The New Port Governance
Throughout history, wherever there have been civilizations, maritime trade has taken place. There are records of ports as far back as 4500 years ago, such as the Wadi al-Kharf on the Red Sea used during the fourth dynasty in Egypt. From the Bronze Age to the present day, the sea has been how nations exchange goods, and it is estimated that 70% of world trade is transported by sea and handled by ports.
To maintain a logistics system at a global scale, one would assume that a structure has always been in place to link the various points along these trade routes. The truth is that in the thousands of years that the seas have been navigated, no basis for running ports had been established. This changed 20 years ago; globalization and the growing interdependence between nations demanded governance models that considered the trade flow between countries, deregulation of services, and free maritime transport. The challenge in designing port governance systems lies in finding the thread that connects the great diversity of port laws and structures unique to each country: some ports were public, others private, some mostly public with some private participation, and others the other way around.
Given the multiple port management structures that countries operated, it was clear that a foundation needed to be laid to streamline trade. It was not until the middle of the first decade of the new millennium that the World Bank published a document called the World Bank Port Reform Tool Kit, which reduced port governance to four models:
- Public Service Port: Are ports where the public sector owns 100% of the ports. Government agencies are responsible for planning, managing, and operating the infrastructure and superstructure (buildings) behind all port services.
- Toolport Model: The port authority over infrastructure, superstructure, cranes, and others is in the hands of the public sector. Certain services such as stevedoring, supply, storage, and pilotage are in the hands of private companies.
- Private Service Port: The private sector has total control over the port, from land ownership to structures. The necessary operating services are in the hands of companies, and it is up to them to see to the maintenance and investment of the port.
- Landlord Model: The state owns the land, and through concessions to companies that may be public, private, or mixed, the operation and management of the port are carried out.
From the late 1980s to the World Bank Port Reform Tool Kit publication, there has been an ongoing debate about the ideal way to manage ports. The vast majority of nations have agreed that there should be a degree of private participation in ports’ operations.
In Latin America, with the trend of globalization and trade agreements between nations, in the 1990s came a wave of reforms that transformed previously publicly operated ports into mostly landlord ports. This process is known as devolution and is defined as transferring power and responsibilities from sectors once controlled by the federal government to independent and autonomous private or mixed entities.
In Mexico, this happened in 1993 with the Ports Law, which involved a reorganization of ports by transferring the federal government’s control over ports to the Ministry of Communications and Transportation. Among the many implications of the law, the door was opened to private concessionaires and an autonomous port administration that could be public or private. The trend is to gradually increase private participation to ensure continued investment in the ports to keep ports competitive in the international trade landscape.
Need for change
Using World Bank data, it’s clear that Mexico’s port governance reforms have been a success. The year 2000 started with 1.3 million TEUs handled, and by the beginning of 2020, the ports dealt with 7 million TEUs, an increase of more than 400%. Even so, the data itself also shows the industry’s volatility. With the financial crisis of 2009, the ports presented a drop of 13%. In the first semester of 2020, Mexico lost 11.1% of TEUs to the previous year due to the pandemic.
Due to this volatile nature, a change in philosophy towards port governance is needed. Beyond being logistic nodes within a long chain of goods transportation, port systems should be perceived as strategic pillars of a nation’s economy. The fact that 70% of trade is handled by maritime transport underlines the importance of maritime trade. Mexico and Latin America hold 7% of the world’s containers; more investment, less bureaucracy, and the renovation and expansion of ports are needed to increase this percentage.
More significant private input fortifies ports against any disruption. According to a World Bank report, with greater autonomy and private participation, ports in South Asia saw an increase in the efficiency of port governance, increased their involvement in an increasingly competitive sector. Became more resilient to economic crises; with the passing of the 2009 crisis, for example, India’s port sector remained strong and growing.
It is not a matter of changing governance from a landlord to a private model or any new governance form overnight. A radical change would only confuse the parties involved in the complex maritime trade system instead of solving today’s problems. What needs to be done is reevaluate and study the current operation of ports to implement changes that lead to a feasible increase in efficiency and competitiveness of a nation’s ports. From deregulation of services, more significant investment in technology to increased private participation in strategy and decision making in the direction of maritime commerce, there is much that can be done.
At Woodward, we have more than 80 years working in domestic and international logistics. In an increasingly globalized world, our priority is to ensure our customers’ success with the fastest, most efficient, and most of all, secure service whether in the sky, at sea, or on land.