Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by Professor Richard Goss (P 02)

  I understand from a press release that the Sub-Committee is enquiring into UK ports and has invited written evidence. As I have written extensively on the subject I see no point in repeating myself: rather, I shall bring out the salient points and give a few references.

  A historical survey of the subject in recent years is available in my paper: "British ports policies since WWII", Journal of Transport Economics & Policy, Volume 32, Pt 1, January 1998.

  Britain is currently suffering from the uneven and confused nature of the privatisation measures of the previous government. They were uneven because privatisation was applied to some ports and not to others. They were confused because of the failure to distinguish between the public sector functions of a port authority and the activities carried on within the port. The former (which are equivalent to those of a town council) should be in the public sector: the latter are more suitable for the private sector, provided that adequate competition can be maintained. I have covered the subject in the "Are port authorities necessary?" the third of a series of four papers under the general title "Economic Policy and Seaports" in Maritime Policy and Management, Volume 17, Nos 3 and 4, 1990. There are many countries which have reformed their ports in recent years, often by introducing measures of privatisation. However, apart from New Zealand, no other country has privatised the port authorities themselves.

  Most seaports, in Britain and elsewhere, occupy valuable sites. That, indeed, is the reason for their location. Valuable sites are, by definition, capable of generating economic rents, or surpluses. It is therefore important to consider who gets these rents. In the past it is clear that they have been acquired by parties on the supply side, whether as employers or employees. Whatever the reasons for establishing it in the first place, the former Dock Labour Scheme came to provide substantial opportunities for combining high wage-bills with low productivity, whilst restricting entry. More recently, privatisation has provided quite different opportunities, eg for the directors of the recipient companies to enrich themselves by securing the capitalised value of economic rents.

  It is therefore important for the Sub-Committee to consider the destination of the economic rents of UK seaports. In this, they will wish to distinguish economic from contractual rents, and to appreciate that economic rents are not to be found in published accounts. I suggest that the most appropriate destinations are the original producers of the exports and the ultimate consumers of the imports that they handle, for these are the ports' true consumers. In short, the rents should go to the demand side and all necessary steps should be taken to prevent their being intercepted. The Sub-Committee should not, therefore, be distracted from this objective by statements from intermediaries, or their trade associations, on the supply side. The subject has been covered in my paper: "On the distribution of economic rents from seaports", International Journal of Maritime Economics, Volume 1, No 1, January to March 1999, where the various possibilities are set out and their implications discussed.

  The size of economic rents will, of course, be affected by the level of competition but the recent records of British ports shows that, despite fairly good inland connections, they can be substantial. This is confirmed by the retention, in most British ports, of charging systems which are not related either to the specific facilities used by the ship being charged, nor to the length of time for which it uses them. In other words, the charges paid by a particular ship are not related to the costs incurred by the port in respect of it. The subject has been covered in the Report of the Committee of Inquiry into Shipping (Rochdale Report), Cmnd 4337, 1970, Ch 11, especially at paragraphs 632-638, most of which I wrote in my capacity as Economic Advisor to that committee. As far as I know, every UK port has ignored those recommendations. This continued use of arbitrary charges, based on broad averages, confirms their monopolistic positions and their ability to extract rents. Naturally, the extraction of rents occurs mainly in the private sector.

  The Sub-Committee may care to note that, although there are a large number of ports in Britain, most of them have advantages of specialisation, location or facilities, and also that competition between them is limited by common ownership. Examples abound and the Sub-Committee will easily find them. I would merely draw attention to two areas.

  All the ports in South Wales, and all those on the Humber, are owned by Associated British Ports (ABP). ABP suppress all information on the profits made in their various ports by consolidating them into one account. Various of their officials, in various places, attempt to defend this practice by suggesting that publishing results for individual ports would be like expecting Marks and Spencer to publish results for individual stores. The Sub-Committee will appreciate the fallacy: individual stores have competitors in the immediate vicinity and seaports do not. At present, the interested citizen, or town councillor, of such a port as Southampton has no way of finding out whether the port which forms the centre of his town is a financial success or not. The Department of Transport has, in the context of Trust Ports, suggested a fuller form of reporting aimed at overcoming this and, further, that this should be applied to all ports: but I am not aware that any progress has been made. If it is to be made then it will require much more determination than their officials generally show when facing such vested interests.

  The best way to secure efficiency in British ports, and to ensure that is benefits are passed on to their consumers, as defined above, is through competition. By keeping prices and costs down, this will ensure that the economic rents of British ports are not intercepted by anyone on the supply side. For the reasons discussed above, we do not currently have enough competition, neither between our ports nor within them. The Sub-Committee may, therefore wish to explore ways of increasing competition so that more of the economic rents may be distributed to the original producers of the exports and the ultimate consumers of the imports passing through them.

Richard Goss

Professor Emeritus

3 January 2001

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 26 July 2001