Current and past thinking had been focussed on a ports standalone physical attributes - such as geographic location, service provision and efficiencies - but a research paper has found that ports can no longer be measured on independent attributes or in isolation from the supply chain system in which they are embedded.

The Port Choice Modelling paper authored by Mateus Magala, of Melbourne University, and Adrian Sammons, of the Department of the Chief Minister, Northern Territory Government in Australia, promotes a new and more contemporary approach through which to conduct modelling and understanding of port choice by shippers.

So revered were the findings that the research won the award for best paper at the prestigious International Association of Maritime Economist's annual event in July 2007.

In the paper, the authors explain that with the progressive integration of ports in supply chains, it has become clear that shippers are no longer choosing a port per se, but rather a supply chain – a bundle of logistics services; a pathway to markets – in which a port is just an element albeit an important one of the system. Clearly, shipper’s influence on port choice decisions is diminishing, particularly now that a single shipping line, a third party service provider or supply chain integrator may control the freight from the origin to the final destination using various transport arrangements and multiple alternative pathways, designed to minimise the total logistics cost and maximise value for both the customer and the supplier.

Ports have always been part of the maritime transport chain but their full integration in supply chains is a recent phenomenon. Earlier chains were highly fragmented, uncoordinated and inefficient. Ports were important but weak links in the chain. Individual firms in the chain including ports were internally rather than market-driven; their focus was on maximising their own profit by being managed as standalone entities. Meanwhile, for their part, shippers were more concerned with minimising transport cost to remain competitive. For most shippers, the choice of a port, shipping lines, and land transport was a major logistics consideration because these elements of the transport chain were perceived as significantly eroding value created and thought to be delivered to end customers. Competition was driven by cost; the value of the service provided was a secondary consideration.

In such context, the question of how a shipper chooses a port is an important issue not only for shippers but also for port managers, shipping lines and policy makers.

Loss of individuality

The importance of this study for port managers and investors lies in the proposition that in the highly competitive and rapidly globalising economy of today, the integration of supply chains is taking place and ports are increasingly competing not as individual firms but within supply chains. Better integrated supply chains, rather than individual firms or highly fragmented chains now compete with supply chains. Integration has been driven mostly by third party service providers not simply seeking to extract costs and efficiency advantages, but in so doing to deliver competitive advantage to the end customer with the view to extracting value and competitive advantage for themselves.

Clearly ports can no longer expect to attract cargo simply because they are natural gateways to rich hinterlands. Major port clients are now likely to choose ports not simply on their efficiency and location but rather on the quality and reliability of the entire supply chain. The successful functioning of ports is indistinguishable from the successful functioning of the entire supply chain.

For shippers, port choice becomes more a function of the overall network performance and ports are chosen on the basis of faster, better and more cost-effective access to the markets in which shippers compete. Shippers see as the greatest value of competing as part of an integrated supply chain the opportunity to reduce vulnerability to competition by providing the port with complementary resources and capabilities needed to compete effectively in the marketplace. In essence, supply chain integration may allow some firms to compete effectively in the marketplace without first owning all the critical resources needed to do so.

Under the new circumstances, it is apparent that shippers are being offered for the most part logistics packages of varying composition and prices, which include, among others, ports’ services. Third party services providers and/or supply chain integrators have assumed the role of packaging and marketing logistics services to shippers. This means that shippers can now focus on their core businesses and intervene only when a selection/choice of a supply chain solution that suits their tests and objectives is required. Therefore, the choice of a supply chain solution rather than the choice of a port per se becomes the focal point of shipper decision-making.

The authors summise that while the market understands the relationship between ports and carriers in the service deliverable sense, another method is required in making the connection between port choice and supply chain selection.

The shipper is pivotal in the process of service demand and choice because both shipping and port services are derived demand; they are derived from shipper’s propensity to trade. On this platform we can then use case studies to examine the bundle of freight services arrived at by the shipper and unravel each event to understand the drivers and relationships between each factor. This then will add relevance to any study on both carrier and port choice.

The primary concern of a shipper is to move freight from market A to market B or more specifically from a point of production to a point of consumption or further processing in the most cost-effective way. In consigning cargo to an end-market the shipper chooses a logistics pathway which the freight follows. The notion of logistics pathways connotes a sequential set of logistics operations, warehousing, depot operations, port operations, trucking, freight forwarding, that deal with the end-to-end movement of freight.

The availability and suitability of a particular pathway is governed by a number of spatial, temporal and logistical factors including the availability of a shipping line, land transport, accessibility, connectivity and alignment with shipper needs and strategy. It follows then that when choosing a pathway a shipper will consider not only the possible combinations of ports of origin and destination, but also the availability of shipping lines, routes, land transport and a host of other logistics factors. Since all these elements are part of the pathway, it can be argued with some degree of confidence that the choice of a port is a by-product of a choice of a logistics pathway in which the total logistics cost is a major supply chain consideration.

Surprisingly, however, a number of studies on port choice seem to suggest that the port and port-related activities are removed from the essence of the supply chain events. This view is held up by some in the relativity of port choice modelling regimes where the port is regarded as a crossroads in the supply chain rather than being hardwired into the integration of events.

The report authors argue that the more one studies various examples of port choice models the more reticent one becomes in the notion that the port element is a standalone proposition as far as its selection criteria is concerned. Indeed, they propose that most recent understandings present the case time and again that the port selection criteria and choice models are directly connected with the complete supply chain event.

Magala and Sammons conclude their paper by stating that it is arguable that the current approaches to port choice modelling are at best ineffective, at worse outdated and therefore a new approach that models port choice within the framework of a port as an element of a supply chain is needed and is more likely to provide us with a better understanding of the determinants of port choice.

There is no question that a shipper does choose a port but, in the current business environment in which ports compete as part of a supply chain, the approach shippers use is based on selecting a port as an item in a logistics package, often assembled and offered to the shippers by the third party logistics providers or supply chain integrators which are now becoming the key intervening elements in firm to firm transaction to effect the freight movement from one end to another.

Within this view, the paper suggests that discrete choice modelling provides the right modelling framework to handle both the system and the port choice. Particular specification of a model will be context dependent but the universal paradigm is that a port is chosen not in isolation but rather as an element of a supply chain system.