However, while this has always been the case, in recent years the landscape has shifted. Factors including the fast-moving context of global trade and increasing requirements in areas like efficiency and throughput are causing government port agencies to focus in on their core capabilities – and seek ways to offload the burden of the other operational capabilities that don’t differentiate them.
This has a couple of implications. In terms of organizing their operations, it makes it vital for agencies to ensure that every single capability is well-defined and demarcated within specific boundaries, with a clear view of who owns the capability, where it starts, how long it lasts and when it ends. Armed with this knowledge, agencies can then look at delegating some of their capabilities to private-sector providers using partnership models – one of which is PPP.
…and different forms of PPP
PPP isn’t, however, a single or unique construct. Instead, it takes a spectrum of different forms. The choice of position on that spectrum depends on what capabilities the agency is willing to delegate to the private sector, and to what degree it wants to involve the private sector in its full end-to-end value chain.
What options are available? One dimension of PPP relates mainly to a port’s infrastructure and facilities. In this type of model, the government agency focuses on finding and contracting with partners who can bring the right knowledge – and maybe even invest in accelerating the development of the infrastructure and facilities – to help improve the port’s position within the logistics ecosystem and better serve the nation. Under this type of arrangement, the private sector partner might own the port infrastructure and take over running the entire operational side, while the agency deals with the users of the port.
By contrast, another PPP model – one that’s especially common in the Middle East – involves port users no longer interacting with the government agency, and instead dealing direct with the private sector partner. Here the third-party provider will often own the front-end capabilities, like the call centres, web portal and e-services. And in terms of operations, the private partner ensures that everything it does from end-to-end is integrated with the government agency’s core capabilities. One example of this approach is the “single window” initiative, where the customs agency contracts with a private company under a PPP model to take over the access channels and delivery – including the call centre – as well as some parts of the port operations.
Challenges to overcome
These various flavours of PPP represent different stages in government agencies’ journey towards higher private sector involvement in ports. But whatever option an agency chooses, its first step must be to clarify and crystallise its own functions and capabilities – because otherwise, if some of those capabilities are closely connected to the pieces being spun off, it will be very difficult to manage the integration between the new PPP partner being onboarded and the agency’s back-end functions.
Alongside these technical challenges there can also be contractual challenges to address. The key here is mastering the service level agreements (SLAs), breaking them down into individual service level agreements and ensuring that they’re clearly defined and rigorously monitored. Why? Because an agency can onboard as many private sector partners as it likes to run its operations and its access and delivery channels – but the reality is that it remains the sole custodian of its own reputation. And when something goes wrong in the port, everyone blames the customs agency or border guards rather than the private company.
Further challenges can arise around the selection and evaluation of bidders for a PPP. This process can require agencies to address a wide range of issues, especially given the use of existing procurement mechanisms, and the complexity of dealing with many other agencies for things like approvals and feasibility studies.
For agencies that overcome these challenges successfully, an aspect of PPPs that’s becoming increasingly popular is revenue-sharing. Under this approach, the private sector partner can provide – and charge port users for – value-added services such as live-tracking of goods on top of the contracted capabilities, and then share the resulting revenues with the government agency. On the one hand, this approach enables the agency to accelerate the transformation of some of the port capabilities, while – on the other – helping it to fund the transformation that’s underway internally.
The benefits of PPP
Regular consultation and partnership between public and private stakeholders will lead to a mutually beneficial situation. It encourages a climate of shared responsibility and ownership towards developing sustainable goals, policies, and programmes. It also helps to create consensus on reform priorities – enabling border and customs agencies to anticipate and manage emerging issues and improve decision-making and operational performance, by allowing them to align their management plan and actions with the expectations, needs and demands of business.
As the public-private relationship deepens, new opportunities for cooperation will emerge, increasing still further the mutual benefits for all stakeholders. This ultimately helps international trade to flourish, since compliant and legitimate trade can move faster in the global arena. Efforts to develop strong partnerships can result in learning, innovation and enhanced performance that will not only benefit the public and private sectors but also society and the economy as a whole, in terms of wealth and competitiveness.