The Performance of Port Clusters
The Performance of Port Clusters
The Performance of Port Clusters
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Peter W. De Langen
Copenhagen Business School
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Peter W. de Langen·
ABSTRACT
This paper deals with the performance of port clusters. Port clusters are
analyzed using a framework that draws from different schools that deal with
clusters (see De Langen, 2004). Central to the framework is the identification of
eight variables of cluster performance. Four of those-agglomeration and dis-
agglomeration forces, internal competition, heterogeneity of the cluster and the
level of entry and exit barriers-are related to the structure of a cluster and four-
the presence of trust, the presence of intermediaries, the presence of leader firms
and the quality of collective action regimes-are related to the governance of
clusters. The validity of these variables is confirmed in three case studies, of the
port clusters of Rotterdam, Durban, and the lower Mississippi. The strengths and
weaknesses of the three port clusters, the importance of the variables discussed
above and opportunities for policy and management to improve the performance of
clusters are discussed. The results of this study are relevant for cluster scholars
and for scholars specializing in port studies and, since implications of this study
for policy and management in (port) clusters are discussed, the study is also
relevant for (port) cluster managers and for managers affirms in (port) clusters.
I. INTRODUCTION
· Port Economist, Department of Regional, Port and Transport Economics, Erasmus University
Rotterdam P.O. Box 1738 3000 DR Rotterdam, The Netherlands. E-mail: [email protected]
48 PETER W. DE LANGEN
to analyze clusters. Then Part III applies these insights to seaports and Part IV
presents conclusions.
The insights derived from these cluster studies are applied to seaport clusters. The
results of this study are discussed in the following section.
Rarely, has the cluster concept has been applied to seaports. Relevant studies are
those of Haezendock (2001) on the strengths and weaknesses of Antwerp's port
cluster, Van Klink (1995) on the development of port networks, and Slack (1989),
among others, on the location behavior of port service industries. The empirical
research in this study contributes to port studies in a number of ways: the application
of new insights from cluster theories to ports, attention to the issue of governance in
seaports, a comparison between different port clusters, and an analysis of implications
of using the cluster perspective for policy and management in seaports.
The arrival of ships and cargo is central to port clusters. Incoming goods and
ships attract different economic activities that can be distilled into five components.
The first component is cargo handling, comprising all activities necessary to load and
unload ships, such as terminal operators, pilots, towage and mooring. The second
component is transport and includes all firms that facilitate the movement of goods,
such as shipping lines, shipbrokers and trucking firms. The third component is
logistics and includes all activities that add value to the transported products, such as
storage, re-packing and blending. The fourth component consists of a specific set of
manufacturing activities. The most important manufacturing activities are oil refining,
chemicals production and steel plants. The fifth component consists of specific
trading companies. Trade activities related to commodities that are frequently stored
50 PETER W. DE LANGEN
in ports (such as oil and grain) are included in the port cluster.
The case studies-Rotterdam, Durban and the Lower Mississippi port cluster
(LMPC)-have been selected because: they are the largest ports on their respective
continents; they have a large gateway function; and they are important clusters in
their particular region. The empirical results are based on desk research, interviews
and a survey. In each port cluster, a list of port experts was made, and these experts
were asked to participate, by making time for an interview and answering a set of
survey questions. These survey questions were answered during the interview, so that
questions and answers could be explained. Forty-three experts participated in
Rotterdam, thirty-four in Durban and thirty-one in the LMPC. This is over four-fifths
of all selected port experts, so the results from the survey and interviews are reliable.
The survey questions address the validity of the variables, the importance of the
variables, and the 'score' of each port cluster compared to a competing port cluster,
for each variable. Rotterdam is compared with Antwerp and Hamburg; Durban with
Richard's Bay and the LMPC with Houston. For all survey results, tests of statistical
significance have been made.
As a first step of the case study research, the size of the three port clusters is
analyzed. The available firm data in Rotterdam led to a small overestimation of the
number of firms, since legal or fiscal ventures are included. Based on these data,
Rotterdam's port cluster encompasses about 3,560 firms, 36% of which is active in
transport and 45% in logistics. The number of manufacturing fums is limited (about
90) but they generate a substantial part of all value added in the cluster. The relevant
cluster region consists of sixteen municipalities, of which Rotterdam and Dordrecht
are the most important ones. In Durban, firm data are lacking, so the cluster
population is identified on the basis of expert opinions and the Yellow Pages
directory. This leads to a minor underestimation of the size of the cluster. Durban's
port cluster consists of about 680 firms, to a large extent transport firms (48%). The
relevant region consists of six municipalities, of which Durban is by far the most
important. The Lower Mississippi Port Cluster (LMPC) can be defmed very precisely.
The cluster consists of 1,168 firms. Transport is dominant and trade relatively well
represented (16%). The cluster region comprises twelve municipalities.
As the second part of the case studies research, the validity of the various variables
is tested and the influence of the variables is further analyzed. The main results are
given below, without presenting the underlying analysis of the survey results. These
can be found in De Langen (2004).
Agglomeration Economies
wage level in Rotterdam offsets the presence of labor. Congestion in seaports is not
regarded as a force opposing agglomeration, but towards the dispersion of port
activities away from the port. This also holds for high land prices. Thus,
agglomeration economies dominate.
In all three cases, the port cluster would benefit from more establishments in
logistics, manufacturing and trade. These activities cannot be attracted with only
traditional location factors, such as accessibility and land availability. The two most
important 'new' location factors for port clusters are 'the quality of life' in a port
region, and the presence of a good knowledge infrastructure. Reducing the negative
effects of transport flows, for instance by creating dedicated solutions for freight road
transport, can enhance the quality of life. Furthermore, the redevelopment of old port
areas is an opportunity to improve the quality of life.
The knowledge infrastructure increases the attractiveness of the port city for firms
that employ high-skilled people. The knowledge requirement differs per port: in
Rotterdam, petro-chemical knowledge infrastructure would fit, whereas in the LMPC
and Durban, a logistics knowledge base would fit better.
Internal Competition
Cluster Barriers
The presence of barriers to entry or barriers to exit limits the performance of port
clusters. The most relevant entry barrier is the inaccessibility of knowledge and
52 PETER W. DE LANGEN
networks. The unavailability of 'local capital' is an entry barrier in Durban and the
LMPC, but not in Rotterdam. The only relevant exit barrier is unrecoverable 'port
specific investments' . This fmding suggests a strategy to 'tie' frrms to the cluster does
not contribute to performance; rather, exit barriers should be reduced, for instance by
leasing assets to frrms in the port cluster.
The level of specific investments that have to be made depends on the possibilities
to develop arrangements where specialized actors (including the port authority) make
specific, long-term investments invest in assets that are leased to start-ups and
entrants. Such arrangements include:
• Developing land and infrastructure and leasing this to the private sector. This
activity is widely regarded as the primary role of port authorities, and
essentially is nothing more than making specific investments to lower entry
barriers for private frrms. This policy is common practice in the port industry
and is done in Rotterdam, the LMPC and Durban.
• Investing in specific assets, such as cranes, warehouses and special cargo
facilities. These investments imply port authorities invest in the 'tool' and lease
these to the private sector. This strategy leads to a reduction of entry barriers
and can improve the performance of the port cluster. The port authorities in the
LMPC and Rotterdam make such investments.
• The provision of office space in the port area for port related small and
medium-sized enterprises (SMEs). 'Micro-clustering' of these frrms in the same
area has advantages, such as the presence of knowledge and networks. For these
reason, port authorities can invest in a self-sustaining provider of office space
for port related SMEs. Such an involvement is only valuable when the provision
of adequate office space by the market is not effective, for instance because real
estate investors are not willing to make initial investments. Rotterdam is the
only one of the three ports where the port authority is involved in providing
office space.
Trust
I ntermedwries
Leader Firms
Leader firms are firms with the ability and incentives to make investments with
benefits for other firms in the cluster. Leader firms generally have a good market
position, an international scope and innovative capabilities. The presence of such
firms in a cluster contributes to its performance. Rotterdam is endowed with relatively
many leader firms, but the same is true for its competitors Antwerp and Hamburg.
54 PETER W. DE LANGEN
Durban has more leader firms than Richard's Bay, the LMPC lags behind Houston in
this respect.
Collective action regimes are required because individual fmns tend to 'free ride'
and consequently under invest in projects with collective benefits. This problem is
relevant for investments in training and education, marketing, innovation, and
hinterland access . All these regimes are important for the performance of port
clusters. The following conclusions with regard to the quality of these regimes can be
drawn:
• The hinterland access regime in Rotterdam is better than this regime in the
LMPC and Durban . This is explained by the involvement of public
organizations (especially the port authority) and leader fmns in this regime (see
De Langen and Chouly, 2003).
• The marketing and promotion regime in Durban is not effective, both
governments and private fmns are unwilling to contribute to the quality of the
regime. In the LMPC, this regime depends largely on public actors, whereas in
Rotterdam a good public-private arrangement has been created.
• The training and education regime is especially bad in the LMPC, leader fmn
involvement is lacking in this cluster. The regime is good in Rotterdam, because
of the role of leader fmns and the effective organizational infrastructure.
• The innovation regime is modest in all three ports, in Rotterdam because there
is no 'community spirit'. The internationalization regime is also modest in all
three cases.
• Leader fmn involvement is an advantage for Rotterdam 'across the board'.
THE PERFORMANCE OF PORT CLUSTERS 55
All fifteen regimes that have been analyzed have shortcomings. Experts have
. indicated opportunities for improving all regimes. Table 3 shows the most frequently
encountered opportunities to improve the regimes.
Regime Opportunity
IV. CONCLUSIONS
This paper has presented the results of applying cluster theories to ports. It was
shown that existing cluster theories yield many relevant insights that can fruitfully be
applied to ports. A framework in which the most relevant insights are incorporated
was presented. Furthermore, it was argued that ports are indeed cluster of economic
activities related to the arrival of cargo and ships in seaports.
Finally, the results of analyzing the effects of the various relevant variables of the
cluster's performance were presented, and implications for port management
discussed. These implications for port managers are manifold and provide an
interesting area for further research.
REFERENCES