CHAPTER ONE INTRODUCTION
Maritime transportation is one of the oldest known. It allows the transportation of large quantities of goods, over long distances and at cheap prices. Panama is a Central American country that has a great advantage over the rest.
Panama Maritime-Logistics sector has been able to operate with great organization and initiative, as well as having the privilege of being the owner of the Panama Canal, which is the main source of maritime and logistics from the country. The shipping and maritime services industry has a promising future in Panama. It is probably the sector with the greatest potential for economic growth in the country.
1.1 Introduction Background
In 2017, the containerized cargo movement in the ports of Panama grew 7.9%, despite the slowdown experienced by the ports located on the Pacific littoral.
Extracted from the report of the Panama Maritime Authority (AMP)1. The report highlights that from January to December 2017, the six ports mobilized a total of 4,050,175 containers, a positive variation of 295,516 containers, more than the 3,754,659 transported during the twelve months of 2016.
In recent statistical studies delivered by ECLAC (Economic Commission for Latin America and the Caribbean), Panama presents a more accelerated and constant growth compared to the economies of the others Latin America countries, having as its main advantage in the port system which is supported by the Panama Canal and its free zones.
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http://www.amp.gob.pa/newsite/spanish/planificacion/2017/diciembre1/F-63%20Mov%20de%20Cont%20%20en%20el%20SPN%20En%20UNIDADES%20segun%20puertos(.pdf
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Panama has the best logistic performance index in the Latin American and Caribbean region in reference with the logistic performance report presented by the World Bank (LPI).
However, the statistics of the AMP, shows that the ports located on the Pacific Littoral of Panama: International Terminal (PSA) and Panama Ports Company (PPC Balboa) jointly mobilized 42.7% of the total containerized cargo, while the other ports concentrated on the Atlantic Littoral mobilized 57.2% of the business. From here we can say that the cargo movement on the Pacific littoral remarkable slowdown.
In the case of PSA, a port terminal located on the west side of the Pacific entrance to the Canal, the AMP data reveals that it mobilized a total of 44,488 containers, representing a 51.2% decrease compared to the previous year. When it had registered 91,076 containers.
Meanwhile, the port of Balboa, administered by PCC, last year moved a total of 1,687,029, representing a decrease of 1.2%, when compared to the previous year, when its port cranes coordinated the loading and unloading of 1,707,901 containers.
Figure 1, shows the representative map that is included in the bulletin Ports Ranking - Top 20 in Latin America and the Caribbean Ports, carried out by ECLAC, the report focuses on comparing the infrastructure levels, service, logistic capacity, technologically and social value that the ports present in their respective countries.
Table 1, shows the Top 10 from the ECLAC Top 20 ranking published from 2014 to 2017, The Ports of Balboa in Panama occupy positions #3, Manzanillo (Mexico) #4, Callao (Peru) #6, Guayaquil (Ecuador) #7 and San Antonio (Chile) #10 respectively in 2017.
Figure 1. Ports Ranking. The Top 20 in Latin America and the Caribbean in 2017 Source: ECLAC
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Table 1. Ports Ranking. The Top 20 in Latin America and the Caribbean (Yearly Data 2014 to 2017)
4 Source: ECLAC
2017
Atlantic Littoral Pacific Littoral
Port Country Position Port Country Position
Colon Panama 1st Balboa Panama 3rd
Port Country Position Port Country Position
Santos Brazil 1st Balboa Panama 3rd
Port Country Position Port Country Position
Santos Brazil 1st Balboa Panama 3rd
Port Country Position Port Country Position
Colon Panama 2nd Balboa Panama 1rd
5 1.2 Research Motivation
Port competition indicators are showing how the container shipping market has been changing year by year Theo Notteboom and Wei Yim Yap, 2012, as many others competitions in the International trade. Concentration, alliance of the shipping companies and liberalization of the sea transport industry has influenced. In addition, the regular practices of port competition have changed, and the Central America Pacific littoral is not the exception, ports services need to fit into the door to door supply change demand.
Terminal operating companies (TOCs) and port authorities have had to expand and improve the services that they provide to shipping companies. It is proven by many reasons.
The primary and major factor being the need of costs reduction of the door to door service.
The second major factor, to feed the demand and increase of cargo volume and ship sizes, which increases the demand of land space.
This research study is made of port competition between two principal ports on the Pacific Littoral in Central America, Panama (Balboa) - leader in the littoral, and Mexico (Manzanillo) - main competitor since 2016, which is gaining not only in shipping service rate but also in volume of transshipment.
Based on the ranking developed by ECLAC and the position of the Port System in the Pacific Littoral, Balboa from 2015 started to lose transshipment volume while the others on the area has shown a representative growth, from here the research question is stablish as following:
Why is not the transshipment in the Pacific Littoral of Panama growing?
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Panama is a country well known for being a hub for connections and merchandise crossings. The service sector is the main source of income for the country and, as mentioned before, the maritime logistics service in Panama is the source of many jobs and the growth of companies that provide services to the different needs of the ports.
1.3 Research Objectives
The focus of this study is to provide basic information not only to the different port administrations but also to the customs services, maintenance and legal services throughout Panama and Central America, in order to encourage planning since the loss of cargo in ports has a greater impact on companies added to port services.
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CHAPTER TWO LITERATURE REVIEW
2.1 literature Review
In this literature review, as others research related to the neighbor ports competitiveness and cooperation reviewed, the main points highlighted depended on their geographical region, port infrastructure and services offer to the shippers and shipping companies for the specific trade routes. However, as the factors that influence the ports competitiveness could be varies, this will depend on the port and type of traffic analyzes or different perspective addressed.
Tai, Hui-Huang., 2005, Tongzon and Heng, 2005 and Helen A. Thanopoulou &
Anthony K. C. Beresford, 2010 remark the importance of the geographic position, infrastructure and prices charged for services as the top three principal factors.
Key highlighted point form Notteboom (2008), n.d. give important factor focusing on logistic chain and ports upgrades for better service and competitive prices.
Important relevant research findings have been obtained from studies that approach transport selection, Magan M. Sammons A. 2008, 2014, Professor D John Mangan, Professor Chunnilal Lalwani, 2002, as many others with different choice models like the one used by Malchow, M. and Kanafani, A. (2004); Tiwari, Piyush & ITO, Hidekazu &
Doi, Masayuki, n.d.
The importance of location of the place of origin or destination turn out to be the most important factor in port selection, Malchow and Kanafani, 2004. Second, the product
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mobilized characteristics such as value density and refrigeration necessity or not, influence port choice Malchow and Kanafani, 2004.
This is understandable as different goods have different time sensitivity, Peter W. De Langen and Athanasios A. Pallis, n.d. Third, the number of ship and routes offered by ports are relevant Tiwari, P. Itoh, H., and Doi, M. – 2003. Also, shipping alliances, growing of vessels sizes and globalization raise the international competition between ports, forcing ports to improve.
Figure 2, Bandenburger and Nalebuff (1996), suggest a value net concept as the ones used in some strategic games, were several players are identified. Although the original concept was proposed for companies, it can be taken into the port competitive industry.
Figure 2. Value Net
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Bandenburger and Nalebuff (1996), remarked that sometimes by letting your competitors succeed is the best way to success, to promote coopetition (competitive and cooperative) with vision to a win-win opportunity.
James Wang, Brian Slack, 2004 in their study mentioned that when ports are in the same littoral or region and not managed by the same firm or authority, competition may be expected.
This research aims to analyze, the competitiveness between Balboa Port in Panama and Manzanillo Port in Mexico, analyzing the quality of the services provided, cooperation with the private and public sectors, and the influence of these sectors in the port activities or ground mobilization of containers. After, identify the communication technologies, port infrastructure and megastructures as some of the major factors that determine competitiveness in the industry of container traffic.
Latterly, many researchers have been adding to their work different method highlighting that business are willing to pay higher prices in exchange to high quality service. Murphy and Hall (1995), mentioned that cost is not as important as the quality of the service, and emphasized three trends that shippers and shipping companies consider at the time of selecting a port: reliability as the principal consideration, time of delivery of goods and finally a preference of a shipping company.
Malaga and Sammons (2008), identified several qualitative (service quality or reputation of the port) and qualitative (freight and transit time of goods and ship at the port).
The literature in this study points out that the services provided by ports is not only based in how efficient it can be in its capacity. Also, other complex factors as connectivity, accessibility to markets, level of integration in the supply change and total cost per service are becoming more and more important.
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Chang, Y., Lee, S., Tongzon (2008), agree on the existence of qualitative and quantitative factors, but they argue that the major shipping lines consider the cost per service more than the Feeders.
2.2 Main Port Competitiveness Research Topics and Method
Recently studies related to ports competition and coopetition implemented different methods to analyze the factors that influence and impact in the world containerize trade market. These studies found that the method used for this research is not that common. On the list below introduce the main paper research used as models.
Main Port Competitiveness Research Topics and Method:
The study carried by Acosta, Manuel & Coronado, Daniel & Del Mar Cerban, Ma, 2011. (Acosta, 2011), named Bunkering competition and competitiveness at the ports of the Gibraltar Strait. The method used by Acosta in his research paper was like the method applied in this research study. With the difference being that Acosta focused on the factors that determine the competitiveness between the ports of the Gibraltar Strait (Ceuta – Spain, Gibraltar – British Overseas Territory, Algeciras – Spain) of fuel supply.
The methodology is based on questionnaires and interviews focused in the interaction between public and private institutions involved in the port services.
The results reveal that port operators influence shipping company choice of bunkering port. Geographical advantage and cost are the main factors founded in the Gibraltar Strait. Other important factors were identified related to the cost and quality of services, including port supply waiting time, tariffs, service rates, restrictive environmental regulations and customs.
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Another case study with the tittle of Competition and Collaboration among Container Ports. The Asian Journal of Shipping and Logistics by Hoshino, Hiroshi. (2010). Until the 1980s Japan had the major ports in East Asia, however the fast growth of the ports in China and the enhancement of port facilities in Korea has had a huge impact on the major Japanese ports, making them limited to serve as only feeder ports.
This research focused in how Japan build a strategy to response to this market change in the container cargo movement. Japanese ports needed to start to collaborate with each other rather that compete. For example, the ports located on Osaka Bays start to join with the ports in Tokyo. It was even suggested that ports should be managed by the same authority to strengthen their respective positions.
Wei Yim Yap, Jasmine S. L. LAM & Theo Notteboom (2006) on the paper called Developments in Container Port Competition in East Asia, Transport Reviews, 26:2, 167-188. This research guides and shows us how the competitive dynamics between the principal ports in East Asia were studied by analyzing their extent and intensity.
Computerized data starting from 1970 and ending 2001 of container mobilized for the ports of Yokohama, Tokyo, Taichung, Hong Kong, Kaohsiung, Pusan, Osaka, Nagoya, Kobe, Keelung. Cointegration tests were used to determine the long-run relationship between pairs ports and short run inter-port competitive dynamics.
The results reveal that for the past three decades Hong Kong and Pusan are beneficiaries from inter-port competition in the region.
The study highlights that the alliance between shipping lines intensify the competition of the ports located near, also that inter-port competition in the region would increase in the future as the container center cargo volume shifts to mainland China.
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Non-Price Competition in the Port Sector: A Case Study of Ports in Turkey.
International Association of Maritime Economists Conference by Esmer, Soner & Nguyen, Hong-Oanh & Bandara, Yapa & Yeni, Kazım. (2016). Although the port competition has increase year by year, the amount of studies about the topic has been limited. The few papers and research mainly focused on market structure, marketing aspect, and others focused on non-price competition strategies.
This paper’s main objective was conducted to study the combination marketing- economic perspective, evaluating their effect on the port sector and various aspects of non-price competition.
The author proposed and analytical framework on non-price competition, mentioning the external and internal factors that can affect port competition.
Port competitiveness from the users' perspective: An analysis of major container ports in China and its neighboring countries, a research studied by Yuen, Chi-lok Andrew
& Zhang, Anming & Cheung, Waiman, 2012. The purpose of this research is to show from the users’ perspective the most relative and important factors that determine container port competitiveness, based on survey results from the industry experts on ports in Mainland China, Hong Kong and other Asian cities.
Forwarders, shippers and shipping lines are the three parties considered in this paper.
Conclude that ports operators could benchmark their performance with their competitors and identify the areas that they need to improve.
Network design approach for hub ports-shipping companies competition and cooperation. Transportation Research Part A: Policy and Practice, Elsevier, vol. 48(C), pages 1-18 by Asgari, Nasrin & Farahani, Reza Zanjirani & Goh, Mark, 2013
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This research investigates the cooperation and competition strategies between shipping companies and two major container hub ports. Considering three scenarios, based on a game theoretic network design model:
In the maritime industry, the stakeholders comprising the port authorities, shipping companies, and port operators often compete and collaborate within an ecological system.
Cooperation between the shipping companies and the hub ports, perfect cooperation between the hub ports, and perfect competition between the hub ports, using empirical data from two of main ports in Asia: Singapore and Hong Kong.
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CHAPTER THREE METHODOLOGY
As a qualitative study, to make this research more accurate with the real state, we used two types of data collection, secondary data with the expert’s interview. Expert’s interview is one of the best ways to figure out the state of a problem and solution to it.
Our method to analyze data collocated for this research is posed in two sections, secondary and primary data, to get results in two factors (external, internal).
3.1 Secondary data
As a main data collection, Economic Commission for Latin America and the Caribbean, gave us most updated data of ports that are mentioned in this research. This is the best internet website to find economic growth and statistical records in every content of Latin America and the Caribbean, not only provide information to study the dynamics between countries in the area but also attract foreign investments and market shares.
ECLAN has been reporting and analyzing ports competitiveness in the area, however in this study we will focus specifically in the Pacific littoral in Central America, without considering Atlantic littoral as the competition on that area is purely dynamic and follow specific international laws.
Panama Canal Authority (ACP) allowed us access to latest data of vessel traffic and TEUs mobilized of each port by year. From here we can find shipping line relation with the ports.
Georgia Tech Panama Logistics Innovation and Research Center, facilitated access to all main Panamanian logistics assets such as the canal, seaports, airports, roadways, special economic zones and free zones along with a broad spectrum of logistics services.
15 3.2 Primary data
The key result in this research will be conducted by expert’s interview. There are four experts from different sectors (Private, Public and Suppliers) backgrounds. In the search to collect the different points of view, experts were selected from different companies and institutions that can be involve and impact in the port competitiveness environment. The experts and position is listed below:
Evergreen – export division manager,
Maersk Line – CAR Cluster Recovery Supervisor,
Maritime and Logistic Group – CEO, and
Panama Canal Authority – Marine Logistic Engineer.
With each expert, there was about one hour of interview and questions were conducted based in three main specific perspectives: customs, infrastructure and service quality offered by each port, during conversation some others detailed questions were
added.
The perspectives selected follow the principles that other papers used to analyze the logistic performance index (LPI).
Figure,3. The logistics performance (LPI) is the weighted average of the country scores on the six key dimensions:
Customs, analyze the efficiency and the speedily service handle during customs and border clearance management.
Infrastructure, directly measure ports capability based on to the equipment and transport infrastructure.
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Service quality, study the competence and the quality of the logistic services offered. From customs brokerage to trucking and forwarding.
Timeless, measure the time take to process each shipment having as main counter product reach destinations in the planed delivery day or scheduled.
International Shipment, transparency and competitive standard according to international laws.
Tracking and tracing, measure the ability and technological system to provide real time data and tracking.
Figure 3. Input and outcomes LPI Indicators
Source: Connecting to Compete 2012 Trade Logistics in the Global Economy.
The Logistics Performance Index and Its Indicators. P7
3.2.1 Interview main questions
1. How important is each factor at the time of choosing port of service?
2. Currently which are the principal origin-destiny ports in the Pacific littoral and main port supplier? Why?
3. Why is not the transshipment in the Pacific Littoral of Panama growing?
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CHAPTER FOUR
RESEARCH BACKGROUND
Panama has had an important influence on commercial traffic between the Pacific and Atlantic oceans, generating a greater and better distribution of the services that can provide for container, bulk, liquid and general cargo, as well as passengers in the cruise terminals, becoming one of the most important transshipment centers. Likewise, an important network of national ports has been developed, dedicated to a wide variety of activities that benefit both the local and international markets.
Panama has had an important influence on commercial traffic between the Pacific and Atlantic oceans, generating a greater and better distribution of the services that can provide for container, bulk, liquid and general cargo, as well as passengers in the cruise terminals, becoming one of the most important transshipment centers. Likewise, an important network of national ports has been developed, dedicated to a wide variety of activities that benefit both the local and international markets.