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MODULE-6A Analysing and Planning Port Marketing• Marketing is concerned with creating value for customers and extractingvalue from customers• For ports, marketing is about identifying the qualitative and quantitativeservices that customers need nowand may want in the future –and promotingthose servicesMomentum for Marketing Ports• Captive hinterland• Increased volume and• Greater concentration of cargo– reduction in number of calls

• Containerisation• Multi-modal links• Competition within the hinterlandDeterminants of the nature of port marketing• The business environment• Shipping dynamism• Globalisation• Integration within global supply chains• Number of parties involved• Port marketing reflects industrial and services marketing not retail marketingImportant features of Port Marketing• A port is a link in the global transport chain and responds to global transportdemand• Cost of land transport impacts on the attractiveness of a port• Port may be the CORE of the local network anda NODE of the globalnetwork• Port processes linked to port workers• Direct and indirect customersSituational Analysi s• Identify the issues and causes

– Use port statistics – Macro-economic effects – Increased competition– impact on market share – Evolution of port users’ demand eg temporary trading difficulties – New commercial prospects– IKEAEstablish Marketing Objectives• Aligned with Corporate Strategy

– Minimise costs/increase revenue – Maximise capacity utilisation/ +traffic – Contribute tonational economy – Stimulate socio-economic development – Reduce transit times – Improve quality, safety, environmental impact – Maximise RoI and Market ShareFive classes of Mkt. Objectives1. Traffic Volumes2. Port Revenues3. Market Share/s4. Diversification–new products/services/regions5. Macro-economic objectivesWhat is useful Marketing Info?• Present and potential port users• PESTLE–Political, Economic, Social,Technical, Legal, Environmental

• Market Intelligence– what’s happening in otherports• Comprehensive and accurate info on its own portMarketing Information Systems• Collection – internal / external sources• Selection• Analysis• Asssessment• DisseminationMarketing Studies• Provide deeper insights into relevant issues

– Useexploratory research to gather initial data and study a problem – Use descriptive research to describe a situation – Use case studies to examine cause and effect – Use systematic approach: define objectives, identify sources of info, collectinfo, analyseinfo, present conclusionsCase: Set objectives for a port study intocomplaints from Transhipment Operators1. What is the main complaint?2. What options exist for the client?3. If you do nothing what would you lose?4. What are your costs versus your return?5. What would a 20% rate drop lead to?6. What would better service offering cost?

7. What future prospects does the client offer?Sources of Marketing Information• Primary Data

–Specific studies, questionnaires and surveys –Direct call, e-mail, EDI databank• Secondary Data –Internal or External• Port statistics, origin / destination, type of goods, revenue per vessel, cargotype, berth

–Total market data– growth/decline, share, economic trends, actual andpotential customer needsPossible answers to Case Study

1. Storage costs after exemption period2. Alternative port offers 5 days extra3. Potential loss of 25k TEU plus regular liner call = minimum $220k loss p.a.4. User will save $250K p.a. at other port5. 5 days extra costs $250k = $30k hit6. Indirect profit from user for other services is $180k. L/Term impact severe as20% increase in transhipment traffic p.a.is the normMarket Segmentation• A sub-division of the total market into elements with similar characteristics or common features such as needs or interests

–By mode, by product, by handling method• Allows more specific target marketing

–Tailored response to user needs – doing the right thing = more effective – Intelligent use of resources doing things right = more efficient –Focus on most profitable cargoes4 classes of Marketing Focus• Mass Marketing e.g. discounted tariffs for all users, broad based publicity• Goal-oriented marketing e.g focus on one mode to the exclusion of others• Differentiated service marketing e.g focus of a number of market segments• User-oriented marketing e.g focus on needs of a major port user Segmentation by port activity• By traffic or category of goods

–Most popular and efficient method• By region• By port user • By equipment and infrastructure used• By special facility or activity Analysing Company Capabi lity• SWOT Analysis• Strengths and Weaknesses

–Geographical position, access links, landbank, location –Other features e.g commercial, ownership model, financial, operational,• Opportunities and Threats

–Supply and demand for port services, maritime policy and legislation,environmental issuesWhat does a SWOT analysis do for us?

Types of Marketing Strategies IBase M.S. on the development stage of the service- New Services–rapid/slow mkt. Penetration- Developed Services– increase demand/users, attract users from other ports,

incentivise extra use- Declining Services –maintain or divest

Points to consider - The supply of Port Services- securityhazardous- Cargoes- waiting times at ports–ship owners nightmare.- National or Local Maritime Policy – restrictive practices.- National or local Environmental Protection Legislation.Types of Marketing Strategies II• Base M.S. on your competitive position- Market Leader: must have sustainable competitive advantage e.g. lowest

costs, differentiation, geographical- Challenger: focussed advantage, superior market intelligence, better quality- Follower: leverage strengths avoid direct attack- Niche operator: Specialisation Analysis- Your strategy will depend on your competitive and market position.- Are you a Market Leader-can depend on your geographical location- can

also be cheapest due to volume of cargo and offer discounts.- Are you a Market Challenger-harder as you may have to lower tariffs, better

quality of service.- Are you a Market Follower – limited market share.- Most ports are “Followers”- The “niche” should not excite the interest of the competitor – in an ideal

world !!!!!

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- A “Challenger” may get better results from attacking the smaller competitor instead of the “Leader”

Port Community and Marketing• Port Community comes from quality relationships, performance and results• A true port community can be a powerful enabler for reputation and salesgrowth• Key features: Unity, Professionalism, joint action, behavioural change, groupeffect, common achievement, consensus between employers, employees,trade unions that the future depends on the ability to attract trafficMechanisms to gain consensus• Consultative bodies

• Representative bodies• Chambers of Commerce• Board of Directors• Management co-ordination• Shared valuesPromotion as a Marketing Tool- Advertising- Direct mailing- Participating in Shipping Exhibitions- Organizing Port Days- Business Trips- Using Representatives- Domestic Networking- School visits-

Organizing conferences- Speaking at conferences- Press Day- Participating in Domestic Events- Other ??Key Issues for MarketingTo ensure the following are achieved:1. The Strategic Marketing Plan delivers the Vision2. Conformance with Corporate Objectives3. Information to understand the Co’s. Market position & capability,

customers’ real value needs, behaviour and influences on them4. Offerings that create real value for customers & create profit5. Focus on attractive profitable customers–actua and potential6. To ensure the following are achieved (cont.):7. A position and brand that engages customers (actual and potential) and is

effective against the competition8. A customer focussed organisation with the willingness and capability to act

on market insights9. The Marketing Mix (input) is well managed and controlled10. A Marketing Budget that sufficiently funds the Marketing Mix

MODULE-6BSection 1: Strategic Port Pricing1.1 Port Pricing1.2 Pricing strategies1.3 The Main pricing systems1.4 Port Costs• Definition• Cost Calculation• Cost & Income Centres• Tariff Principles• A Pragmatic Approach• Port Dues on Vessels and Goods1.1 Strategic Port Pricing• Pricing impacts on all areas of the Company, Revenues to cover costs, impacts traffic levels, forces Company to monitor performance of equipment.• Charges / Tariffs are the life blood to the Port Company but a major cost to the customer.• Customer/user reflects on total transit cost of cargo (ref: module 2)• Which element of the transit process areyou pricing?• Must be consistent with wider port company strategies?

• May be related to performance indicators• May be controlled by port authority/regulator?• Impact of competition within and between ports?• Which costs are you trying to recover and what are target profitlevels for service?• Transparency and cross subsidy regulation?• Price sensitivity• Customer demand(s)Strategic Pricing Summary

• Cost recovery (Traditional Approach) –Total costs –Variable costs –Contribution to fixed costs/overhead –Marginal cost –Overtime recoup• Demand/Traffic (Strategic Port Pricing)

–Customer financial status- Users Capacity to Pay –Competition –Tariffs in other Ports –Premium for additional benefits- Any Advantages obtained by user –Captive trade– Obligations for users to use the Port

• Performance –Volume –Time –Congestion –Behaviour

Pricing Terms & Systems• In the past: tax, levy,• Nowadays: tariff, dues, price, charge• It is usual:

–dues for facilities – tariffs for services – fee for rentals and leases.• Often TARIFF or CHARGE is used• In Cork: Charges as set by Board• See UNCTAD proposed tariff system Table B2Services Provided by Ports• To ships

–Access channel, navigation aids, Port Opscommunication, pilots, tugs• To cargo

–Stevedoring –Cranes –Storage –Agency, forwarding, logistics (3rd party at PoCC)• To tenants

–Estate management• To passengers

–Terminal facilities –Charge per passenger –TransportUsual Tariffs•To Vessels

–Ship Tonnage (Harbour Dues, Port Dues, ShipDues)

–Pilotage Charges –Towage Charges –Mooring Charges –Berthage•To cargoes

–Stevedoring / Tallying –Cargo Handling –Goods rates / Wharfage –Storage•To passengers

–Passenger duesEXAMPLE: Port of Cork CompanyRevenue Sources•Vessels - GT

–Tonnage –Pilotage –Towage –Other Security•Cargo– tonne/unit

–Cargo dues•Service Income

–Craneage –Stevedoring fees –Reefer Points –Pontoons/Liners•Leasing/licences

–Rent on leases –Operating fees –Other •Other

–Dividends (fromsubsidiary)

–Financial (interest

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Earned1.4 Port Costs• Fixed costs (no change with level of activity i.e. Adminsalaries)• Variable costs (change with level of activity i.e. Cranefuel)• Total costs (including Direct and Indirect costs, fixedand variable costs)• Marginal costs increase in cost caused by one extraunit.• Further distinctions –Direct cost specifically allocated

to an activity versus indirect costs not related to aspecific activity i.e. Executive salaries.• Match costs to revenue activity where possible, i.e.Cost Calculation• All pricing systems need to take account of costs• How are costs calculated?• Recurring costs wages, materials, fuel versus• Capital costs– once off – calculated annually bydepreciation policy• COSTS AREREFLECTED AT THEDIFFERENT STAGES OF TARIFFSPREPARATION SEE FIGURE B 1Depreciation Periods (UNCTAD)(Table B 4)Source: UNCTAD studyVariation intervals (the extreme values being excluded), in years Breakwaters 50-100Quays: concrete 30-80Quays: steel 20-50Quays: wood 20-50Buildings 20-50Warehouses/transit sheds 20-50Floating material 10-20Quay cranes 10-20Portal cranes 10-20Mobile cranes 5-10Trailers 5-10Tractors 5-10Forklifts 5-10Tariff Presentation• Depends if a Landlord Port or Tool Port• Many Ports publicise their Tariff’s ?? Competing Portsdo they??• Are the Published Tariffs actually charged ??• Are you limiting your ability to negotiate for newbusiness ?• Vessel-Related Charges,• Goods-Related Charges,• Other Charge- Pilotage, Towage, Stevedoring• Offer discounts to attract customers- ,• Tariffs can be used to improve berth performance /

UNCTAD Pragmatic ApproachCost Performance & Value ApproachPerformance approach - Tariff is set according thedegree of use of the facility• For congested ones charge more• For unused ones charge lessValue approach• Charge what the traffic can bear • Useful for dues and redress shortfalls in other TariffsPort Investments• Port Master Plan

– Match customer requirements, volumetrends, freecash, funding, viable projects, delivery schedules

– Plan approval mechanism• Traffic Forecasts

– Assessing demand• Appraisal of Port Investments - CAPEX

– Project definition and its appraisal• Comparing Alternative Investments and managingscarce resourcesMaster Plans•Analysis of traffic

•Traffic Forecast•Technical Studies•Port’s role for country•Sites land needs•Sites water needs•Apportioning traffics•Estimating terminalcosts•Completing master plan with approval of Government

•Implementing systemto execute projects•Publicity and ReviewMechanismMaster Plan• Land

–How is land to be allocated? –What assets/terminals are required? –What is the best location? –What is the best configuration? –What equipment will be required?• Water

–What is the best configuration for the channel? –What assets are required to manage safe movementof vessels?

–How deep should the berths be? –How deep should the channel be?MAIN DRIVERS Trade Growth Trade Relocation Urban Redevelopment Pressures Inadequate Capacity Ship Size Increase Funding Strategy Efficiency and CompetitivenessMaster Plan Long / Medium / Short Term Strategies Phasing Flexible Regular Review Community / Government Support Achievable Does it meet the needs of the Region / Country?Traffic Forecasts 1/2• Type and Tonnage of Goods to be handled• Main Features of Logistics Chains for theseGoods

–Packing, Merchandise Unit Value, Frequency,Delivery Constraints• Same analysis for potential goods to behandled• Type and number of Vessels to be handled

–Liner, Tramp, Industrial

• Preparing ScenariosTraffic Forecasts 2/2• Different Scenarios / Hypotheses• Competitive Pressures• Economic Growth• Influencing Factors• Technology• Logistics TrendsProject 1/2Factors contributing to assessment of feasibility of project: Expenditures on Infrastructure including dredging,reclamation, breakwaters, berths, paved areas, roads,utilities etc Expenditures on Superstructures e.g. Plant &equipment, warehousing etc Operational Costs – Labour, Running costs,maintenance dredging Income generated External Costs / Benefits Intangible costsProject 2/2Factors contributing to assessment of feasibility of

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project: Basic RequirementsBenefits > 1.0 or NPV >0Costs Sensitivity Testing Appraisal• Types

– Financial Appraisal – Economic Appraisal• Discounting = time value

– Discount Rate = cost of funding

• Recommended Appraisal Techniques – NPV = Net Present Value of cash in/out – IRR = Discount rate where net present valueof cash in and out are equalOR NPV = 0Financial Appraisal• Expenses and Revenues accruing to theport authority or entity making theinvestment• Expenses:

– Technical and economic studies; Constructionand Supervision Contracts; EquipmentProcurement; Operating and MaintenanceExpenses• Revenues

– From tariffs applied to ship and cargo ownersfor services rendered to themEconomic Appraisal• Costs and Benefits to the national economy• Costs

– To complete the project valued at their economiccost

– Measurable external costs congestion – Non-measurable external costs pollution• Intangible costs and benefits• Social costs and benefits• Environmental costs and benefitsBenefits• Direct benefits to port body

– Additional revenues from charges and rentals• Benefits to port users

– Savings in ship’s operating costs due to quickturnaround

– Savings in transport, handling, insurance costsfor shippers• Benefits to suppliers of services

– more work, new industries, multiplier effectNPV and IRR• NPV = Net Present Value

– It is a value – Must be positive – Rank from the highest to lowest• IRR = Internal Rate of Return

– It is a percentage – Must be above specified threshold• How many projects to undertake?• Availability & Cost of FundingExample of Socio – Economic Appraisal Port of Cork Strategic Development Plan Review One Question:- Is there a Socio-Economic case for a newcontainer terminal to be connected to the rail network? Two potential locations for Container Terminal Three Scenarios Economic Appraisal undertaken Origin & Destination of Customers v Rail Network Modal Shift – Assume 25% by Rail to Distribution Centre

Module – 6CSection 1: Port Accounting• To understand the role of accounting• To become familiar with the terminology in accounting• To understand the primary finance Statements

– The Balance Sheet – The Profit and Loss Account – The Cash Flow Statement

• Understand financial statements in order to performratio analysis• To understand how to use the financial informationpresented in the finance statements to compareperformance in different port companiesRole of Accounting in Ports• Record and Classify financial transactions• Report periodically on the Company Financialperformance• Present Results of Operations• Monitor/Control activities and expenditure

• Present the Assets and Liabilities of the Port at agiven point in time• Report/Communicate with the various Portstakeholders

–Shareholder/Customers/Suppliers/Banks/Employees/Wider Port Community/General Public Accoun ting Standards• Legal Obligation– Companies Acts 1963 to 2009(Ireland)• Accounting Standards– local GAAP, IFRS• Accounting Concepts/Terminology

–Principles of double entry accounting –Based on historic information: procurementcost/production cost

–Revaluation of Assets –Depreciation of Assets –Timing of the Transaction –Revenue and cost recognition(Matching Principle) –True, fair, reasonable, objective, prudent (Audit ReportP9&P10 Annual Accounts)• GAAP= Generally Accepted Accounting Principles• IFRS= International Financial Reporting StandardsThe Financial Statements• The Balance Sheet

–Formal presentation of the Company’s ownershipsitutation (assets and liabilities) at a given point in time(snapshot view)• The Profit and Loss Account

–Made up of Revenue and Expense Accounts –Flows during a period of time –Shows the Profit or Loss of the Company for thatperiod (Results)

–Assess the capability to generate resources for growth• The Cash Flow Statement

–Shows the flow of money in and out of the Companyover a period of timeThe Balance Sheet• ASSETS

–Fixed (Tangible) Assets – Intangible Assets –Financial Assets –Current Assets• LIABILITIES

–Current Liabilities –Long Term Liabilities –Reserves (Owners’ Equity)• ASSETS = LIABILITIES hence the term Balance Sheet• Formal and structured presentation allows for comparison

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Balance Sheet – Tangible Assets(POCC Example)• Landand Buildings• Dock Structures• Floating Craft• Cranes• Plant and Machinery• Capital Dredging• Investment PropertyBalance Sheet – Tangible Assets

(POCC Accounting Policy)• Stated at Cost less accumulated depreciation (Net BookValue)• Land not depreciated• Depreciation Policy– estimated useful life/straight line

– Buildings,Quays, Piers 20-50 years – Site Development, Roadways, etc 10-20 years – Capital Dredging 25 years – Pontoons 20 years – Cranes, Winches, Hoists 10-20 years – Floating Crafts-Vessels 15-25 years – Motor Vehicles 4 years – IT Expenditure 3-10 years – Other Plant and Equipment 5-20 yearsBalance Sheet – Current Assets(POCC Company Example)• Stocks

– Stated at lower of cost and net realisable value• Debtors

– Trade Debtors – Tax (VAT) – Other • Cash– Current Bank Accounts/DepositBalancesBalance Sheet – Liabilities(POCC Example)• Current Liabilities

– Bank Loans: repayable within one year – Trade Creditors (suppliers of goods/services) – Accruals and Deferred Income – Tax Payable: Income Tax/Corporation Tax• Long Term Liabilities

– Bank Loans: repayable after one year – GrantsBalance Sheet – Reserves(POCC Example)• Share Capital• Reserves

– Profit and Loss Account – Capital ReserveThe Profit and Loss Account• Operating RevenueLess

• Operating CostLess• DepreciationEquals• EBITLess• Interest Payable/Receivable/TaxEquals• Net ProfitFinancial & Economic Operations• Financial operations is between two permanent accounts of theBalance Sheet Receiving Money, Paying Money, Repayment of Long-term Debt, Capital Increases and Tangible Investments.• Economic Operations is between permanent and Transitoryaccounts (revenues and expense accounts)Revenue Accounts Expenses AccountsOperating Revenues Operating Expenses/Maintenance ExpensesFinancial RevenuesFinancial ExpensesExtraordinary RevenuesExtraordinary ExpensesThe Closing Operations

- Revenues and Expenses recorded for the period. Additional transactions arerequired to give a true and fair view.

- Inventory: Balance sheet shows balance of inventories that exist, P&L showscost of inventories consumed (OpeningStock+Purchases- closing Stock)

- Provisions: example stock provision re obsolete stock- Depreciation: During the period the Fixed Asset will have areduced value to

due the passing of time.- Taxation: Must account for taxation elementPort of Cork Financial ModulesSALES WAGESPMIS Nominal MICROPAY

Ledger CASH CREDITORSBANKING MMS SageINVENTORYPurchasing DebtorsPEMAC MMS SagePROFIT AND LOSSBALANCE SHEETThe Profit and Loss Account(POCC Example)• Revenue Accounts (Turnover)

–Port Dues (Tonnage, Goods, Crane charges, Tug, Pilot Boatetc..)

–Rents

–Other (Storage charges, reefer charges, work boat hire etc)• Expenses Accounts –Cost of Sales (includes depreciation) –Administration and general expenditure –Exceptional Items (infrequent and unusual in nature)• Profit on Disposal of Fixed Assets• Redundancy Costs• Organisation Restructuring CostsThe Profit and Loss Account(POCC Company Example)• Operating Profit from continuing operations• Exceptional Items (Items that fall outside the ordinaryactivities of the business)• Financial Expenses

– Interest payable – Interest receivable• Profit on Ordinary Activities before Tax• Taxation (Corporation Tax, Capital Gains Tax, Deferred Tax)• Profit after Tax for the Financial Year • Dividends• Retained Profit21The Cash Flow Statement• “Spending and Resources Account”• Operating Cash

–Op. Profit adjusted for non cash items (Depreciation and amortisation)• Balance sheet differences• Working Capital Movement• Pensions paid• Taxation

• Dividends• Investments/Fixed Assets• Financing• Bank Loans Raised/Repaid• Movement in cash balances22Section 2: Financial Analysis• Establish indicators (ratios) to compare Companyperformance in the Financial Statements.• Banks and financial institutions use these indicators inaccessing funding proposals notably ratios re debt level,self-financing capacity and profitability.1. Return Ratios

–Operating Margin –Return on Capital Employed (ROCE) –Revenue per Employee –Operating Cost per Employee – Interest Cover 2. Financing Ratios

–Gearing –Average Interest on Debt3. Liquidity Ratios

–Current Ratio (Current Assets/Current Liabilities) Analy tical Accounting/Management Accounting

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• Separate from “financial accounting”• Objective

– Monitoring company performance. – Prepare operating budgets and then measure andexplain variations with actual results• Management Accounting internal focus

– Provision of information to people within theorganisation to help make better decisions

– Costs by function/service/activity – Budget Responsibility and Control32Comparison between management and

financial accounting Area Management Accoun ting Financial AccountingLegal Requirements Optional Statutory Requirement

Accepted AccountingPrinciplesUse rules useful for decision makingPrepared in accordancewith Company Acts andaccounting principles.Time Dimension Past and FutureInformationPast InformationReport frequency Timeframe required bymanagement normallymonthlyDetailed set of accountspublished annuallyCosting Models• Which expenses to consider?• Full Cost method most commonly used butcomplex

– Direct and Indirect Expenses – Requires establishment of Cost/AnalysisCentres• Direct Costs–Relate directly to the identifiedproducts/services- Direct allocation to Cost Centre• Indirect Costs/Overheads-Allocation to AnalysisCentre using allocation rules – then allocation toCost Centre34Implementation• Avoid complexity

– Do not create unneccesary cost/analysiscentres• Seek transparency and sharing- Cost allocations should have an explantion- Use distribution ratios/internal invoicingprocedures• Get results without delays

– Maximum two/three monthsSection 4: Budget Control- Based on Company policies and strategies- Implies short and medium term plans

- Preparation of annual budget- Execution of annual budget- Analysis of actual results- Proposal for corrective measures- Preparation of following year annual budgetRole of Budgeting Control- Measure actual results against short/medium- term plans- Delegate management authority to individual- areas of responsibility- Allow corrective actions to be takenBudgeting ControlPOCC Budget Process• Annual Budget Process- Detailed Revenue forecasts- Planned Pricing Structure / Increases / Decreases- Individual Budgets Prepared for Costs and consolidated by Finance- Full Profit and Loss Account/Balance Sheet/Cash Flow Forecasts- Annual Budget- Five Year Plan (or longer if required)- Planned Borrowing Requirements- Planned Capital Programme- Budget Approved by Board

- Required by Banks / Shareholder Budgeting Control- POCC Budget Process• Monthly monitoring of Actual Results v Budget- Reported to Board monthly- Detailed Reports distributed to Budget Holders and- reviewed by Senior Management- Allows corrective actions to be takenSection 5: Executive ManagementInformation Systems- Management Information Systems/Business Intelligence

- Relevant and Timely Information- Presented consistently- Top to bottom approach and vice versa- Should not contain excess information- Enable Performance Monitoring- Support tool for the decision processPOCC Management Information System• Common view of business regardless of how datais stored–SAGE MMS

–Various sub-systems- Sales (PMIS)- Payroll- General Ledger - Electronic Timesheets-

Move from summary to detail levelPOCC Example• Sales Statistics- Income by Berth- Income by Product- Analysis of Service Income• General Ledger - Non Payroll Operating Costs, materials supplies etc.- Payroll Cost, basic wages, overtime- Capital Expenditure

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