The challenges for the Finnish export industry are the long distance to the market and thus high logistics costs. Would port competition help reduce logistics costs?
The basic idea of a market economy is that competition between companies creates prosperity. When companies compete with each other, they streamline their operations and serve their customers according to their own strategy. One can serve you at a low price, another with top service and a third with a wide selection of service or products. The idea is that the customer chooses the most suitable one.
In hir master’s thesis, which was completed this year, Ville Marchant has investigated the fairway and port dues of a few ports. There are surprisingly few differences. Hence the price is not competitive. Differences in the port dues are also prevented by the fact that ports generally have a dominant position in their territory, so raising prices, even if the service is better, is difficult or even illegal.
Sitowise’s report to the Finnish Transport Agency in 2017 on the hinterland of Finnish ports shows that the fourteen ports examined serve an average of 38 municipalities in addition to their own. The largest service area is in the Port of Helsinki, which serves 132 municipalities, and the smallest in the Port of Tornio, which serves only three municipalities.
Traditionally, location and inland transport links have been seen as key competitive factors for ports. The port is part of its area’s logistics ecosystem and serves its area’s industry, import terminals and even hotels. But, as stated in Sitowise’s report, the port also serves many customers who are not located in its immediate vicinity, i.e. customers choose their port from several options.
So how do ports compete when customers really have a lot of choice?
First, some ports are profiled for passenger traffic, others for ro-ro traffic, some are container ports, or handle solid bulk cargo or liquids. This already divides the potential customer base of the ports into much smaller parts.
At the seminar of the Port of Helsinki and the Chamber of Commerce at the beginning of November, the public was asked what is the port’s most important success factor. It was effectiveness. Location and flexibility were also seen as important.
In recent years, Finnish ports have intensified their operations and thus increased their competitive position. The Port of Helsinki is world-class in the fast turnaround time of large ro-pax vessels. HaminaKotka has flexibly invested in various port-related industrial activities. Recently, the Port of Rauma has developed a digital tool to facilitate access to the port, just to name a few. Every port in Finland is actively developing its operations due to better customer service.
It will be interesting to see whether environmental issues, such as the reception of waste or sewage, or supply of alternative fuels or electricity, also become part of this competition between ports. What about smart fairways or even port’s own icebreaker?
Would greater freedom of choice in competitive factors, such as port or fairway charges, be the key to increase efficient operations in ports and thus to the decrease logistics costs of the export industry?