ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7

THE ROLE OF LATVIAN WITHIN REGION

Astrida Rijkure, Inga Sare Latvian Maritime academy, , e-mail: [email protected]; [email protected]

http://dx.doi.org/10.5755/j01.eis.0.7.5145

Latvian ports play an important role in the national economy. Latvia has established itself as a transit country (mainly for the Russian, Central Asia and Belarus cargoes). Transit cargoes account for approximately 85% of the total volume of cargoes in the Latvian ports. The Latvian ports handle on average 60 million tons per year. The transportation and storage account for approximately 13% of the Latvian GDP, and the total revenues from transit cargoes account for approximately 4.4% of the GDP and are equal to 27.7% of the total volume of the export of services. Traditional competitors of the Latvian ports include Klaipeda, , St. Petersburg and Primorsk ports. Also Ust-luga has joined the above list as it is developed rapidly by . Thus, there is a threat that Russia might direct its cargoes to the ports of its own region by providing the sufficient capacity of its own ports. Therefore, it is necessary to pay special attention to the requalification of cargoes on the Latvian ports into the cargoes with high value added. The topicality of the issue of this research is determined by the current increased attention to the operation of the Latvian large ports, the efficiency of their operations and the competitiveness in comparison to other region, as well as the initiative of the European Commission regarding the review of the ports policy and their further operation on the European Union level. The article will be focused on Latvian large ports freight volume proportion in comparison to the Baltic Sea ports: Tallinn, Klaipeda, Ust-Luga. Calculations will be made using HHI index (Herfindahl-Hirschman Index), which describes „market power” division between all the subjects in the current market. Particular attention will be focused on cargo structure analysis of Baltic ports and restructuring of cargo circulation in the Baltic Sea region.

Keywords: Latvian ports, efficiency, HHI index.

Introduction The industry of transportation is developing dynamically. according to one specific standard. The difficulty to determine The volume of transportation is increasing not only in individual united standards is based on the fact that there is absence of states, but also on the level of international transportation. the united method of how to summarize all the important The international transportation system includes all the main aspects in order to measure the performance efficiency. modes of transportation. International shipments form the This research has several purposes. First of all, it aims to very basis of the worldwide market economy. An increasing analyze performance indicators of the large Latvian ports. international turnover of goods leads to the increase of the It also aims to analyze the assessment methodology of the cargo shipment. International shipments and the transit traffic port performance efficiency of the existing ports in Latvia. monitoring via the territory of the Republic of Latvia are the Secondly, it aims to evaluate significance of the large Latvian main economical priorities of the state. The cargo shipment ports within the Baltic region. is an important part in the manufacturing – consumer chain; In order to achieve the aims of this research, the following the costs of cargo shipment and customs form a considerable tasks have been set: part of the final costs of the production. Every mode of • To analyse the port performance efficiency transportation has its technical and economical peculiarities. evaluation methods, as well as to analyse the latest A system of different modes of transportation is based on scientific conclusions (on the basis of the chosen these peculiarities. In order for a port to function in this very bibliography). competitive environment of cargo shipment where ports are • To analyse the port performance indicators of the competing to attract the maximum amount of cargos, it needs large Latvian ports, as well as to analyse the port to operate efficiently. The evaluation of the port performance performance indicators of ports in the Baltic region. efficiency is especially important in the countries and regions, • To come up with proposals in order to improve the port where ports are the driving force of the economical growth; performance efficiency in Latvia. where they provide such important aspects of economical Applied methods for the research. In order to achieve growth as tax payments, the capital investment inflow, the aim of this research successfully and to complete the tasks creation of new jobs and development of infrastructure. given the authors used the following research methods: Article’s scientific problem. The organizational structure of 1. In order to batch and to analyze the data, the Analytical every port is unique, therefore it is far from being an easy method has been applied. This method allows to carry task to measure and analyze the port performance efficiency out detailed research, based on wide range of scientific research materials. 110 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 2. In order to make the economical calculations, the oversee various segments of the market [6]. 8 indicators have quantitative3. Staticdata analysis method hasmethod been has used been in order applied. to process beenthe proposed level of differentiation in this category in different(figure geographical1). levels 3. Staticthe method statical has information been used regarding in order the to port process performance the of port systems; as well as to oversee various segments of indicators of ports in Latvia, as well as the ports in Baltic the market [6]. 8 indicators have been proposed in this statical information regarding the port performance region. 3. Static method has been used in order to process categorythe level (figureof differentiation 1). in different geographical levels indicators of ports in Latvia, as well as the ports in 4. theGraphical statical information method (construction regarding the of port charts, performance image of port systems; as well as to oversee various segments of Balticcreation, region.indicators etc.) led of toports ascertain in Latvia, fact as coherency well as the in ports this in thesis Baltic the Maritime market [6]. 8 indicator s HHI have been proposedLoad in thisrate as wellregion. as it gave a chance to discover coherency categorytraffic (figure 1). 4. Graphical method (construction of charts, image creation,characteristics etc.)4. led Graphicaland to shape. ascertain method fact (construction coherency of charts,in this image Noveltycreation, is equated etc.) ledand to calculated ascertain factHHI coherency index for in thethis ports thesis ContainerMaritime Market HHI trends Load Vessel rate traffic thesis as wellas wellas it gave as it a gave chance a chanceto discover to discover coherency coherency traffic in Latvia and the Baltic region. This index helps to evaluate dependency and structure characteristicsthe competitivenesscharacteristics and shape. and and shape. efficiency of the ports. It is Novelty is equated and calculated HHI index for the ports Container Market trends Vessel traffic Novelty is important equated and to stress calculated that HHI HHI index index has for been the calculated ports in Latvia and the Baltic region. This index helps to evaluate dependencyCall size Marketand structure share Modal split in Latvia andrecently; the Baltic this region. competitiveness This index and helps efficiency to evaluate assessment the competitiveness and efficiency of the ports. It is the competitivenesshas notimportant been and done efficiency to before. stress that of the HHI ports. index It has is important been calculated Figure 1. Market trends and structure indicators [7] The organizational structure of every port is unique, Call size Market share Modal split to stress that HHIrecently; index this has competitiveness been calculated and efficiency recently; assessment this Figure 1. Market trends and structure indicators [7] therefore it is far from being an easy task to measure and competitiveness andhas not efficiency been done before.assessment has not been done Herfindahl – Hirschman index characterizes “market power” analyze theThe port organizational performance structure efficiency of every according port is to unique, one divisionHerfindahlFigure between 1. –Market Hirschmanthe trendssubjects and index ofstructure the characterizes given indicators market [7] “market indicating before. specifictherefore standard. it is far The from difficul being tyan easy to determinetask to measure united and power” division between the subjects of the given market analyze the port performance efficiency according to onethe concentration level of the market[10,11]. It is being The organizationalstandards is based structure on the of fact every that portthere is not unique, a united Herfindahl – Hirschman index characterizes “market specific standard. The difficulty to determine united indicating the concentration level of the market[10,11]. It is therefore it method is far fromof how being to summarize an easy all task the to important measure aspects and in calculatedpower” divisionas a sum between of all thethe subjects squared of market the given parts market of market standards is based on the fact that there is not a united being calculated as a sum of all the squared market parts of order to measure the port performance efficiency. The portsubjects indicating in the concentration combined leve amountl of the market[10,11]. applying the It is following analyze the portmethod performance of how to efficiency summarize all according the important aspectsto one in market subjects in the combined amount applying the performance evaluation is significant to any country since being calculated as a sum of all the squared market parts of specific standard.order The to difficulty measure the toport determine performance united efficiency. standards The portformulas following (1.1.), formulas (1.2.) (1.1.), and (1.3.):(1.2.) and (1.3.): ports are very important once it comes to providing market subjects in the combined amount applying the performance evaluation is significant to any country since is based on the fact that there is not a united method of how following⎛ formulas1 ⎞ (1.1.), (1.2.) and (1.3.): economicalports are growth. very Ports important further once economical it comes to growth providing in ⎜H − 1 ⎟ to summarizesuch all aspectsthe important as participating aspects in in order the to international measure the trade; ⎛ − 1 ⎞ economical growth. Ports further economical growth in * ⎝H − N⎠ port performancedrawing efficiency. in investments; The port facilitating performance the development evaluation of H * = ⎜ N⎟ (1.1) (1.1) such aspects as participating in the international trade; H * = ⎝ 1N ⎠ , is significantproduction todrawing any and in services;country investments; creatin since facilitatingg jobs,ports as well theare developmentas veryadvancing important of H = 1− 1 (1.1) 1− 1N once it comesthe todevelopment productionproviding andof economical an services; entire creatinregion[1,577;2,53]. growth.g jobs, Portsas well further asIn advancingorder to 1− N measurethe thedevelopment economical of an influence entire region[1,577;2,53]. of the port, mainly In order the to N economical growthmeasure in such the economical aspects asinfluence participating of the port, in mainly the the N performance indicators and the related resources (such as 2 internationalthe trade; turnoverperformance drawing of cargos indicators in and investments; employment) and the related facilitating are resources being theused (such to as H = ∑N s , (1.2) (1.2) H = ∑si,2 j (1.2) developmentmake of production the these turnover calculations. andof cargos services; The and employment)researcher creating jobs, Talley are asbeing proposeswell used to j=1 i, j make these calculations. The researcher Talley proposes j=1 as advancingthat the one development of the options of anto achieveentire region[1,577;2,53]. the economical goals of n x that one of the options to achieve the economical goals of n i, j(t) S = xi, j(t) In order tothe measure port is to the increase economical the tu rnover influence of the cargosof the [11,44]. port, S1, j = ∑ (1.3) (1.3) the port is to increase the turnover of the cargos [11,44]. 1, j ∑ x ,(1.3) The ports are being classified by the amount of reloaded i=1 x i,g(t) mainly the performanceThe ports indicators are being classified and the byrelated the amount resources of reloaded i=1 i,g(t) cargos and these data are further on being published on the where: (such as the turnovercargos ofand cargos these data and are employment) further on being arepublished being on thewhere: where: websiteswebsites of port of administratioport administrations orns putor put in inthe the databases databases of of NN = = numbernumber of portsports in in market; market; used to makestatistics thesestatistics offices. calculations. offices. It is Ita commonis a common The belief researcher belief that that the the increase Talley increase of of HNH = = Herfindahl Herfindahlnumber of –– Hirschman Hirschmanports in market; index, index, 0≤HHI≤1 0≤HHI≤1 22 proposes thatthe one cargothe of cargo turnoverthe turnoveroptions is an is to indicator an achieve indicator of the theof theeconomical increase increase of of port port sHsi,j i,j = == Herfindahl marketmarket shareshare of of– port portHirschman j regardingj regarding index commodity commodity, 0≤HHI≤1 i; i; 2 performanceperformance efficiency. efficiency. Researcher Researcher De DeLangen Langen opposes opposes to to xxi,j(t) == volumevolume ofof cargo cargo i handli handleded per per port port j in j periodin period t; t; goals of the port is to increase the turnover of the cargos si,j(t)i,j = market share of port j regarding commodity i; that bythat stating by stating that thethat increase the increase of the of the cargo cargo turnover turnover is is xi,g(t) = volume of cargo i handled per geographical scale g [11,44]. The ports are being classified by the amount of xxi,g(t) = volumevolume of of cargo cargo i handledi handled per per geographical port j in period scale g t; mainlymainly related related to the to flow the flow of international of international trade trade and and it itdoes does inini,j(t) period period t. reloaded cargos andnot havethese much data to are do withfurther the increaseon being of publishedefficiency [5,25]. x = volume of cargo i handled per geographical scale not have much to do with the increase of efficiency [5,25]. underunderi,g(t) 0.150.15 = lowlow concentration concentration degree; degree; on the websitesMany of Many otherport otheradministrations researchers researchers also alsoor admit put admit in that the that thedatabases the amount amount of of gbetween in period 0.15 t.and 0.25 = average concentration degree; reloaded cargos does not indicate its economical influence between 0.15 and 0.25 = average concentration degree; of statisticsreloaded offices. cargos It isdoes a not indicatcommone itsbelief economical that influencethe increase underabove 0.250.15 = =high low concentration concentration degree. degree; on a port. It is not possible to choose unequivocal port aboveAnalysis 0.25 of =Performance high concentration of the Large degree. Latvian Ports of the cargoon turnover a port.performance Itis isan not indicator indicators possible of to in the choose order increase unequivocal to evaluateof port port port AnalysisbetweenThere are of 0.15three Performance largeand 0.25ports =inof average Latviathe Large (namely, concentration Latvian the ports Ports ofdegree; performanceperformance efficiency.performance indicators Researcherefficiency. in There orderDe are manyLangen to different evaluate opposes opinions port to ThereaboveVentspils, are 0.25 three Riga = high andlarge Liepaja). concentration ports in The Latvia proportion degree. (namely, of the the cargo ports of that by statingperformance thatamong the increase efficiency. researchers of theThere cargo are regarding manyturnover different is this mainly opinions matter ,turnover in Riga these and three Liepaja). ports (out The of proportion the common of the cargo cargo related to theamong flow[3,21;4,199;12,408;13;699]. of researchersinternational trade regarding Thereand it is does a significant this not have matter lack of turnoverAnalysisturnover in of all these Performance the three ports ports in Latvia) of(out the is of Large 97.9%. the common Latvian There are cargo Ports [3,21;4,199;12,408;13;699].concrete solutions and There so far is no a unifiedsignificant formulas lack of for turnoverseven small in allports the (namely, ports in the Latvia) ports of is Engure, 97.9%. Lielupe, There are much to do concretewith thecalculating solutionsincrease the ofport and efficiency performance so far no [5,25]. efficiency unified Many formulas(employing other for the sevenThereMersrags, small are Pavilosta, three ports large(namely, Roja, ports the Salacgriva, in ports Latvia of Skulte) Engure, (namely, [19]. Lielupe, the ports researchers calculating also port admit performancethe that port theperformance indicators) amount efficiency of have reloaded been (employing proposed. cargos Those the of Ventspils,Mersrags,Although itRiga Pavilosta, can and be observedLiepaja). Roja, thatSalacgriva, The the proportion common Skulte) cargoof the [19]. cargo does not indicateport performanceport its economical performance indicators) indicatorsinfluence have related on been a to port. proposed. market It is tendencies not Those Althoughturnover isit experiencing can be observed an increase, that however the common there are cargo and market structure are supposed be used for the internalturnover in these three ports (out of the common cargo port performance indicators related to market tendencies turnoversome negative is experiencing tendencies in an several increase, cargo however groups. This there is are possible to chooseuse unequivocal of the industry port in theperformance context of developmentindicators andturnover related in to allthe theincrease ports of in competition Latvia) isbetween 97.9%. the There ports in are seven and market structure are supposed be used for the internal some negative tendencies in several cargo groups. This is in order to evaluatecompetitiveness port performance [8,7]. The indicators efficiency. of market There tendencies are small the ports Baltic (namely, Sea region. the The ports small of ports Engure, still have Lielupe, the great Mersrags, use of the industry in the context of development and many different opinionsand structure among would allow researchers the port administrations regarding this and the relatedprofound to onthe the increase enhancement of competition of the economical between activity the ports in in competitiveness [8,7]. The indicators of market tendencies Pavilosta,the Baltic Roja, Sea Salacgriva, region. The smallSkulte) ports [19]. still Although have the greatit can be matter [3,21;4,199;12,408;13;699].European Commission to Thereoversee issuch a important significant aspects as the regions. and structurethe development would allow of port the capaci port ty;administrations the cargo concentration; and the observed profound that on the enhancement common cargo of the turnovereconomical isTable activity experiencing 1 in lack of concreteEuropean solutions Commission and to so oversee far no such unified important formulas aspects asan the increase, regions. however there are some negative tendencies for calculatingthe development the port performance of port capaci efficiencyty; the cargo (employingconcentration; in several cargo groups. This is related to the Table increase 1 of the port performance indicators) have been proposed. Those competition between the ports in the Baltic Sea region. The port performance indicators related to market tendencies and small ports still have the great profound on the enhancement market structure are supposed be used for the internal use of of the economical activity in the regions. the industry in the context of development and competitiveness In 2012, 75 193 thousand tonnes of cargos were handled in [8,7]. The indicators of market tendencies and structure would the ports in Latvia. The is the leader in terms allow the port administrations and the European Commission of the amount of cargos handled. There were 36.06 million to oversee such important aspects as the development of port tons of cargos handled in Freeport of Riga in 2012[17]. capacity; the cargo concentration; the level of differentiation It can be stated that there is a tendency for the amount of in different geographical levels of port systems; as well as to cargos to increase since, in 2011, there were 34.05 million 111 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 tons of cargos handled in Freeport of Riga. The amount of The authors of this research assumed that bulk cargos cargos handled at the Freeport of Ventspils is also changing, and general cargos are mainly being handled in the Freeport meaning, in 2010, there were 24.82 million tons of cargos of Riga, Freeport of Ventspils, port of Liepaja, port of handled at the Freeport of Ventspils, however this amount Salacgriva, port of Skulte, port of Mersrags and port of Roja has increased to 30.35 millions of tons in 2012 [18]. When (Figure 2). However, regarding the liquid bulk cargos, the it comes to description of the development of the port of authors assumed that the liquid bulk cargos were mainly Liepaja, a positive tendency can be observed since the amount handled in the Freeport of Riga, Freeport of Ventspils and of cargos handled Cargohas increased turnover in from ports 4.3of Latvia million 2005-2012, tons in thousand 2010 portamount of Liepaja of timber (time cargos period handled, of as 2004 well as – the 2008); amount additionally of tonns [14] metal cargos handled is significantly decreasing. to 7.4 million tonsType in of 2012[16]. cargo However,2010 2011 the small2012 ports 2012./2011%have to previouslyThe authors of mentioned this research ports assumed the that port bulk of cargos Skulte and started to experienced a decreaseDry bulk in the 28566.8amount of 33741 cargos 37278.9handled from 10.5 handlegeneral liquid cargos bulk are mainlycargos being during handled the intime the Freeportperiod of 2009 – chemicals 3765 4552.8 3199.6 -29.7 Riga, Freeport of Ventspils, port of Liepaja, port of 1.48 million tonscoal in 2010 to 1.3615298 million 20252.7 tons in 23043.8 2012. 13.8 2011. These assumptions are based on the calculations where woodchip 1780.3 1609.7 1588.3 -1.3 the Salacgriva,HHI has been port of applied. Skulte, portThis of index Mersrags describes and port the of level of Table 1. CargoLiquid turnover bulk in ports 21228.6 of Latvia 23133.4 2005–2012, 24957.2 7.9 Roja (Figure 2). However, regarding the liquid bulk cargos, crude oil 204 140.6 197.9 40.8 the thecargo authors group assumed concentration that the liquid in bulka particular cargos were region. mainly thousand tonnsoil products [14] 20283.2 22381.6 23955 7 handled in the Freeport of Riga, Freeport of Ventspils and General cargo 11364.5 11946.5 12956.9 8.5 port of Liepaja (time period of 2004 – 2008); additionally Type of cargo containers2010 2011 2669.5 2012 3185.6 2012./2011% 3676.5 15.4 to previously mentioned ports the port of Skulte started to Dry bulk 28566.8TEU 33741256 271 37278.9 305 939 366 82410.5 19.9 Ro-Ro 2195.8 2850.3 3164.4 11 handle liquid bulk cargos during the time period of 2009 – chemicals 3765number 4552.8168 210 3199.6 195 132 209 838-29.7 7.5 2011. These assumptions are based on the calculations coal 15298wood products 20252.7 5415.5 23043.8 4785.2 4438 13.8 -7.3 where the HHI has been applied. This index describes the thsd.m³ 6154.9 5580.7 5218.5 -6.5 woodchip 1780.3 1609.7 1588.3 -1.3 level of the cargo group concentration in a particular metals 525.6 381.3 514 34.8 region. Liquid bulk 21228.6Total 23133.461159.9 24957.2 68821 75193 7.9 9.3 crude oil 204In 2012, 75 140.6193 thousand197.9 tonnes of cargos 40.8were handled in the ports in Latvia. The Freeport of Riga is the leader in oil products 20283.2terms of the22381.6 amount of cargos23955 handled. There7 were 36.06 General 11364.5million tons11946.5 of cargos 12956.9 handled in Freeport8.5 of Riga in cargo 2012[17]. It can be stated that there is a tendency for the containers 2669.5amount of cargos3185.6 to increase3676.5 since, in 2011,15.4 there were TEU 25634.05 271 million305 tons 939 of cargos366 824 handled in Freeport19.9 of Riga. The amount of cargos handled at the Freeport of Ventspils Ro-Ro 2195.8is also changing,2850.3 meaning,3164.4 in 2010, there11 were 24.82 Figure 2. Herfindahl-Hirschman Index in Latvian ports, number 168million 210 tons 195of cargos 132 handled209 838 at the Freeport7.5 of Ventspils, 2004–2011 wood 5415.5however this4785.2 amount has4438 increased to 30.35-7.3 millions of products tons in 2012 [18]. When it comes to description of the development of the port of Liepaja, a positive tendency can In order to make the necessary calculations, the proportion thsd.m³ 6154.9be observed5580.7 since the 5218.5 amount of cargos-6.5 handled hasof theFigure bulk 2.cargos Herfindahl-Hirschman in 2010 has been Index taken in Latvian as an ports, example. The metals 525.6increased from381.3 4.3 million514 tons in 2010 to 34.87.4 million tonschosen ports are the Freeport2004 - 2011 of Riga, Freeport of Ventspils Total 61159.9in 2012[16].68821 However, the75193 small ports have9.3 experienced aand In port order of to Liepajamake the necessary and the calculations, proportion the of proportion the bulk cargos decrease in the amount of cargos handled from 1.48 million of the bulk cargos in 2010 has been taken as an example. (handledThe chosen in the ports previously are the mentioned Freeport of Riga,ports) Freeport is being of squared. tons in 2010 to 1.36 million tons in 2012. The analysisThe of analysisthe amount of the of amount cargos of handled cargos handled in Latvian in Latvian It isVentspils being assumed and port ofthat Liepaja the percentage and the proportion of the of common the bulk amount ports leads to aports conclusion leads to a thatconclusion there that is athere tendency is a tendency for the for theof bulkcargos cargos(handled handled in the previousl in they mentioned ports of ports) Salacgriva, is being Skulte, amount of cargosamount handled of cargos to increase.handled to Theincrease. steepest The steepest increase increase squared. It is being assumed that the percentage of the Mersragscommon and amount Roja of is bulkequal, cargos therefore handled creating in the ports the offollowing can be observedcan in be the observed past in years the past peaking years peaking in 2012, in 2012, when when there were 75.19 million tons handled in the ports offormula Salacgriva, (1.4.): Skulte, Mersrags and Roja is equal, therefore there were 75.19Latvia. million It is atons 23 % handled increase in comparisonthe ports ofto theLatvia. amount of It is a 23 % increase in comparison to the amount of cargos N cargos handled in 2004. The economical recession of 2008 H = s2 + s2 + s2 + 4∗s2 did not significantly influence the amount of cargos ∑ R, j V, j L,j ()SSMR, j , (1.4) (1.4) handled in 2004. The economical recession of 2008 did not j=1 significantly influencehandled in the the ports inamount Latvia. ofA minor cargos decrease handled could inthe be observed in 2009 and 2010; however the reduction of the where: where: ports in Latvia. cargosA minor handled decrease was could insignificant be observed (approximately in 2009 3% sR,j ,sV,j ,sL,j = market share of total handled bulk cargoes in and 2010; howeverdecrease). the reduction Based on theof analysisthe cargos of the handled cargo structure was in portssR,j ,s ofV, j Latvia,sL,j = (Freeportmarket share of Riga, of Freeporttotal handled of Ventspils, bulk cargoes insignificant the(approximately ports in Latvia, it can 3% be decrease).stated that the dominantBased groupon the portin ports of Liepaja) of Latvia (Freeport of Riga, Freeport of Ventspils, s , = market share of total handled bulk cargoes in ports analysis of the cargois bulk structure cargos. 29 in % the of theseports bulk in Latvia,cargos are it cancoal becargos, portSSMR ofj Liepaja) but 7 % of the bulk cargos are chemical bulk cargos. The of Latvia (port of Salacgriva, port of Skulte, port of stated that the dominantsecond largest group group is bulk of cargos cargos. handled 29 % are of liquidthese bulk Mersrags,sSSMR,j = port market of Roja) share of total handled bulk cargoes in bulk cargos arecargos. coal cargos, However, but oil 7 % products of the formbulk thecargos most are sizable Nports = number of Latvia of ports; (port of Salacgriva, port of Skulte, port of proportion making up to 32% of all the cargos handled in jMersrags, = bulk cargoes; port of Roja) chemical bulk cargos. The second largest group of cargos H = concentration degree of bulk cargoes. the ports in Latvia. The sector of general cargos is N = number of ports; handled are liquidexperiencing bulk cargos. an increase However, in the oil amount products of containerized form Calculations in example are made for year 2010: 2 2 2 2 the most sizablecargos proportion handled. making TEU) up in to general 32% of increases all the 20%cargos a year. Hj = = bulk(0.610418) cargoes;+(0.306205) +(0.066717) +4*(0.00416) = handled in the portsHowever, in Latvia. it is importantThe sector to of point general out cargos that the is most 0.471H = concentration degree of bulk cargoes. significant amount of containerized cargos are being HerfindahlCalculations – Hirschman in example Index are has made been for calculated year 2010: using experiencing an increase in the amount of containerized cargos formula (1.5.) handled in the port of Riga, which handles 96% of all the H = (0.610418)2+(0.306205)2+(0.066717)2+4*(0.00416)2 = handled. TEU) containerizedin general increases cargos handled 20% in athe year. ports However, in Latvia[20]. it The is important to point out that the most significant amount of 0.471 containerized cargos are being handled in the port of Riga, Herfindahl – Hirschman Index has been calculated using which handles 96% of all the containerized cargos handled in formula (1.5.) the ports in Latvia[20]. The amount of timber cargos handled,  1  as well as the amount of metal cargos handled is significantly H −  decreasing.  N  HHI = , (1.5) 1 1− 112 N ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 where: to be pointed out the current level of containerization in the HHI = Herfindahl – Hirschman Index; Baltic States and Russia can be evaluated as low. 0≤HHI≤1; The following factors of attended cargos in the logistic N = number of ports; corridor in Latvia need to be taken into consideration: the H = concentration degree of bulk cargoes. geographic asymmetry of the cargo flow ( approximately The result is that concentration degree of bulk cargoes in 90% of the cargos flow in the direction East to West); the Latvia is: relative homogeneity of production of the types of cargos 1 (two thirds of all the cargos handled are coal and oil products, 0.471– which have a very limited potential of additional value; as 7 = 0.383. 1 well there are significant ecological factors which need to 1– 7 taken into account); homogeneity of the countries of origin. The former factor inquire to mobilize the actives of logistic The calculations proved that the level of concentration is infrastructure under government administration and to carry high in all cargo groups. It leads to a following conclusion out a coordinated and aggressive aim for the cargo flow from that the handling of cargos is concentrated in these three large the West (especially containerized and automobile-building ports. The level of concentration is not expected to decrease. cargos), as well as the attraction of investments to the This statement is based on the observation that the large ports logistics corridor of Latvia by organizing united, coordinated have been market leaders for a very long time already and and custom made industry offers and communication. The the small ports do not have the capacity to steeply increase following ports can be considered competitors to the ports the turnover in order to substantially change the results of the in Latvia, namely, the ports of Primorsk, , index calculations. Ust-luga, Tallinn, Klaipeda (Butinge oil terminal) and The role of Big Latvian ports within the region of the . The ports in Latvia are the region leaders. This Baltic Sea statement is based on the analysis of the Baltic Sea region statistics (figure 3). Russia is sharply developing the ports of The most significant cargo flows in the Baltic region are its region, in order to decrease the cargo flow in other transit aligned with the global shipping lines. The size of the ships corridors. The recently opened port of Ust-luga is increasing (draught) being able to come into the Baltic Sea is restricted its amounts of cargos handled by 250% a year. Furthermore, in by the Danish Sea Pass. The ships being able to come into 2012, several new ro-ro and container lines have been opened the Baltic Sea have to fulfill the requirement of having the in the Baltic Sea (they are specifically working towards the draught only up until 17.5 meters – container ships. This is the ports in Russia). Moreover, an oil terminal and the pipe BTC- main reason why the ports in the Baltic Sea region only attend 2 started operating. Therefore, Latvia needs to reorient its short-sea shipping lines and feeder ships, which transport port structure. The investments in Russian port development cargos from/to the hub ports of Europe (Rotterdam, Antwerp indicate that Russia might be planning to partly conduct and Hamburg). The substantial part of the cargos handled in its cargos away from Latvian transit corridor, in the future the ports of Baltic countries is supposed to be shipped further preferring its own ports. Consequently, the only competitive on to Russia or other CIS countries (approximately 80% of factors of the ports of Latvia would be such aspects as lower all the containers handled in the ports of Latvia match this rates (since geographically Latvia has a more favourable description). Another important aspect is that there are several position than the Russian ports; another factor could be a ports, which are considered to be freezing up ports, namely the better quality of services offered, meaning, faster handling of ports of Saint Petersburg, Tallinn and Riga. The winters which cargos, faster border-crossing, simplified custom procedures tend to be especially cold not only entangle the operation of and faster cargo load operations etc.) the ports, but also put an extra burden on expenses, (expenses of iceboats, maintaining the fleet, tugboat) sometimes even creating idle standing. The high possibility of the port being frozen is a disadvantage of the Freeport of Riga and it gives a certain advantages to the ports of Liepaja and the Freeport Ventspils. However, the Freeport of Riga is still several hundreds of kilometers closer to the Eastern border, which gives a chance to remarkly reduce costs (for the sender of cargos) once it comes to the railroad rates. It is a growing tendency to use containers for the cargo shipments to handles shipments from country to country and continent to continent. This tendency can be observed globally, as well this statement proves to be correct in the region of Baltic Sea. The amount of containers shipped in the Baltic Sea has been affected by Figure 3. Cargo turnovers in ports of Baltic Sea region 2009–2011, thousand tonns [15] such factors as the shift to a different economical model in the Baltic’s in 90s; the economical recession in Russia during In comparison to other ports in the Baltic Sea region, the 1999 – 2000 and the following development in Russia and ports of Latvia have not experienced a decrease in amount Poland. Another additional factor is that there is an increasing of cargos handled. This statement is based on the analysis of amount of imported readymade products. However, it needs the consequences of the recent worldwide recession. These

113 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 consequences, namely the decrease of the cargos handled in had a significant amount of handled liquid bulk ports, can still be observed in 2012. For instance, the ports cargos forming 14 %. In comparison to former examples, the in Lithuania, namely, the port of Klaipeda and the ports in amounts of liquid bulk cargos handled in the ports of Latvia Estonia, especially the port of Tallinn is experience a sharp are relatively low in 2011, respectively Ventspils – 8%, Riga – decrease of 10 – 20 % a year. In 2007, the ports in Estonia 4% out of the total amount of liquid bulk cargos handled in experienced a severe decrease in amount of cargos handled. It the Baltic Sea region. happened due to the so called scandal of the “bronze soldier” when Russia completely stopped its coal and oil transit via the ports in Estonia. Meanwhile, Latvia managed to attract considerable amounts of these cargos to its transit corridor. If the proportion of the ports in the Baltic Sea region is being analysed, it can be clearly seen that the ports of Russia form the biggest part in terms of the amount of cargos. However, it is important to point out that several of these Russian ports have specialized in handling cargos of a particular kind, for instance, the port in Primorsk. Once the sector of bulk cargos is being analysed, it can be observed that the biggest proportion of the bulk cargos handled is at the Freeport of Riga, meaning that it forms 23.3 % of all the cargos (figure 4). Figure 6. Proportion of liquid cargoes in the ports of Baltic This proportion is mainly due to the coal cargos handled. The Sea region, 2011 [15] port of Klaipeda handled 16.9% of all the bulk cargos handled in the region of Baltic Sea. The dominant kind of bulk cargos In order to calculate the HHI, the authors have chosen were the cargos of fertilizers. the big Latvian ports; the following Russian ports – Saint Petersburg, Primorsk, Ust-luga, Viborg, Visotsk; as well as the Butinge oil terminal in Lithuania and the port of Tallinn in Estonia. In order to make the necessary calculations, the proportion of the liquid bulk cargos in 2011 has been taken as an example. The proportion of the liquid bulk cargos of all the ports mentioned above have been squared, therefore creating a formula (1.6.):

N 2 2 2 2 2 2 H = ∑sR, j + sV, j + sL,j + sSt.P, j + sP, j + sU, j + j=1 (1.6) (1.6) Figure 4 Proportion of bulk cargoes in the ports of Baltic 2 2 2 2 2 Sea region, 2011 [15] + sVb, j + sVs, j + sK, j + sB, j + sT, j, where: where: Once the segment of general cargos is being analysed, it sR,j , sV,j , sL,j , sSt.P,j , sP,j, sU,j, sVb,j, sVs,j sK,j, sB,j, sT,j = can be seen that the port of Saint Petersburg is the leader. This sRmarket,j , sV,j , sharesL,j , s St.P of, j total, sP,j, s handledU,j, sVb,j , liquidsVs,j sK , cargoesj, sB,j, sT ,j in = market ports of port handles the biggest amount of container cargos in the sharechosen of Baltic total handledSea region liquid ports cargoes (Freeport in portsof Riga, of Freeport chosen Baltic Sea (figure 5). In 2011, the port of Riga only formed Balticof Ventspils, Sea region port of ports Liepaja, (Freeport port of of St. Riga, Petersburg, Freeport port of of 7 % out of the total amount of the general cargos. Ventspils,Primorsk, port port ofof Liepaja,Ust-luga, port port of of St. Viborg, Petersburg, port of portVisock, of Primorsk,port of Klaipeda, port of Ust-luga, Butinge oil port terminal of Viborg, and port port of of Tallinn Visock, ); Figure 7. Herfindahl-Hirschman Index in Baltic ports, 2010 - 2011 portN = of number Klaipeda, of ports; Butinge oil terminal and port of Tallin); j = liquid cargoes; N = number of ports; Due to the fact that the port of Ust-luga has involved in the j =H liquid= concentration cargoes; degree of liquid cargoes. Calculations in example are made for year 2011: handling the liquid bulk cargos, the level of concentration H = concentration degree of liquid cargoes. in the sector of liquid bulk cargos has definitely decreased. CalculationsH in example are made for year 2011: = Meanwhile, the level of concentration in the sector of (0.0846)2+(0.0032)2+(0.0428)2+(0.0889)2+(0.4244)2+(0.03 general cargos can be estimated as average. However, there 2 2 2 2 2 H66) = 2+(0.0004 (0.0846)2)+(0.0577)+(0.0032) 2+(0.0428) +(0.0623)+(0.0889)2 +(0.0505)+(0.4244)2 +(0.1486)+ 2 is a strong tendency for it to increase which is related to the (0.0366)= 0.2302+(0.0004 2)+(0.0577)2 + (0.0623)2 + (0.0505)2 + fact that the port of Saint Petersburg holds a high +(0.1486)Herfindahl2 = 0.230 – Hirschman Index has been calculated using proportion in the sector of the general cargos (up to 52%). Herfindahlformula (1.7.) – Hirschman Index has been calculated using The authors of this research believe that the level of concentration in the sectors of bulk cargos and general formula (1.7.)⎛ 1 ⎞ Figure 5. Proportion of general cargoes in the ports of ⎜H − ⎟ cargos will continue to increase in the future taking into ⎝ N ⎠ consideration that there are strong leaders among the ports. Baltic Sea region, 2011 [15] HHI = 1  , (1.7) H − 1 However, authors predict an index decrease in the sector of  1N−  , (1.7) liquid bulk cargos since the port of Ust-luga has presented The port of Primorsk is the dominant one in the sector oil HHI = 1 N itself as a competitive market player (it could be anticipated liquid bulk cargos. This port has specialized in handling the 1− where: N that it will only increase its turnover in the following liquid bulk cargos, meaning mainly oil products. In 2011, the where:HHI = Herfindahl – Hirschman Index; years). In order for Latvian ports to not lose its port of Primorsk handled 41% of the entire amount of liquid HHI0≤HHI≤1; = Herfindahl – Hirschman Index; competitiveness among the ports of the Eastern shore of the bulk cargos in the Baltic Sea region (figure 6). In 2011, the N = number of ports; 0≤HHI≤1; Baltic Sea, they need actively use their advantages listed H = concentration degree of liquid cargoes. below: The result is that concentration degree of liquid cargoes in 114 • multifunctional technical equipment which allows chosen Baltic Sea region ports is: to handle different types of cargos; • well developed transport infrastructure; 1 0.230 – • attending of the ships regardless of the weather 11 conditions; = 0.153 1 • territory for further development; 1– 11 • excellent preconditions in order to develop an industrial and distributional park; • Geographical advantage of providing the shortest

road to Russia (according to Loyd’s List Register Once the HHI has been analysed, the authors came to publications). conclusion that the concentration level of the bulk cargos is • another geographical advantage of no need to average. In 2011, it has increased a little bit, taking into cross any other transit countries (such as Belarus or consideration that the ports of Riga, Ventspils, Klaipeda Ukraine) and Ust-luga have increased their turnover of the bulk • cargos; however the ports of Tallinn and Saint Petersburg There is a work in process regarding the have decreased their amounts of bulk cargos (figure 7). development of new container trains. Currently there are several operating container trains in such connections as Riga – , Scandinavia – Ukraine, a container train operating from another city in Latvia, namely Rezekne. In 2008, the first test container train was launched from the boarder of China (the station of Dostik). Although it was just a test ride, which was not followed by regular cargo shipment, it was however a message that the transit corridor of Latvia would be able to take on this kind of a task. • There is a united railroad system with the NVS countries, including united invoicing system, the same kind ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 N = number of ports; other transit countries (such as Belarus or Ukraine) H = concentration degree of liquid cargoes. • There is a work in process regarding the development The result is that concentration degree of liquid cargoes in of new container trains. Currently there are several chosen Baltic Sea region ports is: operating container trains in such connections as 1 Riga – Moscow, Scandinavia – Ukraine, a container 0.230 – train operating from another city in Latvia, namely 11 = 0.153 . 1 Rezekne. In 2008, the first test container train was 1– 11 launched from the boarder of China (the station of Dostik). Although it was just a test ride, which was not Once the HHI has been analysed, the authors came to followed by regular cargo shipment, it was however conclusion that the concentration level of the bulk cargos a message that the transit corridor of Latvia would be is average. In 2011, it has increased a little bit, taking into able to take on this kind of a task. consideration that the ports of Riga, Ventspils, Klaipeda and • There is a united railroad system with the NVS Ust-luga have increased their turnover of the bulk cargos; countries, including united invoicing system, the same however the ports of Tallinn and Saint Petersburg have kind of rolling stock for trains and united way handling decreased their amounts of bulk cargos (figure 7). the information. Up to the current day the state, as well as the private sector have failed to attract the cargo flow (especially, containerized cargos and automobile-building cargos) and the investments from the West in a coordinated and aggressive way. Regardless of the increase in the amount of cargos handled in the ports in Latvia, it is necessary to find new solutions, in order to use the full capacity of the advantages of the geopolitical location and the multimodal logistic infrastructure. It needs to be done in a way that would maximize the macro economical effect of the industry. Therefore it is necessary to significantly increase the amount additional value of the cargos handled Figure 7. Herfindahl-Hirschman Index in Baltic ports, 2010–2011 by the industry of logistics in Latvia. In order to do so, it is necessary to concentrate on the formerly mentioned, as well Due to the fact that the port of Ust-luga has involved in as on other qualitative cargos. These kinds of cargos have the handling the liquid bulk cargos, the level of concentration the potential to create new jobs and specialized services, in the sector of liquid bulk cargos has definitely decreased. therefore augment the development of the entire industry Meanwhile, the level of concentration in the sector of general from specializing in transit to specializing in logistics. While cargos can be estimated as average. However, there is a strong taking in consideration the close interaction of the processes tendency for it to increase which is related to the fact that of transport and logistics with other sectors of economics, it the port of Saint Petersburg holds a high proportion in the is essential to tailor integrates solutions for two significant sector of the general cargos (up to 52%). The authors of this actors of economy, namely, the exporting manufacturers and research believe that the level of concentration in the sectors strategic importers (for instance, optimizing/ consolidating of bulk cargos and general cargos will continue to increase deliveries of raw materials for industries and deliveries in the future taking into consideration that there are strong of completing details). Therefore, the costs of logistics leaders among the ports. However, authors predict an index component would be decreased and it would strengthen the decrease in the sector of liquid bulk cargos since the port of economy. Ust-luga has presented itself as a competitive market player In order to increase the involvement of the cargos to the (it could be anticipated that it will only increase its turnover Latvian transport market and to provide services with higher in the following years). In order for Latvian ports to not lose additional value, it is essential to take the following steps into its competitiveness among the ports of the Eastern shore of consideration: the Baltic Sea, they need actively use their advantages listed • find solutions regarding the matter of the providing below: the rolling stock, taking into consideration the changes • multifunctional technical equipment which allows to occurring in the common infrastructure of wagons in handle different types of cargos; the Baltic and NV states. • well developed transport infrastructure; • advance a regular movement of the cargo trains • attending of the ships regardless of the weather (mainly container trains) in the several closed routes conditions; with Russia and other NVS countries (it would also • territory for further development; provide guaranteed wagon availability). • excellent preconditions in order to develop an industrial • provide capacity reserve, in order to be able to handle and distributional park; the existing cargos and also to be able to handle the • Geographical advantage of providing the shortest possible extra cargos (meaning mainly container road to Russia (according to Loyd’s List Register cargos). publications). • it is significant to put all the administrative procedures • another geographical advantage of no need to cross any in order.

115 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 In order to achieve the formerly set goals, it is essential as Terehova and Zilupe). It is significant to provide the to provide a centralized and coordinated corporation (as reconstruction of the port infrastructure (as well as building well as communication) with cargo owners, investors new infrastructure) so it could meet the needs of demand of and international logistics enterprises, all of which would TEN-T network port. It is essential to support the increase potentially be interested in cooperation. This interaction of the overland route capacity, as well as to further the cargo should happen on both levels, meaning on the level of operation diversion from populated territories in order to reaction when there are actual incoming requests; but also decrease traffic jams, increase the environmental conditions on the level of being proactive when it is necessary to carry and safety. Latvian ports have been developed as a part of out a process of aggressive cargo draw in. It is necessary to united transport logistics chain connection between Baltic provide the industry of logistics a united image by organizing Sea and other EU countries, NVS countries, Asia and USA. aligned international marketing activities (participation in The main aim is to develop the national economy and to international expos, trade mission, road shows, during the provide the outside trade using seas while fully utilizing the official visits of government representatives, creating aligned advantages of the Latvian ports. Another goal is to increase marketing materials and exhibition booths etc.). Additionally the amount of export services provided, again utilizing the it would require carrying out the “super – forwarder” function, existing transportation infrastructure (and developing new including the development of multimodal and integrated one) and to further regional development. offers of logistics industry and delivery chains in order to Conclusions draw in strategic cargos and investments. The fragmented approach has proved to be ineffective since the private 1. The organizational structure, location and offered sector or the governmental logistics actors by themselves are services vary from port to port. The combination of unable to achieve such goals as, for instance, the draw in of these factors makes every port unique, therefore it is NATO multimodal reverse cargos; supply for the automobile- far from being an easy task to measure and analyze the building industry in Russia; development of automobile- port performance efficiency according to one specific building operations; container shipments between Baltic Sea standard. and the ; the draw in of internationally recognized 2. The turnover of Latvian big ports within the time port terminal operators or the draw in of avio-cargos). It is period of 2004 – 2011 has increased. The turnover of significant to create and develop the cooperation with Russia, the Freeport of Riga has increased for 29.5% (equals the countries of NVS and Central Asia, as well as the foreign 34.05 million tonns); the turnover of the Freeport of companies which have manufacturing plants located in these Ventspils has increased for 2.3% (equals 28.45 million countries which makes the delivery of goods from/to Europe tonns) and the turnover of the port of Liepaja has and USA an important matter to these companies. It is also increased for 8% (equals 4.86 million tons). fundamental to expand the cooperation with Russia and the 3. The dominant type of cargos is bulk cargos. The coal countries of NVS and Central Asia in order to develop the bulk cargos form 29 %, but the chemical bulk cargos sector continental railroad container shipments.The goal of form 7% of the entire amount of bulk cargos. The the ports in Latvia is to hold the leader position in the region of second largest group is liquid bulk cargos. Oil products Baltic Sea countries by maintaining the existing cargo flows, form the majority of these types of cargos going up as well as drawing in new cargo flows setting the cargos with as much as 32% of all the liquid bulk cargos. The high additional value as apriority (container cargos, ro-ro etc). amount of TEU increases for approximately 20% a The same kind of the increase in the amounts of cargos year. The most important contribution to the increase handled is predicted by several international researchers. For of container cargos is given by the port of Riga which instance, as a part of TEN – T policy, the international research handles 96 % of all the container cargos handled in the organization NEA anticipates that by 2030 the amount of Latvian ports. cargos handled in the ports of Baltic region (namely ports of 4. Latvian ports have a high concentration level (HH Latvia, Lithuania, Estonia and Poland) will reach 287 million index) in all the groups of cargos, which means that tonnes of cargos (in comparison it was 179 million tonns in the majority of cargo handling is being concentrated 2008) [9,59]. This prognosis has been stated in their research in the three big ports. The level of concentration is „Ports and their connections within the TEN-T”. Several not expected to change since the big ports have been similar prognoses have been stated in the frames of Northern market leaders for a long period of time, but the small Dimension, where the opinions of Belarus and Russia were ports do not have the capacity for a rapid increase of taking into consideration. a turnover. Once the cargo turnover of the years of 1996 and 2011 The big Latvian ports have not experience a sharp decrease is being compared in the ports of Latvia, it can be seen that in their turnovers. However, the other ports in the Baltic Sea the turnover has increased by 52.8%. According to this region have gone through this kind of decrease. The port prognosis, it is being planned that by 2020 the cargo turnover of Klaipeda in Lithuania and the port of Tallinn in Estonia in the ports of Latvia could reach 100 million tons, since experience a decrease of approximately 10 – 20% a year. the annual increase of 5% indicates that if in 2011 the cargo In 2007, the ports in Estonia experienced a severe decrease turnover reached 68 million tons then by 2020 it should be in amount of cargos handled. It was related to the so called 105 million tons. In order to accomplish this kind of turnover, “scandal of the bronze soldier” when Russia completely it is necessary to be able to provide corresponding quality stopped its coal and oil transit via the ports in Estonia. and capacity of motoroads and railroads, as well it is crucial Meanwhile, Latvia managed to attract considerable amount to increase the capacity at the border crossing points (such of these cargos to its transit corridor. 116 ISSN 1822–8402 EUROPEAN INTEGRATION STUDIES. 2013. No. 7 References Parmenter, D. (2007) “Key Performance Indicators, Developing, implementing and using winning KPIs”, Bichou K. (2006) “Review of port performance approaches New Jersey, USA, p.1. and a supply chain framework to port performance benchmarking”, Research in Transportation Economics, Talley W. K. 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