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Port Authority Privatization Explained

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A port authority is a governmental, public authority formed by a legislative body, to operate ports and other transportation infrastructure. Most are financially self-supported and in addition to owning land, setting fees and levying taxes, these authorities (sometimes called districts or agencies) can operate shipping terminals, airports and railroads.

Port authority privatization (or transferring a business, industry or service from public to private ownership and control) isn’t a new idea. Privatization has been taking place at varying degrees internationally for years. Even so, the motivations and drawbacks of port authority privatization can be a bit gray. Let’s take a moment to look at some pros and cons of privatization through the lens of recent developments taking place (some successfully, some not so much) around the world.

Privatization in Honduras

Snapshot

The port of Puerto Cortes in Honduras became privatized in 2013 to the Philippine terminal operator, International Container Terminal Services Inc. They won the concession to rebuild the existing facilities to a 1,500-meter quay, deploying 9 STS gantry cranes (and 4 mobile harbor cranes), and dredging to a minimum of 14 meters. Prior to this, not much had changed in the port since 1994.

What happened?

Michael Kristiansen of CK Americas reports that since privatization:

  • Berthing delays were reduced or eliminated saving container vessels 2 hours and general cargo vessels as much as 35 hours.
  • There has been an increase in berth productivity.
  • Terminal charges have remained low (charges are capped within the concession agreement) benefiting importers and exporters.
  • Honduras has received new, more efficient infrastructure.

In this case, the privatization process brought in ideas and processes from the outside. The port was able to reduce operational cost, increase efficiency and increase cargo security as a result of the process.

Vancouver shippers pushing back on port privatization.

Snapshot: In a governmental attempt to privatize Canada’s 18 port authorities, a coalition of Canadian shippers and the head of Canada’s largest port are pushing back. They think port privatization would limit public oversight and threaten future infrastructure investment.

JOC reports that the Freight Management Association of Canada has said privatized port authorities would not only lack the incentive for transparency that public entities share, but also the incentive to invest in infrastructure when the goal is profit and not the public interest.

While privatization would inject some much-needed capital into the Canadian government, those opposed are concerned that ports could be sold to consortiums far removed from Canada and less focused on investment or productivity, more interested in securing an immediate return on their own investment.

New York/New Jersey Port Authority – the good, the bad and the ugly

Snapshot: The Manhattan Institute, a non-partisan research and educational organization, commissioned The Reason Foundation, a public policy think tank, to write a report on how reform the New York-New Jersey Port Authority. America’s largest single provider of metro-area transportation and infrastructure. The authority now operates the region’s seaports, toll bridges and tunnels between the two states, the three major regional airports, PATH (a heavy rail transit line), and the World Trade Center real-estate development. The study, entitled Reinventing the Port Authority of New York and New Jersey, ruffled a few feathers.

Robert Poole, lead author of the report, suggests that, “By treating airports, bridges, and tunnels as cash cows to subsidize its other lines of business, the PA (Port Authority) has ended up with mediocre airports, congested and inadequate bridges and tunnels, money-losing sea ports, a pathetic bus terminal, and the worst heavy-rail transit system in the nation.”

The report advocates for dramatic reform involving long term, public-private partnerships (P3s), that The Reason Foundation believes would mobilize hundreds of billions of new capital for infrastructure and investment. The report states that, “Outside organizations, and indeed the PA leadership, have called for reforms. The goal is generally to return the agency to its core transportation mission by divesting real estate assets and taking a more business-like approach to its transportation assets.”

The Port Authority shot back with a Press Release claiming the agency has already attracted billions of dollars in private capital investment in recent years, and divested more than $1.4 billion in non-core assets as it refocuses on its core transportation mission. Of the six port terminals it owns, all are leased to private operators and infrastructure investors. It refutes many of the foundation’s statements and positions itself as a longtime leader of privatization based partnerships while maintaining its autonomy and operational integrity. And the plot thickens…

Advocates of privatization think that private terminals have better access to the captial needed to expand and equip themselves with modern cranes and productivity enhancing technology. Opponents are concerned with a lack of public transparency, accountability and infrastructure investment from out of touch international consortiums. For better or worse, port authority privatization is a reality and it will be interesting to see how the process plays out in port terminals and regions around the world.

Sources:

https://www.linkedin.com/pulse/many-benefits-port-privatization-michael-kaasner-kristiansen

http://www.joc.com/regulation-policy/transportation-regulations/international-transportation-regulations/shippers-vancouver-chief-decry-port-authorities-privatization_20170109.html

http://reason.org/news/show/reinventing-port-authority-new-york

http://www.joc.com/maritime-news/public-vsprivate_20080831.html

04 May, 17

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