An Institutional Analysis of Coordination in Liberalized Port-related Railway Chains: An Application to the Port of Rotterdam

Abstract

The European railway market has gone through a period of liberalization over the last two decades. The liberalization of the railway market has also affected port-related railway transport. Efficient port-related transport chains are key in the competition among ports, however providing this efficiency is to a large extent a coordination challenge. Many forms of coordination are needed to ensure that the railway chain operates efficiently, including the bundling of cargo, and good organization between railway companies, terminal operators and the infrastructure managers to realize an efficient use of assets. From the literature, it appears that less attention has been paid to the economic organization of port-related railway transport in general, and specifically in the new liberalized institutional environment. The goal of this paper is to come up with a framework to better understand the issue of coordination in port-related railway chains in a liberalized institutional environment. This paper presents a conceptual framework rooted in Transaction Cost Economics (TCE). Based on an in-depth study into coordination in liberalized container railway market at the Port of Rotterdam, empirical illustrations are used to adjust the TCE approach toward a dynamic model influenced by Douglas North's theory on economic and institutional change. Empirics from the port of Rotterdam show that new players have entered the railway market and their role has changed. This paper shows that coordination of railway operations has become more complex after the regime change. From a port perspective, liberalization does not lead to an optimal allocation of resources in a process that is highly operationally interdependent. In the liberalized environment, coordination arrangements are necessary to enable efficient coordination of railway operations in Rotterdam.

Keywords:

• railway transport
• seaports
• coordination
• institutional economics
• liberalization
• Rotterdam

Notes

1. In this respect, interdependency and coordination are related because coordination is seen as a response to problems caused by interdependencies.

2. Williamson (1996, p. 223) introduces it as a ‘scheme’; for clarity and for the goal of this paper, we will use the word framework following the work of Ostrom (2009). This allows us to use alternative theories. In this paper, the TCE from Williamson (1996) and the Theory on Economic and Institutional Change of North (2005).

3. The database was used previously for the research of Van der Horst and De Langen (2008) on coordination mechanisms in hinterland transport chains. The database was updated and extended for the present research. The data were collected from September 2005 to January 2010. It consists of 91 coordination arrangements divided into the categories: (1) introduction of incentives, (2) creation of interfirm alliances, (3) changes in scope and (4) creation of collective action. Data on coordination arrangements were collected by scanning reports, studies and industry magazines and journals and by conducting interviews with managers in the hinterland transport chain. In the end, the database contained the following data: name of the arrangement, short description, year when the coordination arrangement was established, transport mode, coordination problem addressed, type of actors involved, number of actors involved, initiator, power relation of initiator to other actors involved, description of the arrangement, horizontal/vertical cooperation, and the use of information and communication technology.

4. Masten (1996) shows that measuring transaction costs is problematic. Also in our case, we are not able to measure transaction costs and benefits directly.

5. It can be questioned whether the increase in productivity is an effect of liberalization and whether that has lead to an increase in transport demand. The causality could also be the other way around, namely that an increased demand has led to economies of scale and caused an increase in productivity.

6. For the analysis, the timetables have been derived from the public websites of railway companies Railion, ERS Railways and ACTS for one week in November 2008. The total market share of the three railway companies have been calculated with the Timetable of Shuttle Services of departing trains via Railcargo (2008). In November 2007, 233 shuttle trains departed from the port of Rotterdam every week. The three railway companies provided traction some 186 times (Railion: 102; ERS Railways: 57 and ACTS: 27).

7. See e.g. Aoki (2007) on endogenously generated institutions. In his view, an institution is a self-sustaining, salient pattern of social interactions, as represented by meaningful rules that every agent knows and is incorporated as agents' shared beliefs about how the game is played and to be played (Aoki, 2007, p. 6). So, during an interaction process, the players of the game create shared beliefs about the structure of the game. In this ‘institutions-as-an-equilibrium-approach’, institutions are defined as the outcome of interactions of individual actors who maximize their pay-offs.

8. In his later work, Williamson acknowledged that a better understanding on the mechanisms of the human mind should be part of the analysis. This institutional analysis of embeddedness is an important but underdeveloped part of the story (2000, p. 610).