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Chapter I
Introduction
This research is an empirical study about the competitive strategies implemented by the
Copenhagen Malmӧ Port and the Port of Venice.
The work is articulated in two chapters. The first one is an introduction to the issue; it
explains the changes in the global transportation industry and examines some responses
provided by the literature in terms of what kind of strategies ports are implementing or
should implement. Such a preamble is needed, since over the last decades, worldwide
transportation, and especially the maritime sector, has undergone several radical
changes which have re-shaped the competition in the port industry as well as the role of
single ports in global transportation patterns. The implications in ports competitive
strategies are substantial.
Under these conditions, the comparison between the two case-studies is discussed in the
second chapter. Even though the ports of Copenhagen-Malmӧ and Venice are two
harbors poles apart in Europe, they can be compared under some interesting points of
view.
First of all, they both are medium-sized ports; thus it is possible to compare them
because they have similar throughput dimensions. As a consequence, they have to face
analogous issues in terms of efficiency, lack of economies of scale, maritime and
foreland accessibility, impossibility to accommodate big trans-oceanic vessels and the
likes. Therefore it is interesting to analyze how they behave in parallel situations.
The likeness of challenges depends also on the fact that the two harbors are operational
in almost the same business areas: containers, liquid and dry bulks, roro, ferries, cruise
ships and logistics. There are only a few exceptions, like for instance, the new cars
handling segment which is operated by the Copenhagen-Malmӧ Port, but which the Port
of Venice lacks. Thus again, a comparison among strategies and behaviors is possible
and interesting. The different business areas are only mentioned when they deserve an
analysis. The cruise ships segment is of particular notice since both Copenhagen and
Venice are growing cruising destinations. Also logistics is interesting because it is one
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of the springboards for the further development of the two ports, together with the
container segment.
Another aspect of comparison regards the nature of feeder port that Copenhagen-Malmӧ
and Venice have in common. This aspect basically means that they have been set aside
major trans-oceanic routes and that they rely only on regional traffic. Nevertheless,
important development opportunities arise from the possibility of becoming regional
gateways and logistics poles for regional distribution. The context of the Trans-
European Transport Network project should offer them more interesting opportunities
of growth to this respect.
A fourth feature of comparison emerges from the deep involvement of both realities in
port networks. Each harbor is part of more than one inter-port alliance, with some
similarities and some differences. For instance, the Copenhagen-Malmӧ Port was born
by means of a merger between two ports, thus by means of the tightest form of
cooperation. The Port of Venice is part of the North Adriatic Port Association which
operates as a collaborative network, but it doesn t exclude any form of competition
among its members.
Despite all these similarities, the Copenhagen Malmӧ Port and the Port of Venice differ
in their proprietary structure. The first subject is established as a limited liability
company, while the latter is managed by the Venice Port Authority, a public body
representing the Italian State within the port area. This dissimilarity makes the
comparison even more appealing, since it substantially affects the area of competence of
the two port operators, i.e. to what extent they can intervene in the management of
operations and investments.
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Chapter II
Changes in the port competitive arena
In this chapter, major changes in the global transportation industry will be analyzed.
They are of interest since they have substantially shaped the competitive arena and since
they have affected ports strategies and ways of vying.
2.1 Trends in the shipping-line industry
Shipping lines are the major customers for port operators. Therefore, it is important to
point out the unfolding trends in the industry, as they have considerable rebounds in
port s strategies, which have to be re-shaped so as to match the evolving demand.
The shipping-line industry is undergoing three main changes: restructuring
(concentration and rationalization of operators); differentiation in provided
transportation services; quest for greater operational coverage and economies of scale
by means of transshipment strategies and by deploying bigger vessels. These
transformations are the outcomes of a complex evolution originating in the container
revolution of the commercial sea transport begun in the 1960s. Consequently, the
analysis will start from the very beginning of the process.
2.1.1 The development of intermodality
Containerization brought several relevant changes in international trade flows and it has
been the pivot of the globalization of commercial transport and of the worldwide spread
of intermodal transportation1. First of all, the use of container facilitates the physical
movement of freights from a transport mode to another one, substantially fostering the
development of intermodality. In this respect, container succeeded in matching its
original aim that was speeding dockside cargo transfers from ship to shore and vice
versa and hence reducing vessels dwelling times at berths. Ports used to be the major
1
Intermodality consists in the combined transportation of more than one transport mode; i.e. trucks, rails,
barges, sea vessels and even aircrafts in the case of high-value commodities for which transportation cost
has almost no relevance in the total cost of the good.
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point of interruption, and generally real bottlenecks, in long-distance cargo
transportation, while today they are nothing but links in the intermodal transportation
chain.
The efficiency improvements, following containerization, have allowed cutting the total
cost of global shipping, enabling goods to be hauled further for the same previous price,
thus making the world logistically smaller and enlarging both a port s hinterland and the
geographic scope of inter-port competition. For most of the goods, not a big difference
in costs and prices derives from a more or a less long distance to be covered. This new
situation results in the formation of overlapping port hinterlands, in consequence of
their widening, that finally led them to clash an d thus overlie one with each other.
This ultimately rendered in higher substitution levels between harbors in the same
region and in the fact that many ports that weren t rivals before the deployment of
containers are now considered in competition.
For instance, quoting an example reported by Cullinane and Song (2001), the ports of
Hong Kong and Kaoshiung weren t regarded as competitors since they served two
different hinterlands: respectively South China and Philippines. Nowadays the
aforementioned regions constitute a single larger hinterland.
Moreover, as in Notteboom and Winkelmans (2004), evidence exists that Northern
Range ports are now competing with UK ports, especially for transshipment traffic, and
with Mediterranean ports too, since both port systems are in a good position to serve the
economic heartland of Europe.
Another remarkable case of an enlarged hinterland subsequent to the development of
intermodal transportation is provided by the port of Rotterdam2. This harbor has always
been the gateway for Europe in general, but the big majority of goods where exclusively
destined to France, Benelux and Germany along the Rhine River, whereby they were
shipped by barges. In the mid of the 1990s, the development of many shuttle-train
services from the port of Rotterdam to other locations and vice versa, literally allows the
expansion of its traditional hinterland towards Eastern and Southern Europe. The most
emblematic example is the shuttle-train service with Northern Italy (Novara, Milan and
Padua). This service has lowered the generalized transport costs on the Rotterdam-Italy
2
Source: Van Klink and Van den Berg (1998)
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linkage, in terms of reliability and speed, and has thus contributed to the enlargement of
the Rotterdam hinterland for containers.
Secondarily, it has to be pointed out that the shipping of containerized goods is a
homogeneous product, no matter if freights are shipped either through a port or another
one or by sea-vessel or land-transportation. This makes easier for a shipper to switch
from a port to another one, or even from sea-transportation to land-transportation,
rendering in fiercer inter-port antagonism and in the birth of inter-transportation modes
rivalry.
In particular, the increased competitiveness of land-transportation has favored the
development of alternate shipping routes with the consequent emergence of new harbors
as, for instance, Amsterdam and Flushing in the Hamburg-Le Havre range3.
Consequently, ports may have to vie not only with traditional competitors in the same
region (neighboring ports), but also with new competitors that both might be localized
in other regions and may not even be seaports, but for instance inland ports.
Hence it can doubtless be stated that the nature of competition has completely changed,
since intermodality decreed the end of traditional hinterlands as markets contiguous to
port s location for the sake of network-shaped hinterlands and since it decreed the
emergence of new kinds of competitors. This resulted in the fact that, nowadays, a port
may serve markets that are geographically far but logistically nearby with dramatic
consequences on inter-port competition.
Anyhow, intermodality is not the only reason behind the strengthening in competition.
As a matter of fact, due to changes in the global transportation system and due to
mergers and acquisitions in the shipping industry4, shippers now operate on a global
scale and, therefore, have more options when choosing the port of call.
In particular, they have the power to base their choices on the amount of the generalized
transport cost, thus considering the entire network from foreland to inland; from place
of origin to place of destination. They don t really care either about the mode of
transportation in use and about the midway stops or the route, but they only care about
3
Source: Heaver , Meersman and Van De Voorde (2001)
4
See paragraphs 2.1.2 and 2.1.4
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moving goods from origin to destination at the lowest possible cost and shorter time.
So, whenever transportation accounts for a large proportion in the final cost of the good,
there s a tough competition between different ports in the region and even between
different transport modes.
Shipping lines may call a port that is further from the final destination of the
merchandise and then ship it by rail or truck (i.e. by means of a land-bridge), because
intermodality enables them to bear a generalized transportation cost that is lower than
the one to be borne if calling the closest port to the final destination. In the majority of
cases, these kinds of switch are not due to any problems within the dismissed port, but
to external reasons and non-port-related factors, such as the opportunity of exploiting
rail-bridges, or round-the-world services; thus considering the whole transport network
from origin to destination and not considering only the port. For instance, as it will be
shown in paragraph 2.1.4, switches may be due to the rationalizations in service
schedules of shipping lines, to mergers or alliances between shipping lines for joint
operations, to the re-organization of traffic flows and networks: all operations that are
settled by shipping lines themselves without consu lting any port operator.
There are many interesting examples of the described phenomenon. One of them is
reported by Martin and Thomas (2001). In the 1990s, Japanese and U.S. carriers
decided to ship all goods coming from the Far East to the Pacific U.S. coast and then
move them by water and land-bridge routes to the Eastern part of the States; instead of
calling Western ports for the goods directed to the West coast and calling Eastern ports
for the goods destined to the East coast.
The threat of substitution coming from inland transportation is more dangerous for
feeder ports, such as many harbors in the Baltic and Mediterranean. For instance, there
are many inland and maritime transport alternatives from/to German and Italian
seaports, that subtract traffic flows to many Mediterranean ports.
These sorts of changes may be very dangerous for ports if they result in traffic decrease.
For instance, the port of Keelung (Taiwan)5, saw its traffic connected to North-West
Europe drop from 23% in 1995 to almost 0 in 2001, due exactly to re-organization in
sailing schedules operated by shipping lines and consequent dismissing of ports than
5
Source: Yap, Lam and Notteboom (2006)
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weren t able to generate sufficient volumes coming from their own hinterland demand,
just like Keelung. The traffic diversion was particularly unfortunate for the Taiwanese
port because it regarded volumes provided by major shipping lines, such as Evergreen
and MSC and thus determined a huge fall in sales and revenues for the harbor.
Analogously, the Grand Alliance temporarily shifted one of its five Europe-Asia
services from Rotterdam to Antwerp because it was experiencing delays in the Dutch
port. This decision shifted approximately 125 thousand TEUs on an annual basis6.
The basic problem for ports is that they have lost their advantage coming from a close
location to production centers or final markets and therefore the traffic of traditional
hinterlands can no longer be guaranteed. Their monopoly position for the import/export
flows of the region of influence has considerably weakened and ports are no longer sure
that the traffic generated by their host city will pass through their docks. As already
mentioned, the freeing of freight movement due to containerization has broken the
traditional concept of hinterland basically corresponding to the region surrounding the
port (captive hinterland). As a consequence, seaports can no longer expect to attract
shipping lines just because they are natural gateways to a rich and/or appealing
hinterland, but they have rather become marginal in the organization of international
trading routes.
This trend is further enhanced by the creation of intermodal corridors and inland
terminals, fostered by the TEN-T project7 of the European Union. For instance, even
though a large part of the throughput of European ports remains locally generated and
fed by the port s centrality with respect to a strong regional hinterland, most European
container ports are witnessing a dramatic increase in the relative importance of long-
distance transit flows and transshipment traffic8.
Additionally, many activities that were traditionally considered dock activities have
become less locally differentiated, thus it doesn t really matter where they are carried
6
Source: World Bank (2007)
7
The TEN-T (Trans-European Transport Network) project implies the creation of several transport
corridors both by land and by water within the European Union boundaries.
8Source: Notteboom and Winkelmans (2004)
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out, but it rather matters how they are performed, that is more or less efficiently and/or
costly. At the present time, only strictly seaport-bound activities (i.e. bound to the
quays, with the ship as a focal point of the activities) are captive to seaport areas, thus
are not footloose. All the other activities are more and more often carried out off-dock,
in inland load centers. As witness by the Keelung case, even long-standing customers
demonstrate low fidelity to their previous traditionally called port.
Finally, because of the enormous bargaining power of shipping lines, ports have even
been defined as pawns in the game 9 of global transportation ruled by huge
international companies. They have to strongly commit in developing and implementing
strategies in order to get a competitive advantage over inland routes, or at least in order
to cope with this competition. These strategies will be analyzed later on.
2.1.2 Vertical integration
The development of intermodality has had another relevant consequence for
competition in the port industry: vertical integration in the shipping industry. Shipping
companies are turning into complete all-inclusive logistics operators for goods
hauling (the so-called megacarriers ), providing a ll the needed services on a
worldwide scale from place of production to place of consumption. Explicitly, this
means that shippers become able to manage and control all the intermediate steps in the
transport chain, broadening the scale and the scope of their activities generally by
means of mergers, acquisitions and alliances with other operators in the same transport
corridor.
Slack and FrØmont (2005) estimated that 50% of the generalized container transport
cost arises in the terminal; thus the internalization of this part of cost enables shipping
companies to have stronger control over the total transportation cost, as well as over
operations. This operation ultimately permits to shippers to be more efficient in the
provision of the integrated transport service.
The vertical integration phenomenon has been demand-driven since the reason behind it
resides in the requirement by manufacturers of an integrated logistics package (e.g.
9
Source: Slack (1993)
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including terminal operations and inland shipping) rather than just the shipment of
merchandise, so as to have a very small number of counterparts in the haulage process.
There are many different sorts of vertical integrations, depending on what a specific
company is willing to incorporate and provide to the customer.
Conditional on the kind of integration amongst companies operating at different stages
of the same transport chain, the range of offered services is quite extensive. For
instance, a cargo handling operator may decide to provide also logistics services at the
quays or in the harbor area, such as assembling, good storage, value added services like
product customization according to local market requirements or regulations (e.g. in the
case of cars) and distribution. Analogously, a shipping company may opt for the supply
of both cargo handling and logistics services.
In particular, shipping companies are increasingly interested in gaining more control
over inland transportation, since the portion of inland cost over the total cost for
container shipping has been estimated to range from 40% to 80%10. Control over inland
hauling may be achieved for instance sharing capacity in trains out of ports, as it
happens on the route between Rotterdam and Italy11. The aim may also be reached by
means of dedicated shuttle-trains from a terminal to a specific inland depot, in
collaboration with a land carrier (specifically a rail operator). In particular, M rsk
Sealand has gone rather far managing inland transportation by the European Rail
Shuttle settled up ad hoc in joint venture with P&O Nedlloyd, thus bypassing the freight
forwarder.
Finally, as it will be discussed in paragraph 2.1.3, shipping lines take control over
terminal operations by means of dedicated terminal in the port of call.
Figure 2.1 shows an example of a vertical integration operation settled by a shipping
company.
10
Source: Notteboom and Winkelmans (2004)
11
Source: Heaver, Meersman, Moglia and Van de Voorde (2000)
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