Inefficiency at Ports Cost Economy NIS 5b Annually

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The lack of performance by Israel’s seaports costs the economy some NIS 5 billion a year, according to a government report compiled by the Antitrust Authority in 2009 and kept under wraps by the government until now.

The study, unprecedented in scope, found that the ports of Haifa and Ashdod operate at a rate 30% lower than that of similar-sized facilities around the world.

In addition to data gathered from the relevant government agencies, the authority for the first time also collected documentation from private and public business companies doing business with the ports. This included information pertaining to the cost absorbed by importers and exporters for maintaining excess inventory as a result of shipping delays at the Haifa and Ashdod ports and the associated financing costs.

It also included the increased risk premiums charged to businesses and shipping companies through insurance or bank credit, as well as fines paid to suppliers, customers or shipping companies due to delays and work sanctions at the ports in addition to the overpricing of port services due to the relative risk entailed by scheduling uncertainties.

The study set out to determine the level of competition between Israel’s ports. It mapped out the performance of the domestic ports in comparison with those in other countries to explore the potential for competition in Israel and the possibility of declaring the Haifa and Ashdod ports regional monopolies.

The study was defined as an internal report and its findings were not published − despite its momentous economic significance − because it included sensitive commercial information provided strictly for this purpose. The report’s conclusions were presented two years ago to the heads of the government ministries and provide the basis for steps that are now being taken by the new government for renewed efforts toward reforms at the ports.

The estimated damage to the economy served the authors of the report in examining the feasibility of two options: competition between companies operating the ports of Haifa and Ashdod, or the private operation of individual docks at the two ports.

The report concluded that competition between the two existing ports is currently very limited: Businesses have little ability to choose between them due to their proximity to one or the other and the high cost of overland shipping. This conclusion was supposed to have led the authority to declaring the ports to be regional monopolies but this was never carried out.

The other conclusion pointed to strong economic feasibility for preparing intra-port competition, even through the privatization of an individual dock. This conclusion underpinned a government decision in 2007 to build two new docks at Haifa and Ashdod to compete with the existing ports.

This was also the conclusion reached a year and a half ago by the Trajtenberg Committee which discussed the implications of underperformance at the seaports on the cost of living. The committee’s report, assessing only the direct damage to the economy due to deficient service at the ports and their low performance, estimated the cost in the hundreds of millions of shekels.

This, according to the committee, is in addition to the high labor cost at the ports and other government monopolies, estimated at 36% higher than the cost of similarly qualified labor in other sectors of the economy. The committee, however, pointed out that it hadn’t factored in indirect costs arising from the ports subjecting the country’s commercial activity to a cloud of uncertainty.

“The inefficient performance by Israel’s ports imposes on foreign traders very high economic costs which are mainly reflected in three areas: the cost of time spent by ships and their cargo in port, the reliability of foreign traders in international commerce, and steeper fees for users arising from a higher cost structure − mainly for labor,” the Trajtenberg committee wrote.

The report went on to state the urgent need for instituting effective intra-port competition and the future building of competing private docks.

Ashdod Port.Credit: Ilya Melnikov
Port efficiency

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