1 Transportation Research Part E 45 (2009) Contents lists available at ScienceDirect Transportation Research Part E journal homepage: Port choice and freight forwarders q Jose L. Tongzon * Graduate School of Logistics, Inha University, 253 Yonghyun-Dong, Nam-ku, Incheon , South Korea article info abstract Article history: Received 8 July 2007 Received in revised form 17 February 2008 Accepted 20 February 2008 Keywords: Port choice Selection factors Freight forwarders Shippers Southeast Asia In light of the growing supply chain power of 3PLs and very limited empirical studies on port choice from the freight forwarders perspective, this paper tries to evaluate the major factors influencing port choice from the Southeast Asian freight forwarders perspective, their decision-making style and port selection process and draw out some policy implications for port operators and authorities. Efficiency is found to be the most important factor followed by shipping frequency, adequate infrastructure and location. Their selection process is complex and a two-stage process and supports the new approach that models ports within the framework of a supply chain. Ó 2008 Elsevier Ltd. All rights reserved. 1. Introduction Although ports are now considered an integral part of supply chains and should not be viewed by port users in isolation, 1 in many cases particularly in developing countries, ports are not yet well integrated with other elements in supply chains. It is therefore important to investigate empirically whether this is the case among the freight forwarders in Southeast Asia and assess the key factors that these major port users consider important in choosing their ports. An assessment of these factors from the freight forwarders perspective will be useful in providing an insight into how an effective port strategy should be designed. Moreover, there is scant empirical literature on the subject of port choice process particularly from the freight forwarders perspective. In light of the increasing importance of port choice and the need to shed light on the decision-making process of freight forwarders in various regions [who value port selection factors differently from shippers (Murphy et al., 1992) and control a large share of transport flows (De Langen, 2007)], this paper tries to evaluate the major factors influencing port choice from the Southeast Asian freight forwarders perspective, their decision-making style and port selection process and draw out some policy implications for port operators and authorities. The remainder of this paper is organized as follows. Section 2 evaluates the major factors influencing port choice from the freight forwarders perspective; Section 3 looks at their decision-making style and port selection process, and Section 4 summarizes the main findings and implications for port operators and authorities. q This paper is an updated and revised version of the paper, Port Choice in a Competitive Environment: From the Shippers Perspective, presented at the International Association of Maritime Economists Annual Conference 2003, 3 5 September 2003, Pusan, Korea. The author is very grateful to the anonymous referee and the editor-in-chief of this journal for their very valuable comments and helpful suggestions on the earlier versions of this paper. Their feedbacks have certainly improved the paper. As usual, the author is solely responsible for any remaining errors and omissions in this paper. * Tel.: ; fax: addresses: 1 Robinson (2002) articulated the view of ports as an element of a supply chain; Panayides and Song (2007) proposed and developed certain indicators to measure port supply chain orientation /$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi: /j.tre
2 J.L. Tongzon / Transportation Research Part E 45 (2009) Factors influencing the choice of ports It has been recognized that the decision to route cargo through a port lies ultimately with the shippers (consignees and consignors). In general, their roles in delivering goods may be defined as follows. The buyer places an order, defines the terms of sale, and takes delivery of the goods. In general, the buyer is in a position to determine every aspect of the cargo movement. The seller or the consignor is either a trader/middle-man to whom an order is placed and who in turn, places the order with a factory, or the factory owner with whom an order is placed directly. It is the buyer, as the party which issues the purchase order and makes payment for the goods, who usually has ultimate control over how goods are transported, although responsibility over transport of goods from the factory to the port may be delegated to either the vendor or to a consolidator or other logistics intermediary. The terms of sale specify two important conditions for cargo movement: who is responsible for the transport stages and what port or ports will be used. The terms of contract may be either FOB (Port of Loading) or CIF (Port of Discharge). The main differences between these terms of sale are in responsibility for arranging and paying for the shipment of the goods. FOB terms specify that the seller (factory or trader) is responsible for delivery of the goods to the warehouse of a designated consolidator or carrier at the FOB port or airport. CIF terms place the responsibility of delivery, including the main haul, on the seller under which all charges, including transport from the factory, insurance and freight charges, are responsibility of the seller. Shippers may be grouped into three types: those who have long-term contracts with shipping lines, those who are using freight forwarders and those that are independent shippers. The first category of shippers are committed to a particular carrier for a number of years and are therefore dependent on the shipping lines chosen port of call, while the second group of shippers delegate the responsibility for port selection to the freight forwarders. Thus, only the freight forwarders and the independent shippers are engaged in regular port selection. Most of the studies that have identified and examined the factors determining port choice by port users are from the shippers perspective. Only few focused on port choice made by freight forwarders. Slack (1985) surveyed port end users (exporters and freight forwarders) engaged in trans-atlantic container trade between the American mid-west and Europe to identify port selection criteria. Bird and Bland (1988) studied on the perceptions of European freight forwarders. De Langen (2007) compared the port selection criteria of Austrian shippers and freight forwarders. Other studies attempting to identify and explain the various factors in shippers port choice using various methodologies include Willingale (1984), Branch (1986), Murphy et al. (1991, 1992), Gibson et al. (1993), Murphy and Daley (1994), Mangan et al. (2002), Nir et al. (2003), Tiwari et al. (2003), Malchow and Kanafani (2001, 2004), Yeo et al. (2004) and Ugboma et al. (2006). There are also numerous studies of freight transport choice by shippers, but they have centered on inter-modal choice and carrier selection, rather than addressing the more specific question of choice between competing ports, e.g., Saleh and Lalonde (1972), Bardi (1973), Gilmour (1976), McGinnis (1979), Ogden and Rattray (1982), Brooks (1984, 1985), Wilson et al. (1986), and D Este and Meyrick (1992). However, it seems reasonable to assume that inter-modal choice and the question of port choice are ultimately related and that the results from modal choice studies can provide some basis for formulating certain hypotheses about port choice factors. These studies have shown that there are many potential determinants of port choice, which may be quantitative or qualitative in nature. Quantitative factors are those that can be potentially measured and compared in an objective manner. These factors can be further grouped into three broad categories: route factors, cost factors and service factors (D Este and Meyrick, 1992). Qualitative factors include subjective influences such as flexibility and ease of use, the port s marketing efforts, tradition, personal contacts and the level of cooperation that may be developed between the shipper and the port. In practice, the distinction between quantitative and qualitative factors is blurred because a user s perception of the level of port performance may not be a fair reflection of the actual performance. In many cases, perceptions can take precedence over actual performances. They have also shown that there exists a perception gap between the port users and port operators. Further, these studies have indicated that port selection factors can be valued differently by shippers and freight forwarders (Murphy et al., 1992; De Langen, 2007). However, the above studies have focused mainly on port users based in North America, Europe and Australia and may not be applicable universally particularly to Southeast Asia. Moreover, previous studies have focused mostly on the shippers port choice behaviour and there is so far very little investigation on the port selection process of freight forwarders. This study contributes to the existing literature by investigating further the port decision factors and their relative importance to freight forwarders and whether there is some consistent pattern and mechanism of port selection process among freight forwarders in Southeast Asia. Hesse and Rodrigue (2004) and De Langen (2007) have underlined the importance of analysing the port selection processes of forwarders by pointing to the growing supply chain power of third party logistics providers. A survey was conducted among a sample of freight forwarders located at the industrial and logistics centers of Malaysia (Penang) and Thailand (Bangkok). Penang was chosen over Kuala Lumpur because the freight forwarders here have a more choice of which port to use, given the freight forwarders closer proximity to and the port of Penang s connectivity to the major ports of Malaysia (ports of Klang and Tanjung Pelepas) and the port of Singapore. A sample of 200 major freight forwarders was covered by a questionnaire survey. These freight forwarders were randomly chosen from the list of freight forwarders, provided by the Association of Freight Forwarders in Malaysia as well as from the business directories of Malaysia and Thailand. Questionnaires were first mailed to these randomly selected freight forwarders engaged in port
3 188 J.L. Tongzon / Transportation Research Part E 45 (2009) selection process before personal interviews were conducted to clarify certain points with those respondents who had unclear responses for certain items. The final sample of Malaysian freight forwarders (who returned completed questionnaires) are 28 while the final sample of Thai freight forwarders are 20. Thus, the response rate was only about 24% (48 responses) but it provides a sufficiently large sample to draw some generalizations from because these respondents are major players in the freight forwarding industry in the region and account for the bulk of the freight forwarding market in Southeast Asia. Specifically, the Malaysian freight forwarders that responded to the questionnaires represent the region s large freight forwarding enterprises accounting for over 80% of the freight forwarding market in Penang, Malaysia and the responding managers representing these firms are in charge of port choice decisions. Similarly, those respondents from Thailand represent the major freight forwarders located in Thailand dealing mainly with shipments that can be transhipped either through the port of Singapore or Malaysian ports. 2 The choice of these freight forwarders is justified because the major cargo owners based in Southeast Asia are represented by these freight forwarders who make independent port choice decisions on behalf of these cargo owners. Although these two groups of sampled freight forwarders are based in different locations, they do have similar characteristics, i.e. they are all ideally situated to have the option of choosing between the port of Singapore and ports of Malaysia (ports of Tanjung Pelepas or Klang) to act as a transhipment port for their cargoes or as origin/destination port; although they vary in size, they make independent port choice decisions on behalf of their clients. The difference in their final sample sizes is justified based on their relative population sizes of freight forwarders. From the preliminary interviews conducted among the sampled freight forwarders, the following factors were identified as important in their choice of ports: frequency of ship visits, operational efficiency, adequacy of port infrastructure, location, competitive port charges, quick response to port users needs and port s reputation for cargo damage. The existing literature on port choice has further confirmed these factors as important in the choice of ports from the freight forwarders perspective as follows Frequency of ship visits Greater frequency of ship visits translates into more choices for freight forwarders in selecting a shipping line for transportation of their cargoes, and hence more competitive carrier costs. Further, greater frequency of ship calls allows for greater flexibility and lower transit time. Thus, the more ship visits a port has, the more attractive it is to freight forwarders, as shown in Slack (1985), Bird and Bland (1988), Tiwari et al. (2003), Sanchez et al. (2003) and De Langen (2007). According to these studies, more frequency of ship visits lowers transportation costs by allowing more competition among carriers and attracts more users by providing them with more choices Port efficiency Although frequency of ship calls is a significant factor in port choice, ports can also attract freight forwarders due to their high levels of efficiency. Port efficiency often means speed and reliability of port services. UNCTAD (1992) cited on-time delivery as a major concern by most shippers and freight forwarders. In fast-paced industries, where products must be moved to the markets on time, terminal operators as vital nodes in the logistics chain must be in a position to guarantee freight forwarders very reliable and quick service. Port efficiency can be reflected in the turnaround time of ships, cargo dwelling time and the freight rates charged by shipping companies. Ceteris paribus, the longer a ship stays at berth, the higher is the cost that a ship will have to pay. This can be passed on to freight forwarders in terms of higher freight charges and longer cargo dwelling time. The ability of the shipping lines to pass on the costs would depend largely on the elasticity of demand and the proportion of total costs attributable to these costs. Tongzon and Ganesalingam (1994) have identified several indicators of port efficiency and categorized them into two broad groups; namely operational efficiency measures and customer-oriented measures. The first set of measures deals with capital and labour productivity 3 as well as asset utilization rates. 4 The second set includes direct charges, ship s waiting time, minimization of delays in inland transport and reliability. Foster (1978) has found port charges as a principal factor driving port choice, but its importance must be seen in the context of overall costs. Port users are more concerned with indirect costs associated with delays, loss of markets/market share, loss of customer confidence and opportunities foregone due to inefficient service, than with port charges (Tongzon, 1995). Murphy et al. (1991, 1992) have shown that some users are actually willing to accept higher port costs in return for superior and more efficient service. 2 This is based on the information provided by the heads of their respective associations of freight forwarders during the interviews. The names of these companies are kept confidential at their request. 3 Some indicators of capital and labour productivity are crane rates (number of containers lifted per net crane hour), ship rates (rates at which cranes load or unload a ship), TEUs per crane (number of containers handled per crane, ship calls per tug and ship calls per employee. For details, see Tongzon and Ganesalingam (1994). 4 Indicators of asset utilization rates are TEUs per berth metre, berth occupancy and TEUs per hectare of terminal area. See Tongzon and Ganesalingam (1994).
4 J.L. Tongzon / Transportation Research Part E 45 (2009) In more recent studies, Martinez-Zarzoso et al. (2003), Sanchez et al. (2003), Sayareh and Lewarn (2006) and Wilmsmeier et al. (2006) have shown that an efficient port facilitates the efficient transportation of goods and thus lowers the cost of maritime transportation and improves the quality of customer service Adequate infrastructure Infrastructure in its widest context refers not simply to the number of container berths, cranes, tugs and size of terminal area, but also to the quality of cranes, quality and effectiveness of information systems, availability of inter-modal transport (such as roads and railways), the approach channel provided and the preparedness or otherwise of the port management (Tongzon and Ganesalingam, 1994). If the volumes handled far exceed a port s cargo-handling capacity, this will result in port congestion and inefficiency, and thus can turn off port users. Thus, adequate infrastructure reduces maritime transport costs by avoiding port congestion and ship waiting time, by allowing for quicker and safer freight movement and allowing the ships to achieve the economies of scale. Adequate infrastructure in terms of having a motivated workforce and high quality cargo-handling equipment leads to high level of productivity and efficiency (Sanchez et al., 2003). Furthermore, limited access to current information about shipment arrivals due to lack of adequate information system will slow the documentation process and thus the smooth functioning of a port. Without adequate inter-modal links, port users cannot easily move cargo to and from the port, which could lead to congestion, delays and higher costs Location Conventional notions of port choice have focused on geographical location as one of the main determinants of a port s attractiveness. 5 The choice of a port is not merely a function of proximate convenience but derives considerable implications as well from the overall transit costs of cargo trafficking. For example, the distance between the port and the port user s premises has a major impact on inland transportation costs (Tiwari et al., 2003). In their respective surveys, Willingale (1984) and Murphy et al. (1991) found that the location factor had a relatively low ranking, yet they cited other studies, which have demonstrated that this is in fact a primary factor. One explanation they have given was that significant improvements in domestic transportation system appeared to have lessened the importance of close geographical proximity between ports and their customers in port choice decisions Port charges There are different types of port charges, which vary between ports in terms of levels and structures depending on the nature and functions of ports. Except for landlord ports, which derive their revenues from rents, port charges are generally levied on the basis of port visits and/or cargoes. Examples of ship-based types include port navigation fees, berthage, berth hire, harbour dues and tonnage while cargo-based types include wharfage and demurrage. Berth hire and berthage are usually levied either on the basis of net registered tonnes (NRT) or against gross registered tonnes (GRT). Stevedoring and terminal handling charges are levied on cargoes with different rates for different cargoes. Direct port charges may eventually be reflected in the freight rates shippers/freight forwarders have to pay. 6 Other types of costs which shippers/freight forwarders eventually pay include ancillary charges such as costs of pilotage, towage, lines, mooring/unmooring, electricity, water and garbage disposal. 7 Previous studies produced varied findings on the relative importance of port charges as a determinant of port choice. As already mentioned earlier, the survey by Foster (1978) placed this as the principal factor driving port choice, while several subsequent studies by Murphy et al. (1991, 1992) found that some port users are actually willing to accept higher costs in return for superior service Quick response to port users needs Ports are also expected to respond quickly to port users needs. 8 This means that ports would have to constantly monitor and understand the needs of port users in order to devise the quickest way to respond to them. Regular dialogues and social interactions between the port s public relations staff and the port users are quite useful in this regard. D Este and Meyrick (1992), Ugboma et al. (2006) and De Langen (2007) have identified customer focus or quick response to users needs as one of the factors considered by shippers and freight forwarders in their port selection decisions. 5 For an excellent analysis of the importance of location, port geography and spatial hegemony, refer to Fleming and Hayuth (1994), Fleming (1997) and Hilling and Hoyle (1984), respectively. 6 Direct port charges levied on vessels do not by themselves reduce ship owners profits as long as these costs can be pushed onto freight rates. The ability to do so is dependent on the elasticity of demand and on the proportion of total costs attributable to freight rates (Strandenes and Marlow, 2002). 7 There are several determinants influencing the setting of these charges by the port authorities and operators, including the objective of the port, the cost to the port of providing the service or resource, the benefits obtained by the users through the usage of the port, competition faced by the ports from other ports and the competition port users face. For deeper analysis of optimal pricing policies by ports, refer to Jansson and Shneerson (1982), or alternatively, a monograph by UNCTAD (1995). 8 Apart from demands for more capacity which take years to accommodate, there are other needs which ports can address immediately including the need for better service, lower port charges, greater efficiency, reliability and safety.
5 190 J.L. Tongzon / Transportation Research Part E 45 (2009) Port s reputation for cargo damage Perception of cargo safety can be more powerful and important than the actual safety. If a port has a reputation that its handling of cargoes is unsafe, this could drive away potential clients and discourage existing clients. Thus, marketing and promotional efforts by port authorities and operators to highlight the port s positive characteristics and accomplishments could improve the port s reputation. A record of accomplishments and achievements gives assurance to customers in terms of quality and reliability. The latter is eminent for influencing port users choice of port as it is often the relative perception of customers that supersedes the actual port performance (D Este and Meyrick, 1992) Relative importance of port choice factors identified The relative importance of the above port choice factors identified was assessed by asking the sampled respondents based in Malaysia and Thailand to rank them from 1 (most important) to 7 (least important). The results are aggregated to show the overall ranking from the perspective of freight forwarders 9 and are shown in Table 1. It is interesting to note that port efficiency ranks as the most important determinant of port choice among the sampled freight forwarders, while reputation for cargo damage ranks as the least important. Further, port charges only ranks fifth behind shipping frequency, adequate infrastructure and location. The first four (efficiency, shipping frequency, adequate infrastructure and location) are different aspects of the same fundamental concern the ability to move the cargo quickly and reliably. Significant differences exist between the mean for the efficiency variable and the means of other variables at the 5% level. However, the means of the other three most important determinants shipping frequency, adequate infrastructure and location are not statistically different at the 5% level of significance. These findings are consistent with some of the previous studies and observations in many freight transport markets. 10 In D Este and Meyrick (1992), for example, the most important factors were location, port turnaround time, record of industrial disputes and the availability of appropriate loading facilities. Conversely, port charges and marketing were considered to be relatively unimportant. In evaluating the importance of port charges in the US, Malchow and Kanafani (2001) have found that port charges relative to other factors are not significant in port selection. The more recent study of Nigerian ports by Ugboma et al. (2006), based on the Analytic Hierarchy Process (AHP), has pointed out the high priority attached by shippers to the same factors of efficiency, frequency of ship visits and adequate infrastructure and confirmed port efficiency as the most important factor for shippers in their port choice decisions. The less significance of port charges and greater emphasis on qualitative service factors seem to be consistent with the global trend attributed to changes in commodity patterns involving greater proportions of high-value added products and the adoption of logistical approaches (such as inter-modality and just-in-time inventory) to freight management in response to greater competition between producers (D Este and Meyrick, 1992). To see how the freight forwarders located in the industrial and logistics centre of Malaysia (Penang) differ from those based in Thailand (Bangkok) in terms of how they rank the key port choice factors, Table 2 presents their respective arithmetic means for the various factors. It is clear from Table 2 that port charges and locations have now become more important to the freight forwarders in Thailand than in Malaysia, but port efficiency has remained the most important port choice factor in both groups. This implies that freight forwarders in Thailand are less willing to accept higher costs in return for higher port efficiency, more consistent with De Langen (2007) findings. The reason for this could be that port charges and land transport costs account for a greater portion of the freight forwarders total cost in Thailand due to the lower value-added goods transported and the greater inland transportation costs of cargo trafficking. To see if there is some consistency between the key port choice determinants and performance, a regression analysis is conducted using port data to see whether there is any significant correlation between a port s throughput (port performance indicator) and the first three most important port choice factors. The specification for this regression analysis is as follows: 11 Given the multiplicity of ports and cargoes handled, it is necessary to restrict the scope of the analysis to a limited number of ports and a specific type of cargo. These data and sampled ports are presented in Appendix 1, PT ¼ ASV a1 þ CPa2 þ NBa3 þ DTa4 where PT is the port throughput represented by the number of containers (TEUs) generated y a particular port for a given year, A is constant terml, SV is frequency of ship visits (calls), CP is container productivity, measured by the number of containers lifted per crane, represents the efficiency level in the container handling aspect of port operation. Since container handling constitutes the largest component of the ship turnaround time, the speed of moving cargoes off and onto ships at berth has a considerable implication for port users in terms of cargo dwelling time, NB is number of container berths, representing a port s cargo-handling capacity, and DT is the amount of delay time (in hours), measured as the difference between total berth time plus time waiting to berth and the time between start and finish of ship working, and is an ð2:1þ 9 These two groups of freight forwarders can be aggregated since they share similar characteristics and face the same ports of choice. 10 For some of these previous studies, refer to D Este and Meyrick (1992), Mangan et al. (2002), Tiwari et al. (2003) and Ugboma et al. (2006). 11 This form is chosen based on economic and statistical criteria. To confirm that this functional form of the model is correctly specified, a test of functional form due to Ramsey, known as RESET, is later used.
6 J.L. Tongzon / Transportation Research Part E 45 (2009) Table 1 Ranking of port choice factors: freight forwarders perspective Ranks Mean Standard Deviation 1. Efficiency Shipping frequency Adequate infrastructure Location Port charges Quick response to port users needs Reputation for cargo damage N =48 Note: Ranking ranges from 1 (most important) to 7 (least important). Table 2 Ranking of port choice factors: Malaysia vs Thailand Ranks Mean Malaysia (28) Thailand (20) Efficiency 2.66 Rank Rank1 Shipping frequency 3.35 Rank Rank3 Adequate infrastructure 3.38 Rank Rank4 Location 4.04 Rank Rank2 Port charges 4.24 Rank Rank4 Quick response to port users needs 4.38 Rank Rank6 Reputation for cargo damage 5.97 Rank Rank7 Note: Ranking ranges from 1 (most important) to 7 (least important). Table 3 Determinants of port performance: estimation results Variables lnpt (1) lnpt (2) Constant 0.80 ( 0.32) Ln SV 0.41 (2.38) ** 0.45 (3.24) *** Ln CP 0.96 (3.19) *** 0.87 (11.88) *** Ln NB 0.55 (1.97) * 0.54 (2.02) * Ln DT 0.17 ( 1.96) * 0.16 ( 2.10) * Adj R DW F statistic RESET (1,11) White test (8) Notes: (2) is without a constant. t ratios of coefficients are given in brackets. Approximate critical values for the t ratios are: 10% = 1.80 ( * ), 5% = 2.2 ( ** ) and 1% = 2.72 ( *** ). RESET, Ramsey s test for functional form mis-specification. White test, test for heteroskedasticity. PT means port throughput. indicator of port reliability. These delays could be due to labour disputes, work practices such as meal breaks, equipment breakdowns, congestion, perceived ship problems or weather. Delays can be passed to port users in terms of longer cargo dwelling time and/or higher freight charges. To allow parameter estimation by linear regression, Eq. (2.1) is linearized by taking its logs. The OLS estimates, based on a sample of 16 ports and under normality assumptions, are presented in Table 3 below. 12 The estimates are consistent with the postulates described previously and are highly robust. The coefficient of determination in the two equations is quite high, and the F-test indicates that we have an explanation for port performance. Ramsey s test does not indicate any functional mis-specification while the White test indicates the presence of homoskedasticity. Because we are not dealing with time-series data, it is not necessary to test for stationarity and for the existence of a stable-state relationship between the variables. The coefficient of the crane productivity (CP) variable, representing port efficiency, is statistically significant at the 1% level and has the highest value compared to the other coefficients, suggesting that this emerges as the most important determinant of port performance. This finding is significant because it implies that port authorities and operators should concentrate on enhancing their efficiency level if they want to improve their port performance. 12 It is recognized that the reliability of the estimation results based on the sample size of 16 ports could have been enhanced by increasing the sample size. But, data on other ports could not be incorporated into the analysis due to the lack of data on delay time, one of the variables in the port performance equation.
7 192 J.L. Tongzon / Transportation Research Part E 45 (2009) To wrap up, understanding the key decision factors in port choice and performance is crucial in staying ahead in this increasingly competitive port environment. In this light, this section has attempted to identify these factors and assess their relative importance, using a survey-based and econometric approach. Both results have confirmed that port choice and performance are determined by three most important factors: efficiency, frequency of ship visits and adequacy of port infrastructure. Among these three most important factors, port efficiency is found to have the most significant impact on port choice decisions and performance. These findings have policy implications. First, these imply that port authorities should give priority to efficiency enhancement. Second, direct port charges are not as important as any of the three factors identified. Third, not all determinants of port choice are within the port s control. Location is not a matter of choice. However, this is not as important as the other two such as port efficiency and infrastructure. A port with a location disadvantage can, therefore, compensate it by improving on its efficiency and infrastructure. 3. Decision-making style and port selection process It is also important to examine the decision-making style and mechanics of the port selection process used by the freight forwarders, apart from identifying the major port selection criteria adopted, in the light of the increasing awareness of the concept of port-oriented supply chains. This important aspect of port choice was investigated by asking the same sample of freight forwarders, whether they agreed with a series of statements about the selection of a port. The statements and percentage agreements with each are summarized in Appendix 2. The first set of statements refers to how port users view the importance of price in relation to the quality of service in the port choice process. The responses strongly favoured the quality of service over price, although there is a maximum price that they are willing to pay. Thus, as long as the price is below this limit, the quality of service takes precedence. About 76% of the respondents agreed that there is a minimum level of service on which they won t compromise. Only about 32% agreed that a low price can compensate for an inferior level of service. Further, almost 81% have agreed that a record of frequent delays in shipment would disqualify a port from consideration for future contracts. This finding is consistent with De Langen (2007) who found that both shippers and freight forwarders in Austria consider that quality and service determine port choice as long as the price does not exceed a certain level they are willing to pay and that costs are important but are not decisive in their port selection. De Langen (2007), however, found that the Austrian freight forwarders are more willing to accept lower service levels for price reasons (more price sensitive) than the Austrian shippers. In this study, the Southeast Asian freight forwarders are less willing (compared to the Austrian freight forwarders) to accept lower price for a lower service level. The freight forwarders in Southeast Asia, unlike their Austrian counterparts (De Langen, 2007), are conservative decision makers. When given a choice between a conservative decision and a potentially profitable but risky one, they would take the conservative option. Sixty-six percent of them expressed a preference for the conservative one, while more than 80% of them would see no need to change ports, if the current port is performing satisfactorily. All of the freight forwarders have agreed that preserving the reputation of their company and the goodwill of clients is the most important consideration in the choice of ports. The responses have also provided some insight into the mechanics of their port selection process. It is evident from their responses that the predominant approach is first to determine which ports can provide the required service and then to eliminate successively inferior options based on the factors discussed in the preceding section. Thus, the first stage of the port selection process involves an attempt to match the port service characteristics and their requirements. A freight forwarder might want to deliver the shipment within a week to a certain point of destination and the nature of the cargo is perishable. Ports that have the suitable shipping frequency and sufficient infrastructure (for example, refrigerated containers and other facilities required to deal with perishable goods) will be selected at the first stage of the selection process. If more than one port is selected at the first stage of the selection process, the second stage involves the ranking of ports selected based on price and other criteria identified above. Eighty-seven percent of freight forwarders stated that they would only consider ports that provide the required service. Seventy-six percent have agreed that they weigh up all the advantages and disadvantages of all the ports that might be capable of providing the service and make their decisions based on the ports overall performance. This particular finding supports the relevance of good characteristics (Malchow and Kanafani, 2004), time sensitivities (De Langen, 1999) and behavioral factors (Mangan et al., 2002) in the port choice process. In this paper, these factors are considered at the first stage of the port selection process while the other port selection criteria identified in this paper including the cost and quality of service are considered at the second stage of the port selection process. In making a choice, the bulk of the freight forwarders (68.1%) have relied on personal contacts, knowledge and experience. In the sequencing of choices, 74.5% choose the shipping line first and then choose the port from those served by the shipping line. Only 23.4% decide the port to ship from before selecting the shipping line. This last finding seems to imply the important role played by the shipping lines in the choice of ports as most of the freight forwarders in the sample select among the ports that the shipping lines of their choice have selected for them. The important role of shipping lines in port choice has been supported by a number of studies that have examined port choice from the perspective of shipping lines (e.g. Lirn et al., 2003; Ng, 2006; Tongzon and Sawant, 2007). This finding has important strategic implications for port operators and authorities in their process of attracting port users. This implies that ports should focus more on the shipping lines in relation to the other port users as decisions on port choice are primarily made by shipping lines.
8 J.L. Tongzon / Transportation Research Part E 45 (2009) It should be noted that the results of this study are based on the freight forwarders stated preferences rather than their revealed preferences. Tongzon and Sawant (2007) have demonstrated that in the case of port choice from the shipping lines perspective, the relative importance of the identified port selection criteria could differ between these two approaches. Since the stated preference approach adopted in this paper is sufficient to provide the basis for making conclusions on port choice and port selection process, the revealed preference approach is not employed. However, the revealed preference approach can be explored and its results can be compared with the current results as an area for future research. 4. Conclusion This paper has sought to determine the key factors in port selection and assess their relative importance, using a survey method applied to a sample of freight forwarders. The findings suggest that such factors as high port efficiency, good geographical location, low port charges, adequate infrastructure, wide range of port services, connectivity to other ports, adequate infrastructure and others are important in the port selection process. Their relative importance, however, differ, with port efficiency considered as the most important factor. This finding is consistent with the recent study by Ugboma et al. (2006) in the context of Nigerian ports, which further reinforced the high importance shippers attach to port efficiency in their port choice decisions. In particular, these findings provide an empirical support that port efficiency is the most important factor in the port selection from the perspective of the freight forwarders. It is, therefore, essential that port operators and authorities give top priority to improving their overall level of efficiency relative to other factors in order to attract more freight forwarders to use their ports. In exploring the decision-making style and port selection process, the survey confirms the sequential decision making process resembling the findings made by D Este and Meyrick (1992) and D Este (1992) in their studies of shippers purchasing shipping services across the Bass Strait. It further supports the hypothesis that the freight forwarders port selection is not a simple but a complex and two-stage process which takes into consideration factors other than the conventional factors used in the traditional port choice models. To a certain extent the findings in this study therefore lend empirical support to the proposition that ports are not viewed by the freight forwarders in isolation but are considered together with other requirements associated with the movement of cargoes across the port-oriented supply chain. It therefore supports the new approach that models port choice within the framework of a port as an element of a supply chain which can provide us with a better understanding of the determinants of ports choice. Since most freight forwarders choose the shipping line first and then choose the port from those served by the shipping line, it is also important that port operators and authorities should pay special attention on how to attract shipping lines to call at their ports. Although the survey has been limited to a sample of freight forwarders in Southeast Asia and selected ports, the results provide a useful empirical contribution to this increasingly important issue of port choice in this increasingly competitive trading environment in the context of a scant literature on port choice and offer an additional basis for further study into port choice and performance from the freight forwarders perspective within the overall supply chain. In addition, this study complements the existing studies on the decision-making process of port users by examining the case of freight forwarders based in Southeast Asia which has not been undertaken before as previous studies have focused mainly on port users based in North America, Europe and Australia. Moreover, there is very little investigation done on the port selection process of freight forwarders and on the link between port choice determinants and performance (Ng, 2006). Appendix Port data Ports TEUs Ship visits Crane productivity No of cont. berths Delay time (h) 1. Melbourne 90, Hong Kong 13,460,343 12, Hamburg 305, Rotterdam 4,935, Felixstowe 2,042, Yokohama 3,911,927 11, Singapore 12,943,900 24, Keelung 2,320, Sydney 695, Fremantle 202, Brisbane 249, Tilbury 394, (continued on next page)
9 194 J.L. Tongzon / Transportation Research Part E 45 (2009) Appendix 1 (continued) Ports TEUs Ship visits Crane productivity No of cont. berths Delay time (h) 13. Zeebrugge 553, La Spezia 871, Tanjung Priok 1,421, Osaka 987, Sources: Australian Bureau of Transport and Communications Economics, Waterline, Issues No. 6 and 7, March and June 1996; Containerization International Yearbook (1998); Lloyd s Ports of the World (1998). Appendix 2. Decision process in choosing a port: forwarders perspective Please mark p on the appropriate box provided, if you agree. 1. There is a minimum level of service on which I won t compromise. 76.6% 2. The choice of a port is made quickly using information that I already have. 55.3% 3. A low price can compensate for an inferior level of service. 31.9% 4. The first thing I do is to determine which ports can provide the required service. 87.2% 5. The decision process is one of successively eliminating inferior options. 55.3% 6. If there is more than one port offering comparable price and service, I will split my cargo between the ports. 48.9% 7. Price is one of the most important considerations. 57.5% 8. Personal contacts are an important factor in the selection of a port. 68.1% 9. I weigh up all the advantages and disadvantages of all the ports that might be capable of providing the service. 76.6% 10. If the current port is performing satisfactorily, there is no need to change. 82.9% 11. A record of frequent delays in shipment would disqualify a port from consideration for future contracts. 80.9% 12. I am prepared to pay a higher price to ensure that the consignment arrives on time and undamaged. 57.5% 13. A shipping manager is judged by the success of his shipping decisions. 57.5% 14. Given the choice between a conservative decision and a potentially more profitable but riskier decisions, I would take the conservative option. 66.0% 15. My selection of a port is guided by my knowledge and experience rather than a formal process of evaluation. 72.3% 16. Only a small number of factors affect the final decision. 48.9% 17. When assessing options, I have a clear idea of the maximum price that I can afford to pay no matter how good the service. 53.2% 18. Preserving the reputation of my company and the goodwill of clients is the most important consideration % 19. For a particular trade I prefer to negotiate a long-term contract with a single port than to deal with several ports on a consignment basis. 68.1% 20. Port choice decisions can usually be left to freight forwarder. 48.9% 21. When considering options, I tend to overlook services that are inconvenient and/or difficult to use. 51.1% 22. A shipping manager should be prepared to take occasional risks. 68.1% 23. We choose the shipping line first, then choose the port from those served by the shipping line. 74.5% 24. We decide the port to ship from/to, then select the shipping line only from those serving that port. 23.4% 25. Neither because they are decided on separately. 12.8% References Bardi, E.J., Carrier selection from one mode. Transportation Journal 13, Bird, J., Bland, G., Freight forwarders speak: the perception of route competition via seaports in the European communities research project. Maritime Policy and Management 15 (1), Branch, A.E., Elements of Port Operation and Management, seventh ed. Chapman and Hall Ltd., London. Brooks, M.R., An alternative theoretical approach to the evaluation of liner shipping (Part 1: situational factors). Maritime Policy and Management 11, Brooks, M.R., An alternative theoretical approach to the evaluation of liner shipping (Part 2: choice criteria). Maritime Policy and Management 12, De Langen, P.W., Time centrality in transport. International Journal of Maritime Economics 1 (2), De Langen, P.W., Port competition and selection in contestable hinterlands: the case of Austria. European Journal of Transport and Infrastructure Research 7 (1), D Este, G.M., Meyrick, S., Carrier selection in a RO/RO ferry trade Part 1. decision factors and attitudes. Maritime Policy and Management 19 (2), D Este, G.M., Carrier selection in a Ro/Ro ferry trade Part 2: conceptual framework for the decision process. Maritime Policy and Management 19 (2), Fleming, D., Hayuth, Y., Spacial characteristics of transportation hubs: centrality and intermediacy. Journal of Transport Geography 2 (1), Fleming, D.K., World container port rankings. Maritime Policy and Management 24 (2), Foster, T., What s important in a port. Distribution Worldwide 78,
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