Terminal pricing decisions of the port authority and the global terminal operator of the competing ports in Sri Lanka

Abstract

This study analysed competition at port and terminal levels resulting from the involvement of a port authority, Sri Lanka Port Authority (SLPA), and a Global Terminal Operator, China Merchant Port Holdings (CMPH), in the Colombo and Hambantota ports. It also considered the operators’ disparate interests in the two ports. The terminals’ pricing decisions of SLPA and CMPH were analysed taking into account the cooperation among the terminals in one port and the terminals owned by the same Global Terminal Operator and the competition from their different ownership types. Results revealed significantly different pricing decisions attributable to seven possible objectives of the SLPA along with profit and demand maximisation objectives of CMPH. Findings suggest that, if the SLPA reduces the terminal price charged by the Colombo International Container Terminal operated by the CMPH, the latter would behave as a “free rider”. Moreover, both the SLPA and CMPH would try to balance their interests in both ports, especially with their profit maximisation objective, which would result in less profits for both Colombo and Hambantota ports. The demand maximisation objective of CMPH would reduce charges at its terminals as opposed to its profit maximisation objective. Colombo Port would receive higher demand if the SLPA focuses on user surplus maximisation.

Keywords

• terminal pricing
• global terminal operator
• port authority
• competition
• port-level
• terminal-level