If a shipping line seeks to maximize profits, it will have been rational in including a port in its vessel transportation network if the revenue from this decision exceeds the cost. What are the factors that affect the revenue received and cost incurred by a shipping line’s ship in the provision of service over a network? These factors may be described as determinants of a shipping line’s port choice. One such factor is port consignment size, i.e., the amount of cargo to be loaded on ships. The larger the port consignment size, the greater the likelihood that a shipping line will have its ships call at a given port.
A shipping line’s liner (scheduled service) pricing policy will also affect whether a port is included in a ship’s transportation network. Equalization liner pricing is a port-to-port liner pricing scheme whereby the freight rate (or price) for cargo is the same from any main port in a port range (on one end of a ship’s round-trip route) to any main port in a port range on the other end. If the shipper is responsible for inland transportation costs to and from ports, the shipper would minimize total transportation costs (ocean and inland) by having the cargo shipped to the port that is nearest to the shipper’s location. Thus, equalization liner pricing results in natural hinterlands for ports, contributing to ships having multiport itineraries and the duplication of port calls on a round trip over a given network.
Absorption liner pricing is a door-to-door liner pricing scheme whereby shippers are charged a door-to-door rate independent of port choice. The rate is payment for ocean and inland transportation services. Absorption pricing dissipates the natural hinterlands of ports. Also, it shifts the port choice decision from the shipper to the shipping line. Under absorp-tion pricing, the shipping line is responsible for obtaining land transportation carriers (e.g., truck and rail) for transportation of cargo to and from ports. In particular, the shipping line may use these carriers to transport cargo to and from one port in a range of ports. The port
where cargo is concentrated is often referred to as a load-center port. A load-center port allows the shipping line to use relatively large ships to call at the port and thus to take advan-tage of ship cost economies of ship size at sea by calling at fewer ports. The convexity ratio for ocean transportation is the ratio between maritime distance saved (or incurred) and inland distances thereby incurred (or saved) from a ship calling at a par-ticular port. A ship call at a neighboring port may add little to the maritime distance of trans-ported cargo, while perhaps achieving significant savings in inland distances, thereby increasing the likelihood that the ship will call at the neighboring port.
Shipping lines will seek to minimize the amount of time that larger ships are in port in order to take advantage of their ship cost economies of ship size at sea. Ports that can accommodate larger ships while maintaining fast ship turnaround times (i.e., time differences between ships entering and leaving a port) will likely see an increase in the number of calls by larger ships. Ports with relatively shallow water depths will likely experience a decline in ship calls over time as ships increase in size, conversely for ports with deep water depths.If a port in a port range charges significantly lower port prices to shipping lines than another port in this port range, the greater is the likelihood that the former port will be chosen by shipping lines over the latter port in this port range. Also, if one port has superior inland transportation connections, existing port relationships (or a service history) with a given shipping line, and closer access to trade lanes, the given shipping line is more likely to choose this port over another port in a port range. If one port in a range of ports is sub-ject to less port government regulation (e.g., economic, safety, and environmental regula-tion) than another port, the former will more likely be chosen as the port of call in this range than the latter, all else held constant.
Port calls may also be affected by mergers, acquisitions, and alliances in the shipping line industry. If a merger between two shipping lines occurs, a new shipping line is created con-sisting of the merged lines. If one shipping line acquires another through acquisition, the two shipping lines and their names will remain intact. The former line obtains ownership of the latter. Two or more shipping lines may also form an alliance to share ships. All three trans-actions – mergers, acquisitions, and alliances – may be undertaken to achieve lower unit costs through deployment of larger ships. If a shipping line that is involved in any one of these three transactions has dedicated marine terminals, the other lines involved in these transactions would be expected to shift their calls to these terminals and away from the common-user terminals (that were formerly used prior to the transactions) in a given port.
If the ownership of a port and/or its marine terminals changes, port calls by shipping lines may be affected. For example, a government-owned port may be privatized (i.e., sold to a private global terminal operator), resulting in an improvement in the quality of service pro-vided and, in turn, an increase in port calls. Also, a former common-user marine terminal may be leased to a shipping line to become the line’s dedicated terminal, therefore eliminat-ing calls of ships at this terminal except for those of its own ships and those of the affiliated (via an alliance) shipping lines.
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