Economic Model and Environmental Considerations of a Port

Discussion should  250 words:

Discuss the transporters role, the port’s role and the government’s role in controlling invasive species and other hazards inherent in the movement of goods, goods themselves, and their packaging, specifically addressing the management of wastes at port activities as part of the total solution.

· Economic Model and Environmental Considerations of a Port

Introduction

The lesson this week explores additional metrics involving port performance.  In this lesson, we will:

• Distinguish major drivers on port costs, prices and revenue, and
• Examine and evaluate ecological and environmental issues that arise from port operations and related ocean going movement of goods
• Discuss controlling invasive species

Readings include the assigned Chapters from the text; Environmental Regulatory Process: Does it Work Dredging U.S. Ports, linked here; and, and a video entitled 12 Days of Xmas Countdown Day 7 – Solar Vessel-1, linked here.

Port Throughput Considerations

Assessing the economic vitality of a port is a complex effort. According to Talley (2007), a port will want to increase its “profit” by maximizing its throughput while minimizing its costs and resources utilized. Port throughput is influenced by the price a port charges for its services.  As a result, what motivation does a port have for meeting environmental regulations?

Economics in the shipping industry are affected by service attributes such as reliability, transit times, and trip frequency.  But, the most important criterion in this industry almost always bears on pricing.  Shipping price influences modal and/or carrier choice.  Decision makers constantly seek accurate real-time and future as fundamental and prerequisite elements of their economic formulas that drive their decisions.  This analysis is performed to specifically mitigate known and unknown risks involving the variability of freight rates.

Planners faced with making these shipping decisions seek to maximize their available capital, and are often faced with investment alternatives with widely different risk/reward returns.  The decisions are magnified by the sheer size of the investments in the shipping business, by investments that are often volatile.  These decisions are shaped by the shipper’s risk profile and quite often expose a company’s aversion to or acceptance of operational risk.  From my experience, cash flow also is a major factor in operational decisions, particularly when funds are limited, or at the Federal fiscal year end when funds must be spent or lost (for Federally-funded projects).

According to Cullinanea, Notteboomb, Sanchezc, & Wilmsmeierd (2012), shipping decisions may relate to staying out of the business at a given point in time or making a disinvestment, such is the existential nature of the capital-intensive decisions.  More often, however, concern more about the selection mix of vessels such that investmenst are diversified not unlike the working of a mutual fund, including by combining short and long term contracts that might reduce exposure to market variations.  Many decision makers, therefore, endeavor to build a model portfolio that incorporates an acceptable level of risk, including via the use of shipping derivative (paper) investments that is particular to the risk attitude of an individual decision maker.

Cullinanea, et al. (2012), further argue, “In stark contrast to the airline industry, where revenue (yield) management is now extremely well established, the application of such [decision-making] techniques within the liner shipping industry remains very much in its infancy, with the main consideration in cargo booking strategy being the maximum utilization of ship capacity. This, of course, does not necessarily result in maximum revenue or profit” (para. 12)

These decision making elements have led to the development of tools that were designed to assist the decision maker making choices associated with variables of their (the decision makers) choice.  According to Cullinanea, et al. (2012), the Institute for Operations Research and Information Systems at the Hamburg University of Technology developed a slot allocation optimization model, which

…can be used to create booking limits for a liner shipping network where, in reality, transshipment between services is commonplace and demand may vary significantly over time. Their model explicitly accounts for different ship and booking cycles, a specific network structure and a variety of service-oriented segments (including priority service for contract customers). Model outputs take the form of the booking limits that can be used to decide whether a booking should be accepted or rejected in favor of a possible later and potentially more beneficial booking. (para. 12)

Port decision makers are faced, additionally, with considerations beyond strictly financial ones.  An expensive but very important major decision making criterion in the decision making process is port environmental protection.

Environment Considerations for Port Development and Operations

According to Camp Dresser & McKee, Inc. (1998), activities and operations vary widely among ports depending on the types and volume of materials shipped. However, there are many common activities, such as vehicle maintenance or bulk materials handling that occur at nearly every port, and impacts to the environment from these activities may occur. For example, fuel spills of varying amounts that occur during routine on- or off-loading activities can be carried by stormwater into a water body, and can have serious effects on water quality, waterfowl, and sediments (p. 2-1).  The port, they say, can have a significant role in protecting and enhancing the environment through careful initial planning and implementation of appropriate measures. The degree to which a particular activity may impact the environment is dependent on:

• Proximity to sensitive natural resources
• Open pathways between the activity and these resources
• Extent of the activity
• Controls in place to prevent or reduce impacts
• Opportunities to enhance the environment (p. 2-1)