Access to ports, and to port infrastructure - The key service industry

In previous Ports and World Trade articles, we provided an overview of various approaches to procuring the development of whole-of-port infrastructure and port infrastructure, and procuring the provision of port services at bulk ports. It is difficult to overstate the importance of ports to world trade: an estimated 85% to 88% of the international trade in goods is seaborne (and associated inland waterways), with seaports being an integral part of that trade.

Ports are key to the maritime logistics system as part of effective supply chain management (SCM). Ports and the port services provided at ports can affect the efficiency of supply chains. Increasingly the competitiveness of service providers in the supply chain is influencing how ports respond to the need for efficiency. Just as ports are critical to world trade, so world trade is critical to ports: ports benefit from increases in world trade, and are vulnerable to fluctuations in world trade. In this environment, it is less likely that ports will act as monopolists, even if, in theory, they are able to do so. The history of ports and seaborne trade is a story:

" … of the drivers for global commerce, of cultural interchange and [over time] of the rise and fall of states and political systems."¹  

In short, the existence of ports facilitates trade. Economic development² is, and ports are, dependent on trade. Economic decline impacts trade: in the aftermath of the global financial crisis of 2008/2009, aggregate world GDP fell by 1.9%, and world trade fell by 13%. As the world economy contracted in size, and trades fell, the participants in SCMs had leaner times, as demand contracted and the market in which the participants operated became more competitive.

Access ports and ports infrastructure and services

This article considers access to ports and to ports infrastructure³ by users of ports (port users)⁴ that have access to both marine and land side infrastructure and services within the vicinity of ports. Access to the hinterland of ports (and beyond) is outside the scope of this article, but is something of which port users must be aware for the purposes of effective SCM.⁵ 

To access ports and ports infrastructure, and to be provided with services, port users need legal rights. Legal rights may be contractual or legislative, or both. Port users will have to pay charges and fees in return for legal rights of access and service provision, some charges may be regulated, some not. In the context of trade, the cost of access and service provision within the precincts of each port (marine and land side) is key. In addition, any constraint on efficient access⁶ will be important: as in infrastructure generally, capacity and efficiency is determinative of effective access and service provision.⁷  These are not static concepts, they are dynamic: ports respond to the requirements of service providers in the supply chain and changes in SCM who in turn are responding to the needs of those shipping goods using the SCM.

A future InfraRead Ports and World Trade article will consider transportation to and from ports within the hinterland (and beyond), and the issues that arise, in particular in urban areas (including constraints), the best practices used to overcome those issues (including the use of intermodal terminals), the involvement of governments in the development of infrastructure in response to those issues and least third party access to below rail infrastructure.⁸

Overview

Costs are key: The cost of access and services to port users, among other things, is a function of:

• the cost of developing, operating and maintaining the port and its infrastructure (marine and land side);
• whether the charges and fees payable by port users are regulated; and
• the costs that port users incur when access and services at port are not provided efficiently (critically, the visible demurrage costs and increased berthing and holding costs, but also the less visible inventory carry costs of the goods being at port for longer than anticipated).

In this context, in section 3 we consider activities undertaken within ports and using port infrastructure, and the key charges and fees levied, including channel charges, towage charges, berth/mooring/occupation charges, wharfage (harbour/port dues), stevedore charges and terminal handing charges, and storage and warehousing charges. To these charges, shippers need to add the cost of transport to the port of loading in the case of exports and from the port of discharge in the case of imports.

Functions within the maritime logistics system: It is important to understand the function of ports in the context of the maritime logistics system. As a general statement, the maritime logistics system (as part of the SCM) may be said to comprise three distinct key functions:

1. the freight forwarding function which may include freight forwarders booking capacity on vessels on behalf of those wanting to have goods transported by vessel (shippers). More broadly, freight forwarder services include tracking goods, organising documentation to effect the transportation of goods (including documents of title) and payment on behalf of shippers for services provided by shipping companies/shipping lines and ports and port service providers, and arranging cargo insurance for and customs clearance of the goods. This said, some shippers contract-manage their own arrangements, including contracting directly with shipping companies/shipping lines and ports and port services providers;
2. the shipping function involving the transportation of goods by shipping companies/shipping lines from the port of loading to the port of discharge and to ports for transhipment; and
3. the port function, comprising access to port infrastructure and service provision from port service providers, allowing and managing access to and use of ports, unloading goods from and loading goods onto vessels, providing stevedoring and storage services, and allowing collection from the port and delivery of goods to the port to and from the hinterland of the port.⁹

Across the SCM (of which the maritime logistics system is a part), there are said to be six key factors that can improve efficiency:

• capacity matching among participants in the SCM, to achieve or to improve efficiency;

• information provision in real time among participants, and integrated processes and systems;
• activity and asset specialisation through alliances and cooperative arrangements among participants;
• increased vertical integration at participant level to take advantage of scale;
• market conditions (noting that there is a number of markets within the SCM); and

• policy settings (including economic, and infrastructure and regulatory).

To a greater or lesser extent, some or all these factors apply to each function, and across functions. The first four factors go to a more integrated SCM, in particular capacity matching and information provision, which will reduce cycle times across the SCM and reduce inventory of shippers.

Port function: This article considers the port function. A future InfraRead Ports and World Trade article will consider the contracts and legal principles governing the activities undertaken as part of the freight forwarding and shipping functions (and the key matters in those functions), including Incoterms.

In the context of the port function, ports and the port service providers are concerned about utilisation and the unit costs of undertaking activities and functions at the port.¹⁰  In contrast, port users (being shipping companies/shipping lines and shippers) are concerned about the quality of services they receive, essentially, efficient and timely access to and services at the port, for known charges, and as far as possible at a known total cost,¹¹ including the "internal" costs (as opposed to the "external"¹² costs of contracting with ports and port service providers) of the port user.

As such, the level of port and service charges is not determinative of total cost:

• shipping companies/shipping lines are concerned about the level of utilisation of their vessels (the unit costs of providing transportation services), which can be affected by ports and port service providers, and the increased costs associate with inefficient operation; and
• shippers are concerned about the delivery of goods to market in a way that avoids inefficiency and, critically, are concerned to achieve the shortest period of time from production of goods or purchase of goods (i.e., from when they become inventory) to their sale,¹³ thereby managing the inventory levels, and as such working capital requirements, of shippers.

Functions of a port – the economics of ports: Section 4 considers, at a high level, the economics of ports, including the theoretical ability of ports and port service providers to charge monopoly rents, and, if theory is put into practice, whether, and, if so, how, port users may respond to monopoly rents, commercially and legally, including to achieve some form of price regulation. The capacity and efficiency of a port is affected by capacity constraints (including bottlenecks), and inefficiency of land side access to ports from the hinterland (and beyond). Because of this, key to capacity and efficiency at many ports is the port working with municipalities and governments, communities and transport infrastructure owners and operators to address capacity constraints, and for ports and port service providers to respond to those constraints in a manner that minimises their impact on activities at port.¹⁴

Functions of a port – the regulation of ports: Section 5 considers, at a high level , the basis of port regulation, specifically price regulation. In this context we note that price regulation may be regarded as intended to allow the port or the owner of the port infrastructure used to provide a service, to achieve an appropriate rate of return on efficiently deployed capital¹⁵ and efficient operating costs. In addition, in some ports in some jurisdictions there may be a legislative policy overlay to promote trade (or to maximise trade) or a contractual incentive or obligation to act in a manner consistent with this outcome. As we note in section 5, these dynamics are at the core of the balance that most ports and port service providers seek to achieve, pricing on a cost reflective basis (with an appropriate rate of return), while maximising efficient use of the port and the port infrastructure so as to maximise profitable revenue while providing efficient services.

There are port services provided within ports (most obviously, towage and stevedoring) that are unlikely to be subject to price regulation, especially, if there are multiple port service providers within the port. If there are not multiple port service providers within the port, it is likely that port users will pay higher unit costs than if there were multiple port service providers: if there are multiple port service providers, the market for port services is more likely to benefit from competition. There are ways in which ports are able to guard against sole port service providers abusing market power, and they are considered at a high level in section 5. Some ports may be prepared to grant concessions and long term leases on the basis of these safeguards, other ports may prefer to provide benchmarking to efficient market port service providers. Increasingly, it may be regarded as less likely that ports will leave the market to respond by supply side substitution. As such, ports seek to guard against higher unit costs of sole port service providers at a contractual or regulatory level.

Port function – access rights as a practical matter: Section 6 considers how access rights manifest themselves at ports as a practical matter. While there may be price regulation in respect of access to port and port infrastructure, this does not mean that the terms on which access is provided will be subject to negotiation between ports and port service providers on one hand, and port users on the other, or that there will be a clear contractual commitment to a standard of access or services to be provided at the port or by any port service provider. As a matter of long-standing practice, and for good reason,¹⁶ the terms on which port users access the port and port infrastructure and contract with port service providers are invariably on standard terms, and as such provide the basis for access by all port users (including as to liability of the port user and the port and the port infrastructure) and the provision of port services to all port users.

Port function – liability of ports, port service providers and port users: Section 7 considers the approach that ports, port infrastructure and port service providers take to their liability for not providing access and services as contracted. As a general statement, ports, ports infrastructure, and port service providers will accept liability to port users only to the extent that they are required to do by law, and are most unlikely (knowingly at least) to take risk of quality and timing of the provision of access and services, other than possibly through abatement of any fixed charges and fees in limited circumstances.

The next InfraRead Ports and World Trade article will consider this in greater detail, including the terms imposed at major ports around the world, and their impact on contracts of carriage and contracts for the sale of goods.

Port function – sub-functions: As a general statement, the port function comprises the following sub-functions,¹⁷ with the principal sub-functions detailed in Table 1.

Table 1: Port function – sub-functions

Access in the form of services

Background: Access to port and port infrastructure from marine side, involves vessels arriving at port, entering and exiting the port via the channels to and from the port, berthing/mooring to load (if an export port) or to discharge (if an import port) or both (if transhipment).

For a vessel to do this, the vessel must execute the standard terms of access to, and use of, the port, and must contract with the port and with port service providers undertaking activities for the provision of services. Whether the port user contracts with the port for the these purposes, or contracts with port service providers, will depend on the Port Model (see Table 3) that applies at the particular port.

Access to port and port infrastructure from land side hinterland (and beyond) involves delivery of goods for export by road or heavy rail, or both, to port, and discharge of goods, possible stockpiling or storage (in the case of bulk commodities) or nesting/stacking (in the case of containers), and loading of goods onto vessels.

In the case of goods imported, access to port and port infrastructure from marine side to land side will be required, with the discharge and the movement of those goods to stockpile or to store, or to nesting/to stacking, and movement of them from stockpile, store, nesting or stacking, to load onto to road or heavy rail for transportation into the hinterland.

In the context of SCM, the fundamental dynamics driving port service outcomes are set out in Table 2:

Table 2 – Fundamentals driving port service outcomes

Port Models: In the context of each port, it is helpful to understand the Port Model applied at that port, and as such which activities are undertaken by the port and which activities are undertaken by port service providers, and in this context any applicable laws and regulations (including as to price regulation). 

While the Port Model is unlikely to change the basis on which port users are required to contract for access and for port service provision, understanding the model will allow a high level of assessment of price risk for access and service provision at the port.

Table 3: Port Models

Port Activities and Services:

1. Port access and port services
   
   As noted above, access to a port is a function of having the right to enter and to exit the port (for which the port will charge) and the provision of services at the port (which the port or the port and private sector participants, as port service providers, will charge, depending on the Port Model).
2. Categories of charges
   
   In terms of entry to and exit from, and use of, the port, at the simplest level, it is possible to draw a distinction (and many ports draw a distinction) between charges and fees payable in respect of vessels (CoV), charges and fees payable in respect of cargoes (CoC) and charges and fees payable for storage²⁰ (CoS).
   
   CoV may include charges and fees for docking/staying at anchorage and docking at berth/mooring (which will tend to be levied by reference gross registered tonnage of the vessel). In addition, CoVs may include charges and fees in respect of use of channels and navigation aids and services.
   
   CoC may include wharfage for imported goods, exported goods and goods being transhipped (and will be levied by reference to the number of tonnes or units that cross the wharf). In addition, there will be customs charges and fees in respect of imported goods.
   
   CoS may include rates based on whether goods are being imported, exported or transhipped.
3. Regulation of charges
   
   At many ports, the amount of CoV, CoC and CoS is regulated, by law or by a regulator (the regulator having the power to approve or to settle charges and fees for a period of time). The amount of CoV, CoC and CoS is key, as is an understanding of the basis upon which each may change over time. For example, if the charge for an activity is not regulated, and the demand for the use of the port and port services is inelastic, the port user may be exposed to higher charges over time: if the port user has developed infrastructure to export commodities, any increased or new charge payable by that port user or any shipping company/shipping line will be an increased or new charge of that port user (directly or indirectly because it will be passed on by the shipping company/shipping line).
   
   CoV, CoC and CoS may be regarded as the core charges and fees for use port use. In terms of the provision of port services, the position is likely more complex.
4. Activities subject to charges
   
   In any event, for a port or port authority, it is important to understand what activities are (or may be subject) to charges and fees, and the amount of those charges and fees by port service providers not subject to formal price regulation. In this context, it is not unknown for port service providers to introduce new categories of charge or fee for what the port service provider may regard as a new service. In this context, ports and port authorities may contract with the port service provider (under the concession or lease) to prescribe the activities for which the port service provider may charge, and the amount the port service provider may charge). This is considered in detail in Section 6.(d).
5. Key activities
   
   Table 4 details the key activities and services provided within the precincts of ports (marine side and land side),²¹ including in respect of CoV, CoC and CoS. Table 4 does not deal with activities undertaken in the hinterland to and from ports, which activities (and the cost of them) can affect the efficiency of the port (including the activities undertaken within the precincts of the port) – this is beyond the scope of this article.

Table 4: Key Activities and Port Services Provided at Ports

Access and Economics of Ports

Background: In this section 4 the economics of ports are considered at a high level, including the theoretical ability of ports and port service providers to charge monopoly rents, and, if theory is put into practice, whether, and, if so, how, port users may respond to monopoly rents, commercially and legally (including to achieve some form of price regulation). As importantly, economics and competition are considered from a practical perspective.

Economics in theory:

Ports as natural monopolies and acting as monopolists

Many ports are natural monopolies in the sense that they are the sole supplier of port services within a market, and are able to supply the entire market as a single supplier more efficiently than two or more ports. In theory, those ports may exploit their position to act as monopolists. Using a favoured phrase of economists and regulators, monopolists are able to extract monopoly rents: if a port is able to act as, and does in fact act as, a monopolist it can increase prices for access to, and, depending on the Port Model, for the provision of port services at, the port and ration access and reduce the supply of port services provided without affecting demand for access and use of the port or for those port services, because port users are not able to choose to go to alternative port.

While ports may have the ability to price as monopolists, most do not, and many are not permitted to do so. From a macro-economic perspective, allowing a port to price as a monopolist is bad for trade, and as such as a matter of strategic economic policy, and depending on the Port Model, the pricing at ports is likely to be regulated. If the port is Government owned (i.e. Public Service Port Model or Tool Port Model), while it may price as a monopolist it is unlikely to do so, rather it is likely to price on the basis of promoting trade consistently with its public interest objectives.

It is possible to "book end" conceptually ports acting as a monopolist and a port seeking to maximise trade:

1. ports able to price as monopolists will price to maximise profit (rather than to maximise trade, or even revenue), by balancing price with supply, and in so doing affect levels of trade over time; and
2. ports aiming to maximise trade (i.e. not to maximise profit) will price in an a way that will increase the trade that it is seeking to maximise.

In practice, most ports will be found somewhere between these book-ends, where will depend on the Port Model (and regulation) and the competition, actual and potential, for port services provided by any alternative port or ports.

Economics of and competition among, ports and port service providers

The economics of ports need to be considered in the context of competition between ports, and the goods being exported from them (origination port), imported through them (final destination port), or both.²⁹  There is a difference of the economics of origination and final destination ports when compared to ports that are transhipment ports or predominantly transhipment ports.

While concepts of cross-elasticity³⁰ (substitutability) are not applied as readily to ports and ports services as they are to other services (and goods), they provide a useful frame to consider the economics of ports, and to help port users to consider the market or markets in which the port and the port service provider is carrying on business, including for the purposes of any action or claim based on misuse of market power³¹ or based on any regime that allows an access seeker to seek access to a port or port infrastructure.

The remainder of this section 4(b) considers economics and competition from a number of perspectives.

1. The economics of ports at a micro level
   
   The economics of ports need to be considered by reference to the markets that each port serves, which is essentially a function of the geography of each port, the goods exported from, and imported through, the port, and the cost of infrastructure deployed to provide port services.
   
   (a) In the case of origination ports, it is reasonable to assume that demand cross-elasticity is negative, i.e. that origination ports are not substitutable by the port user with another port. This will be the case particularly at a port at which large amounts of capital have been invested in infrastructure by port users themselves, as is often the case at bulk ports.
   
   (b) In the case of final destination ports, depending on the proximity of the nearest alternative port, and the transportation infrastructure from that nearest alternative port to the market for the applicable goods, the demand cross-elasticity may approach, or actually be, positive, allowing the port user to consider that alternative port as a possible substitute for the goods being imported.
   
   (c) In the case of transhipment ports,³² depending on the proximity of the nearest alternative port, or the nearest country with the desire to develop a transhipment port (and the time period within which it will be able to do so, i.e. demonstrating supply cross-elasticity), the demand cross-elasticity may be positive, allowing the port user to consider the alternative port as a viable substitute port for the goods being transhipped.
2. Theory and Practice
   
   If there is a positive demand cross-elasticity, it may be said that the incumbent port and the alternative port or ports may compete with each other in the applicable market or markets for port services.
   
   Whether an alternative port will compete in the market for the provision of services to port users, will be a function of many things, including whether it can compete and if so within what time frame, and whether there is a lead time, and the revenue it will earn from competing with the incumbent port (and any other alternative port), and the costs incurred to be able to compete with the incumbent port³³ (and any other alternative port).
   
   In theory, the threat of competition, will discourage the incumbent port from charging monopoly rents. In practice, the threat of competition will not discourage the incumbent port from pricing to the point of positive demand cross-elasticity.
3. Perspective of the private sector
   
   In the InfraRead Ports and World Trade – port developments in Asia Pacific article it was noted that unlocking capacity constraints and improving efficiency at ports can be achieved through increased capacity and associated land side logistics (through infrastructure enhancement or development) and increased efficiency or marine and land side operation.
   
   This remains the case. But to achieve this outcome, owners and operators of ports and ports infrastructure need to be able to model an appropriate rate of return on the required investment, with any decision to invest underpinned by modelled growth in demand for port services, and an assessment of cross-elasticity.
   
   To the owners and operators of ports and port infrastructure, the benefits to the wider economy of investment are not relevant to any investment decision. The economics of ports at a macro-level is a matter to be considered by Governments and Government entities.
4. The economics of ports at a macro-level
   
   While competition among ports may be a function of the point of positive demand cross-elasticity (i.e. economic rationalism), competition among countries is not. In the context of being competitive in the international market for capital and investment, Governments and Government entities are investing in projects that facilitate economic activity within the host country.
   
   In this context, infrastructure development on marine side and land side, and within the hinterland (to and from markets), allows Governments and Government entities to provide high performance integrated logistics solutions that deliver efficiency: high or higher logistics performance is measured by the cost, time, and complexity/simplicity of undertaking and completing import and export activities.
   In the context of nation building, investment by Governments and Government entities in transport infrastructure provides a positive investment environment generally as well as improving transport efficiency. Transport efficiency within the hinterland, and improved performance at port, promotes export growth and improved logistics performance (including at port), thereby reducing logistics unit costs. Again in the context of nation building, the development of a new port allows the development of the port as the hub, or as one of a number of nodes, of a transportation system in a strategic and systematic way. If developed effectively, ports can "bake-in" the benefits of transport efficiency for generations to come.
   Assuming appropriate demand for services at a port, the combination of improved transport efficiency (including through hinterland accessibility), and improved logistics performance, allows a port to strengthen its competitive position. In the context of a supportive Government, a port is more likely to invest in port infrastructure and systems (including information technology), helping a port to maintain competitiveness.
   
   In the context of supportive Governments and the use of the Public Service Port Model or the Tool Port Model, it is possible that for macro-economic reasons the Government or the Government entity that owns and operates the port will price access to the port, and the provision of port services at the port, to attract port users for broader economic reasons. The private sector will not act in this way.
5. The economics of port service providers
   
   The economics of port service providers at a port is more straightforward than those of ports. Among other things, the economics of port service providers will be a function of whether or not the port service provider is the sole port service provider or one of multiple port service providers within the precincts of the port.
   If the port service provider is the sole port service provider, in theory it will have the ability to charge monopoly rents for its services. In practice, the port is unlikely to allow a private sector port service provider to contract with port users (critically, to price) on an open-ended basis, and to avoid this is likely to maintain the ability contractually to ensure that it can provide the service itself (self-source), to replace the port service provider with another port service provider, or to introduce another port service provider.
   
   It is not possible to divorce the number of port service providers from the level of trade at a port, the former is responsive to the latter. There are many ports around the world with sole port service providers because the level of trade at the port is not sufficient to support competition among multiple port service providers. At these ports, there may be a stronger argument for price regulation. Furthermore, in jurisdictions with anti-trust legislation, there is the prospect that sole port service providers (or dominant port service providers where there are multiple port service providers) will be susceptible to actions and claims for abuse of dominance/misuse of market power (although abuse/misuse of market power claims can be challenging when based on monopoly pricing alone).
   
   If the level of trade at the port is sufficient to support multiple service the competition within the port for the port services being provided, to the extent possible the port should seek to provide a level playing field for the port service providers to compete, recognising that over time, all things being equal, the more efficient port service provider will increase its market share. If the level of trade at a port is sufficient, the port may seek to have multiple towage providers and handling and stevedoring service providers. Providing a level playing field is easier said than done, and is easier at the end of concession or lease period, rather than introducing a new service provider to compete with an incumbent outside the competitive process of concession award or reletting of a terminal.

Competition

The benefit of competition among ports (and between port service providers within ports) is that at best it is likely to facilitate price competitiveness, and at worst it is likely to discourage pricing to the point of demand cross-elasticity.

While in theory competition drives efficiency by ports (and port service providers within ports), it would be a mistake to conclude that it will achieve efficiency.

Competition in the shipping industry has an impact on port development: the shipping industry exerts pressure on ports to invest to enable the use of larger vessels. The response of ports to this pressure can affect decisions, including as to the choice of transhipment ports.

Price regulation

1. Price regulation in theory
   
   The co-authors note that there is economics in theory and economics in practice, and that there is competition in theory and in practice. In this context, there can be no assurance that competition will achieve price competitiveness. This is the case even if the port services provided at one port are substitutable by services provided at an alternative port, or port services provided by another port service provider within the precincts of a port.
   
   As noted above, competition may or may not arise, and may or may not result in pricing outcomes consistent with the promotion of trade (and competition is highly unlikely to result in maximisation of trade). As a result, it would be a mistake to conclude that it is all about competition, and it is likely that prices will need to be regulated to support the achievement of strategic economic policy objectives.
2. Price regulation in practice
   
   Price regulation tends to apply to the provision of specified services (often referred to as reference services). It is important that the reference service is defined, and that definition is demonstrated to describe a service that reflects the activities undertaken by the port or the port service provider and typically sought by port users.
   
   The form of regulation varies, from simply requiring charges to be published or for the methodology to be made available to the port authority or regulator or other decision maker, to regimes that require negotiation followed by some form of price determination (such as arbitration, expert or regulatory determination), all the way to having specific charges for reference services approved or determined by the port authority, regulator or other decision maker or in legislation/regulation for a stated period.
   
   It is not usual for price regulation to prohibit the provision of other services. It is not unknown for ports and port service providers to provide additional services or to augment services, and in so doing to take those additional or augmented services outside the framework provided by price regulation (i.e. not reference services). At a regulatory authority level, the regulator or other decision maker must anticipate this in respect of ports. At a port level, the port must anticipate this in respect of port service providers.
   
   It is particularly important to be aware that over time, an additional or augmented port service, for which a different price is paid, may provide priority to port users prepared to contract on terms for those services, and as such encourage port users to contract for the higher priced additional or augmented services.
   
   In jurisdictions (in respect of ports) or ports (in respect of port service providers) that prohibit discrimination, it is possible to structure these services to avoid any non-compliance with any prohibition on discrimination because those prohibitions often relate to port users being provided with the same reference service.
   
   As a regulator, it is important to have in mind that the reason for price regulation is that competition cannot be left to provide appropriate pricing, but price regulation does not guarantee appropriate pricing unless it is appropriately framed.

Access - Regulated and Unregulated

Background: As a general statement, ports and port service providers may be regulated by:

• price regulation ranging from light touch price publication or methodology rules through to specific prices being reviewed and determined on a periodic basis (every three to five years typically, but sometimes annually) in respect of reference tariffs for reference services, providing a certain price to port users for port services that they will require;³⁷ 
• approval of terms of access and port service provision in circumstances in which port users that are competitors³⁸  want to combine to cooperate in the development of port infrastructure, which cooperation might be regarded of itself as an unlawful combination under the anti-trust legislation of the applicable jurisdiction, and other arrangements comprising part of the combination that may be regarded as anti-competitive;³⁹ 
• general anti-trust laws, including abuse of dominance/misuse of market power, and non-discriminatory principles;

• third party access and specific anti-trust laws, including to allow a third party access seeker to seek to have a port or port infrastructure, land side or marine side, declared as infrastructure in respect of which access and the provision of ports services must be provided or else access is arbitrated or otherwise determined by a regulator or other decision maker.

Price Regulation

1. Basic principles
   
   As a general statement, price regulation may be regarded as intended to allow the port or the owner of the port infrastructure used to provide a port service, to achieve an appropriate rate of return on efficiently deployed capital (by reference to an appropriate weighted average cost of capital) and efficient operating costs. The reference tariff either specifies or provides a ceiling to the amount that the port or the port service provider may charge for the reference service. The level of detail or sophistication in setting prices varies from regime to regime. As noted above, the setting of a reference tariff for a reference service should not be regarded as the extent of the role of the regulatory authority.
2. Overlay of market conditions and policy settings
   
   The types of factors that a regulator has to take into account in determining pricing are reasonably consistent around the world, but the application may vary considerably.
   
   The co-authors note that while for the most part those factors are sufficient, they usually allow for considerable discretion and argument in how they are to be applied to a particular case. There are circumstances in which the regulators should have greater regard to market conditions (or at least to be able to respond to changes in market conditions) and the policy settings (including economic, and infrastructure and regulatory) applicable to the port and the port service providers, and to other ports and port service providers, including under the Public Service Port Model and the Tool Port Model which may be have a legislative policy overlay to promote trade (or to maximise trade).
3. Trust and verify — Not set and forget
   
   While regulators may assume that most ports and port service providers seek to achieve pricing that is cost reflective (with an appropriate rate of return), at the same time as maximising efficient use of the port and the port infrastructure so as to maximise profitable revenue in providing efficient services, this is often not the case. In the absence of effective competition or price regulation, or both, the nature of the flows of trade are such that as trade ebbs and flows, ports and port service providers will seek to maintain net earnings.

Table 6 – Countries with price regulation

Approval of terms of access where competitors are acting in combination: As noted above, there are increasing instances in which competitors combine to develop and to own and operate infrastructure at a port so as to achieve the benefits of scale and to avoid duplication of infrastructure, for example, coal, iron ore and grain loading and unloading facilities, and liquefaction and re-gasification facilities.

In some jurisdictions, the combination of competitors in this way is prohibited, and requires authorisation. In the context of the need for authorisation, or to monetise capacity in the infrastructure that is not being used by the competitors, the competitors who are combining may put in place formal contractual arrangements to allow third party access seekers to seek access on standard terms, possibly at a stated price or more likely at a price to be agreed.

A future InfraRead Ports and World Trade article will consider these circumstances in more detail, including the standard terms of processing and treating the goods, typically contained in a terminal use agreement or a tolling services agreement, and outline the basis for asset finance and project finance of the vessels (off-shore) and facilities (on shore). Michael Harrison, Dan Reinbott, Peter Vaughan and Matt Wood will co-author this article.

General anti-trust laws: Australia, Europe, the USA and most jurisdictions across Asia have anti-trust laws. The laws most relevant to the provision of port services are the laws that regulate abuse of dominance/misuse of market power and, in some cases, price and other discrimination.

In broad terms, laws prohibiting abuse of dominance/misuse of market power apply to suppliers that have substantial market power or a dominant market position such that they are able to raise prices, or reduce the level of services, without losing customers. If that market power is used in a way that harms competition in a market, then it may be possible to bring a claim against the supplier of the port services. In practice, these claims can be hard to prove, particularly in cases where the alleged harm to competition arises from monopoly pricing, as opposed to clearer cases where a port service provider (as a supplier) refuses to supply services to a port user in order to benefit its own associates (especially where the associates compete with that port user), or where the port service provider otherwise discriminates between its associates and a third party.

In some jurisdictions (particularly the European Union and the USA), abuse of dominance cases involving a refusal to deal have developed into an "essential facilities doctrine". The essential facilities doctrine may apply to ports (and other natural monopoly infrastructure), and is essentially a series of principles used to identify circumstances in which a port or port service provider is a supplier of a service essential to competition in downstream markets. In these circumstances the port or port service provider should be required to provide access in order to avoid or mitigate harm to competition in those downstream markets.

Some, but not all, anti-trust regimes include general⁴⁰ price and non-price discrimination laws. Non-discrimination laws are generally concerned with a supplier charging competing customers different prices for the same service in circumstances in which the discrimination harms competition. Competition may be harmed if there is clear discrimination over time, and the discrimination does not arise because of greater costs or risks in supplying one port user over another, or as a result of other competitive constraints (e.g. meeting a competitor's pricing or because a particular port user has other options available to them).

Third Party Access

1. In the absence of regulation as to access, including pricing
   
   In the absence of regulation, for a third party access seeker to be granted access and to be provided with the port services, that third party will have to contract by private treaty with the port or port service provider, or both. If the port and the port service provider are prepared to contract, the terms will be determined by the port and the port service provider. This is unregulated third party access.
   
   The basis of pricing is more likely than not to reflect the point of substitution (in the case of an alternative port to the incumbent port) or the point where trade is not economic (in the case of no alternative port to the incumbent port). The other terms on which access is granted and the port services provided are likely to be straightforward in principle, reflecting that the port and the port service providers will contract on terms favourable to them.
2. Impact of vertical integration
   
   In theory, if the port and port service providers are able to contract on terms favourable to them, they are likely to do so. If however the port services sought by the third party access seeker are to be provided by a port service provider that is using the port infrastructure for its own purposes, the port service provider may not want to provide the port services to that third party, particularly if that third party is a competitor of it. In these circumstances, absent regulation as to mandate, or a process to follow to achieve third party access, the third party access seeker will not be able to obtain access, and the economic and competitive benefits of access will not be realised for the host country, or the applicable market or markets.
   
   There is a number of jurisdictions around the world that require the owner of the port or the port infrastructure to grant access and to provide port services, or that provide a regime under which the third party access seeker may have the port or the port infrastructure declared as essential infrastructure. A general description of these regimes are considered in the remainder of this section 5.
3. Regulated Third Party Access (RPTA)
   
   (a) Background
   
   Regulated third party access is a phrase that covers a broad range of regulatory regimes and bases of third party access, including how pricing and other terms are agreed or determined. In the context of the majority of ports, if access to the port is regulated, then it tends to be regulated in accordance with the standard pricing and other terms of that port, and in some instances with a statute or a lease providing a statement as to the purpose of the port and the provision of port services, including a licence or lease condition to comply with the RPTA. It is not however always the case in respect of a port that there is a RPTA. Further, if there is a RTPA it is often the case that the applicable the RTPA does not foreclose on the port or any port service provider requiring the payment of increased charges in respect of an area or piece of infrastructure not previously the subject of charges.
   
   (b) Port or port infrastructure developed for own use
   
   In some contexts, a port may have been developed or may be in the process of being developed by the private sector with the support of Government. In other contexts, it may be that a single private sector producer or group of private sector producers/users decide to combine to develop and to own and to operate port infrastructure. In the context of a single producer that is the owner and the operator of that infrastructure, that producer will control and regulate its access and use in accordance with its day-to-day requirements, and have flexibility within the capacity provided by the port or the port infrastructure. In the context of a group of producers, it is likely that they will seek control and to determine this basis of access of each producer, and in so doing agree the terms of access for each producer.
   
   As might be expected, if a private sector participant or private sector participants have developed a port or port infrastructure at their own risk and at their own cost will be proprietary. It is likely that it or they will regard access to the port or port infrastructure by a third party as unwelcome. This is particularly the case if access may or will impact the ability to operate the port in its or their best interests. In some instances it or they may regard access as a compromising production for example, a blending process of product by a single producer.
   
   Nevertheless, in some jurisdictions legislation contemplates that a third party that does not own or operate, or has not contributed to the cost of the development, of that port or that port infrastructure, is able to seek access to the port and to seek to contract for the provision of port services, typically, under a negotiated third party access (NPTA) regime.
   
   In some jurisdictions, it may be that legislation provides for access and the terms of access for all parties on the same terms or there is an established basis for access for all users – Open Third Party Access.⁴¹ This is not typical in the context of ports or port infrastructure, and is almost unheard of in the context of a port or port infrastructure developed by the private sector.⁴² 
   
   (c) Distinction between Negotiated Third Party Access and Open Third Party Access
   
   (i) Negotiated Access includes regulated third party access regimes that contemplate negotiation by an access seeker and if the access seeker does not reach a negotiated outcome for access and service provision that is satisfactory to it a right to refer matters not agreed to an arbitrator or other decision maker; and
   
   (ii) Open Access includes whole of industry third party access regimes under which the third party access seeker may contract for access to infrastructure and associated service provision on the same terms as each other access user (electricity, gas and below rail industries in many jurisdictions around the world follow this model).
   
   (d) Declaration of port or port infrastructure
   
   As noted in section 4, the fact that a port or port infrastructure is subject to price regulation in respect of some of the port services provided is a starting point for price regulation.
   
   If a port is not subject to price regulation, or some but not all services are regulated, then, in countries that have a third party access regime, that regime may allow port users to seek to have the channel to the port declared as essential infrastructure.⁴⁴

Table 7 – Countries with Third Party Access Regimes applicable to Ports and Port Infrastructure⁴³

How contractual rights manifest themsleves

Overview: While there may be price regulation in respect of access to ports and port infrastructure, this does not mean that the terms on which access will be subject to negotiation between ports and port service providers on one hand, and port users on the other. Nor does it mean that there will be a clear contractual commitment to a standard of access or services to be provided at the port or by any port service provider. As a matter of long-standing practice, and for good reason, the terms on which port users access the port and port infrastructure and contract with port service providers are likely to be on standard terms, and as such provide the basis for access by all port users (including as to liability of the port user and the port and the port infrastructure) and the provision of port services to all port users.

Standard contractual terms

1. In addition to contracting for services within the precincts of the port (marine and land side) (see section 3 and Table 4 above), a condition of access to, and use of the port, will be that each port user must contract with the port on the standard terms of the port.
   
   As a rule, the standard terms ports are non-negotiable. The standard terms will include conditions of access and use, including a liability regime under which the port will exclude and limit its liability (and that of those for whom it may be vicariously liable) to the maximum extent possible (i.e. to the extent permitted by law) in respect of the entire supply chain by use of paramount clauses.⁴⁵ 
2. In the same way that ports contract on their standard terms, all port service providers contract on their standard terms, which, in the ordinary course, are non-negotiable, and as such may be regarded as favouring the port service provider. As is the case with the port and port infrastructure, the port service providers will exclude and limit liability to the maximum extent possible.
3. In Table 8 we give a sense of the various contracts that will be executed, and the parties to those contracts.
   
   In the next InfraRead Ports and World Trade article, Michael Harrison, Richard Guit and Dan Reinbott will consider the full range of liabilities that may arise between the port, port facilities and port users, including the interface between the law of the applicable jurisdiction and the expectations of ports and port service providers and port users (and cargo and vessel interests) and their insurers as to liability.⁴⁷
4. Performance Based Agreements
   
   In the Ports and World Trade – Port developments in Asia Pacific article we noted that in the case of ports using the Landlord Model it was possible for ports to ensure that the concessionaire/lessee of the port or port infrastructure is incentivised to provide services so as to achieve and to improve continuously efficiency at port, so as to ensure that no port user is disincentivised from using the port.
   
   Also regulators (including at a port level, port authorities) are able to control the activities for which port service providers may charge, and the amount of those charges. As noted in section 4(d)(ii) some port service providers may circumvent price regulation by providing additional or augmented services.
   
   Whichever basis of regulation is chosen (legislative or contractual), it is possible to regulate both for the activity for which a port service provider can charge and the amount of that charge. There are many ways of doing this, and the challenge for the regulator or port is to provide as light a touch regime as possible – it is likely that the last thing any port wants is to incur additional overheads to manage obligations of port service providers.
   
   In a future InfraRead Ports and World Trade article, Michael Harrison and Richard Guit will consider Capacity Management and Performance Based Agreements in detail.

Table 8 – Port Access and Use and Service Provision – Contract and Parties

Liability and contracting in relation to it

Overview: In this section the approach taken by ports and port service providers to liability is considered. In most cases, ports and port service providers will accept liability to port users only to the extent that they are required to do by law. The next InfraRead Ports and World Trade article will consider this in greater detail, including the terms imposed at major ports around the world, and their impact on contracts of carriage and contracts for the sale of goods.

Bases of liability: For ports and port service providers, and for port users, it is important to understand how liability may arise within the context of use of the port and undertaking activities within the vicinity of the port and port infrastructure. The following bases of liability will need to be considered:

1. breach of contract between a port user and a port service provider, for example, any pilotage or towage service agreement or stevedore agreement;
2. breach of duty, including of any duty of care (negligence) or trespass which arise as a matter of law;
3. operation of contractual terms, including in respect of a port user for booking capacity or service, but not using it;
4. fault or no fault indemnities contained in contracts, these are distinct from other bases of liability based on breach of contract or breach of duty;
5. knock for knock (or mutual hold harmless) indemnities may be contained in contracts of port users, and may give rise to liability irrespective of fault;
6. statute; and
7. conditions of use and port liability agreements.

For port users, it is likely that ports and port service providers will work on the basis of "all care, and no responsibility" such that there will be limited opportunities for the port user to be able to make a claim for which the port or the port user is liable.

Conditions of Use/Port Liability Agreements: It is usual for ports to require all port users to commit to compliance with its requirements within the port as a condition of being permitted to enter and exit the port and to undertake any activity within the port. This is achieved contractually, typically with each port user having to sign a document acknowledging the Conditions of Use and any Port Liability Agreement, and the terms of access to the port (COU). The port user signing the COU will do so as a contracting party itself, and often on behalf of entities that are directly or indirectly interested in the liability, and loss, of the port user, including entities that have any interest in the vessel or that have any interest in the cargo. Typically, COUs are signed by the master of the vessel on behalf of vessel and cargo interests.

The COU will address the obligations of port users on the basis of business as usual and business not as usual. Also the COU will address liability of each port user to the port and to each other port user (and to third parties).

The port will exclude and limit its liability to the extent that it is permitted to do so by law. The exclusion and limitation of liability provisions will be non-negotiable by the port. In addition, it is possible that underlying law (in the form of a port regulation) will allow contractual exclusion and limitation or provide for it.

The port will prescribe in the COU that each port user is responsible for contamination and pollution within the port (likely on a strict liability basis), and that in this context, each port user or particular port users must effect and maintain oil pollution insurance in respect of this liability.⁴⁸

The port will prescribe in the COU that each port user is responsible for damage to, or loss of, the property of other port users, and death and personal injury to individuals. In this context, each port user or particular port users will be required to effect protection and indemnity (P&I) insurance, including to cover liability for collision with vessels and damage caused by collision with fixed and floating objects, and include damage or loss of cargo/inventory, and comprehensive general liability insurance. Typically, the COU will include (or reflect) a cap on the amount of liability for damage.⁴⁹

Liability under leases and licences: Depending on the Port Model, if the port grants a lease (or licence) in respect of any area of the port to allow a port infrastructure owner to develop port infrastructure or a port service provider to provide port services, the port will exclude and limit liability under those arrangements. This said, there may be more scope for negotiation under a lease (or licence) than under COUs, not least because there may be regarded as a lower regulatory risk in doing so. However, many ports want to keep leases (and licences) in the same form so that the management of the duties and obligations of the lessee (or licensee) is easier.

Liability under port service provider contracts: As noted above, it is likely that port service providers will work on the basis of "all care, and no responsibility" such that there will be limited opportunities for a port user to be able to make a claim for which the port or any port service provider user is liable.

In addition to strict terms contained in pilotage and towage contracts, if a stevedore is providing stevedoring services, it will exclude and limit its liability to the extent permitted by law, and for these purposes will use a paramount clause⁵⁰ such that the exclusion and limitation provisions will be effective against any person that might seek to bring a claim against the stevedore (or any person for which it is vicariously liable).

Conclusion

Ports have long been essential to world trade, and this will continue to be the case. Ports are a barometer of world trade. Each port is unique: while each port provides similar port services to other ports, the geographical location of that port, the history of its development (including investment in the port and port infrastructure), the capacity of the port and the basis of operation at the port, are the key factors that go to making it. Even though each port is unique and the classic paradigms of competition do not apply to ports, as they do to other undertakings, the level of activity at ports, reflects the level of trade at that port, and the competitive position of port users exporting from that port, and the demand for imported goods within the country in which that port is located or in the country or country to which goods are being transhipped.

For ports, there is a balance to be struck and to be maintained to ensure that they respond to the ebbs and flows of world trade, and as such the environment in which port users undertake their businesses. Regulation of access to and pricing of port services has a role in promoting pro-trade behaviours by ports. The extent of this role may be best regarded as a port by port consideration, recognising the need for regulation not to tilt the playing field to favour one port over another. The perspective of the co-authors is that as a general statement regulation can assist in providing guiderails for ports and port service providers to operate within, but it is important that so far as practicable regulation is light touch, ideally incentivising pro-trade behaviours, including to encourage port infrastructure investment to increase capacity and to improve efficiency when trade projected trade flows support this.

In the course of preparing this article, the co-authors have had the opportunity to consider a broad range of regimes relating to access and pricing. In this context, Michael Harrison and Justin Jones are preparing a paper on the common and distinct features of port regulation. This will be published on the Ashurst website in due course, and may form the basis of a future InfraRead article.

1. Empire of the Winds, The Global Role of Asia's Great Archipelago, by Philip Bowring.
2. In addition, urbanisation of a city is achieved more quickly if it has a seaport, in comparison to cities without seaports.
3. This article is concerned with ports and port infrastructure operated to serve third party port users. Additional third party access issues arise where ports or port infrastructure are operated as part of a vertically-integrated supply chain, such as private terminals serving hinterland mining operations.
4. For these purposes, shippers and shipping companies/shipping lines are the principal port users.
5. As a general statement, ports facilitate the initial settlement and subsequent growth of populations, and with increasing urbanisation the infrastructure within the hinterland of a port is likely to become constrained. Unless constraints are addressed, trade through the port may be constrained, and efficiency of the port affected. There is a number of ports around the world where constraints in the hinterland may be regarded as affecting the efficiency of the port and more broadly the SCM.
6. While access to, and service provision to ports (in the case of exports) and from ports (in the case of imports) from the hinterland of ports is beyond the scope of this article it important that any constraints are understood by ports, port service providers and ports users, most importantly to understand how constraints may be best managed at the port, and, from the perspective of port users, the possible impact on costs of any constraint in the hinterland of ports. Also it is important to understand the impact on transportation if there is a bottleneck at the port itself. For example, if vessels are queued off-shore for prolonged periods of time this adds to the freight rate charged by shipping companies/lines to shippers of goods (including to address increased waiting times).
7. At a high level, the configuration of any port and port infrastructure is a function of the capital applied to develop the port and the port infrastructure, and the efficiency of the ports and port infrastructure is a function of waiting times, turnaround times, and time in port. To each port user efficiency is a function of productivity and service quality provided to each port user, and the cost to the port user of that productivity and service quality.
8. In the previous InfraRead Ports and World Trade article we anticipated that this article would cover third party access to below rail infrastructure, but to keep this article within manageable length we decided that this was more appropriately included in an article dedicated to the hinterland and beyond.
9. The collection of goods from the port and the delivery of goods to the port is not a port function, but the collection and delivery of goods forms part of the SCM. The collection and delivery of goods is likely to be undertaken using road or heavy rail transportation, and as such may be constrained by the infrastructure or regulation within the hinterland, including as a result of restrictions on the use of infrastructure at certain times, both in terms of curfews on traffic movements or restrictions on the number of movements.
10. Ports and port service providers will not invest in new, or upgrade existing, infrastructure unless they can see an appropriate rate of return on that investment. Many studies refer to the benefits to the wider economy of investment in infrastructure, including port infrastructure. The co-authors are sceptical of the benefit to the wider economy of investment in infrastructure, unless the investment unlocks value by servicing increased demand for port services for exports which would not be unlocked but for that investment. Investment in infrastructure to allow increased import of goods has an impact on the wider economy, but many factors will determine whether it is beneficial, critically if the goods being imported are to be used to produce goods for domestic consumption or export.
11. The charges of port service providers are part of the total costs of transporting goods, and each shipper will be concerned to ensure that the total costs are understood, including costs arising due to delay or loss of goods.
12. Which costs may include demurrage (payable to the applicable person responsible for organising the shipping when laytime exceeds allowed laytime) and port congestion charges.
13. Shippers operate in a "just-in-time" world. The cost of making delivery of goods is key, as is the reliability and predictability of the time taken to make delivery. The costs incurred by a shipper due to unreliable and unpredictable access and service provision may impact significantly working capital management costs (including currency hedging costs) if inventory is at higher levels as a result.
14. While consideration of bottlenecks and hinterland transportation constraints is beyond the scope of this article, for port users it is good to understand whether there are any bottlenecks and constraints on transportation in the hinterland, recognising however that there is little that a port user is able to do to address inefficiency.
15. At an appropriate benchmarked weighted average cost of capital over the period during which the appropriate rate of return is to be made.
16. The reasons are both legal and practical in most jurisdictions, including not preferring one port user over another port user on a discriminatory basis, and as a practical matter ports and port infrastructure owners/operators do not want to have to manage, at an operational level, contracts that are different for each port user.
17. The activities detailed are all subject to what may be regarded as the regulatory function, including laws and regulations, which are informed by and give effect to policy (including environmental and labour/workforce).
18. A Private Service Model places market risk (and actually or prospectively market power because of barriers to entry for competitors) with the private sector, but the host government will want to be assured that it is able to achieve the benefits of the multiplier effect within the broader economy. It is reasonable to assume that the private sector will be concerned to achieve improved efficiency across all activities, and that it is likely to contract to achieve this, including to develop port capacity.
19. It is fair to say that even in Public Service Ports and Tool Ports some activities will be undertaken by the private sector as contractors of the host government. The Public Service Port and Toll Port models do not preclude the government from involving the private sector in the development of some infrastructure on a piecemeal basis, but may not allow the host government to achieve efficiency levels that in the case of transhipment ports will attract increased trades.
20. Storage is a generic term that includes stockpiling, nesting and stacking.
21. We have detailed the principal activities at port (marine side and land side), noting that there are other activities that may be undertaken (and for which charges will be levied). As will be apparent, it is important that the port and port authority maintain control in respect of which activities any charge or fee may be levied, and the amount of that charge or fee.
22. Most, if not all, ports have a vessel arrival system, which provides processes to be followed in respect of the notice of arrival, the basis on which order of arrival is determined, the basis for determination of priority in any queue, and the basis for maintaining priority in any queue (including giving notices as required, and arriving as notified) and loss of priority in queue. VASs (as part of the VTS) tend to follow a similar form, but all are different, and as such need to be understood, critically, in the context of the terms of carriage (including between buyers and sellers in respect of which delivery is effected at port of loading (FOB) or at the port of discharge (Ex-ship)) and the contracts of carriage (between buyer or seller and its carrier/transporter under which the buyer contracts with carrier / transporter to take delivery at the port of loading (FOB) or the seller contracts with carrier/transporter to make delivery at the port of discharge (Ex-ship)), so that any underlying sale and purchase contracts and their associated contracts of carriage are consistent with the applicable VAS.
23. In many instances as a navigation services charge.
24. In almost all instances, pilotage services are the subject of pilotage charges.
25. Pilot Boarding Station – being the location at which the pilot boards (on the inward legal) and disembarks (on the outward leg) the vessel to provide, or having provide, pilot services.
26. In some ports the amount of trade will support only one towage service provider and the quantity of trade and the number of tugs required to service that trade. Some trades may require the use of multiple vessels, and if the level of trade of trade is not sufficient, the cost of towage services per trade may be relatively higher than at comparable ports with a greater level of trade. Conversely, ports with trade levels that support multiple towage service providers, will benefit from competition among towage service providers, and level of trade means that the costs of towage services per trade may be relatively lower than a comparable ports with a lesser level of trade. While towage providers must be accredited and licensed, the charges levied by towage provides for the provision may not be regulated (by law or by contract). As such, there is a risk that towage charges may be set at a level consistent with a monopolist. In this context, the port should consider the basis upon which towage providers are granted rights to provide towage services, and the extent to which the port is able to ensure that the charges for towage services are consistent with achieving any legislative outcome required of the port (including maximising trade), and in the absence of any legislative outcome ensuring consistency with the objectives of the port.
27. Bunkering means the provision and loading of liquid fuel onto a vessel: the origin of bunkering goes back to days of stream ships with the loading of coal (solid fuel) into bunkers, being referred to as bunkering.
28. Government owned (and operated) ports may be required by underlying legislation to promote or to maximise trade at port. This requires the port to set charges at a level that promotes or maximises trade, not to maximise profit or revenue. Private sector operators renting facilities from government owned ports are increasingly likely to be required (under contractual arrangements with the port) to maximise throughput through performance based contractual arrangements/performance based agreements (PBAs). For example, in the context of container terminals PBAs can range from the measurement metrics for efficiency of time alongside (the amount of time that the vessel spends adjacent to the quayside) versus time worked (the discharge of cargoes); crane rates (in effect the number of lifts in a given period of time); and dwell times (the period of time a container spends in the stacking yard before being discharged from the terminal). The terms of the PBAs all respond to the efficiency of the use of port capacity and are aligned to the port service providers providing services that are consistent with efficiency.
29. Many ports are both origination and final destination ports. As such, the co-authors are drawing a distinction purely for the purpose of illustrating the different dynamics that affect the export and import functions of ports.
30. A port that is substitutable for an alternative port is said to have a positive cross-elasticity of demand. Conversely, a port that is not substitutable for another port is said to have a negative cross-elasticity of demand. Demand substitutability considers things from the perspective of the port user.
31. The theory and practice of defining markets in an anti-trust context is beyond the scope of this article, but at a high level it requires an assessment of both demand and supply substitutability, the distinctive ports service provided in a market (the market including the port services provided by the incumbent port or port service provider, and any product that may be substituted for it) and the temporal element of competition which, in the context of ports and port services, tends to foreclose on supply substitutability unless services are likely to be available immediately or imminently.
32. Many container ports and container terminals provide transhipment services. Some ports are predominantly transhipment container ports, with the majority of the goods passing through them being transhipped. Transhipment ports that are located within the same geographical area and from which shipping companies/shipping lines are able to service similar trades, are regarded as able to compete. The extent of this competition is subject to debate in practice, and tends to assume that the ports are not under the same ultimate common ownership.
33. Supply substitutability considers things from the perspective of the port (and the port service provider).
34. If ports compete, or port service providers within the precincts of a port compete (for example, in a container port there is more than container terminal and there is sufficient capacity in each to allow viable competition), in theory pricing will be based on efficient provision of port access and port service provision (although the extent of competition between the competing ports may vary).
If a port does not have a competing port (invariably due to location and the cost of developing an alternative port and appropriate infrastructure to and from the port or the cost of developing new infrastructure at an existing port), in theory there is a greater risk of monopoly rents. As a monopoly, a port is able to charge monopoly rents to the point of substitution or to the point where trade is not economic. The co-authors stress that this may be regarded as a theoretical risk.
35. Conversely, private sector port owners and operators will regard it as the role of the Government/s to address capacity and efficiency constraints at the port arising from capacity constraints (including bottlenecks) and inefficiency within the hinterland (and beyond). For a port user it is helpful to understand if there are constraints in the hinterland, and, if so, the likely effect of them.
36. Around the world, there are many cases that accept that there is a market within a port for any service provided within the precincts of that port.
37. Price regulation implies that the port and the port service providers are required to provide services to port users. By implication, price regulation implies that the port and the port service providers will contract with port users, and will provide access and port services on the terms of that contract.
38. Typically producers and exporters of raw materials create an incorporated joint venture company to develop and to own port infrastructure to be used to provide the port services, and take an equity interest in that joint venture company).
39. The approval of terms of access and port service provision by an anti-trust authority does not mean that third party access seekers are permitted to seek access on the same terms as the port users that have acted in combination to develop the port infrastructure, although those port users may determine to contract with third parties to allow third party access on this same terms as their arrangements approved by the anti-trust authority.
40. There are many instances of specific non-discrimination laws that apply to industries or facilities that have the features of a natural monopoly, or as part of third party access regimes.
41. Being Regulated Third Party Open Access, in contrast to NPTA.
42. For example, in some jurisdictions some private port infrastructure is subject to access obligations negotiated as part of agreements negotiated with the State when securing approvals to allow this port development to proceed.
43. In some jurisdictions, principles for access to essential facilities is part of abuse of dominance, rather than a separate anti-trust regime.
44. For example, in Australia, in May 2015 Glencore applied for the channel service at the Port of Newcastle to be declared under the national access regime. The primary reason for the declaration application was an increase in channel service fees implemented following the privatisation of the Port of Newcastle.
The responsible Minister initially determined not to declare the service, Glencore appealed this determination to the Australian Competition Tribunal (which, in turn, was upheld on appeal to the Full Federal Court), and its appeal was successful. Following declaration, Glencore and the Port of Newcastle did not agree on a port access agreement, so the matter was referred to arbitration before the Australian Competition and Consumer Commission (ACCC) to determine the price, and other terms, on which Glencore could access the port. After a prolonged arbitration process (including a judicial review application), the ACCC finalised its determination in September 2018. The ACCC's determination was appealed to the Australian Competition Tribunal, which subsequently ruled on it on 30 October 2019 and overruled aspects of the ACCC determination. The ACCC has appealed that decision.
In the interim, the national access regime was amended, so in July 2018 the Port of Newcastle successfully applied for the declaration decision to be revoked. However, the ACCC's access determination remains in force.
45. Paramount clauses are used in many contracts, and will invoke the terms of The Hague Convention as enacted in the applicable jurisdiction to as to enable each relevant party to get the benefit of a cap on liability against each entity that may incur loss as a result of any wrongful act or omission of the port or as the case may be the port service provider.
46. Terms of carriage are addressed in any contract that exists for the sale and purchase of the goods transiting the port.
47. This article will deal with content of conditions of use/omnibus and waiver (which ports will required to be executed) and excluding and limiting the liability of port to the extent permitted by law, and providing for the liability of port users and the insurances that they are required to effect and to maintain. Also, we will consider the typical exclusion and liability provisions in contracts between port users and ports and port service providers.
48. Michael Harrison, Richard Guit and Dan Reinbott will consider the full range of insurances relevant in the context of ports and port users in the next InfraRead Ports and World Trade article.
49. Michael Harrison, Richard Guit and Dan Reinbott will deal with the form of the cap in a the next InfraRead, Ports and World Trade article.
50. Paramount clauses are also used in contracts of carriage by sea, and will invoke the terms of The Hague Convention as enacted in the applicable jurisdictions to as to enable each relevant party to get the benefit of a cap on liability.