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Chilean port governance change in the face of progress

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Chilean port governance change in the face of progress

Paper analyzes current environment and the port system’s survival chance
Edition of April 03, 2017

In an ever-changing scenario, where vessels become larger by the minute, environmental regulations reduce the scope of action, customs paperwork is more intricate and technological development is a constant challenge, container ports are having a hard time keeping up. The article “Evolution of national port governance and interport competition in Chile”, by Gordon Wilmsmeir and Ricardo J. Sánchez, says that reduced growth in container throughput and the significant restructuring in the liner shipping and port industry is a tough context for a port development plan, so the Chilean port institutional structure might be facing a new turning point in its history.

But a successful strategy at one point does not necessarily mean it will remain successful for all time, as conditions change. In the 1990s, the Chilean port system benefited from decentralization into a local-governance model, under fiscal supervision. However, the last 20-something years have proven it has become hard to predict future business conditions.

Environment, strategy and structure

There are three key elements for change in a governance model: environment (market conditions), strategy (conditions of production) and structure (product design). When these elements begin to deteriorate, it may mean that the governance model has either “reached its maturity or begun its decline”. Either way, it’s time for a change.

The paper proposes a theoretical framework for governance model change and later discusses the evolution of two main Chilean container ports over the last two decades under changing environments. The public- local (port authority) and private- global (terminal operator) joint ventures in the governance model have managed to solve problems such as excess of work force and regulation, inefficiency of port operations and deficits in the provision and maintenance of port infra-and superstructure investment, and security challenges.

Initial intention and final result

So, if the system has been so successful in the past years, where are the negative signs? The document argues that the existing concession contracts are living out the last years of their three-decade agreement, which was written in a completely different social, political and economic environment than the current one. These contracts are practically ironclad and were designed to transfer the majority of decision making power to the private sector, leaving the public sector (port authority) with little or no leverage to intervene.

The introduction and development phase was an applause-winning success. Infrastructure investment and operational efficiency increase was the promise of a brighter future and the confirmation of a well though out plan. The 2000s’ economic recession hit the first years of operation of concessioned terminals a bittersweet experience. The strong growth numbers were a constant reminder of the feeble external conditions and the fact that it could all go away in the blink of an eye. Technology and port reforms helped keep the growth rate steady throughout bad global economy, but the 2010s external shocks provided a new environment and changed market conditions, the article emphasizes.

Between 2011 and 2015, the post financial crisis period made a poor canvas for the Chilean port industry, which had to balance the significant challenges to the preceding economic growth model, albeit a remaining gap in infrastructure. Uncertainty was the new rule and decline the new tune. Only technology seemed to thrive in these hard times.

A new era

A changing world calls for a governance system fitting its conditions. The proposed model includes an integrated ports system within the logistics chains as part of a comprehensive policy based on a systemic vision that more clearly serve the economic development of the country.

Can Chile change? Will Chile change? In an election year, perhaps this will not be part of the list of priorities, but it is, nevertheless a key issue to address.

By MundoMaritimo


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