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Maritime Policy & Management

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Entry barriers in seaports

Peter W. De Langena; Athanasios A. Pallisb a Department of Port, Transport and Regional Economics, Erasmus University Rotterdam, The Netherlands b Department of Shipping Trade and Transport, University of the Aegean, Greece Online publication date: 22 October 2010

To cite this Article De Langen, Peter W. and Pallis, Athanasios A.(2007) 'Entry barriers in seaports', Maritime Policy &

Management, 34: 5, 427 440 To link to this Article: DOI: 10.1080/03088830701585134 URL: http://dx.doi.org/10.1080/03088830701585134

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MARIT. POL. MGMT., OCTOBER VOL.

2007

34,

NO.

5, 427440

Entry barriers in seaports

PETER W. DE LANGEN*y and ATHANASIOS A. PALLISz yDepartment of Port, Transport and Regional Economics, Erasmus University Rotterdam, The Netherlands zDepartment of Shipping Trade and Transport, University of the Aegean, Greece
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The different types of entry barrier in seaports are analysed and the policies and practices to reduce them are discussed in this paper. In most seaports, economic, regulatory, and geographical entry barriers are substantial and increasing in complexity as ports become embedded in supply chains and multilayered networks with multiple entry-levels. Various entry barriers in seaports are identified through an overview of the relevant literature and their presence is confirmed by empirical data describing them. The case is then made for lowering these barriers. This would be desirable from an economic point of view, since lower barriers strengthen the contestability of markets and increase the level of intra-port competition. The latter might yield substantial benefits, such as fostering specialization and preventing the abuse of market power. Finally, low entry barriers would facilitate the faster implementation of new technologies and business models. In the third part of the analysis, policies and practices designed to reduce entry barriers are examined. The implications are discussed of current national and supranational (EU) policy initiatives aimed to liberalize service provision in seaports. Other (de)regulatory policies that could contribute to the reduction of entry barriers are analysed.

1. Introduction [1] In the last two decades, many new firms have entered the markets in seaports. Well-documented challenges (such as a geographical shift of production, the reform of world shipping, just-in-time manufacturing, logistics, and multimodal transportation) have raised the capital expenditure required for port facilities and led to a call for the reorganization of port services, mostly through liberalization and privatization. These changes have facilitated entry in many seaports, especially in the cargo-handling industry [2]. Although the port industry has become a more open market, entry barriers remain substantial. In some cases, port reform has introduced a few private port operators, but has failed to lower the entry barriers for more firms interested in providing port services. Thus, while the scope for private involvement in the provision of port services has increased substantially, the issue of entry barriers is still relevant. Lowering entry barriers is desirable from an economic point of view for at least three reasons. First, lower entry barriers enhance the contestability of markets. Such contestability puts pressure on incumbent firms (existing producers) not to charge excessive prices. Second, lower entry barriers increase the level of
*To whom correspondence should be addressed. e-mail: delangen@few.eur.nl
Maritime Policy & Management ISSN 03088839 print/ISSN 14645254 online 2007 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/03088830701585134

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intra-port competition. Substantial benefits might ensue, because market power would not be abused and port service providers would have incentives to specialize and differentiate their services from competitors in the same port [3]. Third, lower entry barriers would allow the faster implementation of new technologies and business models [4]. An analysis of policies to reduce entry barriers is clearly relevant [5] although it has been largely neglected in port studies [6]. In the first section, relevant entry barriers in seaports are identified. In the second section, the case is made for the lowering of these entry barriers. The third section presents empirical data on entry levels in seaports in Europe and analyses of policies to reduce these barriers. The relevance is discussed of current national and supranational (EU) policy initiatives aimed at liberalizing service provision in seaports. Other (de)regulatory adjustments that could contribute to the reduction of the existing entry barriers are also analysed. A concluding section summarizes and puts forward suggestions for further research.

2. Entry barriers in seaports The economic definition of a barrier to entry has been the subject of controversy since its inception in the 1940s and 1950s. The issue remains inconclusive [7], mainly through a lack of agreement on terminology [8]. Some authors (following Bain [9]) regard an entry barrier as anything that allows incumbents to earn above-normal profitsincluding high capital expenditure. This Harvard tradition differs from the Chicago school, exemplified by Stigler [10], who emphasizes incumbents cost advantages. According to Stigler, high capital expenditure is not an entry barrier, because incumbents have also incurred such expenditure. Both schools stress economic entry barriers, mainly because these are relevant for antitrust cases. Entry barriers may also result from legislation. Some legal entry barriers, such as licences, are not entry barriers according to the Chicago definition, but they are included, either explicitly or implicitly, by the Harvard school. Here, we use the broad and inclusive definition of Carlton and Perloff [11]: A barrier to entry is anything that prevents an entrepreneur from instantaneously creating a new firm in a market, while a long run barrier to entry is a cost that must be incurred by a new entrant that incumbents do not (or have not had to) bear. Legal and institutional entry barriers are thus also taken into account. In most seaports, such entry barriers are substantial [12]. A distinction can be drawn between: (a) Economic entry barriers; (b) Regulatory and institutional entry barriers; and (c) Locational (geographical) entry barriers.

2.1. Economic entry barriers Two economic entry barriers can be identified. The first is an existing service providers absolute cost advantage. If an entrant cannot challenge this, there is clearly an entry barrier. The following factors can contribute to such a cost advantage: . A better location in the port. When the incumbent is perfectly located, for instance with regard to access to hinterland transport modes such as rail,

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road, and inland waterways, or at a site with good maritime accessibility, the entry of competitors in less attractive vacant sites is unlikely to materialize. . A larger scale of operation with associated scale economies. This issue is relevant when the minimum efficient scale (MES) of port service providers is large compared with the market size. This situation is frequently the case in seaports [3]. In such conditions, entrants either face a competitive disadvantage resulting from a smaller scale or need to create a capacity similar to that of the incumbent firm. This latter option would be unlikely if it were to result in substantial excess supply, the prospect of a price war, and losses for both the incumbent and the entrant. . Incumbents benefiting from accumulated public investments. In most seaports, public port authorities have invested in infrastructure such as rail terminals and quays. In some cases, they have also invested in superstructure. Furthermore, the opportunity costs of the land are not always included in the land price paid to the landlord by port-service providers. Thus, existing leaseholders may benefit from accumulated public investments. Incumbents have a long-term cost advantage if such benefits from public investments are no longer available for entrants, for instance through changing policy guidelines (as recently discussed, although not adopted, in the context of the EU Port Policy). Consequently, new entrants face costs that incumbents have not had to bear. Thus, such subsidies that are not available for new entrants are clearly a barrier to entry in both Chicago terms (the incumbent has had lower initial investments), and Harvard terms (such subsidies lead to the incumbents relatively high profits). Contrary to Van Niekerk [13], who identifies expensive specialized equipment as an entry barrier, we argue that high capital requirements alone are not an entry barrier. Entrants are in many cases multinationals (Hutchison Port Holding, PSA, Dubai Ports World, et cetera). In other cases entrants are holding firms affiliated to large conglomerates: for instance, Holdings Ltd and NSW Ports Management Ltd are both affiliated to ethnic Chinese conglomerates, while the AIG Global Investment Group, which purchased stock in the marine terminal operator P&O Ports North America from DP World, is a unit of the world largest insurance company; it now operates at the Port Authority of New York and New Jersey, Philadelphia, Baltimore, Miami, Tampa and New Orleans as Ports America Inc. Entrants might even be groups of investors with access to the capital markets. An illustrative example is the recent (2006) takeover of Associated British Ports by the Admiral consortium that consists of a Wall Street bank (Goldman Sachs), a Singapore Government investment Company (GIC), a Canadian pension fund (Borealis); an illustrative example of the last case is the infrastructure business of a UK-based international financial services company (Prudential). Apparently, entrants can find financial resources if entry is profitable. A second economic entry barrier is the magnitude of switching costs; these are defined in this context as the costs associated with switching from the incumbent port service provider to the entrant. These costs often determine the capability of new entrants of starting up operations. Switching costs can come in several forms. Switching from one port facility to another may require the investment of port users. In some cases, such costs are insignificant; for example, shipping lines can easily switch containers from one transhipment facility to a competing facility.

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In other cases, switching costs may be substantial. For instance, port users (shipping lines, forwarders or shippers) may have long-term contracts with rail or barge companies, or they may have invested in dedicated transport equipment. Other port users may have invested in facilities at the site of the port-service providers (for instance, car manufacturers that carry out pre-delivery inspection and small repair activities at the site of a terminal operator). Such port users cannot easily switch to another port service provider. For most bulk transport flows, switching is prohibitive, because of the specific investments made to create an efficient overall transport chain (including hinterland transport). This also explains why cargo owners frequently invest in terminal facilities: to avoid being exposed to independent terminal operators with dominant market positions. Switching costs may also be high through the bundling of the services of the incumbent port-service provider. For instance, a (public) terminal-operating company may also provide pilotage, towage, and hinterland transport services. Such an arrangement creates a barrier to entry in each of the separate markets, especially when some of the bundled services are natural monopolies [14]. The bundling of port services is partly the result of the geographical and functional integration of ports in wider regions and networks [15]. With the rapid restructuring of the supply chains in which ports are embedded, ports are now elements in value-driven chain systems, not simply places with particular functions [16]. In the emerging flow-based system, the various phases of supply are closely synchronized and the various transport services are frequently bundled. The quest for long-term relationships with partners to reduce uncertainty and improve coordination leads port authorities to implement strategies aimed to strengthen partnerships with large players, by offering incumbent firms the conditions to develop strategies to succeed. Embeddedness in such strategic networks [17] enhances a firms competitive position. Inclusion in such networks may demand resources and be costly to achieve, because of the importance of reputation, trust, and experience, for example. Should a firm decide to leave the market, the investments required for inclusion in strategic networks cannot be recovered. Since these costs are sunk costs, they are considered as an entry barrier in the Harvard tradition. Thus, investments in embeddedness in the port community can be regarded as a third entry barrier. 2.2. Regulatory and institutional entry barriers Regulatory and institutional entry barriers are caused by government involvement. These barriers make entry to a market costly, time consuming or impossible. They are damaging to economic development [18]. In a substantial number of ports, policy-makers or port authorities effectively limit the number of terminal-operating companies, towage companies, and other port-service providers. Sometimes these limits are set by explicit entry criteria that effectively limit the number of competitors. In other cases, the port authority or some other relevant policy-maker decides about entry on the basis of its interpretation of the rules, such as compliance with local, national, and international environmental requirements and the development policy of the port [19]. In some cases, not only do port authorities grant authorizations, but they also provide port services. This provision presents fundamental obstacles to market openness. Furthermore, in a situation where the state in one of its various forms (national, regional, local) owns a port-service provider, this operator enjoys

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an implicit state guarantee: the state would not allow a state-owned operator to go bankrupt. This situation is a deterrent to new entry, as the state-owned operator is potentially able to engage in predatory pricing: that is, set prices below cost to remove competitors from the market. Provisions in leases, concessions, and other operating agreements, particularly those involving long-term investments by private operators, often provide these operators with some degree of protection against new entrants. For example, a terminal operator who has been given the concession to operate a containerhandling facility might have exclusive rights to handle containers in the port during the period of the concession. Furthermore, lengthy concessions, even though they provide benefits in the short run that are often passed on to the users, can also provide opportunities for rent seeking. The existence of regulatory entry barriers can be understood, at least in part, with insights from public-choice theories. First, entry barriers can be explained by the lobby efforts of incumbent firms to persuade policy makers to create entry barriers. These serve the interests of incumbent firms, because further entry is deterred and profit levels can be expected to rise [20]. Second, regulation can be said to serve politicians and bureaucrats, because they can extract rents. Both of these explanations underline the adverse welfare effects of entry barriers. Consequently, low entry barriers are in general better than high entry barriers. The latter are associated with higher levels of corruption and informal economies, not with better quality goods and services [18]. These public-choice theories suggest that that the emergence of legal and institutional entry barriers to serve the interests of incumbent firms, public port authorities or state agencies may not be ruled out in advance. Ports are traditionally strong, locally oriented communities [21] with close relationships between the port authority and port service providers. In such an environment, entry barriers may develop to serve the interests of the incumbent port community. An alternative explanation along the same lines, namely that legal and institutional entry barriers are the result of the lobbying of interest groups, is that a public port authority creates entry barriers in order to collect economic rents. In many ports, port authorities offer additional services such as pilotage, towage, and port labour. Entry barriers for such services clearly increase the market power of the port authority in these markets. 2.3. Locational entry barriers Natural barriers that constrain port capacity can limit entry, particularly of firms that require land in the port. In many ports, there is simply no space for additional berths, warehouses, and other facilities. The lack of suitable locations and environmental regulation that constrain expansion protect incumbents from new entrants. Such entry barriers are particularly relevant if alternative ports are imperfect substitutes, for instance through differences in hinterland infrastructure or nautical access, including deviation from main routes. Such deficiency is the case in many ports and for many commodities. Greenfield port development (building port infrastructure in a completely new location) is not usually a viable strategy for entry. Large investments are often required for dredging, quay construction, access roads, and port superstructure. In most existing ports, public authorities have contributed a large share of these investments without direct cost recovery. Thus, private Greenfield port development is unlikely to emerge.

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This supposition further strengthens the case for low entry barriers in existing port complexes. 2.4. Summary of entry barriers in Seaports Table 1 sums up the previous discussion of the different entry barriers relevant in seaports.

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3. The benefits of reducing entry barriers Lowering entry barriers is desirable from a public-interest point of view. First, they enhance the contestability of markets [22]. The relevant issue is how accessible (contestable) a market is for entrants. If entry to (and eventually exit from) the market by new competitors is easy, the market is said to be contestable and often just the threat of entry (potential entry) is enough to persuade incumbents not to abuse their dominant market position. The possibility of entry introduces an element of competition and, although there may not be many operators in the market, it is competitive, with prices not far from social opportunity costs. Such contestability puts pressure on incumbent firms not to charge excessive prices. This contestability is particularly relevant given the increased market concentration arising from economies of scale in modern cargo-handling
Table 1.
Category Economic

Entry barriers in seaports.

Explanation Incumbent enjoys a better location in the seaport Minimum efficient scale in the seaport is large compared with size Incumbent benefiting from accumulated public investments Carriers need capital expenditure to switch port facilities. Services bundling by incumbents increases switching costs Reciprocity in partnerships leads to switching costs De novo firms need time, capital, and knowledge to join sophisticated spatial and functional networks Restricted entrance for historical, ideological, commercial reasons Subjective entrance (allowing for discrimination) controlled by PAs that are both regulators and operators Regulation serves the benefits of politicians, bureaucrats, and/or existing firms that can extract excessive rents Natural, environmental, and capital, barriers constrain port capacity protecting incumbents

Entry barrier Structural cost advantage of the incumbent

High switching costs

Required investments in networks Legal and institutional Entry conditions/ permissions

Exclusive concessions

Locational

Unavailability of land for entrants

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technologies, the rise of global players in the terminal-handling industry, and horizontal and vertical integration in the shipping industry, for instance through the investments of shipping lines in dedicated terminals [21, 23]. Second, lower entry barriers increase the level of intra-port competition. This brings substantial benefits, because the abuse of market power is curtailed and port-service providers have incentives to specialize and differentiate their services from competitors in the same port. Thus, generally speaking, real intra-port competition is more beneficial for port users (and thus consumers) than contestable markets with only one incumbent. However, owing to the large minimum efficient size of many port services, such intra-port competition is not viable in all cases [3]. Third, lower entry barriers allow for the faster implementation of new technologies and business models [4]. Even when intra-port competition is established, the entry of additional competitors can be an important engine for the introduction of innovations. New firms often generate business dynamism and economic growth, particularly when the current activities of incumbent firms are challenged by exogenous changes in demand. New firms are thought to be particularly innovative and there is evidence that the process of entry (and exit) plays a part in reallocating resources from low to high productive units [24]. Firm entry plays an important part in the theories that stress the process of a creative destruction as a mechanism that helps shift resources from less to more productive units, as in a Schumpetarian model with entrepreneurial learning under uncertainty. When incumbents fail to exploit exogenous shifts in costs or demand (perhaps because the required innovations would be rent displacing), entry is an important determinant of industry performance [4]. To conclude, pursuing opportunities to reduce entry barriers is in the public interest. Policy should concentrate on creating conditions that allow entry without directly hindering the survival and growth of profitable firms. Additionally, regulation is required to control incumbents who benefit from high entry barriers. Examples include antitrust policies and merger regulations. Before these policy issues are addressed, some relevant empirical observations on entry barriers in the port industry are first discussed.

4. Empirical observations on entry barriers in seaports Different port services vary substantially with regard to entry. In the case of cargo handling, entry has occurred in most ports. The number of competitors is limited in the large seaports around Europe, but there are substantial differences per country. A recent study of selected European seaports of international importance (the seaports in each EU country with a total annual traffic volume of not less than 1.5 million tonnes of freight or 200 000 passengers, [25]) confirms the paucity of service providers in ports [26]. There is just one service provider of container-handling services in almost half the ports surveyed by ESPO (not all listed in table 2). In general, the number of handling-services suppliers increases with the ports size (in terms of throughput). The last columns of table 2 show the average throughput per service provider in the case of ports with more than one service provider. These data allow for two conclusions: first, the minimum efficient scale seems to be large; for instance, the lowest volume per towage company is around 8.5 million tons, while the lowest

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Table 2.

Number of service providers in major European ports [25].

Country 5445 1000 845 12.3

Port

Pilotage

Towage

Container

Throughput (million Tonnes 2003) Throughput per pilotage

Throughput TEU (2003) company

Throughput per towage company

TEU per TOC (1000a) 681 500 423 278 638 767

Belgium

Cyprus Denmark Estonia France 833 1890 3191 6138 1605 1606 119 7144 102.5 21.3 11.7 13.1

Germany
a

1 1 1 1 1 1 1 3 2 2 1 1 14.2 46.8 19.7 15.1

8 2 1 2 NA 3 1 5 8

402

Greece Italy Lithuania Malta NL

126.1 25.1 3 10 37 92.4 67.4 42.5 93.6 39.4 21.4 46.9 30.2

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893

Poland Portugal Slovenia Spain

a

1 1 1 1 1 1 1 1 1 2516 1652 1993

a

1 4 NA 1 NA 8 1 1 1 2 4 3 NA NA 1 40.8 307.4 21.3 12.8 11 48.3 29.9 30.5 32.4 55.9 51 53.8

16.1 15.0 16.2

1258 413 664

1 1 1 1 3 1 1 2 8 3 NA 1 2 4 1 3 1 1 1 3 2 1 2

Sweden UK 6 3

Antwerp Zeebrugge Limassol Aarhus Tallinn Marseille Le Havre Bremerhaven Hamburg Wilhelmshaven Piraeus Genova Klaipeda Marsaxlokk Amsterdam Rotterdam Gdansk Leixoes Koper Algeciras Barcelona Valencia Goteborg Grimsby and Immingham London Tees and Hartlepool 8.5 17.9

1 1

Probably one supplier.

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number of TEUs per operator is around 400 000 TEU. In ports with smaller volumes, intra-port competition may not be viable. Second, there seem to be opportunities to introduce intra-port competition in a substantial number of ports. In Antwerp, Marseilles, and Le Havre, for instance, the annual volume is sufficient to accommodate at least two towage and pilotage companies. This conclusion also holds for mooring and un-mooring services and passenger terminals. These figures suggest that there are barriers-to-entry in a substantial number of ports. This conclusion is confirmed by a survey among port experts in three ports [27]. In summary, it reports that: . A significant majority of port experts agree that entry barriers have a negative effect on the performance of a port (cluster). These experts indicate that new entrants and start-ups are necessary for the port cluster to remain vital. . The most relevant entry barrier is the inaccessibility of knowledge and networks. This situation was explained with reference to a specific local port community, which is internationally oriented, but inaccessible for entrants with no prior expertise in the port cluster. In another survey that was sent to the port authorities of the 12 Greek ports of national significance, the 10 responses received suggest that the existing legislative barriers to entry reduces the number of port service providers and reduces the quality of the services provided in Greek ports. The implications of these barriers on the price of the services provided (e.g. on whether there is rent seeking) are less clear [28]. Overall, these empirical observations suggest that entry barriers are substantial in many ports and have a negative impact on their efficiency and performance. Thus, an analysis of possible policies to reduce entry barriers is relevant for policy makers in seaports.

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5. Policies to reduce entry barriers in seaports The first observation to be made with regard to policies to reduce entry barriers is that most countries, economic zones (like NAFTA), and supranational entities (the European Union) have developed a general legal framework to ensure low entry barriers. Such regulation is not industry specific, but applies overall. In most countries, competition regulations protect entrants from predatory pricing by incumbents, excessive tying, exclusive contracts with suppliers, and the like. Mergers and acquisitions are also subject to competition regulations. These are relevant in the container-handling market, given the strong consolidation in this industry. The question arises whether operators have established a dominant position, limiting the potential of market competition and discouraging newcomers [29]. The general competition law can and often does go hand in hand with industry-specific regulations. Table 3 provides an overview of policy options to reduce entry barriers in seaports. These options may not be relevant or necessary in all cases, but may well be useful in some. While some of these options require national policy initiatives, others can be implemented by port authorities. Structural cost advantages of the incumbent can be prevented by using effective pricing mechanisms, such as tender procedures to grant the right to provide a service

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Table 3.
Category Economic

P. W. De Langen and A. A. Pallis

Policy options to reduce entry barriers in seaports.
Entry barrier Structural cost advantage of the incumbent Policies to reduce entry barriers Fair and transparent pricing. Splitting up a terminal in two parts to be concessioned separately. Investments in sunk costs by PA and costs passed on to private firms The PA might act as a smart cluster manager that enhance the networking of different operators Minimum and transparent procedures that ensure the absence of discrimination Licenses for periods as short as possible, no exclusivity contracts Long-term, but flexible port planning

High switching costs Networking benefits/costs

Legal and institutional

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Entry conditions/ permissions Exclusive concessions

Locational

Unavailability of land for entrants

or a terminal concession. In such procedures, all cost (dis)advantages are internalized in the price [30]. Another policy capable of reducing entry barriers is to split a terminal into parts forming separate concessions. The existence of different market segments increases the viability of intra-port rivalry. Dividing facilities to accommodate various port service providers may be difficult. Much depends on the geographical layout of the port, the available traffic, and the minimum capacity additions (taking into account the lumpiness of port investments). In the long-term, many physical/locational entry barriers can be overcome by building in adjacent locations, extending out into the sea, and so forth. Furthermore, new concepts and technologies can be introduced to limit the need for space in the port. For example, an inland container depot can help create additional space for terminals in the port. Having a public agency, in most cases the port authority, which invests in port-specific and site-specific assets and leases these assets to the private sector is a policy option to reduce entry barriers related to switching costs and sunk investments. A survey among all 20 Canadian Port Authorities (CPAs), which elicited 11 useful responses [31], provided evidence that these port authorities make such specific investments. Table 4 shows the percentage of CPAs willing to make specific investments and reveals that even port authorities that mainly lease land do make customer-specific investments. These have to be recovered from port users, so that providing subsidies is not an explanation. PAs seem to create value by lowering portspecific investments for customers. This strategy lowers entry (and exit) barriers [32]. A further role for the port authority to reduce entry barriers is that of a smart co-ordinator [33] that enable networks of stakeholders. Such a coordinator can help overcome decisional and operational fragmentation. By coordinating the integrated port services provided by various actors, the port authority acts as a cluster manager [34]. Such an active port authority can increase opportunities for the entry of small and medium-sized companies.

Entry barriers in seaports

Table 4.
Investments Road connections to terminals Warehouses Dedicated stevedoring facilities (e.g. covered terminal) Office space for third parties Rail connections to terminals Cranes

437

Port authorities investments in assets for specific customers.

Percentage of Port Authorities making these investments 100 91 73 73 64 27

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Policy reform that promotes transparent concession procedures, forbids exclusive contracts, and ensures the absence of discrimination is also relevant for reducing entry barriers. Reducing the (maximum) duration of authorizations and concessions also lowers entry barriers, and rent-seeking opportunities. Concessions and/or authorizations need to be sufficiently long to allow companies to recover their fixed investments and earn a normal return on their investments. However, excessively long durations limit opportunities for entry and reduce the dynamism in the sector. In many European countries, durations of concessions of 50 years in the case of limited investments, 75 years for significant investments in movable assets or 99 years for immovable assets are common practice. The reduction to maximum durations of 8, 12, and 30 years respectively, as suggested in the EU port policy proposals, would certainly lower entry barriers. Last, but not least, entry barriers can be further reduced by the stability of the regulatory regime and the presence of mechanisms for dispute resolution. Uncertainty and transaction costs are reduced and lower entry barriers ensue. The rejected EU port policy proposals [35] (referred to as the Port Package) included efforts to create a level playing field between EU ports characterized by open access to the provision of navigational, cargo-handling, and passenger services on the basis of transparency and non-discriminatory procedures. Despite the controversial implications of several aspects of the proposals (that led to their rejection), the European Commissions suggestion of a port services directive would have worked towards lower entry barriers. Given the rejection of these proposals, national and local governments have an important role in ensuring that entry barriers to port markets are sufficiently low. The policy suggestions mentioned above could be helpful in this respect. In addition to these policies, it has to be noted that well-functioning markets, especially an active second-hand market for cargo-handling equipments, is important in reducing entry barriers and increasing the contestability of the market [36].

6. Conclusions The entry of port service providers to ports may be difficult for a number of reasons: incumbent firms may have a cost advantage, port users may not be able to switch easily to new port service providers, and entrants may have to invest substantially in local networks and knowledge. Furthermore, entry may be regulated by relevant public agents and may only be possible through acquiring concessions.

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These, however, may not be available for new firms, perhaps because of the lack of space in the port. Not all entry barriers are equally relevant in all ports, but the overall conclusion can be drawn that entry barriers are very relevant in seaports. This conclusion can be explained in part by the structural characteristics of the port industry, such as the need to make long-term investments and the fact that public agencies (in most cases port authorities) play a large part in port planning and development. Notwithstanding these characteristics, policies can reduce entry barriers, for instance by ensuring fair and efficient pricing, by concessioning small units (e.g. terminals), and by reducing concession periods. These last two policies may require port authorities to make more investments in fixed, port-specific investments and lease these to private operators. This paper makes avenues for further research evident. Given the positive effects of entry on port competitiveness, and the dominance of acquiring concessions as a mode of entry, more research on concessions and concession procedures is required. Such research could analyse the appropriate concession length from an economic perspective, the procedures of port authorities to grant concessions, and the capabilities required to acquire concessions. Given the fact that granting concessions is one of the most important functions of port authorities to influence port development, the relevance of such research is clear [37].

Acknowledgment The authors should like to thank Professor Richard Goss for his valuable comments and his continued interest in port studies.

References and notes

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. An earlier version of this paper was presented at the 2006 Annual Conference of the International Association of Maritime Economists (IAME), Melbourne, Australia. OLIVIER, D., 2005, Private entry and emerging partnerships in container terminal operations: evidence from Asia. Maritime Economics and Logistics, 7(2), 87115. DE LANGEN, P. W. and PALLIS, A. A., 2006, The effects of intra-port competition. International Journal of Transport Economics, 33(1), 6986. GEROSKI, P. A., 1995, What do we know about entry? International Journal Industrial Organisation, 13(4), 421440. This relevance is also implied in: Goss, R., 2006, Competition is key to wellbeing of ports. Lloyds List, 27 November 2006. HEAVER, T., 2006, The evolution and challenges of port economics. In: Port Economics, edited by K. Cullinane and W. K. Talley (Oxford, UK: Elsevier), pp. 1142. See, for example: MCAFEE R. P., MIALON, H. M. and WILLIAMS M. A., 2000, What is a barrier to Entry? American Economy Review, 94(2), 461465. CARLTON, D., 2004, Why barriers to entry are barriers to understanding, NBER Working Paper No 10577 (New York, USA: National Bureau of Economic Research). BAIN, J. S., 1956, Barriers to New Competition (Cambridge, MA: Harvard University Press). STIGLER, G. J., 1968, The Organisation of Industry (Chicago: University of Chicago Press). CARLTON, D. and PERLOFF, J., 1994, Modern Industrial Organization (New York, USA: Harper Collins College Publishers), p. 110. WORLD BANK, n.d., Port Reform Tool Kit (Washington, DC, USA: World Bank). VAN NIEKERK, H. C., 2005, Port reform and concessioning in developing countries. Maritime Economics and Logistics, 7(2), 141155.

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14. This is the case when the market is not is not at least twice as large as the Minimum Efficient Scale for providing a port service. Examples of natural monopolies in ports include towage and terminal services. 15. NOTTEBOOM, T. E. and RODRIGUE, J. P., 2005, Port regionalization: towards a new phase in port development. Maritime Policy and Management, 32(3), 297313. 16. ROBINSON, R., 2003, Ports as elements in value-driven chain systems: the new paradigm. Maritime Policy and Management, 29(3), 241255. 17. Defined as a long-term arrangement among distinct but related firms in order to gain or ` sustain a competitive advantage vis-a-vis their competitorsSee: JARILLO, J. C., 1988, On strategic networks. Strategic Management Journal, 9(1), 3141. 18. DJANKOV, S., PORTA, R., SHLEIFER, A. and LOPEZ DE SILANES, F., 2001, The regulation of entry. World Bank Policy Research Working Paper Series Report No 661. Retrieved March 2007, from http://www-wds.worldbank.org 19. For example, see the analysis of the Greek port reform by PALLIS, A. A., 2007, Port governance in Greece. In: Issues on Devolution, Port Governance and Port Performance, edited by M. R. Brooks and K. Cullinane (London: Elsevier), pp. 491508. 20. STIGLER, G. J., 1971, The theory of economic regulation. Bell Journal of Economics, 2(1), 321. 21. SLACK, B. and FREMONT, A., 2005, Transformation of port terminal operations: from the local to the global. Transport Reviews, 25(1), 117130. 22. BAUMOL, W., PANZAR, J. and WILLIG, R., 1982, Contestable Markets and the Theory of Industry Structure (New York, USA: Harcourt Brace Jovanovich). 23. NOTTEBOOM, T. E., 2004, Container shipping and ports: An overview. Review of Network Economics, 3(2), 86106. 24. FOSTER, L., HALTIWANGER, J. and KRIZAN, C. J., 2001, Aggregate productivity growth: lessons from microeconomic evidence. In: New Developments in Productivity Analysis, edited by C. R. Hulten, E. R. Dean and M. J. Harper (Chicago: University of Chicago Press), pp. 303363. 25. EUROPEAN SEAPORT ORGANISATION (ESPO), 2004, Impact assessment of the Proposal for a Directive of the European Parliament and of the Council on Market Access to Port Services (Mimeo, Brussels: ESPO). 26. ECORYS and TRADEMCO, 2005, Complementary Economic Evaluation study on the Commission proposal for a Directive on market access to port services, Final Report for the European Commission -DG TREN (Rotterdam and Athens: ECORYS and Trademco). 27. The three cases are Rotterdam, Durban, and Lower Mississippisee: De LANGEN, P. W., 2004, The Performance of Seaport Clusters. PhD Thesis (Rotterdam: Erasmus Research Institute of Management). 28. PALLIS, A. A. and VAGGELAS, G. K., 2005, Port competitiveness and the EU port services directive: The Case of Greek Ports. Maritime Economics and Logistics, 7(2), 116140. 29. See, NOTTEBOOM, T.E, 2002, Consolidation and contestability in the European cotainer handling industry. Maritime Policy and Management, 29(3), 257269. 30. An imbalance of port capacity and demand within a port will influence the level of rivalry in port. Excess capacity causes rivals to compete aggressively for market share. Sometimes this situation can lead to destructive pricing. Similarly, the inability within a port to generate sufficient traffic will increase rivalry for available business. There is therefore a need to explore the types of traffic for which the port might have a comparative advantage. 31. The number of surveys is sufficient to sketch the broader picture, but insufficient for formal statistical analysis. This deficiency is mainly to the result of the fact that there are only 20 Canadian ports with a CPA. 32. Of course, port authorities need to ensure relatively long-term contracts for such investments in order to reduce the risk associated with long-term investments. 33. CHLOMOUDIS, C. I. and PALLIS, A. A., 2004, Port governance and the smart port authority: key issues for the reinforcement of quality services in European ports. Proceedings of the 10th Word Conference on Transport Research, Istanbul, Turkey, June 2004, CD-Rom format.

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34. DE LANGEN, P. W., 2003, The Port Authority as Cluster Manager. Proceedings of the 2nd International Conference on Maritime Transport and Maritime History, Technical University of Catalonia. Barcelona, Spain, pp. 6784. 35. COMMISSION OF THE EUROPEAN UNION, 2004, Proposal for a Directive on market access to port services. Com (2004)654, final (Brussels: European Commission). 36. The authors wish to thank Richard Goss for bringing this point to their attention. 37. NOTTEBOOM, T. E., 2007, Concession agreements as port governance tools. In: Issues on Devolution, Port Governance and Port Performance, edited by M. R. Brooks and K. Cullinane (London: Elsevier), pp. 491508.

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