Panama (16%) combined. In the case of Brazil, container traffic is driven by the size of its market, while in the case of Panama, transshipment is the leading factor. Mexico, Chile, and Colombia have 7% to 10% of the share of container flows each. Combined, Caribbean islands capture about 13% of containerized flows due to their strategic location connecting many intercontinental maritime routes (ECLAC, 2012). In Central America alone, containerized cargo represented only 40% of all cargo handled in 2003, by volume. By 2011 this share increased to 59% (COCATRAM, 2011). Another factor that has helped increase container traffic is larger ship sizes being acquired by shipping lines. According to CompairData (2013), the average capacity of container vessels servicing Latin America has doubled between 2000 and 2011, from roughly 2,000 TEUs to over 4,000 TEUs, a trend that has intensified since 2007.

On account of the continued maritime trade growth across LAC and the larger vessel sizes, many countries are already expanding their container handling facilities and setting in place institutional reforms to accommodate increasing demand. Beyond the major transshipment ports of the Caribbean and large container terminals of Brazil, Argentina, Uruguay and Chile, expansions can be seen even in the smaller sub-regions, such as Central America, where neighboring ports are competing for resources to retain and attract more direct liner services.

In terms of institutional reforms, from the early 1990s many LAC countries (including Argentina, Colombia, Chile, Brazil, Mexico, and Panama) started the dual processes of decentralization and concessions, transitioning ports to a landlord system with high foreign participation (Sanchez et al., 2004). In the last two decades, LAC countries have been very active in moving forward port service concessions. In our sample of 67 ports in the region, in 2009, almost two thirds had privately operated terminals under concession agreements.

# **b. Motivation**

The dynamic growth in container shipments, ongoing investment in physical capacity, and institutional and market reforms indicate that both private and public actors in the region could benefit from a rigorous assessment of the current and achievable efficiencies in the LAC port sector. Several benchmarking studies have addressed efficiency calculations either through case studies or through estimation of technical efficiency frontiers; however, to the best extent of our knowledge none of these studies focused on a large sample of ports in LAC.

One of the reasons for the dearth of LAC-specific analyses to date has been the lack of data. In an effort to fill the existing gap of harmonized time series data and, therefore, develop an analysis of port technical efficiency in the region, we have put together a database that draws primarily on information provided in the Containerization International Yearbooks (Degerlund, 2009). While the information is available on a country-individual basis, the data are scattered over various publications and editions.

In order to assess port technical efficiency, we employed an econometric model based on a Stochastic Frontier Analysis (SFA). The model consists in the estimation of a production function for container terminals, in which cranes, berths, and terminal area are the inputs, while port container throughput is the output. As a result, time-varying technical inefficiency is calculated as part of the residual term, conditional on a set of independent variables, which is later transformed into a technical efficiency variable with range from 0 to 1. The results provide a guideline for understanding technical efficiency’s explanatory factors and trends across time, sub-regions, and countries. Moreover, they are a valuable input for regulatory and operational decision making in the port sector.

The application of this model in LAC poses challenges in the attempt to consider all sources of productivity in container ports. The first challenge is the use of cranes mounted on vessels, which 3