Industry Ponders

Capt. Manral D K
General Manager (Port Head)
Dahej Birla Copper Jetty
Gujarat, India

In today’s changing economic environment port managements (Port authorities) face many challenges. They often are or have been in transition process towards more autonomy and more commercial focus. The goals of port management are strongly linked to enhance the performance of the port as whole, while they also have to increasingly focus on their own performance (e.g. return on investment). In general, port authorities/managements need to secure the licence to operate of the port as a whole. They need to show the government and the public at large about the economic relevance of the port and their efforts to reduce external effects like pollution and port congestion on one hand and while on the other hand demonstrating a strong sustainable financial performance and economic value addition.

To fully grasp the topic of “Port reforms and sustainable port operations & management”, it would be worthwhile to go over the history of turnaround of Dublin port to understand “The role of port management and various alternative port management structures. And how Dublin Port Company, the company that manages Ireland's largest port turned their business around over the past 15 years i.e. went from loss making to profit making entity”

Story of Turnaround of Dublin Port:

Dublin Port is Ireland’s biggest sea port. It has both historical as well as contemporary economic importance. Approximately two-thirds of the Republic of Ireland's port traffic goes via Dublin Port. Dublin Port, as an organisation, has a long and remarkable history, of over 300 years from 1707 to date. Today the port is operated by the semi-state Dublin Port Company, incorporated on 28 February 1997.

Until recently Dublin port like most other traditional ports was involved in conducting the entire port activities by itself. In 1982 Dublin Cargo Handling Company (DCH) a wholly owned subsidiary of Dublin port and Docks board (DP&DB) was established and it took over the stevedoring operations at Dublin port. Due to a combination of factors this company was losing money and the port was further burdened with over staffing, lack of modernisation and affected by labour union strikes.

The restructuring of Dublin port started in late 1992 and early 1993 with the proposal providing for restructuring and redundancies. During this process, redundancy package, re-education, upgrading of skills and alternate trainings were provide to the staff. To start with, Dublin Port which was a service port till then changed to becoming a Tool port in 1994. It also licensed stevedoring and then made many changes to again move towards becoming a Landlord port and then being finally corporatized in 1997.

The port has become highly competitive & profitable, of late. It has been attracting business from nearby ports which has led to Dublin Port authorities exploring a proposal to in-fill 21 hectares (52 acres) of Dublin Bay.

Today, Dublin port is a success story and has almost 7400 ships movements each year carrying imports and exports to the value of €35 billion as well as 1.5 million tourists on ferries and cruise liners. Over 700,000 Roll-on, Roll-off (Ro-Ro) units pass through this port each year which makes Dublin as Europe’s 7th largest Ro-Ro terminal. Dublin port’s efficiency in unitised trade had led to port’s rate today being 10% lower than what it was in 1988.

Drivers behind the success story of Dublin Port:

Analysis of company’s success would highlight that Dublin Port Company’s management was successful in making and implementing tough decisions with a human face i.e. large scale redundancy and modernization of port. The other key success factors of the company was becoming proactive and customer focused and timely investment made in developing port infrastructure (precisely, the company invested over € 300 million in port infrastructure leading to easy and uncongested access to Dublin port i.e. Dublin port tunnel).

It efficiently carried out value creation in the port business ecosystem, by resolving the over staffing and inefficiency problems in port by reducing its staff from 700 to 150, resourceful use of land at Dublin port, introduction of intra-port competition by having 8 independent terminal operators working in Dublin port, building efficiency drivers in all operations of the port and basic revenue flow systems, efficient use of customer relation management tool to increase traffic and cargo throughput through Dublin port, introduction of an efficient IT systems in port with direct connections with government agencies, customers and port users leading to transparency, faster movement of goods and decongesting port of Dublin.

Customer focus, innovation, cost effectiveness and competitiveness are the core strengths of the Dublin Port Company. The company had inherited a pension fund deficit when it was corporatized in 1997. It went on towards building a € 200 million pension fund that met the minimum funding standard; and toady it has reserves in place for investing € 500 million capital investment programme over the next 10 years. These efficiency drivers led Dublin Port to become the most efficient and preferred port in Ireland. The competitiveness drove the efficiency of unitised trade and yet the rate today is 10% lower than what it was in 1988.

Having seen the turnaround of Dublin port myself, following points in brief would address the issues related to Port reforms, sustainable port operations & management:

Reasons for Pursuing Port Reforms for any Port authority:

Port management must clearly identify the reasons for Port reforms and the general reasons for majority of the port reforms can be improving port efficiency; decreasing costs and prices; improving service quality; increasing competitive power; and change in the attitude with respect to port clients.

In terms of administrative and managerial reforms, depoliticizing the public port administration by reducing bureaucracy; introducing performance-based management; and avoiding government monopolies need to be carried out.

Another area of reforms which play an important role are Financial reforms for reduce public expenditure; attracting foreign investment; reducing commercial risks (investments) for the public sector; and increasing private sector participation in the regional or national economy.

Employment related issues could also be the reasons as to why any port authorities would think about pursuing port reforms. These reforms can be undertaken by a port authority for reduction in the size of the public administrations; restructuring and retraining the port labor force; eliminating restrictive labor practices; and increasing private sector employment.

Aspects where Reforms can be carried out by Port Authorities:

Port reforms can be carried out by a Port Authority in various aspects of port operations. These reforms can vary depending on the type of reforms that an authority wishes to carry out, the level of reforms that need to be brought in and the objectives behind bringing such reforms. These reforms can be brought in by changing the model on which any port is functioning, the goal about the type of competition/monopoly that a port wishes to create for itself, the value added services that is proposes to add to this spectrum of services and the goals for conducting these reforms.

Port Administration Models:

Of the various factors which influence port reforms, the ways ports are organized, structured and managed include play an important role. These factors include:

• The socio-economic structure of a country ( e.g. market economy);
• Historical development ( e.g. former colonial structure);
• Location of the port ( e.g. within an urban area, in isolation region); and
• Types of cargo handled (e.g. liquids and dry bulk, containers).

Keeping these basic needs in view, four main models of ports administration have emerged over time which are Public service ports; Tool ports; Landlord ports; and fully privatized Port or Private Service ports.

These models differ with respect to characteristics such as Public, private or mixed provision of services; Local, regional or global orientation; ownership of infrastructure and equipment (i.e. ship to shore handling equipment and ware houses); and Status of dock labour and management.

Differing Characteristics of Port Management Models

Inter and Intra Port competition:

Inter-port competition (i.e. competition between different ports) and intra-port competition (i.e. competition between different enterprises/terminal operators within one port) has a bearing on the management structure of the port and the relations between the port management, the terminal operators and cargo handling companies. Many port managements consider the creation of competitive conditions among port operators as the cornerstone of their port policy. To reduce the risk of monopolies, port authorities usually stimulate intra-port competition.

When inter-port competition is muted or absent, Port management or public or private terminal owners are apt to use their monopoly market positions to raise tariffs, which may justify regulation. Hence to serve the customers in the best possible manner, a port must help develop a healthy competition in inland transport system, transshipment, freight forwarders and multimodal transport operators.

Value added services to build port sustainable competitiveness

From the port’s point of view, creating new services boosts economic performance as well as its attractiveness to existing and potential clients. This, in turn, can help maintain and improve a port’s competitive position. Prior to developing new services, it is important to pay attention to the value adding potential of the services. This potential can vary product by product and activity by activity. Numerous activities can be classified as value-added services (VAS). Diagram on the right identifies a number of them. VAS can be divided into value-added logistics (VAL) and value-added facilities (VAF). VAL has two major components: general logistics services (GLS) and logistics chain integration services (LCIS).

Goals of Port Reforms:

Before deciding on the port reform processes & structure, it should be made clear as to what were the Managements ultimate goals of reform. Presently there can be two broad alternatives:

• The public authority in charge of the port sector (either a service port or a tool port) just wants to restrict Port authority’s role by privatizing cargo handling operations and other non landlord activities. In this case, existing operations have to be privatized or corporatized and service or tool ports are "reconstituted as a landlord port". Here the goal is towards achieving partial privatization;
• The public entity that has final responsibility for the port sector (the national government) wants to privatize the entire sector, including responsibilities that generally are considered belonging to the public domain (Port Authority). Ownership of port land, planning, investment and management are all transferred to private sector entities, which have no formal commitments to any public institution. Here, Comprehensive privatization is the goal.

Conclusion:

Most of the port managers and government officials believe that the only way to improve the performance of public port organizations is through the process of privatization. This view is held in general because it is believed that certain characteristics of the private sector are indispensable to achieve commercial success. The term privatization has therefore become synonymous (and confusingly so) with port reform. Privatization, however, more accurately refers to one aspect of port reform—the introduction of the private sector into areas previously reserved to the public sector, finally resulting in the transfer of port land into full private ownership. Governments and port managers can select from a variety of strategies for improving organizational and operational performance, including modernization of port administration and management; liberalization or deregulation port services; commercialization; corporatization; and privatization.

Each of these options may be equally valid and successful forms of port reform, depending on the setting of the port in question. However before embarking on the process of port reforms the management should carry out a detailed analysis of the situation prevalent and relevant to the port, the reasons behind targeting port reforms, the way these port reforms would be carried out, the necessity of choosing a particular channel along with understanding its pros and cons and other such intricate details which would in one way or the other define the success or otherwise of the reforms so conducted.

Manral D.K completed full time MBA in Strategy and Finance from Trinity School of Business and has done research project at Dublin port on “Port reforms, building sustainable competitive advantages and port growth”. He obtained Master Mariners from UK. He has over 30 years of experience in maritime sector including having sailed as Master, being marine consultant and presently he is General Manager heading Birla Copper jetty at Dahej (Aditya Birla Group). He is also Business excellence assessor for Aditya Birla Group. He may be contacted at manraldk76@hotmail.com