FUNDAMENTALS OF PORT PRICING AND EXPANSION

This study is dedicated to the proposition that there has been considerable cart-before-horse-putting in the port analysis business. Rather, analysis has concentrated on the development of highly detailed simulation models for revealing the effect of specific individual investments or operating alternatives on the port's day-to-day operating characteristics. The question of whether the resulting change is consistent with the port's overall objective is generally not addressed or considered only in the context of the port's present pricing policies. This concentration on a variety of subproblems while ducking a basic issue is in part a consequence of the fact that ports almost never make explicit their objective. Indeed, for the most part they are almost certainly unaware of the possibility and value of so doing. One objective of this study is to demonstrate the kind of insight which can be obtained from postulating an explicit objective function. Analysts have not given port managers the insight into their pricing and expansion decisions--and the coupling between these decisions--that the importance of these decisions deserves. This paper is an attempt to develop this insight and exhibit this coupling in the context of a simple model of port development. Three by-products of this analysis in order of increasing importance are: 1) An introduction to dynamic programming for port investment. 2) Demonstration of how the port manager can analyze his decisions without resorting to direct evaluation of benefits which accrue to economic entities outside the port. That is, why can't I figure out what I should do like any other business? 3) Demonstration that, uncertainties aside, not only does marginal cost pricing not necessarily lead to deficits but that, coupled with an efficient expansion policy, it necessarily implies that each investment will just pay for itself over its life.

• Corporate Authors:

  Massachusetts Institute of Technology

  Department of Civil Engineering, 77 Massachusetts Avenue
  Cambridge, MA  United States  02139
• Authors:
  • Devanney III, J W
  • Loon, G K
  • Hock, T G
• Publication Date: 1972-5

Media Info

• Features: References;
• Pagination: 54 p.

Subject/Index Terms

• TRT Terms: Capital investments; Development; Improvements; Port operations; Ports; User charges
• Uncontrolled Terms: Port finance
• Subject Areas: Finance; Marine Transportation; Terminals and Facilities;

Filing Info

• Accession Number: 00041323
• Record Type: Publication
• Source Agency: Massachusetts Institute of Technology
• Report/Paper Numbers: MITCTL 72-4
• Files: TRIS
• Created Date: Mar 2 1973 12:00AM