Competition in the Irish Ports Sector
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COMPETITION IN THE IRISH PORTS SECTOR 2013 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................... i Recommendations .................................................................................. iv 1. INTRODUCTION......................................................................... 1 Background to the study ........................................................... 1 Ministerial request ........................................................................ 1 The public consultation ................................................................. 1 Why examine ports? .................................................................. 2 Economic significance ................................................................... 2 Prevalent competition issues .......................................................... 3 Evaluating competition.............................................................. 4 Inter-port and intra-port competition .............................................. 4 Structure and approach of this study .............................................. 5 2. OVERVIEW OF THE PORTS SECTOR ........................................... 7 Introduction .............................................................................. 7 Ports and how they operate ...................................................... 7 Primary activities ......................................................................... 7 Payment for port infrastructure and services.................................... 8 Port cargo .................................................................................. 10 Irish ports ................................................................................ 11 Port ownership and private participation ........................................ 11 Port management models ............................................................. 13 Ports policy ................................................................................ 14 Port traffic trends and capacity ..................................................... 17 Major ports and cargo specialisation .............................................. 20 Internal connectivity .................................................................... 24 External connectivity ................................................................... 26 Financial capability ...................................................................... 30 International trends ................................................................. 32 Supply chain networks ................................................................. 32 Larger vessel size ........................................................................ 32 3. INTER-PORT COMPETITION .................................................... 35 Introduction ............................................................................. 35 How inter-port competition works ........................................... 35 The benefits of inter-port competition ..................................... 37 Factors that affect demand-side and supply-side substitution . 39 Ports as natural monopolies .......................................................... 39 Demand-side factors.................................................................... 39 Supply-side factors ...................................................................... 41 Evaluating inter-port competition in Irish ports sector ............ 42 Quantitative analysis of inter-port competition ................................ 42 Competition Authority evaluation .................................................. 46 Dublin Port’s pre-eminent market position ...................................... 54 4. INTRA-PORT COMPETITION .................................................... 57 Introduction ............................................................................. 57 How intra-port competition works ........................................... 57 The benefits of intra-port competition ..................................... 59 Factors that affect intra-port competition ................................ 60 Port management models ............................................................. 60 Port size and economies of scale ................................................... 61 Leasing and licensing arrangements .............................................. 62 Ability to expand ......................................................................... 64 Vertical integration ...................................................................... 64 Evaluating intra-port competition in the Irish ports sector ...... 64 Quantitative analysis ................................................................... 65 Competition Authority evaluation of competition between terminals ... 67 Competition for the provision of ancillary services ........................... 76 Stevedore services ...................................................................... 77 Pilotage and towage services ........................................................ 80 5. PROMOTING COMPETITION: RECOMMENDATIONS .................. 83 Introduction ............................................................................. 83 Analysis of prospective policy measures .................................. 84 Increase private sector participation .............................................. 84 Port closure and amalgamation ..................................................... 91 Modify existing ownership and management models ........................ 95 Improve internal connectivity ....................................................... 98 Data and port performance measures .......................................... 101 APPENDIX 1(A): MEETINGS CONDUCTED ............................................... 103 APPENDIX 1(B): QUESTIONS ASKED IN THE PUBLIC CONSULTATION ........ 104 APPENDIX 1(C): SUBMISSIONS TO THE PUBLIC CONSULTATION .............. 107 APPENDIX 2: TYPICAL ANTI-COMPETITIVE BEHAVIOUR ........................... 108 APPENDIX 3: THE STRENGTHS AND WEAKNESSES OF EACH PORT MANAGEMENT MODEL .......................................................................... 109 APPENDIX 4: MEASURES OF PORT PERFORMANCE .................................. 110 APPENDIX 5: FACTORS TO CONSIDER WHEN AMALGAMATING PORTS ....... 112 APPENDIX 6: FULL CONCESSION CONTRACTS ........................................ 113 EXECUTIVE SUMMARY Context In the context of the Action Plan for Jobs, the Minister for Jobs, Enterprise and Innovation, Mr Richard Bruton T.D. asked the Competition Authority to carry out a study of competition in the ports sector in Ireland. As an island nation Ireland is heavily dependent on its ports, and it is widely recognised that Ireland’s future economic success will be dependent on its ability to trade internationally. Exports have been Ireland’s only net contributor to economic growth in recent years. If port charges are unnecessarily high, or ports are operating inefficiently, this will increase the cost of importing and exporting goods. Competition keeps prices and costs down and drives efficiency and service quality, all of which are key determinants of national competitiveness. Therefore, it is vital that competition in the Irish ports sector is working well. Research indicates that an increase in transport costs and/or port inefficiency will reduce trade volumes. It is especially important that competition for cargo handling services is working well as these services typically account for the largest percentage of the total cost of moving goods through a port. This study evaluates how competition in the ports sector is working. We specifically examine the level of inter-port competition (competition between ports) and intra-port competition (competition within ports) for different cargo types. The main focus is on unitised cargo (i.e., Lo-Lo and Ro-Ro cargo in containers) and bulk cargo (e.g., liquid fuel, coal, fertiliser and animal feed). This is because exports are dominated by unitised cargo, while imports are dominated by bulk cargo. Based on our evaluation, we have made six recommendations to improve the level of competition in the Irish ports sector. The evaluation and the recommendations are based on over 40 meetings with stakeholders, a public consultation process, Requests for Information (RFIs), quantitative analysis and economic literature. Key findings The characteristics of the Irish ports sector are such that competition between ports (i.e., inter-port competition) appears limited. Ensuring that competition within a port (i.e., intra-port competition) works well is especially important. The leasing and licensing arrangements for Lo-Lo terminal operators in Dublin Port may have the effect of restricting competition. The current licensing arrangements for general stevedore services in Dublin Port also appear to have the effect of restricting competition. There is a lack of data collection and performance measures within the Irish ports sector. i The characteristics of the Irish ports sector are such that competition between ports (i.e., inter-port competition) appears limited. Many factors influence inter-port competition. These include port location, traffic trends, haulage costs, cargo specialisation, service frequency, road connectivity and the level of competition within a port. Lo-Lo terminal users increasingly utilise larger ports like Dublin, Belfast and Cork that are located next to Ireland’s largest