Richard Davies


Boosting competition

Ports in the storm

The Economist

Competition, shipping, microeconomics, structural reform

LISBON'S harbour mixes pleasure with business. Bars and restaurants sit alongside industrial machinery and colossal container ships. The combination works: shiny cranes gleam in the sunset as tourists and locals eat and drink at the water's edge. But Portuguese ports are a less happy blend of private and public control. The newish government is set to take a fresh look at ports as part of a wider programme of IMF-mandated structural reforms. What should it do?

Passing through seaports can be expensive, accounting for a big chunk of goods' wholesale costs. Price-sensitive shippers will seek out prime ports, looking for value, speed and reliability. Port efficiency is in turn linked to ownership structure.

In general, private-sector involvement improves things. Typical benefits include shorter queuing times, cheaper container unloading, longer opening hours and higher capacity utilisation. Until 1984, Portugal's ports sat at the state-controlled end of the ownership spectrum (much of the country's aviation infrastructure still does). Since then, they have gradually moved to an intermediate public-private “landlord” model. This can work well: the government owns the land and water access, while private firms finance, build and operate tugboats, cranes and warehouses.

This liberalisation process has made Portuguese ports better—investment has increased capacity and productivity has improved. But further improvements are needed, according to Rui Marquez and Carlos Cruz of the Technical University of Lisbon, if Portugal is to compete effectively for container ship business.

These ships keep on getting bigger. The bulkiest vessels can carry 14,000 twenty-foot containers—a cargo that would require a train 85km (53 miles) long if transported by rail. The result is huge economies of scale: the cost per container on an Asia-to-Europe trip has fallen from around $1,000 to below $300, according to one study.

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