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Issue No. 309 - Number 5 / 2012
www.cepal.org/transporte
BULLETIN
FACILITATION OF TRANSPORT AND TRADE IN LATIN AMERICA AND THE CARIBBEAN
INFRASTRUCTURE SERVICES UNIT
Natural Resources and Infrastructure Division, UNECLAC
Infrastructure charges:
Creating incentives to
improve environmental
performance
This edition of the FAL Bulletin analyses the way in which port charges are
currently differentiated, focusing on strategic differentiation to understand
current practices and to identify potentials for reaching local environmental
goals and standards.
Port dues differentiation has evolved in a market-driven, competitive
environment. It has been proven to contribute to certain development goals,
but always in combination with other flanking measures. It could even be
said that differentiation of port dues is a flanking measure within a wider
policy-based approach. Particular emphasis in this respect is afforded to the
possibilities of differentiating port charges with reference to environmental
performance at a local level. The experiences from Europe are particularly
interesting in terms of their lessons for Latin America and the Caribbean,
where strategic differentiation for environmental goals is still absent.
The concept of strategic differentiation of infrastructure charges to
encourage more environmentally sound behaviour, reduce emissions or
promote technological change can be used as a tool for moving towards a
greener economy.
Introduction
“The assumption that a pattern of change exists in the history of mankind
[..], that it consists of irreversible changes in one direction only, and that this
direction is towards improvement.” Sidney Pollard, 1968
As society has progressed, the demand for infrastructure and transport
as a means for meeting society’s needs has grown. But history has shown
that technological improvements and advancements alone are not
This FAL Bulletin analyses the potential
contribution of differentiated
infrastructure charges to the promotion
of more environmentally sound
behaviour, such as energy efficiency and
technological change.
Port infrastructure charges are used as an
example of how charge differentiation
can be used as a fiscal tool to enhance
the environmental performance of
infrastructure services.
This issue was written by Gordon
Wilmsmeier, Economic Affairs Officer of
the ECLAC Infrastructure Services Unit.
Introduction
I. Port infrastructure charging
II. Port charges-structure
and differentiation
III. Strategic differentiation,discriminatory
charges and voluntary differentiation
IV. Discussion
V. Conclusion
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INFRASTRUCTURE SERVICES UNIT
Natural Resources and Infrastructure Division, UNECLAC
enough to improve the environmental performance of
the transport sector.
More than 80% of world trade (in terms of volume) is
moved using waterborne transport (UNCTAD, 2010). Port
infrastructure fulfils a facilitating role in meeting the
demands of world trade; its availability has important
repercussions for trade, economic development and the
competitiveness of economies. As a result, the pressure
for port infrastructure development is high. Decisions on
how this infrastructure is managed and where it is located
in the supply and logistics chains can move maritime
transport sector development towards sustainability. In
this context, port infrastructure charges and their strategic
differentiation might be an intermediate step, creating
incentives at the local level to improve environmental
performance and encourage more environmentally sound
behaviour on the part of port users.
Levels and structures of port infrastructure charges vary
markedly across countries and terminals. Particularly in
developing countries, existing charging regimes seem to
be far from internalizing external costs and are rarely
based on efficiency principles.
This issue of the FAL Bulletin reviews examples of charge
differentiation structures in place at a number of European
ports, in order to understand current practices and identify
potentials and challenges for wider implementation.
The bulletin stresses the need for a dynamic approach
when introducing strategic differentiation of charges in
order to maintain the efficiency of the strategy over time.
The author compares data from two primary sources:
(a) qualitative data derived from personal interviews at ports
and (b) data obtained through interviews with port users.
Potential differentiated charging schemes on ships for
port channels/fairways, associated port infrastructure
and port services are identified, and recommendations
for effective differentiation of charges in order to
enhance the sustainability of port infrastructure
management are provided.
I. Port infrastructure charging
In general, ports are no different from any other
multiproduct industry offering a range of services
and operating under different environments and
organizational structures. However, the port sector
is neither standardized nor homogenous in regards
to ownership, organization, competitive framework
or management. Furthermore, ports vary in size,
functions and geographical location. Despite the fact
that basic scaling factors used for price differentiation
are somewhat similar, the operational scheme of a port
(public-sector, concessioned or 100% privately-operated)
has a significant impact on the charges levied because
of the different degrees of regulation and supervision
involved. In the case of container ports, the landlord
port model is the most common one. To understand
differentiation schemes for port charges it is necessary
to understand the general objectives of a port and its
current pricing principles.
Rationales for providing port services vary. They range
from the European (continental) view of ports as part
of the social infrastructure, valuing their contribution to
development in the region, to the Anglo-Saxon rationale
focusing on port profitability and self-sufficiency
(Bennathan and Walters, 1979), the Latin rationale
entailing centralized control of ports, and the municipal
Hanseatic model, involving autonomous port authorities
(Veenstra, 1999).
The traditional role of the public sector in the delivery of
port services has declined throughout the years. Today,
ports are generally perceived as commercial entities that
should recover their full costs from the user (Strandenes
and Marlow, 2000). On the one hand, port operation
has become more fragmented since the terminals of
one port might have different operators, and port
services (such as pilotage) have passed to private-sector
operators. On the other hand, horizontal and vertical
integration in the maritime industry have led to the
development of global and regional terminal networks
being operated by a single operator and shipping lines
operating specific dedicated terminals.
Competition, commercialization and vertical integration
in the maritime transport sector have significantly
influenced the prevalent quality factors of ports, which
in turn influence demand elasticities. The role of port
costs from a user perspective also varies significantly,
depending on the type of traffic and service. Port
charges make up only 5% to 10% of overall transit
costs for deep-sea shipping compared with 40% to
60% for vessels engaged in short-sea trades (European
Commission, 1997).
Strandenes and Marlow (2000) argue that existing pricing
structures try to satisfy conflicting objectives and that
any successful pricing policy would have to acknowledge
the trade-offs being made between financial, economic,
environmental and social objectives while maintaining
rigid managerial discipline and encouraging trade.
The next section examines the current structure of port
charges and evaluates the degree to which port users are
charged in a manner that differentiates and encourages
more environmentally sound behaviour.
3
such, it has also proven to require subsidies to cover part
of the infrastructure or fairway costs.
The analysis of current pricing structures shows that in
most cases clear classification of a particular port into
any single one of these approaches is not possible. In a
competitive environment ports, like any other business,
seek to gain competitive advantages. Differentiation of
pricing is one way to do that.
In general, charges can be assigned to different phases of
a ship call (see figure 1) and can be classified into facilities,
services and general tariffs (see figure 2). The specific dues
and fees under each category reflect the complexity of
port charges.
II. Port charges-structure and
differentiation
Current port pricing structure in many ways reflects
the history and traditions of each port. UNCTAD (1995)
classifies port pricing as a strategic matter with three
approaches to port financing: economic, financial and
public enterprise. The economic approach argues for
marginal cost pricing, taking into consideration the effects
on all parties, including benefits and costs to others. The
financial approach argues for prices to be set on the basis
of accounting costs in order to achieve a profit. The public-
enterprise approach aims to foster local development,
economic activities and maximization of throughput. As
Figure 1
Basic structure of port charges and dues
Source: Doerr 2006.
Figure 2
Categorization of port charges
General tariffs
Port dues
Anchorage
Wharfage
Facilities tariffs
Concession fee
Berth hire
Fairway dues
Service tariffs
Pilotage
Equipment hire
Warehousing
Cargo processing
Towage/tying
Stevedoring
Berthing/unberthing
Source: Prepared by the author.
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INFRASTRUCTURE SERVICES UNIT
Natural Resources and Infrastructure Division, UNECLAC
Gross tonnage (GT) is the principal scale factor for port dues;
one exception is France.1 Its spreading throughout most of
the world has its origin in the International Convention on
Tonnage Measurement of Ships, 1969, which introduced a
universal tonnage measurement system.2
In its general remarks on port tariffs, ISL (2006) states that
there is no common regulation for the compilation and
publication of tariffs for port users. The ISL study continues
“… in most cases ports are free to decide about the nature
and absolute level of charges… .” Even if the charges are
published, the final price paid by the user is, in general,
negotiable. Under the landlord scheme, the port authority
often has responsibility only for the infrastructure charge.
1 In France, port dues are based on the volume of the ship. This scale factor is calculated
from the length, breadth and summer draft of the ship, which is then multiplied by a
specific factor based on the type of ship. For details see, for example, the port tariff
table at http://www.havre-port.net/pahweb.html.
2 For details, see www.imo.org/conventions/mainframe (August 2007).
Interviews with port officials have confirmed that port
authorities perceive themselves to be operating in very
competitive environments. This is a leading argument
in defence of their existing pricing and differentiation
schemes. For example, the Port of Valencia uses port
pricing to distinguish itself from competing ports,
giving discounts to vessels that call regularly and to
RoRo vessels that operate between European Union
ports, thereby strengthening intermodality. This port
also grants discounts to ships complying with specific
regulations and standards. For instance, vessels
accrediting the delivery of liquid waste in accordance
with MARPOL I receive a discount of 20 euros per ton
with a limit of 10% of the net amount; services certified
to UNE-EN 45011 or equivalent standards receive a 3%
discount.
The main objectives for price differentiation are equity,
cost coverage (no clear evidence exists as to whether this
is based on marginal or long-term costs), profits or the
principal of “what the cargo can bear”. The strategic
objectives are environmental, specific market capture
(such as short sea shipping) and safety.
Table 1
Types of differentiation in relation to objectives in ports
Objectives/types Ship type Ship size Type of
traffic
Frequency Compliance
with
environmental
standards
Compliance
with safety
standards
Type of cargo
Equity
Cost coverage
Profits
Strategic
Safety
Environmental
Markets
Source: Prepared by the author.
Note: Analysis based personal interviews with port officials and literature research.
Used to achieve objectives Partly used to achieve objectives
5
III. Strategic differentiation,
discriminatory charges
and voluntary differentiation
Strandenes and Marlow (2000) argue that traditional
port charges can typically be defined as discriminatory, as
previously identified by Talley (1994) and Svendsen (1967).
While this might be true, the author holds that specific
differentiation regimes are based more on strategy than
on discrimination.
The approach to differentiated port charges can be driven
by a port’s own strategic decision (UNCTAD, 1995) or can
be voluntary in order to anticipate developments driven
by external influences (such as environmental policy at
the national level). The main difference between strategic
and voluntary differentiation is that, in theory, a voluntary
differentiation scheme has to be revenue-neutral to be
attractive for implementation and should not negatively
impact competitiveness with other ports. Examples of
voluntary differentiation schemes can be found primarily
in the Swedish port sector, in the form of environmental
differentiation schemes.
The decision by a port to adopt strategic differentiation may
also be driven the goal of maximizing profits from a certain
user group or a long-run strategy for market expansion.
Consequently, it will not necessarily be revenue-neutral.
These regimes are prevalent in many ports because they
favour certain types of traffic over others or try to attract
certain types of traffic to enhance the port’s strategic
position within the global and /or regional port system.
For example, several ports in the European Union have
adopted a scheme that incentivizes intra-European Union
container shipping services. The reasons for this strategic
pricing option are manifold. First, a preferential tariff for
intra-European Union short sea shipping services is in line
with European Union policy to strengthen waterborne
transport and to shift intra-European Union traffic from
road to sea. Second, port administrators in general have
incentives to increase or maximize port throughput, which
also strengthens their position within the port hierarchy in
the region. In order to be attractive for mainline services,
ports need to attract a high level of feeder services that
provide the fine distribution within the region.
The following section focuses on strategic differentiation
of port charges to reach environmental policy objectives.
Strategic differentiation of port charges for other strategic
reasons, such as to promote short sea shipping, will not be
discussed further in this bulletin.
The Green Award system was launched in 1994 based on
an initiative by the Port of Rotterdam. The programme
was designed to give large liquid and dry bulk vessels
an incentive to increase their attention to safety and
environmental protection. The Green Award is given to
ship owners if their vessels, crews and procedures comply
with a number of requirements in vessel operation and
specifications. To date, 284 dry bulk ships and tankers
belonging to 78 companies have been certified. A number
of ports give incentives to certified ships in the form of
differentiated user charges. However, no ports in Latin
America and the Caribbean provide such incentives.
Map 1
Incentives providers-Green Award
Source: www.greenaward.org (1 Nov 2011).
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INFRASTRUCTURE SERVICES UNIT
Natural Resources and Infrastructure Division, UNECLAC
6
Due to the origin of the initiative, the discount scheme
is most widely practised in the Netherlands, where a
number of nautical service providers also offer discounts
on their tariffs for ships that are Green Award certified.
The discount, which generally ranges from 3% to 6%,3 is
granted on the port dues.
Interviews with officials of the Port of Amsterdam in the
Netherlands and the Port of Sullom Voe in Scotland’s
Shetland Islands have shown different perceptions of the
scheme and its effects and validity. Representatives of the
Port of Sullom Voe (February 2007) stated that the 5%
discount is no longer granted because all ships calling at
the port comply with the Green Award requirements in any
case. The differentiation scheme thus seems to have fulfilled
its purpose and is no longer necessary. However, particularly
in developing countries such incentives could still have a
significant impact on port users and the local environment.
The Port of Amsterdam maintains the Green Award
discount as of its marketing strategy as a “green” port.
The Port of Amsterdam’s geographical location might be
one of the main reasons that it seeks to promote a green
image, since it is right next to the city, while Sullom Voe
is located in the remote northern region of the main
Shetland island with no nearby human settlements.
Experiences with the introduction of voluntary
environmental differentiation schemes vary. From July
2001 to June 2003 the Port of Hamburg ran a pilot
programme that gave a 6% discount on port dues to
ships that were ISO 14000 Environmental Management
or Green Award certified. Based on three further
indicators (use of Tributyltin-free4 anti-fouling coating,
use of bunker oil with sulphur content < 1.5%, and NOx
emissions 15% below the IMO NOx curve), ships were
eligible for a further 6% reduction.
The scheme had three significant drawbacks. First, it did not
prove to be revenue-neutral. Due to the institutional set-
up, the port had to be repaid, out of the public budget, for
the discounts given to ship operators. Second, the scheme
was politically driven and therefore dependent on political
support, but with the change in government funding was
lost. Third, there was no agreement between the port and
the ship operators to strengthen this programme.
In the current institutional set-up, the port authority neither
has nor foresees any incentive to develop and reintroduce
such a scheme. The port authority itself does not see the
need to reinstate environmental differentiation of this
3 Based on examples from the Port of Ghent, Klaipeda State Seaport Authority, Porto de Sines,
Portos do Douro e Leixões, Porto de Lisboa, Porto de Setúbal, Amsterdam Port Authority, Port of
Roerdam, Port of Dordrecht, Moerdijk Port Authority, Zealand Seaports and Port of Sullom Voe.
4 For details, see http://pmep.cce.cornell.edu/profiles/extoxnet/pyrethrins-ziram/tributyltin-
ext.html.
kind. Its basic dilemma is that if the scheme were to entail
costs for the port, there is no funding for reimbursing
them. If the scheme were to create profits, the main issue
would be how to invest the money accordingly so as to
encourage more environmentally friendly performance by
the shipping sector.
Positive results can be drawn from the Swedish dues
differentiation programme. The programme is based on a
consensus between the Swedish Maritime Administration
(SMA), the Swedish Shipowners’ Association and the Swedish
Ports and Stevedores Association. It came into operation in
1998; a revised programme was launched in 2005. Unlike the
Hamburg scheme, the agreement included a programme of
environmentally differentiated fairway dues administered
by the SMA and provisions for a partial subsidy to ship
owners for installing NOx emissions-reducing technologies,
besides the voluntary port dues differentiation.
One significant difference compared with other European
Union countries is that Sweden has long had a maritime
infrastructure charging scheme for its fairways. While the
effect of differentiated fairway dues is straightforward
(because all Swedish fairways are overseen by the SMA),
the implementation of environmentally differentiated
port dues requires voluntary port participation.
By 2006, 30 out of 52 ports had introduced voluntary
environmentally differentiated port dues.
As mentioned earlier, ports (especially those participating
in international container shipping) operate in an
increasingly competitive environment. To preserve
revenue neutrality, ports have to offset any incentive
offered to low-polluting ships by charging higher dues
for high-polluting ships (NERA 2005). This creates the risk
that high-polluting users will move to competing ports
that do not impose such rules. While the port achieves its
goal of reducing pollution in the port, it loses business and
—from a macro perspective, even worse— does not solve
the problem of high-polluting ships but just shifts them to
another geographic area.
IV. Discussion
Port officials have stated that their current pricing
structures have historic roots and are subject to market
developments and, in many cases, reflect a compromise
between the differing views of economists, port
authorities, governments and users.
The fact that port infrastructure charges have different
payers and recipients limits the effectiveness of
differentiating them. Port infrastructure charges and
cargo handling charges are in general invoiced by two
different parties: the former by the port authority and
7
the latter by the service provider (e.g., terminal operator).
Based on the assumption that port infrastructure charges
are only a small portion of all port costs (Trujillo and
Nombela, 1999), the decision to use a port will rather
depend on the charging structure and level of the
terminal operator whose operation entails the highest
cost to the shipping line. Consequently, the success of
any differentiation strategy heavily depends on the
attractiveness of the terminal operator to a shipping line
and shipper and on market captivity.
Price differentiation (in this case, to encourage sound
environmental performance) is a means to present
and promote service differentiation and to brand the
port’s services to attain a competitive advantage in an
ever more competitive environment. Differentiation of
port infrastructure charges as seen from the political
perspective is only to a much reduced extent a facilitator
of certain developments (such as environmental goals).
When it comes to evaluating the potential offered by
the differentiation of port charges, successful ports
must constantly be prepared to take on new roles on
order to cope with the changing market environment
(Notteboom and Winkelmans, 2001).
In the port sector, the effectiveness of strategic
differentiation has a certain life span defined by the
efficiency of the measure. For example, the differentiation
of port dues to attract higher-standard ships using Green
Award compliance as the measure of differentiation
makes sense during the start-up and expansion phase of
such schemes. However, as soon as the scheme comes into
maturation the differentiation effects decline and the
strategic incentive loses impact. This is, for example, the
case with Sullom Voe, where the differentiation is no longer
applied because all ships fulfil the differentiation criteria.
V. Conclusion
Today’s highly differentiated port charges are a result of their
historical development, in which successive attempts have
been made to eliminate perceived inequalities in the system.
In a market-driven environment with increasing competition,
differentiation of services is a principal part of port strategy
in Europe. Differentiation of prices is a way to showcase
the port’s strategy, as shown by the examples of the Port of
Gothenburg and the Port of Valencia.
Differentiation of port infrastructure charges is one of many
economic instruments a port can use to secure its market
position. But is it wise to artificially introduce differentiation
into a market-driven sector to reach certain local, national
or even regional policy goals? With the commercialization
of ports and port authorities in many countries, ports
are no longer State entities and any externally imposed
differentiation would need to be revenue-neutral. Otherwise,
such schemes may not be sustainable in the medium and
long term if funding is not secured. Moreover, would the
creation of funds to finance differentiation to meet a certain
policy goal not have to be considered as subsidization?
Subsidization does not create fair competition; the current
trend is towards eliminating port subsidization.
Differentiation in the port sector has been conclusively
proven to deliver certain development goals. This has not
received attention in developing countries, and strategic
differentiation of port charges to reach environmental
goals is, to date, absent in Latin America and the
Caribbean. That is why this issue of the FAL bulletin has
focused on experiences in Europe.
However, strategies for differentiating port infrastructure
charges have been successful in connection with parallel
flanking measures. It might even be said that the
differentiation of port dues is a flanking measure of wider
policy concepts.
In view of this, the concept of strategic differentiation of
port infrastructure charges —to provide incentive for more
environmentally sound behaviour, reduce emissions or
promote technological change— has possible applications
for other types of infrastructure and thus could be used as
a tool to move towards a greener economy.
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