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Getting in with the neighbours

Various potential mergers between neighbouring port authorities have recently been in the news and the experiences of the newly-paired ports have in virtually all cases been positive.

In Scandinavia, a second cross-border merger (after the Copenhagen-Malmo merger), between the Swedish and Finnish ports of Umea and Vaasa was concluded this summer. Two Ligurian ports, Savona and Genova have openly discussed the pros and cons of pairing off. On the US west coast, the Los Angeles 2020 Commission stated the obvious: a merger between the ports of LA and Long Beach would be sensible. Political sensitivities, however, have prevented that from happening. And then, in Western Australian ports were merged in 2014.

These cases, as well as earlier ones, show that for government-owned port authorities a ‘bottom-up process’ whereby local port authorities decide to explore the benefits of merging is the exception (the Scandinavian cases). A top-down state policy often drives merger initiatives, such as in Italy, Greece, Western Australia, Spain and Portugal. This is in contrast with fully private ports in the UK, where partly due to mergers and acquisitions, the largest port companies manage various ports.

The upsides of the mergers are that operating costs are reduced and investment decisions rationalised. The reduction in operating costs is directly beneficial for all stakeholders; turning operating costs into investments creates value for the whole port.

However, as employee and management commitment is a key prerequisite for a successful merger, the outcomes of top-down merger processes are likely to be less positive than those of bottom-up merger processes. Thus, national policies that enable and potentially even incentivise mergers may be better than outright top-down decisions.

A key step in this respect would be to treat port development for what it is: a commercial activity. If it is undertaken by a government-owned port authority (and there may be legitimate reasons to opt for government ownership), that port authority should be treated and governed as a commercial undertaking, without political interference in decision making.

Within such a framework, one would think senior port managers would see value in visiting their colleagues from nearby ports with an open mind on ways to jointly create value for port users. The logical outcome of this would surely be more beneficial mergers.