Economic Importance Of Port Spans Supply Chain

Economic Importance Of Port Spans Supply Chain

 

An increasing number of ports are carrying out socio-economic impact studies to assess the contribution of ports to the economy. The results of these studies not only help to positively improve the perception of port stakeholders but also prove the relevance of port activity as a strategic industry for the economic development of the hinterland -regions and countries-, especially since maritime transport is increasingly essential to the internationalization of our economies and thus serves to enhance the efficiency and sustainability of world trade.

However, economic impact studies might not be enough to assess the relevance of a port beyond its boundaries, when the fact is that the economic importance of a port spans the entire supply chain, from the entry of a ship in the port to the consumer market[1]. Has anyone ever wondered what would happen if a port ceased to exist? What would the impact be at a regional, national or European level?  What impact would there be on the competitiveness of the industrial and commercial sectors of an economy?

In the case of the Port of Barcelona, a complementary study was carried out to the economic impact study (added value and employment generated by port service providers), to determine the impact of substituting the port in order to establish the benefits from the existence of the port on the regional economy (from the perspective of customers, importers and exporters)[2].

Graph 1: example for import flows

Graph 1 example for import flows

In order to measure these benefits, which in fact respond to ‘the contribution of the port to the competitiveness of the regional economy’, a field study was launched involving 560 customers (shippers).

  • A questionnaire was prepared in order to determine the extent to which the production and distribution processes of our customers depend on services rendered by the Port of Barcelona.
  • In order to achieve this and also for methodological reasons, we asked our customers to respond under a hypothetical scenario whereby the port had ceased to exist or where port congestion had increased to such a point that port activity was effectively paralyzed.
  • Faced with such a scenario of port substitution, two impact ‘vectors’ were defined. The sum of these impact vectors are defined as the cost of port substitution, which in positive terms would be the benefit perceived by customers:

1.      The increase of logistics’ costs to shippers (importers and exporters) either to substitute the port or change the mode of transport = positive reading of vector 1 would be the cost savings of using transport chains connected with the port (land connectivity)

 2.    Sales reduction caused by two factors

2.1 If shippers were to transfer the increased logistics’ costs involved in substituting the port to their prices

2.2 Negative impacts on customer market position. For instance, the substitution of the port might increase lead times or time to market, and also have a negative effect on service quality and brand image

A positive reading of vector 2 would be the real sales made by shippers due to improving their market position as a consequence of port of Barcelona services compared with other ports or alternatives. In this sense, two principal factors were rated by customers:

a. Delivery time reliability and b. Maritime service connectivity, which provide shippers with uninterrupted continuity in their supply chains, including penetration into new markets

Picture 2 port of Barcelona

The final outcome is that the existence of the port represents an improvement in customer competitiveness to the value of 12.105M€, which equals an average of 11% of customer turnover.

Graph 2: dependency on the port

Graph 2 dependency on the port

The results show that the contribution of the port to regional competitiveness is mainly based on facilitating market sales to our industrial sectors, importers and exporters: 85% of the total benefit comes from an increase in sales and the remaining 15% from savings in logistics’ costs (mainly land transport).

In addition to the micro level impact, a simulation exercise was carried out at a macro level by adding these results into the regional input-output model, where the port is included as an individual sector. In so doing, the impact on the regional economy of the existence of the port was estimated both in terms of GAV and employment.

Graph 3 presents the findings together with the results obtained on the economic impact of the port. The final outcome shows the overall economic importance of the Port of Barcelona both from the supply side – port cluster service providers – and the demand side – benefits to shippers-

Picture 4 port of Barcelona

Graph 3: regional economic importance of the port of Barcelona

direct_effects

  • The overall conclusion is that the benefits to regional industry (port demand) as a result of the existence of the Port are significantly superior to the economic impact of port service providers: port service contribution represents 0,9% of regional GAV and the benefit to regional industry (importers and exporters) is three times greater, representing 2,8% of regional GAV and the same applies to employment and production. In short, the economic importance of the Port represents, direct effects, the 3,7% on regional GAV and 3,1% on employment.
  • These results also show that “the port value generation” – like many other ports- goes far beyond its boundaries, spanning the entire supply chain.  Whatever happens at any step in the supply chain involving the port has a far reaching effect on customer competitiveness and therefore also on the economic development of the hinterland.

 

Maria Dolors Lloveras

Port Authority of Barcelona

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