Port Pricing & Port Tariff Analysis

THE PORT PRODUCT
A chain of consecutive links, while the port as a whole may itself be seen as a link in a global logistics chain
Port costs account for only a fraction of the total costs associated with the logistics chain
The prototypical port does not exist.
Ports inevitably have an heterogeneous quality, e.g. the large number of possible market players involved (government, port management, shippers, forwarders, agents, shipping companies, trade unions, etc), each of which has specific objectives.

Generalized Port Price
Port Price per unit of throughput represents prices charged by the port for various port services, e.g. wharfage, berthing and cargo handling charges
Ocean Carrier Port Time Price per unit of throughput represents the time-related costs incurred by ocean carriers while their ships are in port, e.g. ship depreciation, fuel and labor costs
Inland Carrier Port Time Price per unit of throughput represents the time-related costs incurred by inland (rail and truck) carriers while their vehicles are in port, e.g., vehicle depreciation, fuel and labor costs
Shipper Port Time Price per unit of throughput represents the time-related costs incurred by shippers while their shipments are in port, e.g., inventory costs such as insurance and depreciation costs.

Port Profit
Profit = Port Price*Port Throughput – Minimum Port Costs Port operating objectives of the port operator will differ depending upon whether the operator is a public port in charge of the operations of a government-owned port or a private port. Public port regional economic development Private port maximizing profits

PORT PRICING
Port prices may be levied on the ship, cargo and passenger.
Port cargo prices are referred to as port rates.
Port prices are expected to compatible with its operating objectives.
If the operating objective is to promote economic development, port prices may not reflect port costs.
E.g. port prices may be set higher for imports than for exports for the same port services.

Port Pricing
Port prices may also differ with respect to the value of the cargo.
Since high-valued (low valued) cargo will be less (more) sensitive to port prices, the demand for port services by shippers of high-valued (low-valued) cargo is expected to b price inelastic (price elastic).
Thus, the port may charge a higher (lower) price for a port service to shipper of high-valued (low-valued) cargo.
An increase in the price for a port service for which demand is price inelastic will result in an increase in revenue from this port service

Port Pricing Objectives
To promote the most efficient use of the facilities
To maintain the benefits resulting from investment within the country
An objective of port pricing of particular interest for ports in developing countries is to establish charges at a level that tends to retain the benefits arising from port improvements within the country
To recover sufficient revenue to meet financial objectives
Building up financial reserves to prepare for unexpected falls in revenue or rises in costs.
Other objectives of port pricing include minimizing total logistics costs; providing an incentive to port users to improve their facilities and services and ensuring that the tariff is both practical and simple.

Port Pricing – Cost Items
Three cost items of a port call
* Cargo handling
* Time in ports
* Port dues and charges
The time spent in port is an opportunity cost that is a function of the time-related operational cost (wages, repairs, etc)
Port dues are levied by the port authority in exchange for, among other things, use of a berth.
The most substantial cost, however, is that of goods handling. It is usually many times higher than the port dues

COSTS IN PORT OPERATIONS
Costs for provision of infrastructure
Costs associated with use of the transport mode
Costs for supplying port services
External costs

Infrastructure Costs
Initial infrastructure investment costs
Costs of replacement and maintenance of locks

The use of the maritime transport mode
Costs centre on time used and reliability of service (in terms of overtime and loss of customers).
This cost is incurred by the transport user calling at a port in order to convey the goods to or from his customer.
As the value of the commodity in process is the main determinant of this cost category, the amount involved is largely dependent on the type of commodity transported and the volume handled.

Costs for Supply and Operation of Handling Services
Can be subdivided into costs related to vessels, the superstructure and the actual service
Vessel : commercial vessels transporting the goods, pilotage and towage vessels.
Spare parts and oil for maintenance and fuel for operation are the main cost components.
Superstructure : cargo handling equipment related, warehouse, other superstructure costs
Service : wages for handling personnel, storage personnel, ship repair and bunkering.

External costs
Accident costs
Noise costs
Air pollution costs

PORT OPERATING COSTS
Cargo (cargo-handling) Related Expenses
Equipment operating costs
Equipment maintenance and replacement costs
Equipment depreciations
Fuel oil and electricity supply costs
Cargo storage costs
Insurance costs

Ship-Related Expenses
Pilotage Towing boats Channel and basins Administration and general expenses Water, electricity, gas

Land and Building-Related Costs
Building and land maintenance costs
Land hire costs Depreciation Administrative costs
Financial Costs
Interest costs on borrowings Taxes Charges by banks and other financial institutions Administrative Costs
General administration Engineering and planning Consulting and other services Computer and communication services Hiring and firing costsMarketing costs Insurance costs Personnel expenditure Travel Some expenses such as police, medical

PORT OPERATING REVENUES
Cargo-Related Revenues
Crane and other cargo handling equipment hire charges Cargo handling operations charges Transfer and movement of cargo charges Warehousing charges Wharfage

Ship-Related Revenues
Pilotage fees Towage Port dues Mooring and docking Water, electricity, telephone supply

Land and Building Charges

Rent for storage areas and land Rent for buildings

Financial and Interest Revenues

Profit on disposal of assets Income from investments

PORT TARIFF
Tariffs differ from port to port, as they tend to be a reflection of the
services offered (e.g., container handling, tug assist, pilotage)
the facilities being provided (e.g., gantry cranes, storage yard, sheds)
the party that incurs the tariff charge (e.g., the carrier or ship’s agent, the shipper)
the basis on which a tariff item is calculated (e.g., pilotage charges based on the vessel’s gross registered tons or vessel draught).

1. Services to ships:

Basic ship services includes the activities and related charges for ships entering/exiting the harbour and for berthing/de-berthing. These include:
pilotage and towage
use of channel and navigation aids
use of the related port facilities (e.g., dockage/mooring/berth occupancy)
use of the general port infrastructure (channels, breakwaters), usually covered by the port dues
water supply to ships
waste acceptance

2. Services to cargo:
The basic cargo services include related activities:
(a)transfer of cargo between ship and dock
(b)transfer of cargo between the berth and the yard
(c)intermediate storage in the yard
(d)transfer of cargo between storage and outside the gate

SHIP RELATED CHARGES
Conservancy and port dues Pilotage Towage Mooring Berth hire
CARGO RELATED CHARGES
Stevedorage (terminal handling charges) Wharfage Warehousing Container stuffing ISPS

TYPES OF PORT CHARGES – ship related

1.Conservancy and port dues
A charge to recover the cost incurred in providing the facilities and services which are necessary to ensure the “safe navigation of vessels” within the area under the port's authority. It may include dredging, the provision of breakwaters, navigational aids, excludes the costs of providing pilot and tow services which are charged by separate tariffs.
Conservancy = utilization of general nautical facilities in the approaches to the port (i.e., outside the port area) Port dues = services or utilization of facilities within the port, including channels, vessel traffic service, emergency fire services, breakwaters, pollution control and marine security.
2.Pilotage
Pilotage arises in two areas: the seaway gaining access to the river estuary and the port area itself. The pilotage may be based on the GT of the vessel or a charge per ship. In general, as the cost of providing pilot service does not vary for different sizes of vessels. However, it can be differentiated by the location where the pilotage starts and ends.
3.Towage
The towage tariff is included in another charge such as pilotage. Towage is usually based either on the characteristics of the ship or the tugs performing the operation. Towing costs increase with the size of the tugboat used and the time of use. Therefore, the common practice is to charge a towage per hour and to differentiate based on the size of the tugboat used. However, in some cases it is charged as a fixed rate irrespective of the time taken for the operation and differentiated by the vessel's type and size.

5.Mooring/Unmooring (berthing/unberthing)
This is a specific tariff applied for berthing/unberthing and mooring operations. This tariff is charged by the vessel's size measured in GT, NT or some combination of length, beam, and draft.

6.Berth hire (dockage or berth due)

This is a charge to recover the costs associated with the berthing of the vessel and for the use of the berth for a stated period of time. It may include expenditure on the provision, maintenance and operation of docks, maintenance of dredged depths alongside and in the dock basin, provision of quays and facilities provided on the apron. The charging unit of the berth due is meter-hours, computed as the “length of the vessel multiplied by the hours that the vessel is at the berth”.

7.Wharfage
Wharfage is a cargo-related charge to recover the costs associated with the provision of the basic infrastructure and superstructure of the port to facilitate the movement of cargo from shipside to hinterland and vice versa. It includes the costs of providing roadways, railways, quays, parking areas, transit shed facilities, police surveillance etc. Wharfage is charged by freight ton, metric ton, cubic meters or TEU, and its differentiation unit is the type of cargo.

8.Stevedorage / Handling
Stevedorage costs should be directly related to the costs involved in handling commodities. The stevedoring charge is usually charged per freight ton, metric ton, cubic meters or TEU of cargoes. Stevedoring firms often reserve the right to calculate the charge on the volume or weight of the cargoes.

9.Warehousing
Warehousing charges apply to goods that need to remain longer in the port.
After the free-time has expired, the tariff usually takes account of the length of stay of the goods in the storage place.
In some cases, this charge per unit of time, usually the day, remains constant, regardless of how long cargo remains in storage after the given free-time.
However, in many cases, the charge per unit of time increases with the length of time spent in storage in order to discourage any lengthy storage. This charge can be differentiated by type of storage, such as open, closed or frozen storage and by different types of cargo.
9.Other tariffs
In addition to these specific tariffs, some ports charge other tariffs for services to the ship or to the cargo.
These services may include;
fuel, water and electricity supply rent of equipment cargo processing (weighing, marking and repacking) ISPS