
NO x

30.00
20.00

CO
10.00
0.00
19

70

19

80

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

Source: Calculated from US EPA, 2007
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –87

Heavy duty trucks are by far the major freight transport source of NOx and PM10, largely
because trucks carry about three fourths of all US freight tonnage. Constantly improving emissions
control technologies has resulted in greatly reduced emissions rates per mile, but increased VMT has
offset some of these gains. Figure 2 shows the share of various pollutants contributed by all vehicles,from 1970 to 2006. While shares of most pollutants have declined, contributions to NOx and PM 2.5
have increased since the early 2000s.
The Los Angeles region is perhaps the most extreme example, as the region is a non-attainmentarea for several criteria pollutants. Transportation sector emissions have grown at an average rate ofabout 2% annually (not including international bunker fuels) since 1990 compared to .8% for nontransportation sectors. The ports are the largest single source of emissions, largely because the local air
district, SCAQMD (South Coast Air Quality Management District), does not have jurisdiction overships or trains. Ships use high sulfur content “bunker fuel”, the cheapest form of diesel. Adding to the
problem are the unique characteristics of the port drayage segment of the trucking industry which
result in an older (and dirtier) heavy duty diesel truck (HDDT) vehicle fleet. NOx emissions are
estimated at more than 100 tons per day, and the ports’ contribution to pollution, notably PM10, is
expected to increase with the growth in port trade (SCAQMD, 2005).
The Los Angeles region is not alone, however. Lena et al. (2002) document high volumes oftruck traffic in low income neighborhoods near the Ports of New York and New Jersey. They
calculate estimates of emissions, and conclude that low income residents experience higher exposurelevels.

3. THE LOS ANGELES REGION:CHANGING RESPONSES TO PORT-RELATED TRADE

We turn now to the Los Angeles region, where over the past eight years changes in the politicaland regulatory environment have been extraordinary. In his study of the Los Angeles region, Erie
(2004) states that international trade creates a policy dilemma because the benefits are dispersed andthe costs are concentrated. The dilemma is particularly strong for local public officials, who aredependent upon trade for economic development and tax revenue, but at the same time must respondto legitimate citizen concerns. The rapid increase in international trade and the associated congestionand environmental effects has raised the visibility of trade and has led to growing public perceptions
that the local costs of trade are no longer acceptable. An additional concern is the demand for landside
infrastructure – port expansion, highway and rail capacity enhancements – in densely developed urban
areas to support trade growth.
The Los Angeles region is the second largest in the US, with estimated 2006 population of
18.6 million and employment of 7.3 million (Southern California Association of Governments, 2007).
Figure 3 provides a map of the southwest portion of the region. The ports are located about 20 miles
due south of downtown Los Angeles, within the most densely developed part of the region. The main
expressways connecting the ports with inter-modal facilities and distribution networks are the I-110
and I-710. The Alameda rail corridor is located between the two expressways, and connects the ports
with the main railroad yards just east of downtown Los Angeles.

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88 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
Public perceptions of the ports and trade they represent have shifted from generally positive toquite negative. After decades of relative independence from state or local control, port-related trade is
the target for regulation of truck traffic, truck emissions, ship fuels, and cargo equipment. The ports
have been unsuccessful in moving any new expansion project through the environmental review
process since 2000, and the two railroads serving the ports have been unable to move forward withexpansion of near-dock rail facilities.
Figure 3: Map of San Pedro Bay Ports Area

3.1 Explaining the shift in public perceptions
What explains this dramatic change? The first explanation is the rapid increase in container tradethat has taken place (see Figure 4), largely due to rapidly growing East Asian trade. The two ports
moved 15.8 million twenty-foot equivalent units in 2006, nearly double the 1999 combined volumes.
Combined TEU volumes have increased an average of 1 million TEU per year. To put this growth inperspective, the next largest west coast port, Oakland, had a total 2006 volume of 2.4 million TEU,
and the increase over the same period was 700,000 TEUs. The growth rate of the Los Angeles/Long
Beach complex has exceeded that of any other West Coast port. Continued growth is explained byscale economies in international shipping, the large local consumer market, good connections to the
US national market, and extensive supporting industries.
A near doubling of port traffic volume has resulted in a significant increase in truck traffic,
adding to an already congested highway network. For the general public, trucks are the most visible
aspect of port-related trade. The Alameda Corridor, a 20 mile, $2.4 Billion rail cargo facility openedin 2002, yet truck traffic on highways continued to increase. Although the Alameda Corridor was not
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –89

intended to increase the rail modal share or operate near capacity for many years, public perceptions
suggested such expectations, and the Corridor came under criticism for not solving the truck traffic
problem (Agarwal, Giuliano and Redfearn, 2004). A major study of the I-710 also took place in theearly 2000s. The study was based on an expected tripling of port trade by 2020, and the analysis
generated alternative plans for greatly increasing capacity of the facility, some of which required thetaking of adjacent properties. The study generated significant local opposition that in turn caused stateand local transportation planners to temporarily suspend I-710 expansion plans.
Figure 4: Growth of San Pedro Bay Ports Container Volumes
LA/LB Combined Annual TEU Volume
18.00
16.00
14.00

TEU (millions)

12.00
10.00
8.00
6.00
4.00
2.00
0.00
1999

2000

2001

2002

2003

2004

2005

2006

Source: Ports of Los Angeles and Long Beach
The port shutdown of 2002 also raised public awareness of port-related traffic. The breakdown incontract negotiations between the ILWU (International Longshore and Warehouse Union) and the
PMA (Pacific Maritime Association) resulted in a 9 day shutdown of all west coast ports. While ships
queued in the harbor, the I-710 and other main port trucking facilities experienced greatly reduced
truck volumes and congestion. For the public, the shutdown illustrated how much truck traffic wasgenerated by the ports (Giuliano et al.., 2005).
A second explanation for the shift in public perceptions is air pollution. The SCAQMD Multiple
Air Toxics Exposure (MATES) II Study was released in 2000 and provided detailed documentation of
local health impacts. It assessed potential disproportionate cancer burdens and found that 71% of allcancer risk from air pollution comes from diesel exhaust (SCAQMD, 2000). A widely circulated map
from the report showing diesel emissions concentrations was used to demonstrate that a “diesel deathzone” existed around the ports. The MATES Study was followed by several reports from alongitudinal children’s health study that documented a significant relationship of school absences,
asthma and other lung diseases with exposure to particulate concentrations (Coussens, 2004). The
California Air Resources Board (CARB) estimates 750 premature deaths per year from particulate
exposure associated with ports and international goods movement activities, and 2,400 premature
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90 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
deaths from all goods movement in California (CARB, 2006). These numbers have been widely
circulated.
The Los Angeles region has long been known for its poor air quality, and the health impacts ofpollution are widely known. However, research on fine particulates impacts and recent increases insome emissions categories have raised public awareness and concern, in turn placing growing pressure
on political leaders to solve the air pollution problem. As noted earlier, state and local air quality
regulators do not have jurisdiction over ships or trains. Thus as emissions from on-road vehicles havedecreased, the share of emissions from ships and trains has increased. Port-related emissions areconsequently viewed as a growing problem.
Air quality has become the key issue for any proposal to expand port capacity. In 2000 the
Natural Resources Defense Council (NRDC) filed a lawsuit against the Port of Los Angeles over theconstruction of the China Shipping Terminal. The settlement included $10 million to clean up diesel
trucks. It also required use of yard equipment powered by cleaner burning fuels, and testing of new
alternate marine power technology, cold ironing (Giuliano and O’Brien, 2007). Cold ironing uses
electric power so that ships can turn off engines while in port. The success of the NRDC China
Shipping settlement effort provided a model for dealing with subsequent expansion efforts, whichhave been consistently opposed on environmental grounds.
3.2 Legislative Response
Local public concerns with port growth and its associated impacts have led to steadily increasing
efforts to regulate activities related to trade operations. These efforts have focused primarily on air
pollution, because of the precedent of regulation based on human health impacts. In California, thestate has air pollution regulation authority, with certain provisions from the federal government thatallow it to impose standards more stringent than the federal standards. Therefore local efforts tocontrol trade activity involve persuading state legislators to take action. Table 3 lists state legislative
efforts to address port-related impacts between 2000 and 2006. The first successful bill was AB 1775,
which called for covering coke both in transport and in open storage.2 Table 3 illustrates that in just a
few years, ports became a legitimate target for state regulatory legislation.
The first effort to change operational practices was Assembly Bill (AB) 2650, passed in 2002.
US ports typically service truck pick-ups and deliveries only during regular weekday hours. Outsidepressure to extend truck gate operating hours had been growing for several years; it seemed an obvious
solution for spreading truck trips over more hours of the day. AB 2650 prohibited truck queuing of
more than 30 minutes at terminal gates. In order to avoid penalties, terminal operators could either
operate full gate service 70 hours or more per week, or implement a truck appointment system.
Justification for the bill was based on air quality: reduced truck queues at terminal gates would reduce
diesel emissions. AB 2650 did not result in the adoption of extended gate hours, as will be explainedlater in this paper.
AB 2650 was followed by several legislative efforts to impose emissions regulations on port or
port related operations, and to establish container fees to fund congestion or emissions mitigation. AB
2042 would have established an air quality baseline for the two ports. No project would be allowedthat increased pollution levels beyond the baseline. AB 2041 would have established a regional
governing body, the Port Congestion Management District, and authorized a charge for cargo moved
at the San Pedro Bay Ports between the peak hours of 8 AM and 5 PM. Fee revenue would be spent on
freight-related congestion mitigation projects. The bill was adamantly opposed by marine terminal
operators (MTOs) and other port trade interests. Ultimately terminal operators set up their own
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –91

extended gate program, OFFPeak, in return for the sponsor withdrawing AB 2041. By 2004 portrelated trade had become a highly visible and contentious political issue.
Table 3: California State Legislative Activity Associated with
Mitigating Port-related Trade Impacts, 2000-2006

Year
2000

Bill
AB 1775

Status
Passed2001
2002

Karnette
AB 2650

Died in committee
In committee

2002

AB 2650
revisedAB 2042

Passed

2004
2004
2004

Senate Bill
(SB) 1397
AB 2041

2005
2005

SB 760SB 761

2005

SB 7622005

SB 7632005

SB 7642005
2005

SB 848
AB 11012006

SB 9272006

SB 18292006

SB 1601

Passed by Legislature; vetoed
by Governor
Passed in Senate; died in
Assembly
Passed by Legislature;
withdrawn by sponsor(Lowenthal)Not passed
Passed in Senate; died in
Assembly
Passed in Senate; died in
Assembly
PassedPassed in Senate, died in
Assembly
Died in committee
Died in Assembly
Passed by Legislature; vetoed
by Governor
Passed in Senate; died in
Assembly
Died in Senate

Description
Required covers on coke piles and on cokein transport
First proposal for cargo fee
Reduced queue time at terminal gates;
reduced turn times
Reduced queue times at terminal gates
Established baseline for “no net increase”
in emissions
SCAQMD authority to regulate
locomotive emissions
Port management congestion district +container fee for environmental mitigation,
infrastructure, security$30/TEU mitigation fee in LA/LB
Truck turn time maximum 60 minutes
Joint Powers Authority to license, limit,
and regulate trucks at the port
Priority berthing for vessels using low
sulfur fuels
Caps on port emissions to 2001 levels
Collective bargaining for truckers
Regulate ports, distribution centers as
stationary sources$30/TEU mitigation fee in LA/LB
Limits trucks wait time to 30 minutes inline and 30 minutes inside the terminal
Require best available technology to
reduce NOx emissions through leaseagreements

There are three additional observations to be drawn from Table 3. First, cargo fees to fundmitigation efforts outside the ports had almost no support in 2001, but by 2006 were avoided only byveto of the Governor, reflecting a growing political consensus that the costs of mitigation should beborne by trade interests. Second, more aspects of port operations are the subject of regulatory
proposals, for example mandating priority berthing for vessels using low sulfur fuels, or requiring
ports to negotiate emissions technology changes via terminal lease agreements, suggesting changing
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92 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
perceptions of the role of government in addressing trade-related externalities. Finally, efforts toimprove conditions for drayage truckers (reduced truck turn times, collective bargaining) were
unsuccessful throughout the period, reflecting a lack of political support for this constituency.
3.3 Institutional Relationships in Goods Movement
Understanding responses to the changed regulatory environment requires an understanding of theinstitutional relationships within the port-related trade supply chain. We have developed a conceptualmodel of institutional relationships, as shown in Figure 5. We adopt a political economy approach,explaining relationships and outcomes in the context of market power and political influence.
Figure 5: Conceptual Model of Port-related Supply Chain

State local
governm ents

3.3.1

Dominant Actors

We identify steamship lines, ports, terminal operators, their major customers, and the Longshorelabor union as the “dominant actors” in the supply chain. They are dominant in the sense that they
have both significant market power within port-related trade and substantial political influence within
the US. All but the ILWU are “natural allies,” in that they have sufficiently aligned objectives topromote cooperation in many circumstances. Public ports in California are granted operating authority
by the state under the 1911 California Tidelands Trust Act. Operating authority comes with certain
protections on funds and limits on local regulatory oversight. The ports are managed by governing
boards whose members are appointed by their respective mayors, and who have significant authority
over port management. This lack of direct accountability has historically insulated the ports from
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –93

political pressure (Erie, 2004). The ports operate as landlords (tenant terminals have long-term leaseagreements), and their primary focus is a stable and adequate source of lease revenues.
Tenant marine terminal operating companies (MTOs) are either owned by or have long-term
contractual agreements with the steamship lines. The steamship lines are foreign flag carriers, and are
subject only to international maritime agreements with respect to operating practices. MTOs serve
specific customers or product lines. They manage the movement of cargo between ships and thelandside shippers who serve steamship line customers – foreign manufacturers, wholesalers andretailers. These entities are interdependent and share common economic interests. Major customers in
Asia-Pacific trade include the large discount retailers, e.g. Wal-Mart and Target. Major customers caninfluence ship schedules, rates, and cargo handling. For example, MTOs may offer special pickup
times, or allow longer dwell time of cargo on the docks for preferred customers.
Federal oversight for US ports and port operations is provided by the Federal Maritime
Commission (FMC). The FMC is an independent regulatory agency which administers the Shipping
Act of 1984 and the Ocean Reform Shipping Act of 1998. The Shipping Act allows terminal operators
anti-trust immunity under certain conditions: to enter into agreement with each other to discuss rates,
conditions of service or cooperative working arrangements. Thus the US regulatory structure
facilitates collaborative actions among steamship lines, MTOs, and ports.
The presence of large scale economies in international trade has led to the concentration of trade
in a few very large ports. Ever larger ships require deeper ports and larger dockside operations, which
imply infrastructure investments that need high volumes and long-term contracts to cover costs. On
the landside, more trade volume generates supporting activities – third party providers, secondary
manufacturing, freight distributors, and high quality rail transport – that further reinforce theadvantages of large ports. These dominant actors therefore have significant market power within theinternational supply chain.
3.3.2

The Longshore Union

Represented on the west coast by the International Longshore and Warehouse Union (ILWU)3,
longshore labor is arguably the most powerful (and highest paid) unionized labor force in the US. The
ILWU contract covers wages and benefits, working conditions, and allocation of labor. It also controls
the size of the labor force. As trade volumes have grown, longshore labor has enjoyed favorable
bargaining conditions, and hence has been able to retain significant control over dock operations.
Unlike many other industries, the terminal operators have been given authority by the FMC (seeabove) to act cooperatively in dealing with longshore labor. They do so through the Pacific Maritime
Association (PMA), whose members include terminal operators, stevedore companies, and steamshiplines. Labor contracts are the outcome of bilateral negations between the PMA and the ILWU, hence
the same labor provisions apply at all west coast ports. Once an ILWU contract is in place, terminal
operators (MTOs) have few options for economizing on longshore labor. The ILWU’s market power
derives from its potential to disrupt west coast trade. As long as high labor costs can be passed on,
PMA members have little incentive oppose union demands.
3.3.3

Drayage Trucking

In contrast, the drayage trucking industry has little influence within the international supply
chain. The truck drayage industry is composed mainly of owner-operator drivers who contract withsmall trucking companies. These are low-skill, low-pay jobs. Drivers receive a lump sum based on
the cargo hauled and the distance traveled which must cover all costs including fuel, insurance,
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94 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
registration and maintenance. With easy entry and an apparently still plentiful supply of labor, drayage
is a price taking industry segment.
Truckers have no formal means of influencing the behavior of MTOs (or of the trucking
companies who contract with them). Because they are considered private contractors and not
employees, drivers are subject to federal anti-trust laws prohibiting cooperative action that could
impede interstate commerce. In Los Angeles drayage truckers are mainly Spanish speaking
immigrants, most of whom are reticent to political action or other forms of influence.
3.3.4

Other Actors

There are many other participants in international trade: railroads, third party providers, customs
brokers, etc. Two Class I railroad companies serve the San Pedro Bay ports, Union Pacific and BNSF.
By virtue of the importance of the rail network in distributing goods throughout the US, the railroads
also have significant market power. Other industry segments are more fragmented, and to date have
had little apparent influence in port-related activities.

4. TWO EXAMPLES: AB2650 AND OFFPEAK

The combination of favorable competitive conditions and supportive national regulatoryenvironment allow ports, MTOs and steamship lines considerable control and flexibility in responding
to local efforts to mitigate congestion and air pollution impacts. We illustrate with two examples, AB
2650 and the OFFPeak fee program. The summaries presented here are based on comprehensive
evaluations of each program.4
4.1 AB 2650
As noted in Section 3, AB 2650 was the first attempt to change dock operational practices. It
went into effect in July 2003. It imposed a penalty of $250 on marine terminal operators for eachtruck idling more than 30 minutes while waiting to enter the terminal gate. Because the bill targeted
ports of a certain size, only three were subject to the regulation: Los Angeles, Long Beach andOakland. Terminals could avoid fines by extending full service gate hours to 70 per week (65 hours at
the Port of Oakland), or by offering a gate appointment system to trucks to drop off or pick-up cargocontainers. The bill had some important caveats – the penalty applied only to: 1) trucks idling (notwaiting with engine off); 2) trucks with an appointment; 3) wait time to the entry of the terminal
property (not the pedestal within the entry where trucks receive permission to enter the docks). AB
2650 had no jurisdiction over queuing within the terminal.
No terminal chose to comply with AB 2650 by instituting extended gate hours, or even modifying
existing extended hours; most implemented an appointment system. Although the legislation included
some guidelines, terminal operators had great flexibility in structuring appointment systems.
Appointments were implemented with different appointment providers, policies for making
appointments, and gate procedures. Appointments are made via a proprietary web-based information
system. The terminal operator determines which service is to be used, and the trucking companies and
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –95

others pay to access the service based on volume of transactions. Trucking companies typically service
all terminals, so using the appointment systems required subscribing to each of the information
systems used by the terminals they service. No terminal made special arrangements for trucks withappointments once they were inside the terminal.
4.2 Results from AB 2650
The stated purpose of AB 2650 was to reduce emissions from truck idling at terminal gates. In
order for an appointment system to be effective in reducing truck idling, appointments must be used,
and appointments must be associated with a reduction in truck wait times.
4.2.1

Use of Appointment System

Terminal operators were not required to report on use of the appointment system. Ex-post surveys
of MTOs on use of appointments yielded estimates from almost none to 30% or more, with most
responses at the low end of the range. Monthly data from three terminals showed different patterns, as
shown in Figure 6. Only one terminal had a large share of appointments; this was due to a strategy ofusing appointments as a way of managing truck moves on the dock. We also obtained limited datafrom a fourth terminal; appointments were 1-3% of total moves. While an appointment system canpotentially reduce transaction times, the generally low rates of appointment utilization imply limited
impact.
Appointment systems can only be effective if truckers use them. If appointments reduce trip
times by reducing wait time or making sure cargo is released and ready for pickup, truckers have every
incentive to make them, since they are paid by the load, not by hour. We examined the impact of
appointments by comparing transaction time data from one MTO for transactions conducted with andwithout appointment times. Since the greatest share of appointments at any terminal is for picking up
an import container, our comparison is limited to import pickup transactions. Figure 7 gives the
cumulative distribution of transaction times for all import pickup transactions, and for import pickup
with appointment transactions. It can be seen that transactions with appointments are longer thantransactions without appointments. The group means are 52.6 minutes for all transactions and84.6 minutes for transactions with appointments; the difference is statistically significant. In a surveyof 27 trucking companies, the average estimate of transaction time with appointment is longer than
without appointment, consistent with the Figure 7 data. Our conservative conclusion is that we haveno evidence that appointments are associated with time savings. However, longer transaction times
could simply mean that appointments are more likely to be used for the most complex transactions.

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96 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
Figure 6: Appointments as Share of Total Gate Moves
45%

40%

Share of total gate moves

35%

30%

25%
Terminal A
Terminal B

20%

Terminal C
15%

10%

5%

Ja
n0
Fe 4
b0
M 4
ar
-0
Ap 4
r-0
M 4
ay
-0
Ju 4
n04
Ju
l-0
Au 4
g0
Se 4
p0
O 4
ct
-0
N 4
ov
-0
D 4
ec
-0
Ja 4
n0
Fe 5
b0
M 5
ar
-0
Ap 5
r-0
M 5
ay
-0
Ju 5
n05

0%

Figure 7: Cumulative Distribution, Import Transactions

1.2

Cumulative Share

1

0.8

Total
0.6

Appts

0.4

0.2

0
15

30

45

60

75

90 105 120 135 150 165 180 195 210 225 240 255 270 285 300

Minutes

We conducted simulations to evaluate conditions under which an appointment system would
generate time savings sufficient to measurably reduce queuing and truck idling, based on plausible
rates of appointment use. We found that reducing wait time on the docks would have the greatest
impact, holding appointment share constant. For the average transaction, time spent at the terminal isa larger portion of total transaction time than time spent waiting to enter the terminal, so has thegreatest potential for reducing total transaction time. We also found that a much larger proportion of
appointment use would be required to generate significant time savings. For example a transaction
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –97

time savings of 10 minutes for 30% of all import moves would generate a total transaction time
reduction of about 6%.
4.2.2

Trucking Response

Why were appointments so little used? Our survey revealed an overall perception that theappointment system did not improve conditions for truckers. The majority stated that it did not
improve their ability to meet customer demands, nor did it reduce turn times (the time required tocomplete a transaction at the docks, including waiting to enter the terminal and completing thetransaction within the terminal). No firm gave an unequivocally positive response. Respondents werealso asked to rate the effectiveness of the appointment system at each terminal in reducing turn times
on a scale of one to five, with 1 = not effective and 5 = exceptionally effective. Terminals are notgiven high marks: mean scores range from 1.4 to 2.3.
Written comments, as well as the open-ended discussion conducted with respondents after
completion of the survey, provide some explanations for their negative assessment. First, truckers
expected that appointments would reduce transaction time by assuring that containers and/or chassis
were ready and available for pick-up. However, this was not the case; practices “inside the gate” did
not change as a result of the appointment system. Second, some respondents noted that the realconstraints are limited gate hours and limited dock labor. If container volumes are increasing and thecontainer processing rate remains constant, transaction time will increase, with or without
appointments. Others noted the difficulty of using several different appointment systems. Finally,
respondents cited the difficulties of making and keeping sequential appointments, because any delay
with an earlier transaction cascades to all other later transactions.
4.2.3

Conclusions on AB 2650

We have no evidence to suggest that the appointment system reduced queuing at terminal
gates and hence HDT emissions. Data from terminals and information from interviews supports afinding of no impact for two reasons: 1) the majority of terminals did not view appointments as aneffective operational strategy, and few efforts were made to offer any priority to those withappointments; 2) trips with appointments made up a very small share of all trips at most terminals, andhence could not have had a significant impact on queuing even if such trips were granted priority. Ourestimates of potential turn time savings from appointments suggests that a large proportion of trips
would have to use appointments, and appointment trips would have to be given some priority in orderto realize significant time savings. It is only under these conditions that an appointment system would
reduce truck queuing enough to result in lower truck emissions.
4.3 OFFPeak
As noted in section 3 above, the OFFPeak program was established in order to avoid
implementation of AB 2041. The stated intent of OFFPeak is to spread port truck traffic across more
hours of the day in order to reduce peak period truck traffic and related congestion. In June 2004,
MTOs filed an amendment to the existing West Coast Marine Terminal Operator Agreement with the
FMC to give the MTOs the authority to develop and implement an off-peak services program. The
amendment was approved in early August 2004.
The MTOs established a special purpose non-profit entity called PierPASS, Inc. to act on behalfof the MTOs and coordinate the program. An independent financial consulting firm was hired toestimate expected costs and revenues of the program, and the peak fee was based on the financial
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98 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
analysis. The Traffic Mitigation Fee (TMF) was set at $40/TEU, and later increased to $50/TEU. The
fee is imposed on eligible cargo from 8 AM to 5 PM, Monday through Thursday. Exempt cargo
includes empty containers, cargo transshipped to other ports, domestic cargo, and cargo subject toAlameda Transportation Corridor fee. No off-peak operations are available on Friday. Fee revenue,
discounted by PierPASS operating expenses, is returned to the MTO of origin. The program includes
a sunset clause after 3 years.
4.3.1

Use of OFFPeak

The OFFPeak program was launched in July 2005. The stated program targets for off-peak
container moves was 20% by the end of the first year, 35% by the end of the second year, and morethan 40% by the time the program was scheduled to sunset 3 years later. Results of the program wereimmediate; some off-peak shifts were moving 30% of the day’s eligible containers, surpassing the firstyear goal. By December 2005, PierPASS claimed to have diverted 1 million truck trips to the offpeak, and by June 2006 the figure was 2 million truck trips.
Figure 8 gives weekly shares of off-peak cargo based on data provided by PierPASS, Inc., from
July 2005 to September 2006. Figure 8 includes only cargo eligible to pay the fee, about 55-60% of
all truck moves, excluding Friday cargo moves. From 7/05 to 9/06 (57 weeks of data), the average
share of off-peak cargo is 39.8%. The share is increasing over the period. We estimated a simple
regression on the series; the estimated average rate of increase is about 8%/week. The immediate
response to the program is evident, with the early weeks in the range of 35%. Given the many
exemptions to the fee, we estimate diversion to be in the range of 22-30% of all truck moves.
Figure 8: Weekly Share of Off-Peak Cargo
Off-peak cargo as share of eligible cargo
50

45

percent

40

35

Fee
increase to$50/TEUy = 0.0796x + 37.476
2
R = 0.3607

30

25

Au

g

0
Au 5 w
ee
g
k
Se 05
1
pt w e
ek
Se 05
3
pt we
e
Se 05 k 1
pt we
05 ek
3
O
ct we
ek
0
O 5w 5ctee
0
N 5w k2ovee0
N 5w k4ovee
0
D 5w k2ec
ee0
D 5w k4ecee0kJa 5 w 1ne
0 6 ek
Ja
w 3
ee
n
0
Fe 6 w k 1bee0
Fe 6 w k 3
eeb0
M 6w k1
ar
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06 ek
M
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M 6w k1
ar
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0
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Ap 6
3
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0
Ap 6
5
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ril
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0
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2
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1

20

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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –

4.3.2

99

Impacts on the Highway System

Given the increased use of off-peak hours, we would expect some temporal redistribution of truck
traffic. We compared the temporal distribution of truck traffic for weekdays in May, August andDecember, 2004 (before OFFPeak) and 2006 (after OFFPeak). Figure 9 shows hourly distribution ofheavy truck volumes, before and after OFFPeak, for I-710, one of the main truck corridors. It can bereadily seen that mid-day volumes decreased and late afternoon/evening increased. Figures 9 alsosuggests that there were small shifts of truck traffic out of AM and PM peaks, but large shifts out of
the mid-day period and into the evening period.
OFFPeak was also intended to shift truck traffic to weekends. Again using the I-710 data, we
compared truck volumes on weekends before/after OFFPeak. Total weekend truck volume increased
after OFFPeak, with most of the increase taking place in the early morning hours. Daily average truck
volumes before/after OFFPeak were about 5000 and 5300 respectively. Before and after volumes were6400 and 8000 on Saturdays and 3700 and 3500 on Sunday.
We employed simulation modeling to estimate impacts of OFFPeak on the region’s transportsystem. The “before” year is 2004; the “after” year is 2006. Over this period, container volume
increased by about 2.7 million TEU, and we adjusted our simulation data accordingly. No adjustments
were made for overall regional growth. We simulate four scenarios, each with four different time
period simulations: AM peak, mid-day, PM peak, and night. Scenario 1 is the before OFFPeakbaseline. Scenario 2 estimates what would have happened had port volume increased while the hourly
distribution of port truck traffic remained unchanged. Scenario 3 estimates the impact only of the
OFFPeak time distribution shift, holding port traffic constant. Scenario 4 estimates the combined
effects of port growth and truck traffic distribution shift.
Figure 9. I-710 Average Hourly Distribution of Heavy Truck Traffic,
Before and After OFFPeak
10.00%
2006

9.00%

2004

8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%

AM
Peak

Night

PM
Peak

Midday

Night

0.00%
0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

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18

19

20

21

22

23

100 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
Table 4 provides comparisons across the scenarios for vehicle hours traveled. For example, in
the AM peak, port growth leads to a 1.04% increase in VHT relative to the baseline, and the OFFPeak
shift leads to a 1.08% decrease in VHT. When we combine growth and the OFFPeak shift, we get a
0.45% increase. That is, the OFFPeak shift offsets some of the increase in AM peak VHT. The
separate effects of growth and OFFPeak are given in the last two rows; about half of the growth effectis offset by the OFFPeak effect
Table 4. Scenario Result Comparisons (Percent change), Port sub-area only
Scenario
AM peak(6-8 a.m.)VHT
1 vs 2growth effect only
1 vs 3PP effect only
1 vs 4growth + PP effect
2 vs 4PP effect, given growth
3 vs 4growth effect, given PP

Time Period
Mid-day
PM peak(9 a.m.–2 p.m.)(3-6 p.m.)

Night(7 p.m.-5 a.m.)

1.04

21.64

3.17

0.22

-1.08

-10.95

0.71

1.21

0.45

0.97

1.95

1.15

-0.58

-17.00-1.181

0.925

1.54

13.38

1.23

-0.06

The mid-day changes are much larger, consistent with the greater OFFPeak mid-day shift (about
8% reduction), and the greater share of truck traffic in the mid-day. Results suggest that the OFFPeak
shift has almost entirely offset the port growth effect. The PM peak results are similar to AM peak:changes are small, but the OFFPeak shift tends to offset the growth effect. Night is the only period
when OFFPeak contributes to VHT. Despite the large average shift (about 10%), the effect is small,because truck traffic accounts for a smaller share of total traffic at night. Results suggest that the
OFFPeak shift has about four times the effect of the port growth effect. This does not affect average
speeds, because there is little congestion on the network during night hours.
4.3.3

Terminal Operator Response

Terminal operators were generally positive in their assessment of OFFPeak. They agreed that the
program was brought about by political pressure, not by congestion and increased cargo volumes at
the terminals. Only 2 respondents said the fee revenue was not adequate to cover costs. Given theextra pay associated with second or third shift work, it might be expected that lack of labor would not
be a problem. However, the ILWU controls the number of longshore workers, both “regular” andcasual. Additional longshore workers would be drawn from the casual pool in the short run. Nine
respondents reported some type of labor difficulty.
Terminal operators saw the OFFPeak structure as the best possible solution under thecircumstances: it allowed MTOs to control implementation of extended gates with limited oversight, iteliminated competition between MTOs on peak service parameter, it assured that the fees would be
returned to MTOs to offset off-peak costs, and it restricted access to financial and operating data.

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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –101

Terminal operators also recognized that they were able to accommodate significant growth incontainer volumes by shifting more activity to the night shift.
4.3.4

Drayage Trucking

Apart from the terminal operators themselves, the greatest impact of OFFPeak has been felt by
the port drayage industry. Spreading out gate moves over a longer period should translate to shortertransaction times for truckers, as less time would be spent waiting for a container to be available. It isalso possible that the additional gate hours would allow truckers to make additional turns, thereby
increasing the truck driver’s income. However, the trucker’s work day is regulated by federal hours ofservice mandates. It is therefore possible that OFFPeak would require significant modifications to thedriver’s schedule to accommodate a second shift. Trucker response should also depend on whether
extra pay is provided for off-peak hauls.
Four trucker surveys have been conducted since the inception of OFFPeak, two by the California
Trucking Association and two by PierPASS, Inc. The surveys are of limited comparability, and, as
might be expected given the different agendas of the two organizations, show conflicting results
regarding overall satisfaction with OFFPeak, effects on turn times and pay, and willingness to worknight shifts or weekends. Our comparisons of the surveys yield the following observations:
−
−
−
4.3.5

Two-thirds of work start times are between 5 and 10 AM, suggesting that most drivers have
not replaced a first shift with a second shift, but have modified start time to work additional
hours.
The average number of trips per week has not changed, suggesting that turn times have notbeen shortened.
No more than one-third of those working at night receive extra pay for doing so.
Other Stakeholders

Other key stakeholders make it clear how limited a role they have played in the development of
OFFPeak. The Ports have been interested observers but have not been involved in establishing the fee
structure. Distribution centers, warehouses, and exporters have modified their own operations in
response to OFFPeak, adding second shift staff, or allocating more space to off-peak storage. Unlike
the terminal operators, these stakeholders do not enjoy the benefit of the traffic mitigation fee as ameans of covering off-peak operating costs. Their options are to pass along the costs where feasible
and move as much port-related activity to the evening as possible.
We conclude that the OFFPeak program achieved its objective of shifting truck traffic out of peak
periods. In doing so, it offset about two years of port growth. Shifting truck trips to less congested
time periods benefited drayage truckers, as trips were being made at faster speeds. However, travel
time benefits were likely not as large as the costs of working less convenient hours (generally without
extra pay). The traveling public received benefits from less daytime truck volume. The ports and
MTOs likely benefited from increased trade volume, and certainly benefited from having the fee
contribute to the added costs of off-peak operation. We surmise that extended operations contributed
to the ports’ ability to process more cargo. The direct costs of OFFPeak are paid by cargo owners, but
we do not know the ultimate incidence of these costs.

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102 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
4.4 Conclusions from AB 2650 and OFFPeak
Outcomes of AB 2650 and the OFFPeak program were quite different. Although the intent of
AB 2650 was to increase use of extended gate hours, terminal operators chose to implement
appointment systems as the means of compliance. With few exceptions, appointment systems werestructured to meet requirements, not to promote efficiencies either at the gates or on the docks.
Consequently, appointments were infrequently used and had no measurable impact on truck
transaction times. In contrast, OFFPeak was successful in shifting truck moves to night hours andhence reducing congestion on the highway system. We explain these different outcomes in the context
of our conceptual model.
First, AB 2650 was imposed from the outside, without the endorsement of the dominant actors.
These actors were able to influence the bill to make it as benign as possible. The earlier version of thebill that included a limit on turn times was opposed by the PMA and the Long Beach Board of Harbor
Commissioners. The turn time limit was removed as a condition of withdrawing their opposition. The
exemptions in AB 2650 made it difficult to enforce, and limited surveillance made documenting an
excessive wait time unlikely. Even if a violation occurred, a fine of $250 was small relative to thecosts of extended gate hours. The option of an appointment system provided a low cost means ofcompliance that would have no serious effect on dock operations. AB 2650 also served as a powerful
signal to the dominant actors that they were no longer exempt from regulatory legislation.
In contrast, OFFPeak was developed and implemented by MTOs, with the tacit approval of ports
and steamship lines. The experience of AB 2650 motivated MTOs to become proactive. AB 2041
was introduced in February 2004, and by July 2004 the FMC discussion agreement had been amended
to allow establishment of common gate hours and fees. The discussion agreement allowed MTOs to
implement a significant operational change that resulted in a best possible outcome. The success ofthe program allowed the dominant actors to take credit for reducing congestion and vehicle emissions.
Second, winners and losers reflect market power positions. Dominant actors were winners in AB
2650 in the sense that they were able to avoid any costly changes in operations. Drayage truckers
were losers, as, contrary to their expectations, turn times did not improve. Terminal operators have no
incentive to employ practices that would reduce delays for truck drivers. Rather, their incentive is toserve their customers and manage dock operations within the constraints of longshore work rules andcontract provisions.
The MTOs, ports and steamship lines were clear winners in OFFPeak for the reasons given
above. The program protects terminal operators in several ways: 1) establishment of a common fee
and operating practices eliminates competition on these dimensions of service; 2) control of both fee
rate and revenue minimizes the chance of financial losses; 3) the separate, non-profit entity limits
information available to the public, making it difficult if not impossible to determine whether MTOs
are generating excess profits from cooperative price setting. The major retailers were not harmed; mostterminals were already operating special gate hours for major customers, and distribution systems ofthese retailers were already structured for 24 hour operation. Longshore labor was also a winner.
OFFPeak hours were determined by the ILWU shift schedule, and second shift work comes withsignificant shift premiums and guarantees.
Actors without market power have not benefited from OFFPeak. Drayage trucking was notconsulted in the development of OFFPeak, despite the obvious impacts it would have on this industry
segment. Fewer longshore crews at night and gaps in service during shift changes have resulted indelays for truckers which are typically not compensated by additional pay. During the formation of
OFFPeak, truckers attempted to claim some of the program revenue, arguing that they should be
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –103

compensated for night work and longer hours, just as longshore workers are. They were summarily
ignored; dominant actors knew they would not be able to exert enough political pressure to achieve
such an outcome. Similarly, distribution centers and warehouses had limited input in the developmentof OFFPeak. Like the drayage truckers, they were left to absorb the additional costs of the program.

5. CONCLUSIONSThe outcomes of AB2650 and OFFPeak provide many insights on the response of port-relatedtrade interests to a rapidly changing political and regulatory environment. AB 2650 demonstrated thatpolitical support was sufficient to impose regulations on port operations in order to reduce
environmental impacts. While an established regulatory framework for reducing stationary andmobile source emissions has been in existence for many years, these are aimed directly at emissions.
AB 2650 indirectly targeted emissions by regulating specific operating practices, greatly increasing
government involvement and authority. AB 2650 also represented a significant change in perceptions
regarding the responsibilities of port-related trade. Highway congestion and local air pollution
problems became in part the responsibility of trade interests to solve. Again, there is some historicalprecedent – ports have been responsible for reducing pollution impacts on local waters for decades in
the US – but the important dimension is the scope and scale of perceived responsibility.
OFFPeak illustrates the capacity of the dominant actors to respond to increased pressures forsolving congestion and environmental problems. It represents a significant shift in strategy. The
growing evidence of particulates on health effects, together with port activity being a major source ofparticulate emissions has made it virtually impossible for political leaders not to embrace anaggressive mitigation strategy. International trade proponents have no choice but to actively
participate. Without operational changes that are viewed by those outside the industry as minor, nocredible case could be made for supporting growth in port activity, or for the public infrastructure
investments to accommodate that growth. Thus the question is one of how externalities can beaddressed with the least cost to the dominant port interests. Some basic principles seem to emerge:
direct all operational changes, maintain control of revenue streams, and cooperate to achieve outcomesthat are mutually beneficial.
Both case studies suggest that the incidence of costs associated with these programs reflects theinstitutional relationships within the port-related supply chain. Costs were borne by those with weaker
positions, notably drayage trucking and the smaller wholesalers and distributors, who had no part in
the design of appointment systems or extended gate hours, but were faced with adapting their own
business operations.
The case studies also demonstrate the key role US regulatory policy. The FMC agreement
process, which allows MTOs substantial authority to collaborate, made it possible to establish the
OFFPeak program. Agreement amendments are subject to permissive review requirements: proposed
agreements must only be listed in the Federal Register for 45 days, and unless objections are placedwith the FMC, the amendment goes into effect. Parties who may be affected by an amendment may
be unaware of the filing until after the fact, as the only source of information is the Federal Register.
The US regulatory framework, in which MTOs, steamship lines, and stevedore companies may
cooperate for many different purposes, both supports and reinforces the market power of the dominant
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104 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES
actors, giving them a relatively free hand in controlling port activities. The US regulatory framework
also supports and reinforces the weakness of drayage trucking by subjecting this sector to anti-trust
prohibitions on cooperative service practices or rate setting.
5.1 Is Los Angeles Unique?
To what extent does the Los Angeles experience help us understand the larger issue of a changed
regulatory environment? Is Los Angeles the harbinger of the future, or is the situation so unique that
there are few conclusions to be drawn? Los Angeles is in some ways indeed unique: international
trade constitutes a large share of the regional economy; the ports’ container volume is more thandouble that of the next largest complex (New York/New Jersey); it has the worst air quality and traffic
congestion among US metropolitan areas. It is also capable of handling the world’s largest ships andhas the nation’s largest network of supportive industries.
On the other hand, environmental concerns continue to grow throughout the US and the world,and Los Angeles has long been recognized as a source for precedent setting. Cargo handlingequipment provides just one example. Reducing emissions from cargo handling equipment began in
the 1990s in Los Angeles. Since then, these practices have been adopted at the ports in Seattle,
Houston, and New York/New Jersey.
Air pollution and traffic congestion associated with truck traffic are growing concerns in othermetropolitan areas. Feasibility studies for short-sea shipping have been conducted for Oakland, theupper west Pacific coast ports, as well as Los Angeles (Le-Griffin and Moore, 2006). The New
York/New Jersey ports considered an inland distribution network that would shift truck traffic to railand barge, and funded a demonstration of the barge service (Port Authority of New York and New
Jersey, 2006). Efforts to shift truck traffic to rail have been examined for Oakland and for New
York/New Jersey, and New York/New Jersey is engaged in a major expansion of on-dock and neardock rail.
We have not yet seen the passage and implementation of regulations such as AB 2650 in other
US metropolitan areas, but efforts to do so are increasing. Appointment systems have been proposedin both Seattle and New York/New Jersey. Truck idling bills have been introduced in Illinois, Rhode
Island, Connecticut and New Jersey. New Jersey Assembly Bill A2646, introduced in October 2006,
would prohibit the idling or queuing of heavy duty diesel trucks at marine terminals for more than 30
minutes, would fine terminal operators $250 per infraction, and would exempt terminals if extended
gate hours are offered. The bill has to date remained stalled in committee.5 The Port of New Yorkand New Jersey 2006 Strategic Plan calls for extended gate hours and an OFFPeak type fee program,though no actions have yet been taken to implement these plans.
Finally, the utility of FMC agreements for controlling mitigation strategies is becoming evident
outside Los Angeles. As of this writing, port interests at PANYNJ have submitted a draft amendment
for the purpose of coordinating policies and programs associated with measures to reduce congestion
at the ports, and Seattle is using the existing west coast agreement to develop methods for managing
local truck traffic.
5.2 Implications
Results from Los Angeles lead to some broader considerations on the role of ports in an era ofglobal industry restructuring and rising environmental concerns. Olivier and Slack (2006) note the
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RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMES –105

emergence of the transnational corporation in the global supply chain, and argue that global tradeflows will increasingly follow the logic of logistics chains based on terminals and their forward andbackward linkages. This new logic weakens the ability of ports to influence global trade flows. Hall(2007) argues that changing patterns of globalization have changed the relationship between port andhinterland: the benefits of increased trade impose substantial local costs that the port has a
responsibility to address, since localities themselves have little control over trade-related externalities.
Hall’s perspective is borne out in Los Angeles, where there is a growing expectation that ports take anactive role in addressing externalities. Indeed, the San Pedro Bay ports have moved from a position ofpassive lease agents to active self-regulators. We see similar efforts by ports to lead air pollution andcongestion mitigation efforts in New York and New Jersey and in Seattle.
Mitigation costs to port-related trade, however, can be substantial. In Los Angeles the OFFPeak
fee is $50 per TEU. In their continuing effort to address congestion and pollution, port interests haveagreed on additional fees of $15 per TEU for upgrading the drayage truck fleet and $30 per TEU forsurface transport infrastructure (the latter again in response to pending state legislation). Whether
anticipated trade growth can be sustained with fees approaching $100 per TEU remains to be seen.
Los Angeles demonstrates the fundamental dilemma facing large US trade nodes: growing local
demand for relief from port trade externalities vs an increasingly competitive international tradeindustry.

NOTES

1.

Calculated by the authors from 2002 California State Department of Transportation, District 7
traffic volume data.

2.

Coke is a solid by-product of petroleum refining.

3.

On the east coast, labor is represented by the International Longshoremen’s Association (ILA).

4.

On AB 2650, see Giuliano, O’Brien and Maggadino, 2005; Giuliano and O’Brien, 2007.
On OFFPeak, see Giuliano and O’Brien, 2008; Giuliano et al.., 2008.

5.

http://www.njleg.state.nj.us/bills/BillsByNumber.asp

ACKNOWLEDGEMENTS

This report is based on research supported by grants from the METRANS Transportation Center,
University of Southern California, with funding from the US Department of Transportation andCalifornia Department of Transportation. Support from OECD to write this report is gratefully
acknowledged. Elena Maggiore, PhD student in Public Policy, provided assistance. All errors andomissions are the responsibility of the authors.
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Stanford University Press.
Giuliano, G., Agarwal, A., Li, C., and Linder, A. (2005), Caltrans/MTA/Metrans Port Impact Study
Final Report. Report submitted to California Department of Transportation District 7 and Los
Angeles County Metropolitan Transportation Authority.
Giuliano, G. and T. O’Brien (2008), “Extended gate operations at the Ports of Los Angeles and Long
Beach: A preliminary assessment,” forthcoming, Journal of Maritime Policy and Management
Giuliano, G., T. O’Brien (2007), “The terminal gate appointment systems at the Ports of Los Angeles
and Long Beach: An Assessment”, Transportation Research D, 12(7), 453-528.
Giuliano, G., T. O’Brien, J. Maggadino (2005), Evaluation of Terminal Gate Appointment System at
Los Angeles and Long Beach Ports. Final Report Project 04-06, METRANS Transportation
Center.

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Giuliano, G., T. O’Brien, J. Zhou, W. Tan (2008), “Impacts of port gate operation on the highway
system: A case study,” Paper 08-2006 presented at the 2008 Transportation Research Board
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San Francisco, CA: Public Policy Institute of California.
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prepared for the Southern California Association of Governments. Redlands, CA: Economics
and Politics, Inc.
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Research for New York Shipping Association, downloaded on 03/21/08 fromhttp://www.nationsport.org/sav/doc/Library_Economic/NYNJPortEconomicImpacts2004%5B1%5D.pdf
Le-Griffin, H. and J. Moore (2006), Potential Impact of Short Sea Shipping in the Southern California
Region. Los Angeles, CA: METRANS Transportation Center, University of Southern
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Health Perspectives 110(10), pp. 1009-1015.
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Transportation Center Report AR 04-01. Los Angeles, CA: METRANS Transportation Center,
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February 28 2008 http://www.panynj.gov/DoingBusinessWith/seaport/html/port_inland.html
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108 – RESPONDING TO INCREASING PORT-RELATED FREIGHT VOLUMESSouthern California Association of Governments (2007), State of the Region 2007. Los Angeles, CA:
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PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – ¤ OECD/ITF, 2009

ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIESPeter W. DE LANGEN
Erasmus University Rotterdam &Port of Rotterdam Authority1
Rotterdam
The Netherlands

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –111

SUMMARY

ABSTRACT ........................................................................................................................................ 113
1.

INTRODUCTION ....................................................................................................................... 113

2.

THE ROLE OF LANDLORD PORT AUTHORITIES .............................................................. 114

3.

THE ROLE OF PAs IN ENHANCING CO-ORDINATION...................................................... 116
3.1. Co-ordination in port clusters ............................................................................................... 117
3.2. Co-ordination in international transport chains .................................................................... 117

4.

PORT HINTERLANDS .............................................................................................................. 119

5.

THE ROLE OF PAs IN IMPROVING HINTERLAND ACCESS ............................................. 120
5.1. Investments in rail & barge terminals .................................................................................. 121
5.2 Infrastructure access rules .................................................................................................... 121
5.3. A port community system .................................................................................................... 122
5.4. Conditions in concession contracts ...................................................................................... 123
5.5. Assuring competition in transport chains ............................................................................. 123

6.

CONCLUSIONS ......................................................................................................................... 123

NOTES ................................................................................................................................................ 125
BIBLIOGRAPHY................................................................................................................................ 127

Rotterdam, March 2008

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –113

ABSTRACT

We argue that port authorities (PAs) should contribute actively to better hinterland access. We
discuss different types of PA involvement as well as some reasons for such involvement. The analysis
applies to landlord PAs with public goals. Landlord PAs take the initiative for the expansion andredevelopment of port infrastructure. Traditionally PAs have acted as landlords, but they are
increasingly operating outside the landlord model.
The main argument for more active PA involvement is the fact that co-ordination in port clusters
and transport chains does not emerge spontaneously. Better co-ordination could lead to more efficienttransport and supply chains. Since the main revenue drivers of PAs are throughput and land value, PAs
have incentives to invest to improve co-ordination in port clusters and supply chains.
More active involvement would be particularly advantageous in hinterland transport, the main
bottleneck in international door-to-door transport chains. PAs could contribute to efficient hinterland
access by investing in infrastructure and terminals not only inside the port area, but also outside it.
PAs could also improve hinterland access by setting infrastructure access rules, investing in a port
community system, setting conditions in terminal concessions and assuring sufficient competition
between firms in all parts of the supply chain. These PA roles may not be relevant in all ports, but
could provide a challenging perspective for PAs that wish to explore a more active role in improving
hinterland access.

1. INTRODUCTION

We use several theoretical insights to explore the role of port authorities (PAs) in hinterland
access. The paper is explorative and contains some initial ideas for further discussion and scrutiny.
Further analysis is pertinent, since the pressure on hinterland transport systems is increasing.
Furthermore, it has become clear that, in many ports, initiatives to improve hinterland access do not
emerge spontaneously (for example, through market forces or public investments), but may require theactive involvement of the PA.
Following this introduction, the traditional role of the landlord PA is first briefly reviewed.
Second, we provide a new perspective on the role of PAs, with the focus on their contribution to
improving co-ordination in port clusters and supply chains. This new perspective is relevant for thesubsequent discussion of the role of PAs in improving hinterland access. Third, we briefly review theexisting literature on port hinterlands. This review suggests a number of challenges for improving
hinterland access. Fourth, we discuss the involvement of the PA in hinterland transport. A shortconclusion section ends the paper.
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114 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES

2. THE ROLE OF LANDLORD PORT AUTHORITIES

Most large container ports worldwide are organised according to the landlord model, in which a
publicly owned PA plays a central role (Baird, 2002). Landlord PAs increasingly operate as
autonomous organisations with a commercial focus (see the overview provided in Brooks andCullinane, 2007). Figure 1 shows schematically the increasing autonomy of PAs in selected countries.
PAs normally invest in (the dredging of) maritime access channels, breakwaters, berths andquays, sites for terminals, sites for manufacturing and logistics activities, and road and rail
infrastructure. PAs provide sites for tenants and port access for ships. Consequently, the main revenue
streams are land rents and port dues. In general, landlord PAs do not aim for profit maximisation, buthave other objectives, such as maximising throughput, contributing to overall economic development
and enabling trade (Brooks and Cullinane, 2007). Nevertheless, many PAs are self-sustaining and thus
need to generate sufficient return on investment to finance new investments. Landlord PAs usually
have the planning initiative for expanding or redeveloping a port area and maritime infrastructure.
Table 1 shows PA involvement in port planning in four countries.

Figure 1: Examples of the increasing autonomy of PAs
1998

Antwerp2005

Hamburg
2001

Canada1988

New Zealand

1999
2001

Western Australia
2005

Rotterdam
1991

PA as public department
with public goals anddirect public influence

PA as public entitywith substantial autonomy
and public goals

Commercialised PA,
indirect public influence
Mainly through shareholding.
Public and commercial goals

UK

Privately owned
PA, no direct
or indirectpublic involvement

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –115

Table 1: PA involvement in port planning
Country/port
Belgium

The Netherlands

New Zealand

CanadaArrangements
The PA develops port plans that have to be approved by the Flemish Ministry
and comply with relevant regional, national and international regulations. The
special law for ports gives the PA the right to expropriate land (under specificconditions) to enable effective port planning.
The PA develops port plans and seeks their approval from the municipal andnational governments. Expansion plans have to comply with the relevant
regulations.
Public agencies are in charge of port planning; the port company is responsible
for running an efficient port business. They are clearly stakeholders in theplanning process and provide information on the requirements of additional
capacity.
The PA develops a land use plan for the port land it manages. The Ministry ofTransport is responsible for major port development initiatives.

These countries have different institutional structures and consequently the PA has a differentrole in each. However, the PA either has the planning initiative (Belgium, the Netherlands) or is themain partner in planning initiatives formally taken by public authorities2 (New Zealand and Canada).
Figure 2 illustrates four activities of landlord PAs.3
Traffic management is a core activity for many PAs. Their focus is on the management of vessel
movements in the port. The PA is often the harbourmaster in the port area. This activity may also
encompass monitoring and preventing pollution from ships in the port, as well as monitoring of the
security of ships and cargo.
Area management refers to all activities designed to develop the port area, such as theconstruction of road and rail infrastructure in the port area, the maintenance of public areas and theplanning of land use in the port area.
Customer management refers to all contacts with customers, including signing contracts with newcustomers, granting concessions to private operators and (joint) port marketing.
Stakeholder management refers to all activities that ensure that the port maintains its licence tooperate. Contacts with stakeholders who directly influence the attractiveness of the port stand to thefore and are maintained through, for example, customs, security and inspection procedures, andinfrastructure policies.

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116 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIESFigure 2: Four core activities of landlord PAs

Core activities PAs
Traffic management-Effective, safe & efficient vessel management-Partnerships for traffic management on road and rail

Area management-Provide space (to new companies) for growth-Intensify land use-Develop the required infrastrucure-Improve environmental quality port area

Customer management-Attract new customers-Create customer satisfaction-Provide value added for customers as‘business partner’

Stakeholder management-Invest in partnership in an attractive
location climate-Influence relevant regulation-Invest in license to operate

3. THE ROLE OF PAs IN ENHANCING CO-ORDINATION

The involvement of PAs increasingly exceeds the traditional landlord model. PAs not only leaseland and provide safe access to the port, but also actively invest to improve the efficiency of thetransport chain and the competitiveness of the port. Such investment leads to the growth of the two
key revenue drivers of PAs: land value and port throughput. The central argument for an active role of
the PA is the contribution to effective co-ordination. More co-ordination is required both in port
clusters and in international transport chains.4

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3.1. Co-ordination in port clusters
A port cluster consists of all the economic activities in the port region related to the arrival ofships and cargoes (De Langen, 2004). Although it differs from case to case, the relevant port region
generally includes the primary port area, some adjacent municipalities and a number of transport andlogistics firms. Physical proximity is a defining characteristic of a cluster; the port cluster is a more
localised concept than the port hinterland, which may stretch several hundreds or even thousands ofkilometres inland. Co-ordination between firms in the cluster (cargo handling firms, forwarding firms,
logistics service providers, transport firms and so on) contributes to the competitiveness of the cluster
as a whole. This competitiveness is explained by the presence of external economies (such as a highquality labour market and knowledge spillovers) in clusters (Marshall, 1890). To some extent, theseexternal economies arise spontaneously.5 Firms and other organisations in a cluster also invest to
create or enlarge cluster externalities, for instance through joint investment in education. Suchinvestment does not always arise spontaneously, however, because the benefits cannot be internalised
by a particular firm or group of firms, but is spread over all the firms in the cluster (Schmitz, 1999).
Thus, the collective action problem (Olson, 1971) arises in clusters (De Langen and Visser, 2004).
Even when the collective benefits of co-operation exceed (collective) costs, co-operation may notdevelop spontaneously. This tendency towards insufficient shared investment applies to various typesof investment, including in education, innovation and marketing (De Langen and Visser, 2004).6
Landlord PAs have incentives to make such investment. Since landlords are self-sustaining, thesecosts are passed on to port users (tenants and shipping lines). Such an arrangement can be beneficial
for the port users, because the collective goods contribute to the quality of the port.
3.2. Co-ordination in international transport chains
At least five arguments can be put forward to explain why co-ordination problems arise intransport chains:1.

The unequal distribution of the costs and benefits of co-ordination. If one actor in the chain
has to invest (for example, in ICT systems) while others obtain the benefits, co-ordination
may not arise spontaneously. Gain-sharing mechanisms that redistribute benefits may failowing to high transaction costs and the risk of free-rider behaviour.

2.

A lack of resources on the part of at least one firm in the chain. This issue is especiallyrelevant for co-ordination problems involving relatively small firms.

3.

Strategic considerations. These can also impede co-ordination. Firms may be reluctant toimprove co-ordination if competitors also benefit. This situation is likely to arise in a
fragmented market characterised by fierce competition.

4.

The lack of a dominant firm. A firm with supply-chain power will have a major impact on
the structure of a transport chain (see, for example, Groothedde, 2005). A lack of supplychain power reduces co-ordination.

5.

The risk-averse behaviour and short-term focus of firms in hinterland chains. Firms that
expect that co-operative initiatives designed to improve co-ordination will be timeconsuming may be reluctant to put any effort into such initiatives.

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118 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES
These reasons explain why the efforts and investments of firms to improve co-ordination are insome cases limited. Firms generally focus on internal processes and put less effort into resolving theco-ordination problems of the chain as a whole. This attitude is more marked if actors expect
co-operation to be difficult to achieve. Thus, previous experience in co-ordination also determines afirm’s attitude.
A PA has incentives to invest in co-ordination within transport chains, because if the chains are
more efficient, more throughput ensues. Figure 3 summarises the reasons for a PA role in enhancing
co-ordination in port clusters and transport chains.

Figure 3: The role of the PA in co-ordination in port clusters and transport chains

PA Revenue drivers

Land value

Port throughput

Better coordination intransport chains
Better coordination in cluster-Labour market-Education-License to operate
Reason for limited coordination
Collective action problem-Data exchange-Interface terminal-hinterland modes-Hinterland networks
Reasons for limited coordination
Unequal distribution of costs & benefits
Short term focus
Free rider problem
Lack of resources
No dominant firmThis role of a PA is relevant with regard to hinterland access. Before discussing the involvementof PAs in hinterland access (in section 5), we briefly review some insights with regard to port
hinterland.

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –119

4. PORT HINTERLANDS

Now that ports are links in a global logistics chain (Robinson, 2002), port competition is nolonger between ports, but between transport chains (Notteboom and Winkelmans, 2001). In fact, inmost door-to-door transport chains, the costs of hinterland transport are higher than the maritime
transport and port costs combined. Most ports mainly serve contestable hinterlands7 and thus depend
crucially on the quality of hinterland transport services. The quality of a port’s hinterland accessdepends on the behaviour of many actors, including terminal operators, freight forwarders, container
operators and the PA. As an illustration of the variety of firms involved in hinterland transport, Figure
4 shows the relevant actors in the rail hinterland chain.

Figure 4: Relevant actors in the rail hinterland chain

Forwarder(Agent)Container
shipping line

Port

Rail
operator

Container
stevedore

Railway
company

Hinterland
Shipperconsignee
Terminal
operator

Terminal
operatorRoad
haulage

Infra supplier
Actor
Customs

Port authority

Inspection

Container flow
Contract

Source: Van der Horst and De Langen, 2008.

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120 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIESOn the basis of the overview and other relevant literature (such as Robinson, 2002; Notteboom
and Rodrigue, 2005; and De Langen and Chouly, 2004), five conditions for efficient hinterland accessof seaports can be identified:
1. The transport infrastructure to the hinterland needs to be well developed;
2. The transport infrastructure needs to be used efficiently;
3. The transport chains need to be well co-ordinated;
4. The hinterland transport system needs to be sustainable;
5. The services provided by private firms (terminal services, barge services and so on) need to
be attractive.

5. THE ROLE OF PAs IN IMPROVING HINTERLAND ACCESS

Figure 5 shows the five conditions for efficient hinterland access described above, and five
options for the PA to influence the conditions. Each option is discussed in further detail below. These
options are explorative and may not be relevant in all cases.

Figure 5: Conditions for efficient hinterland access and options for
PA involvement provide infrastructure

Possible role of PA
Invest in rail &barge terminals
in port & hinterland

Infrastructureaccess rules
for rail and road

Invest in Port
Community
SystemConditions inconcession
contracts

Enable competition& reduceentry barriers

Quality ofhinterland
infrastructure

Efficient utilisationof hinterland
infrastructure

Well coordinatedtransport chain

Sustainability ofhinterland
Transport system

Price & quality ofServices in allparts of supply chain

Components of port hinterland access

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –121

5.1. Investments in rail & barge terminals
In many seaports, the PA takes the initiative for infrastructure-expansion projects in the port area,
because other firms or public organisations lack the incentive or the legitimacy to do so. There may
also be arguments for an active involvement of a PA in such expansion projects outside the port area.
The key argument is that such investments outside the port area can contribute significantly to theutilisation of the infrastructure inside the port area. The active involvement of a PA is only required
when such investments do not arise spontaneously. Private firms may not have the administrative
power to invest in new infrastructure (for example, dry ports or rail tracks to the port), while regional
authorities in the hinterland may not have an incentive to take the planning initiative for such facilities:
local residents do not benefit from such facilities, but importers, exporters and logistics service
providers that may largely be located outside the region do benefit.
Examples of PAs that have taken the planning initiative outside the port area:− The PAs of Los Angeles and Long Beach have been involved from the start in the Alameda
Corridor project, aiming to make substantial improvements in the rail connections from both
ports.
− The Port of Barcelona has invested in rail tracks to improve the connection of the port to theEuropean hinterland.
− The Port of Rotterdam Authority has taken the initiative to develop a container transfer
point outside the port area, where trucks can deliver containers for the port. The containers
are transported to the deep-sea terminals by barge, thus reducing highway traffic.
These examples suggest that PAs may need to monitor the structure of hinterland transport chainsand look beyond their boundaries for investments to relieve bottlenecks and improve the efficiency of
existing hinterland transport infrastructure.
5.2 Infrastructure access rules
PAs are in most cases involved in and responsible for the development of infrastructure in theport. PAs may also have to contribute to the efficient utilisation of hinterland infrastructure. The use of
infrastructure is often inefficient, because users co-ordinate their activities insufficiently, if at all.8
Setting rules for infrastructure access may improve efficiency and thereby enhance port
competitiveness.
Table 2 gives examples of cases where insufficient co-ordination leads to suboptimal
infrastructure use, along with tentative infrastructure access rules that could enhance efficiency.9 Suchrules involve either allowing trucks, trains and barges to use the infrastructure only if they meet certain
criteria,10 or devising tariff structures that provide discounts when the criteria are met and penalties
when they are not.
These examples show that infrastructure access rules may have benefits with regard tosustainability, efficiency of infrastructure use and co-ordination of transport chains. While most PAs
set access rules for seagoing vessels (for example, regarding safety or waste disposal), they do not doso for trucks, trains or barges. Given the central role of the PA in the port (regarding, for example,
contracts with terminal operators, investments in a port community system, communication with all
relevant stakeholders), partnerships between the PA and the owners of the infrastructure to design and
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122 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES
implement infrastructure access rules may be appropriate. Examples of PAs that have developed
access rules include Los Angeles, Long Beach and Rotterdam, which allow only environment-friendly
trucks in the port area.

Table 2: Cases of insufficient co-ordination reducing utilisation of infrastructure
Co-ordination problem
Too many calls of barges with small
call sizes per terminal
Peak load on rail terminals in ports

Unused rail tracks because of
insufficient planning
Peak loads in the arrival anddeparture of trucks at deep-sea
terminal
Peak loads in road transport causingroad congestion in port region
Insufficient exchange of (container)
data causes inadequate planning

Potential solution through infrastructure access rules
Only allow barges in the port if they call at a limited
number of terminals
Only allow trains on rail tracks when the rail terminal
operator confirms the capacity is available to handle thesetrains in their allocated slots (real time)
Penalise train operators (substantially) for not using a track
Only allow trucks onto port access routes if they havereserved a slot at the terminal
Only allow (empty) trucks onto port access roads outside
rush hours
Only allow trucks, trains, barges and ships into the port area
if they have provided all the necessary information

Source: Based on Van der Horst and De Langen (2008).
5.3. A port community system
An effective port community system can contribute to co-ordination in the transport chain. In
ports, data exchange between a variety of firms is required (Fabbe-Costes et al., 2006). For instance,
terminal operators can plan better when shipping lines provide container data. Similar benefits can begained by forwarding companies and hinterland transport companies. In most cases, the same data isuseful for a variety of firms as well as government functions such as customs. A port community
system can provide systems for data exchange. Since the data of customs clearance are an integral partof a logistics EDI system, the inclusion of customs in the system design is essential (Lee et al., 2000).
The benefits of data exchange are especially relevant in hinterland transport chains. Whereas
maritime transport and the port sector are concentrated and the average firm size is large, many small
firms such as forwarders and trucking companies are involved in hinterland transport. These firms do
not often have the resources or incentives to invest in dedicated data-exchange systems. Consequently,
trucks often arrive at terminals without prior notification or they may arrive with the wrong
information, and so forth. Similarly, hinterland transport companies may arrive to collect containersthat have not yet been cleared by customs. Many ports have a port community system in one form or
another. Examples include Rotterdam, Antwerp, Hamburg, Barcelona and Singapore. In all thesecases, the companies in the port as well as the PAs are involved.

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ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIES –123

5.4. Conditions in concession contracts
The World Bank infrastructure database (2008) shows widespread use of concessions in port
development. Most concessions are granted for specific terminals. Public PAs (or occasionally otherpublic agencies) invest in general port infrastructure and select terminal operating companies for aconcession to operate a terminal and pay a concession fee to the PA.11 Notteboom (2007) rightly
argues that granting concessions and setting the conditions in the concession are key instruments thatPAs can use to influence port development.
Such concessions can contain conditions aimed at improving the hinterland transport system. For
instance, PAs may set a minimum share of barge and rail in the concessions, or define service levels
for the services to hinterland modes, such as on-the-dock loading of trains and barges. PAs may also
consider requiring concession holders to use the port community system. Thus, conditions inconcessions for terminal operators may be instruments to improve hinterland sustainability, transport
chain co-ordination and infrastructure use. Barcelona and Rotterdam are two examples of PAs that
stipulate conditions regarding hinterland services in their concessions.
5.5. Assuring competition in transport chains
Finally, the door-to-door transport chain is only competitive if there is sufficient competition in
all of its parts. For instance, if a train operator does not face any competition, the overall transport
chain will be less competitive; firms without competitors may increase prices and/or reduce service.
Competition in the port can also be expected to lead to more specialisation and innovation, with
benefits for the port as a whole (De Langen and Pallis, 2006).
The issue of entry barriers is relevant in this respect. In most seaports they are substantial andinclude economic, regulatory and geographic barriers (De Langen and Pallis, 2007). In some cases,
port reform has introduced a limited number of private port operators but has not lowered entry or exit
barriers for additional firms. Thus, while the scope for private involvement in the provision of port
services has increased substantially, the issue of entry barriers is still pertinent.
Lowering entry barriers is desirable because it enhances the contestability of markets, increases
the level of intra-port competition and facilitates faster implementation of new technology andbusiness models (Geroski et al., 1990). Thus, to encourage competition in the port, a policy to reduce
entry barriers may be required. This issue is relevant for hinterland access, especially with regard torail transport, since in many seaports the number of competing rail operators is limited. The same may
apply to rail and barge terminals in the port.

6. CONCLUSIONSThis paper explores the role of port authorities in hinterland access. Landlord PAs have become
more autonomous and taken the initiative in expansion and redevelopment of port infrastructure. PAs
have traditionally acted as landlords, but now increasingly operate beyond the landlord model. The
main argument for more active involvement by PAs is the fact that co-ordination in clusters and in the
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124 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIEStransport chain does not always arise spontaneously, for various reasons. More co-ordination can leadto more efficient supply chains and more competitive clusters. Consequently, PAs have incentives toinvest in ways to improve co-ordination in port clusters and supply chains. Such active involvement
could be particularly beneficial in hinterland transport, the main bottleneck in door-to-door chains.
PAs may contribute to efficient hinterland access by investing in infrastructure and terminals not only
inside the port area, but perhaps also outside it. PAs may also improve hinterland access by setting
infrastructure access rules, investing in a port community system, setting conditions in terminal
concessions and assuring sufficient competition in all parts of the supply chain. Such involvement may
not be appropriate for all PAs; however, over the last few years, the PAs of some leading ports,
including Los Angeles, Long Beach, Barcelona and Rotterdam, have expanded their involvement inhinterland access.

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125

NOTES

1.

This paper reflects the personal positions of the author and does not represent the views of thePort of Rotterdam Authority or Erasmus University Rotterdam. It draws on previous papers withvarious co-authors. Correspondence to: Erasmus University Rotterdam, Department of Port,
Transport and Regional Economics, PO Box 1738, 3000 DR Rotterdam, The Netherlands. Email: delangen@few.eur.nl

2.

An advantage of a system where public, autonomous PAs have the planning initiative is that they
can be given instruments to enable effective port planning that cannot be given to private firms. In
the case where private initiative leads, regulations are required to ensure that public interests areserved. In the UK, such regulations make port development difficult (Gilman, 1999). Private
planning initiatives are effective only when there is a level playing field.

3.

A PA may not engage in all these activities, but taken together they provide a good overall pictureof PA involvement.

4.

A previous study (De Langen and Chouly, 2006) used the concept of a hinterland access regime
to analyse co-operation to improve hinterland access. In such a regime, the co-operation between
all relevant organizations in the port cluster stands to the fore. In this paper, we focus on the roleof the PA.

5.

For instance, the availability and quality of labour are relatively high in clusters, because workers
migrate to a cluster to reduce search costs and the risks of unemployment. Furthermore, the highdemand for skilled labour provides a basis for a relatively advanced education infrastructure.

6.

Because firms in clusters benefit from collective investments and cannot readily be excluded fromsuch benefits, these investments can be considered as collective goods (Antonelli, 2000).

7.

A contestable hinterland consists of a region where there is no single port with a clear costadvantage. Consequently, several ports have a share of the market.

8.

This can be explained by unequal distribution of costs and benefits, lack of resources orunwillingness to invest by at least one relevant firm, strategic considerations of infrastructureusers, a lack of supply-chain power (see, for example, Groothedde, 2005) and risk-averse
behaviour and a short-term focus by firms in hinterland chains (see Van der Horst and De
Langen, 2008, for a more detailed analysis).

9.

These co-ordination problems do not occur in all ports. In the US, for instance, the large rail
operators own most of the rail tracks and the issue of access to them may not arise.

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10. Obviously, governments have general infrastructure access rules, such as a driving licence and asafe vehicle. The argument here is for additional rules aimed at improving efficiency ofinfrastructure use and sustainability, and at providing more co-ordination in hinterland chains.
11.

The responsibility for investment varies: in some cases, the public PA invests in quays and theterminal area, while in others this is the private terminal operator’s role.

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BIBLIOGRAPHY

Antonelli, C. (2000). Collective Knowledge Communication and Innovation: The Evidence ofTechnological Districts Regional Studies, 34 (6) pp. 535-548.
Baird, A.J. (2002). Privatization trends at the world's top-100 container ports. Maritime Policy andManagement, 29, 3, 271-284.
Brooks and Cullinane, eds. (2006). Research in Transport Economics, vol. 17, Devolution, Port
Governance and Port Performance, Elsevier.
De Langen, P.W. (2004). The performance of seaport clusters; a framework to analyze cluster
performance and an application to the seaport clusters of Durban, Rotterdam and the Lower
Mississippi, Rotterdam ERIM thesis series.
De Langen, P.W. and Pallis. ǹ.ǹ. (2007). Analysis of Entry Barriers in Seaports, Maritime Policy andManagement, 34, 5, 427-440.
De Langen, P.W. and Pallis, ǹ.ǹ. (2006). The effects of intra-port competition, International Journalof Transport Economics, 33, 1, 69-86.
De Langen, PW and Chouly, A (2004). Hinterland Access Regimes in Seaports. European Journal ofTransport and Infrastructure Research 4: 361-380.
Fabbe-Costes, N. Jahre, M. and Rouquet, A (2006). Interacting standards: a basic element in logistics
networks International Journal of Physical Distribution & Logistics Management 36 (2)pp 93-111.
Geroski, P., Gilbert, R. and Jacquemin, A. (1990). Barriers to entry and strategic competition, London:
Taylor and Francis.
Gibson, S. (2005) Incentivising operational performance on the UK rail infrastructure since 1996
Utilities Policy 13 (3), pp. 222-229
Gilman S. (2003). Sustainability and national policy in UK port development Maritime Policy andManagement 30 (4) pp. 275-291.
Groothedde B. (2005). Collaborative Logistics and Transportation Networks: A Modeling approach to
Hub Network Design. Trail-Thesis Series T2005/15, Trail, Delft.
Lee, T-W, Park N-K., Joint J. F. and Kim W.G. (2000). A new efficient EDI system for container
cargo logistics Maritime Policy & Management, 27 (2) pp. 133-144.
Marshall, A. (1920). Principles of Economics (8th edition; originally published 1890), Basingstoke,
MacMillan.
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128 – ASSURING HINTERLAND ACCESS: THE ROLE OF PORT AUTHORITIESNotteboom, T. (2007). Concession agreements as port governance tools. In: Brooks, M., Cullinane, K.
(eds.), Devolution, port governance and performance, Elsevier, 449-467.
Notteboom, Th. and Winkelmans, W. (2001). “Structural Changes in Logistics: how will Port
Authorities Face the Challenge?” Maritime Policy and Management, 28, (1) 71-89.
Notteboom, TE and Rodrigue, JP (2005). Port regionalization: towards a new phase in port
development. Maritime Policy & Management 32: 297-313.
Olivier, D., Parola F., Slack, B. and Wang J.J. (2007). The Time Scale of Internationalisation: The
Case of the Container Port Industry. Maritime Economics and Logistics 9, 1, 1–34.
Olson, M. (1971). “The Logic of Collective Action: Public Goods and the Theory of Groups”,
Cambridge Massachusetts, Harvard University Press.
Robinson, R (2002). Ports as Elements in Value-driven Chain Systems: the New Paradigm. Maritime
Policy & Management 29: 241-255.
Schmitz, H. (1999). Collective efficiency and increasing returns. Cambridge Journal of Economics,
23: 465-483.
Van der Horst, M.R and De Langen, P.W. (2008). Co-ordination in Hinterland Transport Chains: A
Major Challenge for the Seaport Community, Maritime Economics and Logistics 10 pp. 108-129.
World Bank (2008). Private Participation in Infrastructure (PPI) database, http://rru.worldbank.org/PPI(accessed February 2008).

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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –THE IMPACT OF HINTERLAND ACCESS:CONDITIONS OF RIVALRY BETWEEN PORTS

Anming ZHANG
Sauder School of Business
University of British Columbia
Vancouver
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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –131

SUMMARY

ABSTRACT ........................................................................................................................................ 133
1.

INTRODUCTION ....................................................................................................................... 133

2.

BACKGROUND ......................................................................................................................... 136

3.

AN ANALYTICAL MODEL ...................................................................................................... 138
3.1. Basic framework ................................................................................................................. 139
3.2. Quantity competition ........................................................................................................... 142
3.3. Price competition and related issues ................................................................................... 144

4.

CASE EXAMPLES ..................................................................................................................... 146
4.1. The Le Havre-Hamburg port range ...................................................................................... 146
4.2. Canada .................................................................................................................................. 148
4.3. Shanghai ............................................................................................................................... 149

5.

CONCLUSION AND FUTURE RESEARCH ............................................................................ 150
5.1. Port / hinterland interactions and organizational coordination............................................. 151
5.2. Overlapping and captive hinterlands .................................................................................... 151

NOTES ........................................................................................................................................................ 153

BIBLIOGRAPHY................................................................................................................................ 156

Revised, Vancouver, March 2008

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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –133

ABSTRACTThis paper examines the interaction between hinterland access conditions and port competition.
Competition between ports is treated as competition between alternate intermodal transportation
chains, while the hinterland access conditions are represented by both the corridor facilities and theinland roads. We find that when ports compete in quantities, an increase in corridor capacity by aregion will increase its port’s output, reduce the rival port’s output, and increase its port’s profit. On
the other hand, an increase in inland road capacity by a region may or may not increase its port’s
output and profit, owing to various opposing effects. Essentially, while more road capacity reduces
local congestion delays and moderates the negative impact of the port’s output expansion, it induces
greater local commuter traffic and may moderate the effect by which a rise in cargo traffic reduces
local commuter traffic, both of which reduces the port’s output and profit. Similarly, inland roadpricing by a region may or may not increase its port’s output and profit. Finally, case examples forselected ports and regions are discussed.
Keywords: Seaports; Corridor; Hinterland; Intermodal transport chain; Competition; Capacity
investment; Road pricing
Acknowledgement: I would like to thank Sarah Wan for very helpful discussions on some of the data
used in this paper, and Robin Lindsey for helpful comments.

1. INTRODUCTIONPort competition has been driven by two separate but related developments in the shipping
industry. First, containerization has helped lower transport costs, shorten transport times and improveschedule reliability and security, and hence has made large-scale global sourcing and production
possible, stimulating the demand for sea shipping (e.g. Notteboom, 2006; Levinson, 2006).
Furthermore, as described by, among others, Luo and Grigalunas (2003) and Cullinane and Song(2006), containerization has dramatically increased competition among ports. The intermodal
movement of freight by containers through ports has reduced port-handling costs and increased thereach of markets served from a given port. Whereas a port used to be able to count on an exclusive“hinterland” for freight movements, these hinterlands may now be reached by freight movements
through competing ports. As a result, ports have lost their monopolies over their hinterlands, with port
hinterlands increasingly overlapping with one another. As argued by van Klink and van den Berg
(1998), gateway ports are in a unique position to, on the one hand, stimulate intermodal transport and,on the other hand, use the intermodal systems to enlarge their hinterlands. In the commercially famous
Le Havre-Hamburg range, for instance, major ports vigorously vie with one another for interior
hinterland shipments that have alternative routing possibilities. The second development has been the
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devolution of public responsibility in ports through privatization and commercialization of activities(e.g. Cullinane and Song, 2002; Brooks, 2004). Fleming and Baird (1999) argue that private ports leadmore naturally to port competition than public ports.
While both containerization and port commercialization intensify port competition, thedramatically increased cargo movements are certainly stressing ports and their hinterlands’
transportation systems. It has been widely recognized that congestion is acute at many ports around theworld, and tremendous efforts have been extended to the resolution of the problem at both the policy
and research levels (see, e.g., Heaver, 2006; De Borger et al., 2008; Yuen et al., 2008). In comparison,
relatively little attention – especially in academic research – has been paid to the hinterland accessconditions and their impact on the port and port competition. In a port “transport supply chain”, users
incur delay costs not only at ports, but also at other parts of the chain, and hence overall congestion is
dictated by the weakest link (or node). A survey conducted by Maloni and Jackson (2005) suggeststhat US port managers’ greatest concern in port capacity expansion planning is the capacity constraint
imposed by local roads. Heaver (2006) further describes how the shipping developments, including
containerization, change the bottleneck of this intermodal system, which has over time shifted fromstevedoring on the ship to the ship/port interface (e.g. terminal/berth investment, crane and yard
productivity) and, more recently, to the port/inland interface (e.g. hinterland connection, inlandtransportation)1.
In this paper, we investigate the impact of hinterland access conditions on the port and port
competition. There have been many empirical studies on the productivity and efficiency of port
operations (see, e.g., Turner et al., 2004, and Cullinane and Song, 2006, for references). For example,
Turner et al. (2004) collected fourteen years of data on twenty-six container ports in North America,
used data envelopment analysis to compute the relative productivity measures of the ports, and thenregressed the productivities on a number of explanatory factors in an attempt to determine which
factors differentiated the more productive container ports from the less productive ports. They find thathigher measures of port productivity were associated with greater numbers of Class 1 railroads serving
the port, and conclude: “This is clear support for the importance of rail service quality, perhaps
including frequency of service, and rail service competition, to the success of container ports2.”
Several authors further argue that hinterland access is one of the important factors that influence thecompetitiveness of a seaport when it competes with other seaports (Notteboom, 1997; Kreukels andWever, 1998; Fleming and Baird, 1999). Distinct from these studies, this paper attempts to identify thechannels through which hinterland access conditions may affect a port’s competitiveness in anenvironment of competing ports. This is done largely through analysis of a theoretical model.
Our second objective in this paper is to link urban mobility with port competition. Congestion atlarge urban areas has become a major policy issue, and freight movements are a major contributor tourban congestion (they also create other social costs such as pollution, safety hazards and roaddamage). According to US GAO (2003), from 1993 through 2001, truck traffic on urban highways in
the United States increased more than twice as much as passenger traffic. Given existing urban
highway congestion, this implies that freight traffic was contributing to worsening congestion at afaster rate than passenger traffic. Berechman (2007) further finds that the additional highway traffic
due to a (modest) 6.4% container throughput increase at the Port of New York would induce annual“social costs” that range from USD 0.66 billion to USD 1.62 billion – over 60% of which is fromcongestion costs (the time loss due to traffic conditions and drivers’ discomfort, both of which are afunction of increasing road volume-to-capacity ratios). On the other hand, congested roads could also
hinder the port development. For instance, as to be shown later, the growth at the Ports of Los Angeles
and Long Beach has been hindered by road congestion in the greater Los Angeles area. To tackle theurban mobility problem, options such as the investment in road capacity and road pricing have been
actively discussed (debated) at both the policy and research levels3. Will these options adopted in the
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hinterland improve the port’s traffic; and how do they interact with the port’s competitiveness? These
questions have not yet been addressed in the literature, but will be investigated in the present paper.
More specifically, we develop an analytical model in which we treat competition between ports
as competition between alternate intermodal transportation chains: To the extent that a port can be apart of the cheapest, most reliable intermodal transportation chain, it will then out-compete other ports
for a customer’s business. In addition to the port, the hinterland access conditions form the othercomponents of the chain. Here, the hinterland access conditions are represented separately by corridor
facilities that are specific for seaport cargo – e.g. the designated rail lines connecting to ports such as
the Alameda Corridor – and by inland roads that are used by both the freight trucks and local
commuter cars. Basically, a capacity or pricing policy may change the congestion levels at corridor
and inland road facilities, which in turn may affect ports’ output/price decisions and profits. We shallalso discuss, in both the theoretical analysis and case studies, how the presence of hinterland facility
congestion and of port competition affects regions’ strategic policies concerning hinterland transportfacilities.
We find that when ports compete in quantities, an increase in corridor capacity by a region will
increase its own port’s output, reduce the rival port’s output, and increase its own port’s profit. Our
analysis suggests that the rivalry between ports may, owing to the strategic effect, result in a higher
level of corridor capacity investment than would be the case in the absence of rivalry, such as in an
isolated, single port case. This over-investment result might be weakened if the ports compete in
prices. Regarding inland road capacity, we find that under quantity competition, an increase in roadcapacity by a region may or may not increase its port’s output and profit, owing to various opposing
effects. Essentially, while more road capacity reduces local congestion delays and moderates thenegative impact of the port’s output expansion, it induces greater local commuter traffic and may
moderate the effect by which a rise in cargo traffic reduces local commuter traffic, both of which
reduces the port’s output and profit. We further investigate the impact of inland road pricing by aregion on port competition and find that it may or may not increase its port’s output and profit. Finally,case examples for selected ports and regions are discussed to supplement the analytical study.
This paper is related to several studies in the literature. By taking into account the hinterlandtransportation network and assuming shippers minimize the total cost of moving containers fromsources to markets, Luo and Grigalunas (2003) empirically estimate demand for major container ports.
The intermodal transportation network in their model contains rail, highway and international shipping
line sub-networks. They point out that because of the increasing importance of intermodaltransportation, the traditional method for port demand estimation using hinterland delimitation is nolonger valid for container port demand estimation. Ports will serve not only markets in their vicinity,
but also compete for markets in areas far from the port, through the use of high-speed, low-cost rail
connections. Their numerical results reveal that vast geographic market areas are serviced by major
ports on both coasts, and hence demonstrate the potential for national competition between ports.
Parola and Sciomachen (2005) present a discrete event simulation modelling approach, related to thelogistics chain as a whole in the north-western Italian port system. They analyse the potentiality of thesystem by giving particular attention to land transport and the modal split re-equilibrium with the aimof evaluating the possible future growth of container flows4. Lirn et al. (2004) use, in part, a survey to
explore the importance of various service attributes for transshipment port selection by global carriers.
Lindsey (2007b) discusses various policy considerations concerning transportation infrastructure
investments, pricing and gateway competition.
Our analytical model is perhaps most closely related to De Borger et al. (2008), who study atwo-stage game where each government first decides on the capacities of the port and the hinterland
network – both of which are congestible – so as to maximize its regional welfare, and then the private
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ports engage in a duopolistic pricing sub-game. In comparison, the present paper considers noncongestible ports, which allows us to abstract away the issue of port investment while focusing on theimpact of hinterland access conditions on port competition. An innovation of the paper is to represent
the hinterland access conditions by both the corridor facilities and the inland roads. The separation ofinland roads from corridors allows us not only to be more realistic and to delineate the impacts ofdifferent hinterland access conditions, but also to investigate the interaction between urban roadcongestion, port-related freight traffic and the ports’ pricing and output behaviour. The latter
investigation is important because a growing large number of urban areas in the world are suffering
road congestion, and solutions such as capacity investment and road pricing have been actively
debated. Moreover, unlike De Borger et al., we consider both the quantity competition and pricecompetition, and compare the results from the two modes of port competition5.
The paper is organised as follows. Section 2 provides background information for our analyticalmodelling. Section 3 develops the analytical model to examine the interaction between urban roadcongestion and port development, as well as to illustrate how hinterland access conditions impact onrivalry between ports. Section 4 discusses three case examples, namely: the Le Havre-Hamburg port
range; gateway ports in Canada; and the Port of Shanghai, and describes the recent policy initiatives inthese regions regarding hinterland/corridor infrastructure expansion and pricing. Finally, Section 5contains a brief summary and discusses future research.

2. BACKGROUND

Cullinane and Talley (2006) define a port as “a place that provides for the vessel transfer of cargoand passengers to and from waterways and shores.” They note that a port is a “node” in atransportation system, connected to other ports and inland destinations by spokes or transportationroutes or corridors. As indicated in the introduction, containerization has greatly facilitated just-in-time
production and door-to-door transport services; as a consequence, a port becomes a part of the“network”. On the part of inland connections, a seaport and its hinterland forms an intermodaltransportation system in which the port serves both its local and interior (hinterland) regions. Consider
the cargo flow to the hinterland (the reverse flow can be similarly analysed). Goods from the rest of
the world (imports) are first shipped to a seaport, and then are transported to the hinterland region bytrucking, rail, inland waterway or a combination of these modes. The modal split differs greatly
between seaports depending on the geographical situation and existing infrastructure. For example,
international cargos shipped to the Port of Rotterdam were distributed in 2005 to the hinterland bytruck (60% of total freight), waterway (30.5%) or rail (9.5%). Similarly, other major gateways6 – suchas Antwerp, Hamburg, Los Angeles, Long Beach, Vancouver, Busan, Shanghai, Hong Kong andSingapore – serve their respective hinterlands by intermodal transportation systems.
An obvious consequence of this intermodal system is the network nature of multi-stage activities
and the application of a total distribution cost approach. These imply that all members of the transport
supply chain, including the port, would contribute to the “cost” of cargo shipments. This cost includes
transit time and its reliability. Hummels (2001) finds that controlling for distance, each additional day
spent in transport from/to a country reduces the probability that the US will source from that country
by 1.0%-1.5%, while time cost in travel is on average equivalent to a 16% ad-valorem tariff7. In
addition, firms (shippers or consignees) are required to increase their inventories so as to prevent the
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shortage of inputs in production and goods to sell if delivery times are uncertain due to congestion
delays8.
Both the gateway port and its hinterland’s transport system are prone to congestion. Whilst
congestion at major ports has been widely recognised, congestion at connected facilities in thehinterland, such as road, highway, rail and waterway, is less discussed. As seen earlier, the latterproblem not only exists but also is getting serious. Here are two further road examples. First, roadcongestion in Vancouver is a major concern with rising container trucking as a significant contributor(Lindsey, 2007a, 2008). Truck traffic in the greater Vancouver area is anticipated to increase by 50%
between now and 2021, generated primarily by port related activities (www.th.gov.bc.ca/gateway).
Second, 80% of containers generated in the direct hinterland of Shanghai (Shanghai and neighbouring
cities in Jiangsu and Zhejiang provinces) are transported by land to the Port of Shanghai, which has aseriously strained road system around Shanghai (Y. Zhang, 2007).
Indeed, hinterland accessibility plays an important role in port growth and competitiveness. We
use the Ports of Los Angeles (LA) and Long Beach (LB) to illustrate this point. Table 1 (first row)reports the correlations between the annual percentage change of the combined LA/LB container
throughput and the annual percentage change in various urban mobility indicators. The Texas
Transportation Institute’s annual Urban Mobility Reports reveal how congestion delays are changing
in US urban areas. To measure travel delays, they adopt free-flow conditions at the speed limit as abaseline, below which congestion is considered “unacceptable”. Since these urban mobility data takeLos Angeles and Long Beach (along with Santa Ana) as a single region, the container throughputs of
LA and LB, taken from their respective websites for 1995-2006, are added together.
Table 1. Correlation of annual container throughput growth (market share, respectively) andchanges in urban area mobility – Los Angeles/Long Beach, 1995-2006

Total delay(person-hrs)
LA+LB container
throughput growth
LA+LB container
market share-0.683*(0.029)-0.414(0.235)

Delay perpeak
traveller(person-hrs)-0.649*(0.024)-0.353(0.318)Travel time
index
-0.716*(0.020)-0.301(0.398)

Total
congestion
cost(USD )-0.684*(0.029)-0.405(0.246)

Congestion
cost per peaktraveller(USD )-0.642*(0.045)-0.367(0.297)* = Significant at the 0.05 level (2-tailed); p-values in parentheses.
Table 1 shows that the growth of container throughput at these two ports is negatively and highly
statistically significant, correlated with all the road congestion/delay measurements – namely, total
delay, delay per peak traveller, travel time index, total congestion cost, and congestion cost per peaktraveller – for the Los Angeles/Long Beach/Santa Ana area. This suggests that the growth at LA andLB might be hindered by urban road congestion; or alternatively, any improvements in urban area
mobility might also significantly raise container throughput going through the two ports9.
To see how hinterland accessibility affects port competitiveness, we further examine thecorrelations between the annual percentage change in market share of LA/LB and the annual
percentage change in urban mobility indicators. For this purpose, the most relevant market may be the
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US west-coast port range, which consists of six major seaports: namely, Seattle, Tacoma, Portland,
Oakland, Los Angeles and Long Beach10. LA and LB are clearly the No. 1 and No. 2 container ports in
the range, owing in large part to their having more corridor linkages to US inland markets than otherwest-coast ports (Rodrigue, 2007). These six ports accept about 85% of the US-bound containers from
Asia11.
As can be seen from Table 1 (second row), the changes in urban road congestion are found, likethe effect on throughput growth, to be negatively correlated with the changes in LA/LB’s market
share. That is, when the congestion level rises, the combined market share of LA/LB in the west-coast
port range falls; similarly, when the congestion level falls, their market share rises12. For instance, in
2004-2005, the two ports had to divert a large number of ships to other ports because of truck and rail
congestion (Journal of Commerce, August 8, 2005). These observations suggest that urban area
mobility conditions can affect the competitiveness of a port vis-à-vis other ports. If a port has goodtransportation connections and minimum inland congestion, freight may be moved through this port todestinations previously served exclusively through the less efficient ports.
It is noted that, while the Los Angeles/Long Beach/Santa Ana area has been among the mostcongested urban areas in the US, the combined market share of LA/LB in the west-coast port range
has been maintained at around 70% over the years, amid the continuing growth of container traffic
from Asia, especially China as it emerges as a world manufacturing power house. This stability is due
in part to the ability of the region and ports to control any further increase in congestion. For instance,
a “traffic mitigation fee” – USD 50 per twenty-foot equivalent unit (TEU) or USD 100 for allcontainers larger than a TEU – is imposed on containers exiting port terminals by truck during peak
hours (defined as 3 a.m. to 6 p.m., Monday to Friday) by PierPASS, a programme (a non-profit
corporation) developed by the Ports of Long Beach and Los Angeles to mitigate the problem ofcongestion on the highways serving the ports. With over one-third of truck traffic now being in theoff-peak hours, the programme has contributed to a significant reduction in truck traffic on adjacenthighways13. In addition, containers entering or exiting the ports can use the local highway system or
the Alameda Corridor, a new rail link developed in recent years which eliminates all level crossings
between the ports and the major rail terminals in central Los Angeles. The fee for the use of the
Alameda Corridor is USD 18 per TEU. Thus, while congestion in the region remains at a high level, it
may not be getting worse relative to that of competing ports14.

3. AN ANALYTICAL MODEL

The above discussion suggests that urban road congestion might inhibit the port development butthat at the same time, port-related freight might also contribute to urban road congestion. In thissection, we develop an analytical model to examine this interaction, as well as to investigate howhinterland access conditions influence port competition. A central point is that competition between
ports has changed from competition between individual ports in terms of port charges and services tocompetition between alternate intermodal systems, among which ports form an important component.
Shipping lines, forwarders and shippers would seek the best system: To the extent that a port can be apart of the cheapest, most reliable intermodal transportation chain, it will then out-compete other ports
for a customer’s business. This point has been made by Notteboom (2007), who states, “Port choice
has become more a function of network costs, and port selection criteria are related to the entire
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network, in which the port is just one node.” Further, the issue of improving the intermodal
connections in a transportation chain has also been recognised in the policy arena, including, in thecontext of port-inland transportation, the adequacy of landside connections to ports (e.g. AustralianGovernment, 2005). This section will further illustrate how such competition impacts rival ports’
outputs, prices and profits.
3.1. Basic framework
We consider the simplest model structure in which our question – what would be the effects ofhinterland access conditions on the rivalry between ports? – can be addressed. There are two seaports,
labelled 1 and 2, that share the same overseas customers and have each a downstream, congestible
transport network to a common hinterland. This set-up follows the one in De Borger et al. (2008).
Located in two separate regions, the two ports are competing with each other in the sense that theirservices are substitutes to users. They may be in the same port range – e.g. the ranges of north-west
Europe or of the North American west coast – and so regions 1 and 2 could be two countries (e.g.
Antwerp and Rotterdam, or Vancouver and Seattle) or two regions within the same country (e.g.
Rotterdam and Amsterdam, or Bremen and Hamburg). Users of the ports and related transport
networks include shipping lines, shippers, consignees, transport companies (e.g. railroads, trucking
companies), third party logistics operators, freight forwarders, or some combination of these groups.
For simplicity, we shall just use “shipping lines” to represent the users.
Each port charges shipping lines pi per cargo unit (e.g. TEU) for port use, and faces demand
X i ( ρ1 , ρ 2 ) , where ρ i represents the generalised (total) user cost if shipping lines use port i for cargo

shipment, i = 1,2 . This “full price” faced by shipping lines is given by:ρ i = pi + DCi ( K Ci ) + DLi (Vi , K Li ) + t i ,i = 1,2(1)

where DCi and D Li denote the delay costs occurred at the corridor and local road delivery respectively,
and ti the road toll.
Four important features about the above specification are worth noting. First, unlike the set-up in
De Borger et al. (2008), we consider non-congestible ports. This simplification allows us to abstract
away the issue of port investment while focusing on the impact of hinterland access conditions on port
competition. Second, port charge pi is an important element of the full price. For instance, in analysing
waterborne containerised imports from Asia to the North American west-coast ports, Leachman (2008)
finds that imposition of container fees without compensating improvements in container transit times
would result in significant traffic diversion: Even a modest USD 30 per TEU fee assessed on imports
at the San Pedro Bay Ports would result in approximately a 6% loss in both total and trans-loaded
import traffic15.
Third, in formulation (1), the hinterland access conditions are represented by: (a) transportfacilities that are specific for the seaport cargo; and (b) those facilities that are subject to joint use withtraffic other than the seaport cargo. Parts of (a) and (b), then, are further operationalised, in theoreticalmodelling, with the corridor and road conditions, respectively. In practice, cargo passing through aport may be shipped out by rail, inland waterway, road, or a combination of these modes. The modal
split differs greatly between seaports, depending on the geographical situation and existing
infrastructure. For example, in 2006 about 60% of Rotterdam’s containers were shipped out by truck,
while this percentage was 75% for the Port of New York/New Jersey. In general, rail and inland
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140 – THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS
waterway are used for long-haul freight transport (e.g. greater than 500 km in the North American
context) whereas trucks are used for the final delivery. Thus if a shipment is for a local port market, it
would use road transport. On the other hand, if the shipment is for the hinterland, it would use acombination of modes: first with rail or inland waterway for the corridor leg and then by trucks for the
final delivery. In either case, shipping lines may, in their inland transportation, encounter potential
congestion, and hence delays, at both the corridors (rail, inland waterway) and local roads. Corridors
may also be considered as inland terminals serviced by designated trains – the Alameda Corridor in
Los Angeles mentioned above and the new rail corridor in the Netherlands are such examples.
Furthermore, compared to major rail/inland waterway corridors, the road would have much more
local traffic – i.e. traffic other than the seaport cargo – such as local commuters. To capture these
distinct features, we have in (1) considered that the corridor congestion is affected only by corridor
capacity, denoted KCi, whilst the road congestion is affected by both road capacity, denoted KLi, andtotal road traffic volume Vi. In the context of the Alameda Corridor mentioned in Section 2, therefore,
investment in this new rail link represents an increase in corridor capacity KCi. While the Alameda
Corridor diverts many containers to designated rail, there remain a significant number that leave thePorts of Los Angeles and Long Beach by truck, especially with freight destined for the local market.
Such traffic (as well as the traffic of final delivery in the hinterland) may encounter road delays which
will, as specified in (1), depend on both road capacity KLi and total road traffic Vi.
Fourth, we further specify that the corridor delay cost falls as the corridor capacity (KCi)increases, i.e. DCi' (⋅) < 0 . Since the road is used by both cargo shipments Xi and local commuters, wehave Vi = Xi + Yi, with Yi denoting local traffic volume. The road delay cost satisfies:

∂DLi
> 0,
∂Vi

∂DLi
< 0,
∂K Li

∂ 2 DLi
∂Vi

2

≥ 0,

∂ 2 DLi≤ 0.
∂Vi ∂K Li(2)Thus, increasing traffic volume ( Vi ) will increase road congestion, while adding capacity ( K Li )will reduce road congestion, and the effects are more pronounced when there is more congestion.
Assumption (2) is quite general and holds for the two widely used delay functions:(a)a “linear” delay function, in that D is a linear function of the volume-capacity ratio(e.g. De Borger and Van Dender, 2006; De Borger et al., 2005, 2007, 2008); and(b)

D (V , K ) = aV /( K ( K − V )) , with a being a positive parameter, which is estimated fromsteady-state queuing theory (see, e.g., Lave and DeSalvo, 1968)16.

Li

We now turn our attention to local road traffic, Yi : it depends on a “full price” ρ Li , with theinverse demand function being ρ (Y ) . Here, the full price is the sum of the road toll and congestion
cost:
Li

i

ρ Li (Yi ) = t i + DLi ( X i + Yi , K Li ) ,i = 1,2(3)Note that in the above full-price formulations (1) and (3), it has been implicitly assumed that a
uniform toll is imposed on trucks and local vehicles. Further, equation (3) implicitly determines Yi as afunction of ( t i , X i , K Li ): Yi = Yi* (t i , X i , K Li ) . It is straightforward, using (2) and ρ ' (⋅) < 0(downward-sloping demand), to show:

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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –

∂Yi*
1
= '
< 0,
∂t i
ρ Li − (∂DLi / ∂Vi )

141

∂Yi*
∂DLi / ∂Vi= '<0∂X i ρ Li − (∂DLi / ∂Vi )

ρ Li'
∂Vi
∂Yi*
= 1+
=
> 0,
∂X i
∂X i ρ Li' − (∂DLi / ∂Vi )∂Yi *∂DLi / ∂K Li= '>0∂K Li ρ Li − (∂DLi / ∂Vi )(4)

for i = 1,2. Inequalities (4) show that:
(a)
(b)
(c)
(d)

an increase in road toll will reduce the local traffic;
an increase in cargo traffic will decrease the local traffic;
an increase in road capacity will increase the local traffic; andan increase in cargo traffic will, while reducing the local traffic, increase overall roadtraffic.

While effects (a)-(c) are as expected, effect (d) is somewhat less obvious.
As indicated above, each port’s demand depends on both its full price ρ i and the rival port’s full
price ρ j :X 1 = X 1 ( ρ1 , ρ 2 ) ,X 2 = X 2 ( ρ1 , ρ 2 ) .

(5)

Solving the two equations in (5) for ρ1 and ρ 2 yields:

ρ1 = ρ1 ( X 1 , X 2 ) ,ρ2 = ρ2 ( X1, X 2 ) .

(6)

Using (1) and Yi = Yi * (t i , X i , K Li ) , equations (6) can be written as, for i = 1,2 :pi = ρ i ( X 1 , X 2 ) − DCi ( K Ci ) − DLi (Vi , K Li ) − t i ≡ pi ( X 1 , X 2 ; K Ci , K Li , t i ) .

(7)

Consequently, each port’s profit may be expressed as:

π i = pi ( X 1 , X 2 ; K Ci , K Li , t i ) ⋅ X i = π i ( X 1 , X 2 ; K Ci , K Li , t i ) , i = 1,2(8)

where the port operating costs are, for simplicity, assumed to be zero17. This assumption allows us tofocus on potential channels linking hinterland accessibility with port competition through the demandside rather than the cost side. In effect, there has been an extensive empirical literature on the cost
efficiency of port operations, some of which associated inland transport connections with the port
operating costs. The reduction in per-unit port operating costs, owing to an improvement in hinterland
access conditions, then enhances the port’s competitiveness vis-à-vis its rival. As seen below, however,some of the mechanisms operating through the costs also appear through the demand-side interactions.
Thus the zero-cost assumption is for simplicity of modelling and will not really affect the basic
insights of our analysis.
We consider situations where the ports make their strategic decisions taking both the corridor
capacity ( K Ci ) and the road capacity and toll ( K Li , t i ) as given. Infrastructure investments in corridors
and roads are long-lasting and typically irreversible. Similarly, whether to impose road pricing, and if
so, by which scheme, takes a long time to decide for political and implementation reasons, and once
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142 – THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS
determined, it is hard to reverse. That is, investments in inland capacity and road pricing are usually
longer-term decisions as compared to the ports’ decisions on their charges or quantities. In otherwords, the ports compete with each other in price or quantity, taking K Ci , K Li and t i as given.
Furthermore, as reflected in the above full-price approach, the two ports compete as parts ofintermodal transport chains. The success of each chain is recognized to be dependent on each of theparts working to provide an efficient, reliable system, which in turn depends on each region’s policies
on inland infrastructure pricing and investment and on the charge of its port18. In what follows, weshall consider that the port and its hinterland belong to a single region which ensures theirco-ordination in their decisions. One motivation for this is that to maintain their competitiveness andprovide better service to their consumers, various forms of collaboration have become more popular
between ports and inland transportation. For example, many ports use rail connections as a strategic
tool to penetrate new markets and retain dominance over existing hinterlands (Debrie, 2004). Major
European port operators, such as Eurogate and Hamburger Hafen, have been participating in rail
services, whereas major stevedores in Australia, namely, P&O Ports and Patrick Co., have been
involved in significant restructuring to control landside chains (Debrie and Gouvernal, 2006). We shalldiscuss the issue of the port and hinterland being separate regions in Section 5.
3.2. Quantity competition
Consider first that the two ports compete with each other by choosing quantities to maximize
profits. In this case, the Cournot-Nash equilibrium is characterized by the first-order conditions:

π 11 ( X 1 , X 2 ; K C1 , K L1 , t1 ) = 0 ,π 22 ( X 1 , X 2 ; K C 2 , K L 2 , t 2 ) = 0(9)where the subscripts denote partial derivatives ( π 11 ≡ ∂π 1 / ∂X 1 , etc.). Following standard practice inmodels of quantity competition, we assume the quantities are “strategic substitutes” (e.g. Bulow et al.,
1985; Tirole, 1988). In addition, regularity conditions are imposed so that the equilibrium exists, isunique and stable; consequently, the comparative-static exercises conducted below are meaningful.
We begin with the first comparative-static result concerning the effects of corridor capacity K Ci
(all the proofs are omitted to save space, but are available upon request from the author).
Proposition 1: Under quantity competition, an increase in corridor capacity by a region will:(a) increase its own port’s output; (b) reduce the rival port’s output; and (c) increase its
own port’s profit.
The rationale for Proposition 1 may be explained as follows. Note that the condition of quantities
being “strategic substitutes” ensures a downward-sloping output “reaction function” for each port,
which is defined by each equation in (9). An increase in the corridor capacity by (say) region 1 will
increase its port’s marginal profit ( ∂ π 11 / ∂ K C 1 = − D C' 1 > 0 ). With the rising marginal profit, port 1’s
reaction function shifts outward, i.e. it behaves more aggressively and produces more output for each
output choice of its rival; whilst port 2’s reaction function stays unchanged. This moves theequilibrium outputs ( X 1* , X 2* ) along port 2’s reaction function, thereby increasing X 1* and decreasing X 2* .
Furthermore, the impact on port 1’s (equilibrium) profit can be split into two parts:

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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –

*
∂π 1*
∂π 1
1 ∂X 2
= π2
+
.
∂K C1
∂K C1 ∂K C1

143

(10)

The second term on the right-hand side (RHS) of (11) represents a “direct effect” of the shift in
port 1’s profit function, whereas the first term is an “indirect effect” of the shift in its marginal profit,
which in turn will change the equilibrium. Whilst the term ∂π 1 / ∂K C1 = − X 1 DC' 1 > 0 captures a direct
advantage of corridor capacity investment by reducing corridor delay, the indirect effect is relevant
only for ports that are competing. Since this effect works by indirectly influencing the behaviour of therival port – port 2 becomes less aggressive by committing to a smaller quantity, which in turnimproves port 1’s profit as the outputs are substitutes – it is often referred to as the “strategic effect”.
Observe that this indirect, strategic effect augments the direct effect. Our analysis therefore suggeststhat the rivalry between multiple ports may, owing to the strategic effect, result in a higher level ofcorridor capacity investment than would be had in the absence of rivalry, such as in an isolated, single
port case.
We now turn to examination of the comparative-static effects of road capacity and toll.
Proposition 2: Under quantity competition, an increase in inland road capacity by a region may or
may not increase its own port’s output and profit, owing to various opposing effects.
Similarly, inland road pricing may or may not increase its own port’s output and profit.
The intuition behind Proposition 2 is as follows. As indicated above, the output effect depends
critically on the impact of an increase in capacity on own marginal profit. In the present road-capacity
case and for port 1, this impact is, by (8) and (7):

∂π 11
∂D
∂DL1 ∂Y1*∂V ∂ 2 DL1∂DL1 ∂ 2V1− X1 1− X1= − L1 −∂K L1∂K L1 ∂V1 ∂K L1∂X 1 ∂V1∂K L1∂V1 ∂X 1∂K L1(11)

The first term on the RHS of (11) is positive by (2) – more road capacity reduces local delays –but the second term is negative by (2) and (4), as more capacity induces greater local traffic. The third
term is non-negative, given by (4) that ∂V1 / ∂X 1 > 0 and ∂ 2 D L1 / ∂V1∂K L1 ≤ 0 , indicating that an increase incapacity would moderate the negative impact of own output expansion. The fourth (and final) term in(11) has the same sign as ∂ 2V1 / ∂X 1∂K L1 , which can be either positive or negative for the generalfunctional forms we are considering here, but is nevertheless strictly positive for linear local demandρ L1 (Y1 ) and delay cost DL1 (⋅) . In the linear case, essentially more capacity will moderate the reduction by
local traffic in response to a rise in cargo traffic. Taken together, the above discussion shows that thesign of ∂π / ∂K is generally undetermined. As a consequence, port 1’s reaction function can shift
outward or inward, leading, respectively, to an expansion or reduction of its (equilibrium) output.
1
1

L1

A related consequence of the undetermined marginal-profit effect is that the output of port 2 may
contract or expand following an increase in region 1’s road capacity. Thus, the strategic effect of roadcapacity investment can be positive or negative on port 1’s profit. As for the “direct” effect, it is given
by:

∂π 1
∂DL1
∂DL1 ∂Y1*
= −X1
− X1
∂K L1
∂K L1
∂V1 ∂K L1

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144 – THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS
As discussed in connection with (11), the first-term on the RHS of (12) is positive but the second
term is negative. In other words, the benefit from more road capacity and hence less congestion isdiluted by induced local traffic. As a result, the direct effect on the port’s profit can, similarly to thestrategic effect, be positive or negative.
Finally, the impact of road tolls on output and profit can be similarly discussed. For instance, thedirect effect of tolls on port 1’s profit is given by:∂π 1∂DL1 ∂Y1*.
= −X1 − X1
∂t1
∂V1 ∂t1(13)

The first term on the RHS of (13) shows the obvious negative effect of tolls on the generalised
cost of shipments going through port 1. On the other hand, an increase in road toll reduces local
vehicle traffic, which in turn will create more road space for freight traffic, leading to higher runningspeeds and reliability for trucks. Captured by the second term which is, by (2) and (4), positive, thislatter effect benefits shippers and improves port 1’s profit. The net impact on own profit is, at thisgeneral level, undetermined. Thus, road pricing on a region’s roads may or may not benefit theregion’s port. On the other hand, if trucks have a much higher value of travel time than local
commuting cars (US DOT, 2003), it might be possible that trucks overall benefit from a congestion
toll, thus benefiting the port19.
3.3. Price competition and related issues
The previous subsection considers quantity competition. What if the mode of port competition isin prices (rather than quantities)? In this case the profit function for each port is specified as:Π i = p i X i ( ρ1 , ρ 2 ) = Π i ( p1 , p 2 ; K C1 , K L1 , t1 , K C 2 , K L 2 , t 2 ) ,i = 1,2(14)

where the second equality follows from the use of (1) and Yi = Yi* (t i , X i , K Li ) , and the profit is written as afunction of prices (rather than quantities). Treating capacities and tolls as parameters, each portchooses its price to maximize profit, and the resulting Bertrand-Nash equilibrium is characterized by
the first-order conditions:

Π ii ( p1 , p 2 ; K C1 , K L1 , t1 , K C 2 , K L 2 , t 2 )(≡ ∂Π i / ∂p i ) = 0 ,i = 1,2(15)

Following standard practice in models of price competition, strategy variables p1 , p 2 are assumed
to be “strategic complements” (e.g. Bulow et al., 1985; Tirole, 1988) and regularity conditions are
imposed for the existence, uniqueness and stability of the equilibrium.
To highlight the main implications of price competition, we shall below focus just on the corridor
transport part so that (15) becomes Π ii ( p1 , p 2 ; K C1 , K C 2 ) = 0 (i.e. road transport is suppressed). The impactof an increase in corridor capacity on the equilibrium prices, output and profit is summarized in thefollowing result.
Proposition 3: Under price competition, an increase in corridor capacity by a region will increase its
own port’s price and reduce the rival port’s price. Furthermore, the increase incorridor capacity has an undetermined impact on its own port’s output, the rival port’s
output and its own port’s profit, owing to various opposing effects.
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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –145

Proposition 3 indicates that an increase in the corridor capacity of region 1 will raise port 1’s
price while inducing port 2 to cut its price. These price effects can be explained as follows. Note thatthe prices being “strategic complements” ensures two upward-sloping reaction functions, defined by(15), in the p1 - p 2 dimension. An increase in the corridor capacity by region 1 will shift its port’s
reaction function outward, i.e. the increase in corridor capacity enables port 1 to charge a higher pricefor each price chosen by the competing port. Unlike the case of quantity competition (where port 2’sreaction function stays unchanged), however, in this case port 2’s reaction function shifts as well, andit shifts downward. As a result, at the new equilibrium, the price of port 1 rises whilst the price ofport 2 falls.
Thus, an increase in corridor capacity yields two opposing effects on own profit: it reduces
port 1’s profit owing to the price drop at port 2 and the ensuing demand shift away from port 1 (recall
the two ports produce substitutes) – a negative strategic effect. Caring for its port’s profit, region 1
therefore has a strategic motive to invest in less road capacity. On the other hand, capacity investment
improves port 1’s profit via a reduction in its hinterland’s road delays – a positive direct effect. The net
impact on own profit is generally undetermined. Finally, the impact on port 1’s (equilibrium) output isgiven as follows:∂X 1* ∂X 1 ( ρ1* , ρ 2* ) ∂X 1 ∂p1*
∂X 1 '∂X 1 ∂p 2*
=
=
+
DC1 +
∂K C1
∂K C1
∂ρ1 ∂K C1 ∂ρ1∂ρ 2 ∂K C1(16)While the first and third terms on the RHS of (16) are negative – an increase in corridor capacity
reduces own port’s output via the price effects discussed above – the second term represents the
positive impact of capacity via a reduction in region 1’s corridor delay. As a result, the overall impact
on own output is undetermined. The impact on the rival port’s output can be similarly seen,∂X 2* ∂X 2 ∂p1*
∂X 2 '∂X 2 ∂p 2*
=
+
DC1 +
∂K C1 ∂ρ1 ∂K C1 ∂ρ1∂ρ 2 ∂K C1(17)

with the first and third terms on the RHS of (17) being positive but the second term being negative.
The above analysis suggests that a region’s motive for investing in corridor capacity so as toimprove its own port’s competitiveness (in terms of port throughput and profit) may be weakened if
the nature of port competition is in prices rather than quantities. Which model of competition is“correct” for ports? In general, this depends in large part on the production technology of an industry
under consideration (here, the port industry). In Cournot competition, firms (here, ports) commit toquantities, and prices then adjust to clear the market, implying the industry is flexible in priceadjustments, even in the short run. On the other hand, in Bertrand competition, capacity is unlimited oreasily adjusted in the short run. In reality, some industries behave like Bertrand and others like
Cournot; as such, which model of oligopoly is applicable to a particular industry is an empiricalquestion. While there is an extensive literature on the empirical evidence of the relevance of certain
oligopoly models to a particular industry (see, e.g., Bresnahan, 1989; Brander and Zhang, 1990), nosuch study has been conducted for ports. Such a study would be helpful in assessing the impact ofhinterland access conditions in the context of port competition20.
In the above analysis of price competition, there are no capacity constraints at the ports. This isconsistent with our formulation of the ports being non-congestible (which allows us to abstract awayfrom considering port investment and focus on hinterland access conditions). With capacity
constraints, a reasonable formulation of port competition, given in De Borger et al. (2008), is a
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146 – THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS
two-stage game where ports first invest in port capacity and then compete over prices. Note that thetiming sequence in this two-stage game recognises that investment in port capacity takes time andcannot be changed quickly relative to the ease and rapidity with which prices can be adjusted. In thesecond stage, the Bertrand equilibrium, given port capacity, has the ports pricing such that they
produce to capacity (or near capacity if the port delay-cost function is convex). Taking the pricing
behaviour into account, the equilibrium of the two-stage game involves, under certain rationing andother conditions, each port investing in capacity equal to its Cournot quantity. This is the Kreps andScheinkman (1983) result that “quantity precommitment and Bertrand competition yield Cournot
competition.” One interpretation, then, of our quantity-competition model is that it is a reduced formof the more complicated two-stage (capacity; price) game in which hinterland access conditions(corridor and road capacities, road congestion tolls) are treated as exogenous factors.

4. CASE EXAMPLESIn this section we discuss three case examples, namely: the Le Havre-Hamburg port range; major
gateway ports in Canada; and the Port of Shanghai, and describe the recent policy initiatives in theseregions regarding hinterland/corridor infrastructure expansion and pricing.
4.1. The Le Havre-Hamburg port range
The Le Havre-Hamburg (LHH) port range constitutes a number of ports in France, Belgium, theNetherlands and Germany. Among these ports, Rotterdam, Hamburg, Antwerp, Bremen, Le Havre and
Zeebrugge are ranked No. 1 to No. 6 container ports, all of which handled more than 1 million TEUs
in 2006 (Table 2). The other three major ports in this range, namely, Amsterdam, Dunkirk and Ghent,
are relatively minor in container business, handling container throughput of 306 000, 205 000 and
39 000 TEUs, respectively, in 2006. Like the west-coast port range in North America, the LHH range
has seen a rapid growth in container traffic, due in large part to the Asian economic booms. As shownin Table 2, container throughput for the top six ports as a whole has seen 89% growth between 1985
and 1995, and 159% growth between 1995 and 2006.
Within the Le Havre-Hamburg range there is strong competition among the ports. The
competitive dynamics may be approximated by the changes in market share of each port over time.
With a comparatively low tidal range, quick and easy access both to the North Sea and to the
productive Rhine hinterland, Rotterdam has been until recently the leading container port in Europe21.
However, this position has been gradually eroded over time, especially during the past decade(Table 2). Whilst Rotterdam grew 102% between 1995 and 2006, this rate is below the regional
average of 159%, and only half of the rates enjoyed by its two main rivals, Hamburg and Antwerp. As
a result, both Hamburg and Antwerp (and lately, Bremen) have gained market share at the expense ofRotterdam, and Rotterdam has lost its dominant position in container market share22. Also note that
Hamburg has become the second largest container port in this range since 1987 (it used to be No. 3
behind Antwerp) and that Zeebrugge has, like Hamburg, enjoyed a very rapid growth, albeit startingfrom a low level of container traffic.

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THE IMPACT OF HINTERLAND ACCESS: THE CONDITIONS OF RIVALRY BETWEEN PORTS –147

Table 2. Container throughput for the Le Havre-Hamburg port range,
selected years (1 000 TEU)

Rotterdam
Hamburg
Antwerp
BremenLe Havre
Zeebrugge
Total

1985

1995

2006

2 715
1 159
1 243
998
566
218
6 899

4 787
2 890
2 329
1 524
970
528
13 028

9 690
8 862
7 018
4 450
2 121
1 653
33 794Growth(1995-85)
76%
149%
87%
53%
71%
142%
89%

Growth(2006-95)
102%
207%
201%
192%
119%
213%
159%

Source: Calculations based on the Port of Rotterdam – Le Havre-Hamburg range container
throughput time series data.
Fleming and Baird (1999) note that there is a long history in port rivalries on the LHH port range.
According to the authors (p. 387):“The 19th century heavy industrialization of north-western Europe brought economic andcommercial linkages that were stronger than the political divisions, so that, from 1870 to theoutbreak of World War I, French, Belgian, Dutch and German ports were vying for the hugely
productive industrial hinterlands of the Ruhr and Rhine valleys, Lorraine, Luxembourg, the Saar,
the Sambre-Meuse valley of Belgium and the coal mining districts of north-eastern France, allpart of what geographers labelled the heavy industrial triangle with apexes in the French Nord,the German Ruhr and French (but German from 1871 to 1918) Lorraine. Rivalries for thecommerce of this region were fierce and governments were very much involved, using various
strategies to support their ports. The Dutch, for over a century, blocked Antwerp’s easy access to
the Rhine. The Belgians retaliated by building the ‘Iron Rhine,’ a very early rail connection from
Antwerp to the Rhine and Ruhr. In the era of economic nationalism between World Wars I and II,
the Germans favoured Bremen and Hamburg, setting artificially low rail freight rates to interiorindustrial regions. The French, after World War II, used the same rail rate strategy to favour
Dunkerque on shipments to and from the Lorraine metallurgical district.”
Fleming and Baird (1999) further describe more recent policy developments (pp. 387-388):“Governments are still involved and each container port tends to complain about their rivals’ ‘unfair’state subsidies. Actually, unlike UK ports, all the main continental container ports regard provisionand maintenance of access channels as essential infrastructure to be funded by the state. … Although
the port authorities both in Antwerp and Rotterdam take pride in their ‘autonomies’ in port
management, there is no doubt that Belgian national interests and Dutch national interests are verymuch entwined in the fortunes of these two huge ports. This is inescapable and it explains, in largepart, the determination of each port to hold on to ‘market share’ and to re-equip for new business. …
German ports may have lost the national subsidies and preferential treatment of the late 1980s but theLander-level governments still have a strong interest and influence in Bremen’s and Hamburg’s port
activities.” As a result, “Throughout the entire Le Havre-Hamburg range there is much complaining
recently about ‘distortions of competition’, each port suggesting that its rivals in adjoining states areusing the public sector to give unfair competitive advantage (p. 388).”

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Like the North American west-coast ports, the LHH ports recently encountered high pressure
through port and inland congestion. Facing the dramatic container traffic growth of the last two
decades, the dense and intricate network of river, canal, rail and highway, developed post-WorldWar II, began to choke. Antwerp, Rotterdam and Hamburg have expanded, or will expand, their port
capacities, in response to the port congestion problem (Quinn, 2002). On the hinterland accessibility,
we first note that the modal splits in 2005 among road, waterway/barge and rail for the three maincompetitors – Rotterdam, Antwerp, and Hamburg – are, for Rotterdam, 60%; 30.5%; 9.5%,
respectively, for Antwerp, 60%; 32.4%; 7.6%, and 66.1%; 13.6%; 20.3% for Hamburg. Thus, for thethree ports, road is the dominant mode of transport to access the hinterland. Both Antwerp and
Hamburg have been trying to promote hinterland access modes other than road. Antwerp completed
the Antwerp Intermodal Network project at the end of 2006. This project aims to shift transport fromroad to rail and barge over distances less than 250 km, so that the pressure on road traffic can berelieved. The increase in barge volume attributed to this project is around 249 761 TEUs in 2006.
At a wider level, as a measure to smooth the intermodal connectivity, the European Community
recently proposed a standardization and harmonization programme concerning intermodal loading
units: While the standardized containers (e.g. TEU) were usually used for sea mode, swap bodies wereusually used for land modes. This programme is estimated to provide European industry andtransporters with efficiency gains, and a reduction of up to 2% in logistics costs (European
Commission, 2004). Another example is the Trans-European Networks (TENs) project, which aims topromote competitiveness and cohesion within Europe by improving the transportation infrastructure ofdifferent regions to a desired level and enhancing urban accessibility (Vickerman, 2007). These
initiatives may help enhance the competitiveness of LHH ports vis-à-vis, for example, Mediterranean
ports23.
4.2. Canada
Vancouver and Montreal are Canada’s two major maritime freight gateways, ranked Nos. 1 and 2
in container throughput in the country. Both cities have heavy truck volumes, including freight traffic
to and from the US; and nationwide, freight shipments are concentrated along a few widely separated
corridors so that substitution possibilities are limited. As discussed in Lindsey (2007a, 2008), bothurban areas (as well as Toronto) have serious and growing congestion, and as gateway cities, bothhave a strong incentive to facilitate freight transport. The master plan of the city of Montreal sets out
several priorities for transportation, including facilitating freight movements to maintain the city’scompetitive position as a freight hub, while limiting the environmental impact of road freighttransport, upgrading selected highways and building new ones (Lindsey, 2008).
Now consider Vancouver, British Columbia. As Canada’s largest container port, its container
throughput has grown at an annual rate of 12% since 1980 – the corresponding figure for Montreal is
6% – which is also faster than the growth rate of other US west-coast ports. Asian countries are again
the driving force for Vancouver’s container growth, with China accounting for 62% of the Asian sharein 2006. Despite several major expansions, congestion is still a key concern, both at the port and on
the local roads. The latter is caused by trucks moving freight between terminals and around the region.
It is also caused by local consumption of these containers: about 20% of container volumes moving
through the Port of Vancouver is local traffic and thus relies on trucks for final delivery. The rapidly
growing truck traffic contributes to congestion delays that not only impede passenger transport but
also disrupt freight supply chains. The British Columbia Trucking Association has estimated the costof congestion to freight movements in the greater Vancouver regional district (GVRD) as
CAD 500 million a year (Lindsey, 2008).
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Container traffic in Vancouver is expected to triple by 2020, despite the opening of the newcontainer facilities at the Port of Prince Rupert, north of Vancouver. Vancouver’s current share of theNorth American west-coast ports – Vancouver, Seattle, Tacoma, Portland, Oakland, Los Angeles andLong Beach – is 8.5%, but the goal is to reach a 12% share by 2020. Congested port terminals androads could hinder such development. For instance, while a passenger could choose between various
means of transport (and different times of day) for his/her travel, goods sometimes could only bedelivered by roads based on a tight schedule. Since Vancouver is the main gateway to Canada, it needs
to develop and maintain an efficient road network.
As a result of increasing port and road congestion, governments and port operators have been
looking for solutions, which include capacity expansion and congestion pricing. In early 2006, theprovince of British Columbia embarked on an ambitious Gateway Program, administered by theprovincial Ministry of Transportation in consultation with TransLink (the Greater Vancouver
Transportation Authority, which has authority for roads and public transportation in the GVRD as well
as responsibility for long-range transportation and land-use planning) and local municipalities. The
Gateway Program includes a set of major transport infrastructure projects, primarily for expanding
capacity at the port and related rail and road facilities in the province. The centerpiece is thePort Mann/Highway 1 Project to twin the Port Mann Bridge crossing the Fraser River, and toll thePort Mann Bridge. The tolling is intended to facilitate freight traffic by reducing non-commercial
vehicle traffic, and it is hoped that it will become a part of a comprehensive regional approach to roadpricing. The Program treads a fine line between the goals of accommodating freight transport andimproving Vancouver’s competitiveness vis-à-vis other gateway ports, and reducing congestion andemissions. The Federal Government’s Asia-Pacific Gateway and Corridor Initiative, launched in
October 2006, is providing additional funds24.
4.3. Shanghai25
The Port of Shanghai has enjoyed a 30-40% annual growth rate in containers handled for over a
decade, rising to be the World’s No. 2 container port. Its container volume is largely driven byinternational trade, as exports/imports contribute nearly 90% to the total container throughput inShanghai. About 87% of containers handled are generated in the hinterland of Shanghai, with theremaining 13% being transshipment.
An important hinterland for Shanghai is the west-to-east Yangtze River, the so-called golden
waterway. The Yangtze River is a natural corridor that links the interior regions of China to the Pacificcoast, and Shanghai is used as the gateway for these interior regions to trade with the rest of the world.
Apart from a strong direct hinterland in the Yangtze River Delta, there is a vast indirect hinterland in
the middle and upper reaches of the Yangtze River that will drive future growth in Shanghai. The
feeder fleet used in the Yangtze River has largely been outdated, however. In 2003, there were around
2 000 shipping companies operating more than 68 000 vessels on the trunk of the Yangtze River. These
vessels are built by different shipyards without a unified standard. In fact, there are more than
300 types of vessel operating on the river and most of these vessels have small tonnage, low speed andpoor operating efficiency. The outdated fleet caused inefficiency in the operation of port facilities, asmuch newer facilities, built to handle modern container ships, are ill-equipped to operate with ships ofold and different types. The passing capacity of the ships’ lock in the Three Gorges had also been
severely limited as the lock had to deal with many vessels of different sizes.
In the national strategy of developing mid- and western China, the development of the watertransportation system along the Yangtze River received high priority. To improve the efficiency ofwater transportation along the golden waterway, China’s Ministry of Communication has developed
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plans for the standardization of river vessels. At the end of 2003, the new standard on container ships
and truck ro/ro ships was announced. The new standards on other types of river vessel were announced
in 2004. It is planned that standardization of river vessels will be carried out in two stages (in two
five-year plans) and by 2020 the standardization rate should reach 90% for river vessels navigating on
the trunk of the Yangtze River.
Another plan to improve gateway operations in the Port of Shanghai is to establish a river-coast
direct shipping route from inland ports in the Yangtze River to the Yangshan deepwater port in the East
China Sea – which is the newest container terminal of the Port of Shanghai – to avoid “doubletransshipping26”. Indeed, in May 2006, the first express route from Wuhan (a major city west of
Shanghai) to Yangshan was opened, so that it now takes two days for the containers generated around
Wuhan to arrive at the Yangshan port for further transshipping to Europe. Without the river-coast
direct shipping, it would take five days. As the number of containers handled in Wuhan in recent years
has grown at 30% annually, establishment of this express route would significantly enhance theeffectiveness of Shanghai as the gateway for the regions in the middle reaches of the Yangtze River. In
2006, construction of the first special river-coast direct shipping vessel, the so-called Yangshan-classcontainer ship, started in Shanghai. The Yangshan-class ship has a capacity of 400 TEU, and issuitable for navigation between Wuhan and Yangshan.
Both the standardization and river-coast direct shipping initiatives would improve efficiency of
the gateway operations for the Yangtze River’s middle reaches. On the other hand, it is also under planthat seagoing vessels should be able to sail into the Yangtze River in its lower reaches. This
necessitates the upgrading of waterway conditions, especially the water depth. There is a three-stage
plan for deepening the waterway in the lower Yangtze River. The first-stage work started in 1998 andwas completed in 2002, providing an 8.15-metre water depth at the entrance to the Yangtze River
course. The second-stage work started in 2002 and finished in 2005. In November 2005, the Ministryof Communication announced that the Yangtze River’s 10-metre deepwater course had reached
Nanjing, which indicated that the 430 km waterway from Shanghai to Nanjing now was accessible tothe 3rd and 4th generation container ships. The third-stage work started in 2006 and, upon its
completion, would deepen the water depth further to 12.5 metres.
These initiatives would significantly improve the hinterland access conditions for the Port of
Shanghai, which will enhance its further development into a premier container port in Asia.

5. CONCLUSION AND FUTURE RESEARCH

In this paper we have examined the interaction between hinterland access conditions and port
competition. Competition between ports is treated as competition between alternate intermodaltransportation chains, while the hinterland access conditions are represented, separately, by the
corridor facilities and by the inland roads. We found that when ports compete in quantities, an increasein corridor capacity by a region will increase its port’s output, reduce the rival port’s output andincrease its port’s profit. On the other hand, an increase in inland road capacity by a region may or
may not increase its port’s output and profit, owing to various opposing effects. Essentially, whilemore road capacity reduces local delays and moderates the negative impact of the port’s output
expansion, it induces greater local commuter traffic and may moderate the effect by which a rise in
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cargo traffic reduces local commuter traffic, both of which reduce the port’s output and profit.
Similarly, inland road pricing by a region may or may not increase its port’s output and profit. Finally,case examples for selected ports and regions are discussed to supplement the analytical study.
The paper has also raised a number of other issues and avenues for future research. Below we
discuss two such issues.
5.1. Port/hinterland interactions and organisational co-ordination
In our analysis, we have considered that the port and its hinterland belong to a single region,
which ensures co-ordination in their decisions. For a given intermodal transportation chain, however,the port, the corridor and the inland road may belong to different, separate parties (regions ororganisations). Each party tries to maximize its own interest, which may not be the same as the interestfor the entire chain. An example of breakdown in co-ordination between the port and hinterland isgiven in Y. Zhang (2007), who notes: “There has been a lack of co-ordination between water transportand land transport along the Yangtze River. With the development of the new highway system in
China, an increasing number of bridges have been built to cross the Yangtze River. On the trunk of thewaterway some 2 800 km in length, there is one bridge every 30 km on average. Such a high densityof bridges provided convenience for the north-south land traffic, but has serious impacts on thewest-east water traffic. Since the 1980s, there have been dozens of new docks capable of handlingvessels of 5 000 tonnage built along the Yangtze River. The bridges on the river, however, have only
allowed vessels of 3 000 tonnage to sail beneath.”
This perhaps more realistic structure naturally raises questions about the nature of interactions
among the parties, their co-ordination concerning congestion pricing and capacity investment, andabout their impact on rivalry between ports. Assuming a single, isolated intermodal transportation
chain, Yuen et al. (2008) investigate the effects of congestion pricing implemented at a gateway port
on its hinterland’s optimal road pricing, road congestion and social welfare. A. Zhang (2007) is similar
to Yuen et al. (2008) in that he addresses the interaction and co-ordination issue in facility pricing in a
gateway-hinterland intermodal system. Unlike Yuen et al., however, he investigates the impact of thehinterland’s highway congestion pricing on the gateway, and considers both pricing and capacity
investment. Both papers demonstrate the important need for co-ordination among the multiple parties
in order to achieve efficiency for the entire chain. Extending this line of research to the setting ofcompeting ports – such as the one analysed in this paper – provides an important feature of future
research.
5.2. Overlapping and captive hinterlands
In our analysis we have followed the set-up in De Borger et al. (2008) whereby the two seaports
compete for a common hinterland. This set-up of (completely) overlapping hinterlands may bejustified, as discussed earlier, by the emergence of container trade; it also allows us to focus on theissue of port competition. In many markets, however, both overlapping and captive hinterlands may
exist. For example, in their observation about ports in the Le Havre-Hamburg range, Fleming and
Baird (1999) note: “While these ports vie with one another for interior hinterland shipments it should
be noted that each has a competitive advantage in its local hinterland to which it has best access. It isthe ‘discretionary’ shipments which have alternative routing possibilities that stir the competitive fires.
… Le Havre’s hinterland is primarily French.” Another example is the Port of Shanghai: Both the(direct) Yangtze River Delta and the indirect hinterland in the middle and upper reaches of the Yangtze
River are captive hinterlands for Shanghai, whilst transshipping markets along the north-south
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coastline (about 13% of Shanghai’s container throughput) are subject to competition with other
Chinese or East Asian seaports.
Although the captive hinterlands are not subject to immediate competition, they play an importantrole in the competition between ports. A larger captive hinterland for a port would: (a) allow for (allother things, such as load factor and ship size, being equal) more frequent services by shipping lines;(b) allow shipping lines to use larger ships, deriving economies of scale; (c) increase ships’ loadfactors, so the port is more likely to be chosen as a “load centre”, or as a scheduled stop on a route(Heaver, 2006); (d) facilitate the growth of third-party LSPs (logistics services providers) andforwarders at/near the port, which would in turn facilitate the port’s role in the logistics supply chain;and (e) allow more value-added “clusters” (transport product, logistics product and port-related
manufacturing product) to be developed, further attracting more liners, LSPs and forwarders(De Langen, 2002, 2004). All of these elements would make the port more competitive in bidding forthe overlapping market. For instance, a larger captive hinterland for a port results in higher traffic
density which in turn will, among things, lower freight rates27.
If both the overlapping and captive markets are considered, then important interactions between
the two markets and their impact on port competition need to be analysed. An earlier paper by Bassoand Zhang (2007) has analysed a somewhat similar problem in the context of airports. They did notconsider either the hinterland markets, or the intermodal nature of transportation chains. Nevertheless,their model might be adapted, after incorporating features of the model developed in the present paper,to an analysis of seaport competition with both the overlapping and captive hinterlands.

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153

NOTES

1.

See also the earlier work by Jansson and Shneerson (1982).

2.

Dresner (2007) has documented the dramatic shift of container traffic from the Port of Baltimore
to the Port of Norfolk over the past twenty years. This shift is attributed to a number of factors,
including railroad preference for Norfolk over Baltimore. It was claimed that the railroads prefer
to concentrate their business at ports other than Baltimore for economic reasons. Norfolk
Southern, one of the two Class 1 railroads serving Baltimore, prefers to concentrate its business at
its home port in Norfolk. The other Class 1 railroad, CSX, prefers to concentrate much of its
business in New York. Since most of the container traffic is not destined for local markets ateither Norfolk or Baltimore, the availability of high-quality rail services at Norfolk is conducive
to its competitiveness.

3.

There is an extensive literature on urban road pricing (see Small and Verhoef, 2007, for aliterature survey, and recent studies by Lindsey, 2007a, 2008, on related issues).

4.

A similar study has been carried out by Kim et al. (2007), who consider a multimodaltransportation problem of determining the transportation flow quantity (i.e. volume of container
cargos) and the transportation mode in each trade route, with the objective of minimizing the sumof shipping and inland transportation costs. The model is then fitted using the container cargo data
in Korea.

5.

As can be seen below, there are a few other modelling differences as well, including the linear
demand and delay functions used in De Borger et al. (2008), as opposed to the more generaldemand and delay functions in the present paper.

6.

A “gateway” may be defined as a coastal metropolis with port access to both its hinterland and therest of the world, which captures a substantial share of total regional and international tradevolumes (Berechman, 2007).

7.

The average ocean travel time is suggested to be twenty days.

8.

Gausch and Kogan (2001) find that halving inventories could reduce unit production costs by
20%.

9.

The causality may be reversed: container throughput growth could contribute to congestion. It
could also be the case that container throughput growth and the urban mobility indicators arecorrelated with a third variable, e.g. time. Further empirical investigation is thus needed.

10. These ports might also compete with the Canadian west-coast ports, namely, Vancouver and in the
future, Prince Rupert.
11. Due to the strong growth of imports from Asia, congestion has become a major problem for these
ports and respective inland facilities. The ensuing delays have imposed substantial costs on
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carriers and shippers (see, e.g. Bloomberg News, December 4, 2005).
12. Unlike the effect on throughput growth, however, none of the correlation coefficients are
statistically significantly different from zero.
13. The revenue generated by the PierPass fees is refunded to terminals that operate an effective
off-peak programme to compensate them for the extra cost of longer hours and the labour costs
related to overtime or night and weekend shifts.
14. As long as the change in congestion level is marginal, shippers and forwarders are reasonably
certain about the congestion they are going to encounter: i.e. the delays will be “expected”. Thus
they are able to incorporate the waiting time caused by congestion into their shipping schedules(e.g. assign more time to that leg of movement during peak hours). Even though the level ofcongestion is high, shippers and forwarders may still be willing to use LA/LB, because they areable to follow their schedules by planning ahead of time. In this case, shippers and forwarders
may still achieve a given level of delivery reliability.
15. See also Luo and Grigalunas (2003), who provide an estimate of the impact on port demand andinter-port competition due to hypothetical changes in port use fees at selected ports.
16. Queuing at junctions is the dominant source of delay in many urban areas (Santos, 2004).
17. Since there is no congestion at the port, port capital cost is not relevant in this case. Further, notethat our results will continue to hold for constant (but non-zero) operating costs.
18. More generally, Carbone and De Martino (2003) place such an environment in the context of
supply chain management. The contribution of a port to a supply chain (to which it belongs)
depends on its infrastructure, connectivity and ability to add value; for example, by providing
punctual and frequent service for shippers, by disseminating important information (e.g. productlocation) to other members of the supply chain, and by providing a secure environment for the
cargo. Rivalry between intermodal transport chains has also been examined in Zhang et al. (2007)
in the context of the air cargo market.
19. Here, we have considered a flat toll, as opposed to a variable (peak/off-peak) toll, which is more
effective in combating road congestion. Recent research in the US has shown that truckers havelittle scope for adaptation to variable tolls because of rigid delivery schedules imposed byshippers and consignees (Holguin-Veras, 2006). Thus, consideration of a variable toll might leadto a similar result, that is, a congestion toll on a region’s roads may or may not benefit theregion’s port.
20. Quinet and Vickerman (2004, p. 263) remarked: “The general idea which emerges from thetheoretical analysis is that when transport capacities are high, or can be enlarged through thetransfer of capacity from other locations, and the services provided are not differentiated, thencompetition is likely to be of a Bertrand type, based on price. ... If, on the other hand, capacity isdifficult to increase, then competition is likely to be of a Cournot type, based on quantities. This is
the case found, for example, in rail, maritime or inland waterway transport.”
21. Its two main rivals, Antwerp and Hamburg, are inland ports. In order to reach the ports from thesea, vessels have to sail up the river before arriving at the upstream ports, incurring higher
operating and time costs than reaching Rotterdam, which sits right on the coastal line. The 2003
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data shows that the deep-sea call efficiency ratios (TEUs handled as a percentage of two-way
capacity of vessel called at port) of Antwerp and Hamburg were 27.7 and 22.7 respectively, while
this ratio was about 18.5 for Rotterdam (Notteboom, 2006), suggesting that both Antwerp and
Hamburg have to be more capable of handling the sudden arrival of large container volumes.
22. It is notable that Rotterdam has increased its transhipment function in recent years. Its relative
shares of containers accessing hinterland and transhipped are, respectively, 83.4% and 16.6% in
2002, but 76.1% and 23.9% in 2006.
23. Heaver (2006) notes that the advent of same-day-of-the-week liner services has sharpened thecompetition among ports on a route. For example, a line may substitute a port on one coast for aport on another if the profit contribution to a vessels’ route is enhanced by substituting one for theother within the time cycle available under the constraint of same-day service. Ports that operateon the same schedule offer a more similar service so that Bertrand undercutting forces prices
lower.
24. For more information about the two programs, see www.th.gov.bc.ca/gateway/ andwww.apgci.gc.ca.
25. This subsection is based largely on Y. Zhang (2007).
26. As most vessels in the Yangtze River cannot sail by sea, containers generated in different regions
along the Yangtze River, carried by river vessels to Shanghai for transhipping to international
destinations, cannot directly dock in the Yangshan deepwater port. These containers must be
unloaded in the Waigaoqiao Port (another major terminal at the Port of Shanghai), which islocated along the bank of the Yangtze River, and then transshipped by coastal barges for about
70 nautical miles to the Yangshan Port for further transhipping. This double transhipping not only
extends overall shipping time for customers, but also puts great stress on already strained capacity
at the Waigaoqiao Port.
27. In effect, Y. Zhang (2007) concludes: “Based on the examination of the regional development
along the Yangtze River, it is concluded that, with direct and indirect hinterlands of such grandscale and foreseeable development on the hinterland, Shanghai should aim for efficient gateway
operations, strengthening its connections to its hinterlands and providing best service to its
clients along the golden waterway for domestic/international transshipping, rather thancompeting with other international shipping centres in the Asian Pacific forinternational/international transshipping.”

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PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 – © OECD/ITF, 2009

LIST OF PARTICIPANTS -LIST OF PARTICIPANTS

Dr. Mary R. BROOKS
William A. Black Chair of Commerce
Dalhousie University
Kenneth C. Rowe Management Building
6100 University Avenue (Room 5118)
HALIFAX, NS B3H 1W7
CANADA

Chair

Dr. Peter DE LANGEN
Erasmus Universiteit Rotterdam
Regional, Port & Transport Economics Department
Room H12-13
Postbus 1738
NL-3000 DR ROTTERDAM
NETHERLANDS

RapporteurProf. Genevieve GIULIANO
Sr. Assoc. Dean, Research and Technology/
Director METRANS
University of Southern California
School of Policy, Planning and Development
METRANS Transportation Center
University Park Campus
90089-0626 LOS ANGELESUNITED STATES

RapporteurProf. Theo NOTTEBOOM
President
University Centre of Antwerp - RUCA
ITMMA
ITMMA House
Keizerstraat 64
B-2000 ANTWERPBELGIUM

RapporteurProf. Anming ZHANG
University of British Columbia
Sauder School of Business
Operations & Logistics Division
2053 Main Mall, Henry Angus 458
CND-VANCOUVER, BC, V6T 1Z2
CANADA

Rapporteur

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009161

162 – LIST OF PARTICIPANTS
Dr. Michael ASTERIS
Principal Lecturer in Economics
University of Portsmouth
Department of Economics
Richmond Building
Portland Street
PO1 3DE PORTSMOUTH
UNITED KINGDOM
Prof. Alfred BAIRD
Head, Maritime Research Group
Napier University
Transport Research InstituteMerchiston Campus
GB-EDINBURGH, EH10 5DT
UNITED KINGDOM
Dr. Jan BLOMME
Director, Strategy and Development
Antwerp Port Authority
Harbour House
Entrepotkaai 1
B-2000 ANTWERPBELGIUM
Prof. Young-Tae CHANG
Inha University
Graduate School of Logistics
263 Yonghyun-dong
Nam-Gu402 751 INCHEON
KOREA
Mr. Jaromir CETOKA
Transport Division
United Nations Economic Commission for Europe
Palais des Nations – Office 402-3
8-14 avenue de la Paix
CH-1211 GENEVE 10
SWITZERLAND

Observer

Dr. William J. DeWITT
Professor of Logistics & Director of Graduate Studies
Loeb-Sullivan School of International Business & Logistics
Maine Maritime Academy
Associate Dean
CASTINE, Maine 04420
UNITED STATESPORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009

LIST OF PARTICIPANTS -Prof. George GIANNOPOULOS
Director
Aristotle University of Thessaloniki
Hellenic Institute of Transport (HIT)National Centre for Research & Technology of Greece
6th Km Charilaou-Thermi Rd
PO BOX 60361
GR-57001 THERMIGREECE
Dr. Elisabeth GOUVERNAL
Head of Research Unit
INRETS
Productive Systems, logistic organization and transport (SPLOT)
2 av. du Général Malleret JoinvilleF-94114 ARCUEIL CEDEXFRANCE
Professeur Bart JOURQUIN
Facultés Universitaires Catholiques de Mons (FUCAM)
G.T.M.
151a Chemin de Binche
B-7000 MONSBELGIUM
Mr. Ekrem KARADEMIR
Planning Expert
State Planning Organization (SPO)
T.R. Prime Ministry
General Directorate of Economic Sectors & Coordination
Necatibey Caddesi n° 108
TR-06100 ANKARA Bakanliklar
TURKEY
Mr. Michael LLOYD
Director
AMRIE - Alliance of Maritime Regional Interests in Europe
Rue du Commerce, 20-22
B-1000 BRUXELLESBELGIUM
Mr. Giovanni MENDOLACE/EC
DG For Energy and Transport (TREN)
200 rue de la Loi, DM28
B-1049 BRUXELLESBELGIUM

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164 – LIST OF PARTICIPANTS
Dr. Athanasios PALLIS
University of the Aegean
Dept. of Shipping, Trade & Transport
2 Korai St.
82100 CHIOSGREECE
Dr. Francesco PAROLA
Researcher
University of Genova
Centro Italiano di Eccellenza sulla Logistica Integrata – CIELI
Via Bensa 1
I-16124 GENOVA
ITALYProf. Miguel PESQUERA
Universidad de Cantabria
ETS Ingenieros de Caminos
Departamento Transportes
Avda. Los Castros s/n
E-3900 SANTANDER
SPAIN
Prof. Harilaos N. PSARAFTIS
Director, Division of Ship Design and Maritime Transport
Laboratory for Maritime Transport
School of Naval Architecture and Marine Engineering
National Technical University of Athens
Iroon Polytechneiou 9GR-15773 ZOGRAFOUGREECE
Dr. Adnan RAHMAN
Managing Partner
ECORYS
Watermanweg 44
Nl-3067 GG ROTTERDAM
NETHERLANDS
Dr. Jean-Paul RODRIGUE
Associate Professor
Hofstra University
Dept. of Economics & Geography
11549 HEMPSTEAD NY
UNITED STATESPORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009

LIST OF PARTICIPANTS -Prof.Dr. Wlodzimierz RYDZKOWSKI
Chairman, Transport Policy Department
University of Gdansk
Department of Transportation Policy
Armii Krajowej 119/121
PL-81-824 SOPOTPOLAND
Dr. Brian SLACKDistinguished Professor Emeritus
Concordia University
1455 Blvd de Maisonneuve
H3Y 1H9 W. MONTREALCANADA
Dr. Dong-Wook SONG
Reader in Maritime Logistics
Logistics Research Centre
Heriot-Watt University
GB-EDINBURGH EH14 4AS
UNITED KINGDOM
Dr. Frank SOUTHWORTH
Principal Research Scientist
Georgia Institute of Technology
School of Civil & Environmental Engineering
790 Atlantic Drive
SEB Building, Room 324
30332-0355 ATLANTAUNITED STATESDr. Susan STONE
Senior Research Fellow
Asian Development Bank Institute (ADBI)
Kasumigaseki Building 8F
3-2-5 Kasumigaseki,Chiyoda-ku
100-6008 TOKYOJAPAN
Prof. Siri Pettersen STRANDENES
Norwegian School of Economics and Business Administration
Centre for International Economics andShipping (SIOS)
Helleveien, 30
N-5035 BERGEN-SANDVIKENNORWAYPORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009165

166 – LIST OF PARTICIPANTS
Mr. Louis S. THOMPSON
Principal
Thompson, Galenson & Associates
2804 Daniel RoadCHEVY CHASE, MD 20815-3149
UNITED STATES
Prof. Dr. Jose TONGZONInha University
Graduate School of Logistics
MGLM International Relations
263 Yonghyun-dong
Nam-gu402 751 INCHEON
KOREA
Drs. Larissa van der LUGT
Senior Researcher
Erasmus Universiteit Rotterdam
School of Economics
Port Economics Division
Postbus 1738
NL-3000 DR ROTTERDAM
NETHERLANDS
Dr. Thierry VANELSLANDER
Research Director
University of Antwerp
Dept of Transport and Regional Economics
Prinsstraat 13
B-2000 ANTWERPBELGIUM
Prof. Thomas WAKEMAN
Deputy Director
Stevens Institute of Technology
Center for Maritime Systems
Davidson Laboratory
711 Hudson
07030 HOBOKEN
UNITED STATES
Dr. Christian WENSKE
Universität Rostock
Ostseeinstitut für Marketing, Verkehr und Tourismus
Ulmenstrasse 69
D-18055 ROSTOCKGERMANYPORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009

LIST OF PARTICIPANTS -Professor Wesley W. WILSON
Department of Economics
University of Oregon
EUGENE, Oregon 97403
UNITED STATES
Dr. Allan WOODBURN
Senior Lecturer
University of Westminster
Transport Studies Department
35 Marylebone Road
GB-LONDON, NW1 5LS
UNITED KINGDOMINTERNATIONAL TRANSPORT FORUM SECRETARIAT
Mr. Jack SHORTSecretary General, International Transport Forum
Mr. Alain RATHERY
Deputy Secretary General, International Transport Forum

JOINT TRANSPORT RESEARCH CENTRE OECD/ITF
Mr. Stephen PERKINSHead of Joint Transport Research Centre
Dr. Kurt VAN DENDER
Principal Administrator, Joint Transport Research Centre
Dr. Michel VIOLLAND
Administrator, Joint Transport Research Centre
Dr. Jari KAUPPILA
Administrator, Joint Transport Research Centre
Mr. Philippe CRIST
Administrator, Joint Transport Research Centre
Mlle Françoise ROULLET
Assistant, Joint Transport Research Centre
Mrs. Julie PAILLIEZ
Assistant, Joint Transport Research Centre

PORT COMPETITION AND HINTERLAND CONNECTIONS – ISBN 978-92-821-0224-4 - © OCDE/FIT 2009167

168 – LIST OF PARTICIPANTS

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R E S E A R C H
T R A N S P O R T

143
R O U N D TA B L E

Concentration among shipping lines andterminal operators may generate market
power. National competition authorities havethe power to address this but might not fully
appreciate the international dimension.
Greater port throughput meets with increasing
resistance from local communities because ofpollution and congestion. In addition, local
regulation is warranted but made difficult by
the distribution of bargaining power among
stakeholders. Higher-level authorities could
develop more effective policies.

PORT COMPETITION AND
HINTERLAND CONNECTIONSThe sector has changed tremendously in recent
decades with technological and organisationalinnovation and a powerful expansion of
trade. Although ports serve hinterlands thatnow run deep into continents, competition
among ports is increasingly intense and theirbargaining power in the supply chain has
consequently weakened. Integration of supplychain operations on a global scale has greatly
increased productivity but raises issues of bothcompetition and sustainability.

C E N T R EThis Round Table publication discusses
the policy and regulatory challenges posed by
the rapidly changing port environment.

PORT COMPETITION
AND HINTERLAND
CONNECTIONS

ROUND
TABLE

14 3