Analysis of Cost Optimization of Port Operation
CHAPTER ONE
Objectives of the study
The broad objective of the study is the analysis of optimum cost of port operations. The specific objectives include:
- Determination of the minimum cost of port operations.
- Determination of the optimality range of cost variability.
- Determination of the optimality range of resource variability.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CONCEPTUAL FRAMEWORK OF THE STUDY
The Concept of Seaports
A seaport can be considered as a single or multi-product organizational unit that provides services to ships, passengers and cargoes. Seaport activities are characterized by the following elements:
- Infrastructure provision
- Services provided by the former, and
- Co-ordination between the different activities performed at ports (Trujillo and Numbela, 1999).
More elaborately, the European Parliament (1993) defines the port as a complex of berths, docks and adjacent land where ships and cargoes are served. Access to this land is through maritime access infrastructure and land access infrastructure. The maritime access infrastructure includes channels, locks, aid to navigation etc. while land access infrastructure relates to roads, rail network and inland navigation. Apart from the access infrastructure, the area where seaport activities take place encloses both the infrastructure within the port (berths, quays, docks, storage yards etc.) and the superstructure. The superstructure consists of fixed assets built on the infrastructure (sheds, fuel tanks, office buildings etc.) and fixed and mobile equipment (cranes, van carriers, transtainers etc.). These infrastructures are deployed at the port to provide port service.
Types of Services Provided at the Ports
Besides the provision of basic infrastructure for the transfer of goods and passengers between sea and land, there are multiple services provided by different agents at the port, some of whom may even work outside the port area. These services cover all activities linked to the connection between port users and port, from the moment that a ship approaches a port until it ends all its operations. During this period, some services are provided to the ship (like berthing, pilotage, towing and tying), some to port users, some to ship’s crew and others related to cargo discharge or loading. Port services provided to port users are those related to administrative paperwork and permits (e.g. Ship Entry Notice- SEN, Import/Export documentation etc.). These are usually undertaken by ‘clearing agents’ on behalf of consignees. Thus, port administrators are expected to design and implement streamlined procedures to minimize the burden of paperwork. This is important since delays arising from inefficiency of administrative procedures translate to large economic losses to shippers and shipowners (Trujillo and Nombella, 1993). There are also ancillary services (like supply of bunkers, stores etc.) provided by agents within or outside the port area. In this category, medical services to ship’s crew, cleaning services are included. However, the most important service provided to cargo ships is cargo handling. This encompasses all activities related to the movement of cargoes from and to ships and across port facilities. The process of cargo handling varies according to the type of goods involved. Bulk cargoes are handled using bulk facilities. Similarly, containerized and RoRo shipments require respective specialized facilities since their physical characteristics differ. Differing handling methods also means that rate of cargo handling of different cargoes differs. The trend towards specialization is motivated by the need to maximize cargo handling operation given the physical characteristics of goods involved. Cargo handling is a critical aspect of port activities because according to Trujillo and Nombella (1993), cargo handling charges constitute approximately between 70% and 90% of the total cost involved in moving cargoes through a seaport. Hence, this is one of the services that must be supervised more closely by a regulator in order to achieve cost-efficient port operations.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
The focus of this research is the analysis of cost optimization of port operation. To actualize the objectives of the study, survey research design was adopted to elicit information from the Nigeria’s Ports Authority (NPA) and terminal operating companies in concessioned terminals in Nigeria’s eight coastal ports. The survey approach was necessary since obtaining information for this study entailed using survey questionnaires to obtain data on cargo handling activities and input resources. In this instance, survey questionnaires were administered in order to collect data describing cargo handling outputs and infrastructure facilities deployed for attainment of that purpose in Nigeria’s seaport terminals. However, additional data pre-dating concession era were obtained from NPA. Also, data on factors which affect cost optimization of port operation in Nigeria (supported by those found in empirical literature) were collected during the survey.
Sources of Data
Data required for this study were collected from primary and secondary sources. The primary source of data was through oral interviews administered to some Nigerian Ports Authority (NPA) as well as some employees of renowned shipping lines. Secondary source of data was a survey of existing documents and published materials such as the NPA Simplified Tariff, NPA Handbook, NPA Annual Reports, Current Publication, Journals and from the internet.
Description of the Study Area/Population
The study units consist of cargo handling terminals operated in eight (8) coastal ports in Nigeria. The coastal ports are: Apapa, Port Harcourt, Tincan Island and Container Terminal ports (CTC). Others are: Onne, Calabar, Warri and RoRo ports. Five terminals have been concessioned in Apapa port; namely Terminals ‘A’ to terminal ‘E’. Container Terminal port (CTC) is concessioned. Port Harcourt port has two terminals: terminal ‘A’ and ‘B” Tincan Island port contains four new terminals namely: terminals ‘A’ to ‘C’ and the RoRo terminal. Considering the Eastern ports; Onne port has three terminals carved out of it; which are FLT ‘A’, FLT ‘B’ and FOT ‘A’. Calabar port now has three terminals which include the Old Calabar port and two new terminals ‘A’ and ‘B’. Warri port consists of five terminals namely Warri Old ‘A’, Old ‘B’, Old ‘C’ and Warri New ‘A’ and ‘B’ while RoRo port has only one terminal. There are altogether twenty six terminals so far transferred to private operators which are expected to have invested in facilities utilized in these terminals. Out of the twenty-six terminals transferred to the private operators; ten (10) of the companies managing them are wholly owned by foreign operators though maintaining local leadership while the remaining sixteen terminals are operated by Nigerian operators, see Kruk (2008). The complete list of the ports and terminals surveyed is presented in appendix two (2). Cargo and vessel handling activities at these terminals over the study period would be surveyed for the purpose of evaluating the productivity and efficiency in the port sector.
CHAPTER FOUR
RESULTS AND DISCUSSION
Data Presentation and Description
This study identified the major cost variables in port operations and the constraints militating against them hence developed a linear programming model which was used to provide minimum cost of port operations in Warri port Nigeria. Data in Table 4.1 are ship and port activities and expenses generated which were used in model formulation.
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATION
Summary of Findings and Conclusion
The results reveal that warri port is not optimally operated. Thus, there is an overcharge of price of services of port operations and wastage of the available resources for the decision variable components.
The study further proves that the application of sensitivity or post–optimality analysis on the model reveals the extent to which the cost and the resources can vary while the solution remains optimal. This in essence helps us to achieve the objectives of this research work whose prime is to determine the optimum cost of port operations in Warri port Nigeria.
Recommendations
For effectiveness of port operations in Nigeria as well as providing services at optimum prices for competitiveness, the following recommendation are made:
The port should be operated as an economic unit which it really is. It should therefore make profit, maintain itself and provide reliable and efficient services for the revenue it receives.
The use of mathematical models like linear programming is a very reliable tool for management decision as it makes use of quantitative analysis and provides more reliable outcomes. Establishments other than ports can take advantage of these models.
- The administration of the solution should be a dynamic one as other factors can affect its reliability. Example of this may be a change in the mode of packaging of cargo which can consume a large amount of the available resources.
- Port authorities should strive to maintain the resources and decision variables within the range specified for the solutions to continue to remain optimal.
- Further research should be done in this area to be able to understand and decipher more variables and constraints which can be used to develop more models for use in optimizing cost of port operations in Nigeria
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