Policy Study

Port Privatization

An International Perspective

Executive Summary

By facilitating international trade, U.S. seaports play a significant role in shaping the country’s economic health. All major U.S. ports are owned by public port authorities; many are also operated by public authorities. A 1990 report by the American Association of Port Authorities showed that 30 percent of the 66 port authorities surveyed were operating at a loss.

Government-owned and operated ports face many problems. Lacking exposure to full commercial competitive pressures, publicly owned and operated ports may have reduced incentive to operate efficiently and are often subject to political interference. These public ports can absorb scarce funds from local governments and drag down local economies. On the other hand, efficiently operated public ports, such as the ports of Los Angeles and Long Beach, are often targeted by cities that want to siphon off surplus funds.

Overseas, 36 governments including Argentina, Brazil, Hong Kong, Malaysia, Mexico, New Zealand, Panama, Singapore, and Venezuela are considering or are in the process of privatizating-through concessions or asset sales-some or all of their major shipping ports.

The 1985 divestiture of the container operations at Kelang Port Authority (KPA), Malaysia’s principal port, resulted in more than a halving of repair, maintenance, and administrative costs. In 1983, the United Kingdom sold the 19 ports that formed the Associated British Ports. Asset-sale privatization enabled the ports to adopt efficient practices, diversify their assets, and increase capital investment.

The overseas trend in transferring government port operations and assets to the private sector suggests that U.S. public ports can benefit from greater private-sector participation. By improving incentives to perform, greater reliance on private management and capital will increase autonomy, efficiency, and competitiveness of U.S. ports.