Underpricing of port services

In the absence of marked unemployment, labour can always be used in alternative ways and thus always has an economic cost. Land may, or may not, be capable of an alternative use, although in most ports situated in densely populated areas of great economic activity the value of the alternative use of land may be greater than that of its actual use in the port. Capital, on the other hand, frequently has no alternative use. Once a quay is built, it is useless for anything other than transferring goods between ships and inland; a breakwater can provide a sheltered haven and nothing else. Where there is no alternative use, there is no economic cost. Realistically, however, a port is concerned with its own costs in the sense of the annual cash outflow. In addition, port investments are very costly, and technical progress gives them a shorter useful life than was the case in the past. It is particularly important to use them economically, and port charges have a function to perform in this respect. Thus, while in principle, a pricing system has only to deal with economic costs, in practice, it has to provide a cash flow to meet the payments which the port must make, whether for costs which are recognized as economic or for those which are not.
Serious underpricing of port service leads to unprofitable operations and inadequate capital formation for port improvements. Pricing is usually based on accountants definitions of disbursed costs, but even the indirect elements or overheads neglect another important area. There are also economic costs, that is, the costs to the economy as a whole in terms of the resources which are used to provide services and which, if not used in the ports, could be used elsewhere in the economy.
(E) Emanations of other problems