Port Management and Forms of Port Reform Strategy - Essay Example

?Table of contents 0 Port Management 1. Introduction 2.0 Benefits of port reform 2 Forms of port reform strategy 2 1 Commercialization 2 2 Deregulation and elimination 2.1.3 Corporatization 2.1.4 Privatization 2.1.5 Modernization of port authority 3.0 Burdens of port reform 4.0 Conclusion Port Management 1.0 Introduction During the last two centuries, ports tended to serve as instruments of colonial or state powers, and port access and egress served as a markets control strategy. There was minimal competition between ports and port-related costs were very low compared to the cost of water transport. As a result of these, there was little motivation and incentives to improve the levels of port efficiency. At present, there is continued need to restructure port operations in a manner that it will enable port management and governments to deal with external factors that affect the viability of ports. These include increased competition among ports, changes in transport technology and ports, and internal competition for global markets. Over the recent years, lending agencies and governments have come to agree on the view that the participation of the private sector can be a powerful tool for improving the performance of port assets. Many government officials and port managers believe that privatization is the only way in which the performance of public port organizations can be improved. This view emerges from the believe that some specific characteristics of the private sector are very critical in the achievement of the desired commercial success in ports. Currently, many ports have undergone reformations with an aim of reducing the role of government in port operations. In this case, the government is supposed to maintain the landlord function only. Port reform also enables a port to obtain financial autonomy and achieve increase productivity. The aim of this report is to analyze the benefits and burdens of port reform with respect to existing forms of reform. The main objective of the report is to analyze the benefit offered by each form of port reform. Finally, the paper determines if the benefits of port reform overweigh its burdens. 2.0 Benefits of port reform 2.1 Forms of port reform strategy The overall benefit of port reform is improved operational and organizational performance. This can be achieved through the adoption of an appropriate form of port reform strategy. These forms include commercialization, privatization, corporation, liberalization or deregulation port services and modernization of Port Administration and management. These strategies present different benefits hence they are normally chosen depending on setting of the specific port. 2.1.1 Commercialization In commercialization, a public port is not changed into a private company. However, the port authorities apply accounting and management principles which are similar to those of private companies. The main benefits that commercialization offers to a port is the attainment of increased accountability and autonomy in terms of decision-making and overall performance. This means that a port is free to adopt the characteristics and practices of private sector and the end results of such step improved efficiency and profitability. Commercialization as a reform strategy is characterized by decentralization of the decision-making process. This means the port management does not have to wait for a government dictate each and everything that happens in the port. Instead, they are able to make prompt decisions or change former decisions as dictated by circumstances. Decentralization also encourages specialization which is important in the delivery of quality services or leadership. Gos (1990) states that the involvement of government in port management complicates the hierarchy of its management hence commercialization as a port reform strategy therefore helps to relax this hierarchy. This enables the port management to exercise more control over, procurement and purchasing, budgeting, hiring and firing, maintenance strategies and programming, employment conditions of staff and labor, and salary scales. 2.1.2 Deregulation and elimination Deregulation and elimination refers to partial elimination or reformation of government rules and regulations. From these reformations, private companies are mandated to operate in areas that were formerly dominated by the public sector. This means that deregulation and elimination increases the channels through which a port can obtain income. The result of this is a great improvement in financial autonomy in the port and the port can freely use its income to expand or improve its operations. 2.1.3 Corporatization In corporatization, a public port is granted the legal status of a private company. However, government or the public sector retains ownership. In this case, all assets, including land lease rights, are transferred to this private company. According to Juhel (1995)., corporatization is very instrumental in ensuring that a public port enterprise becomes more responsive to market forces. There is some level of reluctance by private capital suppliers to invest in the port management. Therefore, corporatization is important in overcoming this reluctance. Corporatization is normally important for the attainment of port management that protects the public interest. This is important especially considering the fact that ports offer important private and commercial benefits. Corporatization therefore helps to ensure that ports offer public benefits to its maximum. This is mainly achieved through the clear and non-conflicting objectives that are set by the government. According to South Africa, Ministry of Transport (2002), corporatization increases the level of dedication and accountability among managers. This is because corporatization allows for the use of sanctions and rewards on managers basing on their performance. The management of a corporatized port firm is able to operate the company on commercial terms because they are totally free from direct government control or interference. Heaver (1995) states management is in a position to make the business more aware of clients’ and market demands. For example, they are free to set distinct business targets which they can adhere to. They can also set up internal financial controls, information and accounting systems which are stricter. This means corporatization increases the level of accountability among the management. Financial autonomy is the greatest strength of corporatization. Once a port is corporatized, its tariffs no longer require the approval of the ministry or the government. In addition to this, the company is allowed to establish its own hiring, firing, procurement, contracting and firing practices. Such port facilities do not depend on government support for investments. Instead, they have the freedom and authority to make direct negotiations with commercial banks if they want loans. For those ports that are in the process of becoming fully privatized, corporatization helps the management to adopt its new role. 2.1.4 Privatization Privatization of ports increases the role and function of the private sector in the ownership or operations of existing port facilities, and consequently, its services. This form of reform, specifically partial privatization, involves the transfer of a part of the activities and assets of a public port facility to a private sector. Privatization has greatly increased the ability of many ports to compete locally and globally. This mainly arises from the adoption of business-orientated type of operations. Private capital has been very useful in the improvement of the quality of port facilities and hence the quality of port services offered. This is very important because a combination of public, foreign and private investment is required in order to meet the capital requirements for ports (Juhel 1995). 2.1.5 Modernization of the port authority Modernization of the port authority is an alternative for commercialization, liberalization, privatization and corporatization as port reform processes. Governments are reluctant to implement these strategies because of the fear that such modifications could result to loss of government power, authority and prerogatives, and disruption of services. As compared to these other strategies, transformation of the port authority is a less sweeping port reformation method. This strategy is implemented under the assumption that the performance of the port facility can be improved even in the prevailing bureaucratic environment. Examples of improvements that can be made include the adoption and utilization of corporate planning practices, use of management information systems (MIS) and computer applications, and human resources development (HRD) planning. 3.0 Burdens of port reform Corporation presents many potential benefits. However, the anticipated efficiency can only be fully realized if competition is created. Corporatization will also require that a port sector regulator should be introduced. The function of this body will be to create a level playing field among all existing service providers who are competing. This body is necessary due to the exclusion principle in navigation, imperfections that arise from the nature of basic port infrastructure and the existence of joint and common costs. It is also responsible for protecting the interests and welfare of the state and its people. For purposes of neutrality, this organization has to be independent. Alternatively, governments could be forced to come up with sound ports policies that are meant to regulate the existing competition. Modernization of the port authority is an insurance against possible loss of government power, authority and prerogatives, and disruption of services that could result from other port reformation strategies like commercialization, liberalization, privatization and corporatization. However, cultural or bureaucratic considerations have the power to undermine its positive effects. Modernization of the port authority involves cooperate planning and this requires a lot of group interaction for it to be successful. Though the above interactions may offer the best available alternatives, it can easily be interfered with by an hierarchical organizational structure that is strict in nature. Such kind of an organizational structure places a greater percentage of important decision-making in the hands of a single company executive. This means that if such a strategy is adopted, the success or failure of the policy and development will always be dependent on one person only. It will depend on their performance and individual commitment to the process of commercializing the port authority and this is more risky. According to Goss (1990), port managers who are used to civil service practices and procedures have to make drastic changes in their management styles. Such a transition is not easy and may even require a replacement of former civil service individuals who served at senior managerial positions. Heaver (1995) states that management development and career planning are important aspects of port modernization strategy. This requires extra efforts, and the use of extra resources. As a result of this, many port facilities have not been successful in introduce career development and career planning in the organization. The final result is high turnover rates at among individuals in management level positions, high absenteeism and low levels of employee motivation. Privatization of ports involves a tedious bidder selection process. This is because the ports authority needs to select the most successful bidder whose business plan is the best and can qualify to become the final part of the contract. Privatization may result changes in rules governing work practice and a downsizing of employees working as port operating personnel. This requires a thorough formulation of a strategy of dealing with this issues. The winning bidder should also explain how they intend to go about in addressing this issue. This also requires an extensive analysis of experiences from other ports that have already undergone the same process (South Africa, Ministry of Transport 2002). Heaver (1995) states that a port reform requires the development of a well-reasoned plan that will guide the transition from public to private operation. Privatization creates the burden of establishing the appropriate resource allocation criteria. This is because the exclusion principle which underlies the idea of private ownership is not effective. It is not possible to establish a relationship between charges required for usage and those incurred during usage. This means continued usage does not result in marginal costs that are identifiable. 4.0 Conclusion The momentum for port reform in the developed and developing countries is being generated by three main forces. These are external forces of technology and competition from the shipping industry and globalization and diversification of operators and investors in the port industry. There is also an acknowledgment of the operational and financial benefits that result from the participation of the private sector in service delivery and infrastructure development in ports. Governments have utilized various port reformation forms depending on the setting of the specific port. Port reformations have led to increased competition in the port business, increased financial autonomy and increased productivity among ports. Consequently, there is a general improvement in service delivery and asset performance in many ports worldwide. There is also reduced government participation in the management though in most cases, it has retained the landlord function. Despite their benefits, port reform forms present various burdens for example it requires the formulation of a port sector regulator, change in management where necessary and even management development and career planning. Governments could also lose their powers and control over ports and this is risky considering that they are important in taking care of public interest. From these discussions, it is evident that the benefits of port reform outweigh the burdens it presents hence it is worth undertaking it. References Goss Richard (1990). “Economics policies and seaports: 4. Strategies for port authorities.” Maritime Policy Management (3) pp 250 – 264. Heaver Trevor (1995). “The implications of increased competition among ports for port policy and management.” Maritime Policy and Management. (2) pp 125 – 133. International Association of Ports and Harbours. (1997). Current Port Authority Challenges. Online: http://www.ppiaf.org/ppiaf/sites/ppiaf.org/files/documents/toolkits/Portoolkit/Toolkit/module1/index.htmlViewed on 3rd July, 2011. Juhel Marc (1995). Public/private partnership in port activities: A new mandate for the public sector. The World Bank Transport, Water and Urban Development Department Transport Division. South Africa, Ministry of Transport. (2002). White Paper on National Commercial Ports Policy. Pretoria. Read More