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EY
it
jui 0; X
it
; 3
where Y
it
represents the output of production for the ith rm at time t, and the value of the PE
i
lies
between zero and one (0 6PE
i
61). If a rms productive eciency is calculated as 0.65, for
example, then this implies that, on average, the rm realises 65% of the production possible for a
fully ecient rm having comparable input values.
This technique, attributable to Battese and Coelli (1988), is relevant to a case where productive
eciency is time-invariant. Schmidt (1985), however, states that unchanging ineciency over time
is not a particularly attractive assumption; a criticism which is readily admitted by Battese and
Coelli (1988). With the assumption that productive eciency does vary over time, an alternative
approach has been adopted by econometricians such as Cornwell et al. (1990) and Kumbhakar
(1990). None of these studies succeed, however, in completely separating ineciency from indi-
vidual rm eects (Kumbhakar and Hjalmarsson, 1993) and, in any case, the methods proposed
thus far are too complicated for empirical application (Ferrantino and Ferrier, 1995).
K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762 751
4. An application to Asian container ports
4.1. Denition of variables
Dowd and Leschine (1990) argue that the productivity of a container port/terminal depends on
the ecient use of labour, land and equipment. Terminal productivity measurement, therefore, is
a means of quantifying the eciency with which these three resources are utilised. As a measure of
the output of port production, Bernard (1991) questions whether total tonnage handled at a port,
should be applied to container terminals. Since the basic unit of output measurement is a con-
tainer and since, irrespective of its size and (especially) its weight, the facility inputs for the
movement of any container are more or less the same, his argument rests with the fact that the use
of total tonnage handled seems to be an illogical metric for the assessment of output at a container
terminal or port. One possible obvious solution to representing the output of a container terminal
may be provided by measuring the throughput in terms of the number of container movements
across the quayside or, alternatively, in terms of the monetary value of these movements as in-
dicated by the revenue associated with this operation.
In terms of a conventional categorisation of inputs, a typical expenditure structure of a port
over a given period of time is illustrated in Fig. 3.
As a proxy for the capital input variable, the combined values of buildings and equipment
(mainly cargo-handling equipment) accounts for 42% of total expenditure. Thus, the labour and
capital costs of a port or terminal together comprise 95% of the total cost structure of a port or
terminal operation. It seems reasonable enough to assume that this can be taken as sucient to
describe the whole cost account.
It was originally intended that the basic economic inputs of capital and labour would full the
data requirements of the study. This was the approach adopted in Song and Cullinane (2001)
where the focus was the productive eciency of Korean and UK container terminals. Unfortu-
nately, across the Asian region in general, this sort of cost data proved impossible to collect from
secondary sources. In contrast with the situation in the UK, for example, accounting conventions
within the region have a general tendency not to require the publication of costs at a high enough
level of detail to allow their identication. Instead, an alternative approach was adopted which
utilises certain physical characteristics of the terminals as the required input data. This is related
to output data in order to assess relative eciency. Thus, terminal quay length (X
1
), terminal area
in hectares (X
2
) and the number of pieces (X
3
) of cargo handling equipment (including gantry
Fig. 3. A port/terminal expenditure structure. (Source: derived from Sachish, 1996, p. 347.)
752 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762
cranes, ship-shore gantries, yard cranes, and mobile cranes etc.) were employed. Such an ap-
proach has the advantage that the data on these measures of physical container terminal ca-
pacities are available within the public domain and precedents do exist where they have been used
in this way (e.g., Notteboom et al., 2000; Tongzon, 1995).
For the econometric estimation of eciency using the stochastic frontier model, data on out-
puts from the container terminal sample are also required. In Song and Cullinane (2001), the
terminal output (Y) was dened as the turnover derived from the provision of container terminal
services but excluding property sales. Again, because of the range of accounting systems employed
by the sample of terminal operators, separating out the revenue attributable to dierent sources
proved to be an intractable problem. In parallel with the solution proposed for the data re-
quirements on production inputs, the readily accessible, physical measure of annual con-
tainer throughput in TEUs was adopted as the basis for measuring the productive output of
container terminals (Y). This approach also has its precedents (e.g., Bernard, 1991; Notteboom
et al., 2000) though it would be preferable to use (but impossible to collect information on) the
actual number of boxes handled. A summary of the major characteristics of the variables is
presented in Table 3.
4.2. Data sources
The sample comprised 15 container ports or terminals in Asia, namely: Singapore; HIT, MTL,
Sealand (all three in Hong Kong); Kaohsiung, Keelung (Taiwan); Pusan (Korea); Shanghai,
Dalian, Yantian (China); Tokyo, Yokohama, Kobe (Japan); Port Kelang (Malaysia); and Manila
(Philippines). In virtually all cases, annual data were collected for the 10-year period from 1989 to
1998. In the case of the recently developed Yantian container terminal, however, data are only
available for the 6 years from 1993 to 1998. The data were collected mainly from the Contai-
nerisation International Yearbook (various issues) but was validated and, in certain instances
supplemented, by approaching each of the terminals directly. This process yielded a total of 146
observations.
4.3. Model specication and assumptions
The estimation of relative terminal operator eciency is conducted by assuming the ap-
propriateness of the log-linear CobbDouglas case. No other specications were tested. The
Table 3
Statistical properties of the variables (19891998)
Variables
a
Mean Median Min Max S.D.
Y 2,476,032.00 1,812,710.00 105,736.00 15,100,000.00 2,524,487.00
X
1
3,483.00 3,192.00 305.00 8,754.00 2,397.00
X
2
111.89 94.43 12.50 275.50 73.45
X
3
73.23 52.50 4.00 433.00 86.37
a
Y is dened as the terminal output as measured by annual container throughput in TEUs. X
1
is dened as the
terminal quay length in metres. X
2
is dened as the terminal area in hectares. X
3
is dened as the number of pieces of
cargo handling equipment employed.
K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762 753
logarithmic stochastic frontier model specied for the container terminal operating sector in the
cross-sectional case is dened by
ln Y
it
ln f X
1it
; X
2it
; X
3it
; b v
it
u
it
; i 1; 2; . . . ; 15; t 1; 2; . . . ; T: 4
For application to the panel data, the model (2) is transformed into
ln Y
it
ln f X
1it
; X
2it
; X
3it
; b v
it
u
i
; i 1; 2; . . . ; 15; t 1; 2; . . . ; T: 5
In both cases, Y
it
represents the output of the ith container terminal operator at time t; X
1it
; X
2it
and
X
3it
denote the respective input variables associated with the ith terminal operator at time t and b
is a vector of input coecients associated with the independent variables in the model and is the
object of estimation. The disturbance term v
it
represents the symmetric (statistical noise) com-
ponent. In model (4), u
it
(P0) is the one-sided (ineciency) component and, in model (5), the
one-sided disturbance term u
i
(P0) represents the terminal operator-specic time invariant in-
eciency.
The terminal operators are assumed to be prot-maximisers and price takers in their input
markets. Hence, input prices may be treated as exogenous. Another assumption is that there is a
single-output production function. Thus, earnings from sources such as the sales of terminal
property are not classied as output and do not aect the production function frontier. Finally,
the concept of the average terminal frontier is applied as the denition of the frontier. Estimation
of terminal eciency is conducted by the DavidFletcherPowell algorithm (Fletcher, 1980;
Greene, 1997) using the LIMDEP 7.0 econometric software package (Greene, 1995).
Since the maximum likelihood method applied within this algorithm is a large-sample esti-
mation procedure (Maddala, 1992), it is required that an asymptotic test statistic be used. Thus,
since it is one of the general large-sample tests based upon MLE, the likelihood ratio test statistic
(LR) is applied to test whether or not model coecients are signicantly dierent from zero.
Under general conditions, the LR has a v
2
distribution with degrees of freedom equal to the
number of restrictions imposed and can be expressed as follows (Engle, 1984):
LR 2 ln
L
R
L
U
_ _
; 6
where L
R
denotes the restricted likelihood function and L
U
the unrestricted likelihood function.
5. Estimating the productive eciency of Asian container ports
5.1. The cross-sectional model
The rst step in the estimation procedure is to check the sign of the third moment and the
skewness of the OLS residuals associated with the sample data (Waldman, 1982). The third
moment for the terminal frontier model is )0.130; the negative sign implying that the residuals of
the sample data possess the correct pattern for the implementation of the MLE procedure. This is
reected in the histogram of the residuals shown in Fig. 4 which is clearly negatively skewed.
Because estimation procedures yield merely the residuals e rather than the ineciency term
u, this term in the model must be observed indirectly (Greene, 1993). In the case of the
754 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762
cross-sectional model shown in Eq. (2), Jondrow et al. (1982) suggest the conditional expectation
of u
it
, conditioned on the realised value of the error term e
it
v
it
u
it
, as an estimator of u
it
. In
other words, Eu
it
je
it
is the mean productive ineciency for the ith terminal operator in the
industry at any time t. Under each of the three assumed possible distributional forms for the
ineciency term in the model, this means that:
For the half-normal model:
Eu
it
je
it
rk
1 k
2
/
e
it
k
r
_ _
U
e
it
k
r
_ _
_
e
it
k
r
_
: 7
For the exponential model:
Eu
it
je
it
e
it
hr
2
v
r
v
/ e
it
hr
2
v
_ _
=r
v
_
U e
it
hr
2
v
_ _
=r
v
_
: 8
For the truncated normal model: the ineciency term is obtained merely by replacing e
it
k=r
in Eq. (7) with:
e
it
k
r
_
l
rk
_
: 9
Based on the sample cross-sectional data, the OLS estimates and the MLEs for each of the three
assumed distributions of the ineciency term in the frontier model (4) are shown in Table 4.
The estimated OLS coecients are of limited value but do provide a starting point for the MLE
process. The goodness of t of the estimated regression equation evaluated by R
2
for the least
squares method looks reasonably high at 0.649. This implies that the three inputs to the model do
satisfactorily explain the model output. In addition, the F-statistic of 87.86 shows that the rela-
tionship between exogenous and endogenous variables is signicant at the 1% level.
The results also show that, except for the second input (X
2
) relating to the terminal area in
hectares, all variables are statistically signicant at the 5% level and that the MLEs under the three
alternative ineciency distributions yield parameters which are close to each other. In addition,
Fig. 4. Skewness of the OLS residuals.
K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762 755
the signs of the parameters conform to a priori expectations. Another interesting point to address
here is that, except for the second input (X
2
) which becomes statistically signicant at the 1% level,
the MLEs dier only marginally from the OLS estimates. This is to be expected since both
methods are consistent. The likelihood ratio test statistic of 153.24 reveals a high degree of sig-
nicance beyond the 1% level, thus leading to the rejection of the null hypothesis that the coef-
cients are equal to zero.
2
As can be seen in Fig. 5, aside from the case of Kobe where a comparatively poor correlation of
approximately 0.67 was found when comparing the ineciency estimates from each distributional
assumption, the worst correlation over time between dierent ineciency estimates for any of the
other terminals or ports is impressively high at 0.995. The unusual result for Kobe is explained by
the inuence exerted by the strange data returned for the period immediately following its ca-
lamitous earthquake. Under the assumption of a half-normal distribution for the ineciency
term, the overall ineciency level of terminal operators over the sample period is illustrated in
Fig. 5.
The parameter k (as calculated by r
u
=r
v
) provides some insight into the relative variance of the
two composite errors that make up the total variation in the structural disturbance term. The two
variances of the two error components, in addition to k, indicate that the ineciency component u
varies more widely than the uncontrollable random exogenous component v. This means that the
productive ineciency u makes a more important contribution to the variability of the total error
in the cross-sectional frontier model. Prior to analysing the eciency level of each terminal
Table 4
Frontier production function of Asian container terminals
Variables/parameters OLS MLE
Half-normal Exponential Truncated normal
Constant 9.875
10.234
10.187
10.265
(22.00) (21.245) (24.394) (10.324)
ln X
1
0.154 0.157 0.154 0.163
(1.58) (1.702) (1.736) (1.757)
ln X
2
0.345
0.432
0.431
0.432
(6.21) (5.806) (6.301) (5.378)
k 0.824 0.495 0.963
r
2
v
0.249 0.247 0.237
r
2
u
0.168 0.060 0.220
h 4.067
l 0.044
Log-likelihood 121.635 )120.886 )121.630
Figures in parentheses indicate t-ratios.
*
Not signicant at the 1% level.
**
Not signicant at the 5% level.
2
The Likelihood Ratio test statistic is calculated as LR 2198:45 121:83 153:24.
756 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762
operator as it varies over time, it is useful to see each operators average eciency level over the
whole sample time period as shown in Table 5.
Under all three assumed distributions for which the model parameters have been estimated, the
average eciency level of Kaohsiung is consistently highest, followed by Pusan, Singapore,
Keelung and MTLs Hong Kong terminal. The container ports of Kobe in Japan, Manila in the
Philippines and Yantian, Shanghai and Dalian in the Chinese mainland are consistently the most
inecient ports in the sample, even though their precise rankings do not correlate perfectly across
all the distributional assumptions imposed.
One intriguing implication which can be drawn from this result is that the eciency of a
container port or terminal appears to be very closely correlated to its size as measured in terms of
Fig. 5. Overall productive ineciency levels (half-normal distribution).
Table 5
Average productive eciency of Asian container ports/terminals (%)
Container port Half-normal Exponential Truncated normal
Singapore 79.43 (3) 85.25 (3) 79.83 (3)
HIT 75.55 (6) 82.12 (6) 75.57 (6)
MTL 75.75 (5) 82.36 (5) 75.85 (5)
Sealand 73.45 (7) 79.79 (7) 73.00 (7)
Kaohsiung 80.09 (1) 85.71 (1) 80.53 (1)
Keelung 79.39 (4) 85.17 (4) 79.61 (4)
Pusan 79.85 (2) 85.54 (2) 80.32 (2)
Shanghai 68.63 (11) 75.37 (11) 67.77 (12)
Dalian 65.43 (13) 71.45 (13) 63.90 (14)
Yantian 55.98 (15) 55.45 (15) 68.55 (11)
Tokyo 72.47 (8) 79.60 (8) 72.22 (8)
Yokohama 71.52 (9) 78.81 (9) 71.24 (9)
Kobe 67.28 (12) 74.54 (12) 66.36 (13)
Port Kelang 70.35 (10) 77.39 (10) 69.83 (10)
Manila 63.69 (14) 70.19 (14) 62.33(15)
(1) Figures are calculated by converting the ineciency estimates using expu. (2) Eciency rankings are shown in
parentheses.
K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762 757
throughput; a result which is validated by previous empirical work (for a review, see Cullinane
and Khanna, 1999). Another possible interpretation might be that there is an inverse relationship
between the degree of centralised government control which is exerted over a port or terminal and
its level of eciency. This second inference would appear to potentially validate the theories of
public choice and property rights.
5.2. The panel model
By generalising the cross-sectional results in Jondrow et al. (1982) to panel models, Battese and
Coelli (1988) propose the following estimation of the time-invariant terminal operator-specic
ineciency u
i
under the half-normal assumption:
Eu
i
je
i1
; . . . ; e
iT
l
i
r
i
/
l
i
r
i
_ _
U
l
i
r
i
_ _
_
_
_
_
; 10
where l
i
c
i
l 1 c
i
e
i
, c
i
1= 1
k
T
i
_ _
and r
i
r
2
u
1kT
i
_ _
_
.
Based on the panel data, the MLEs of the terminal frontier model (5) are presented in Table 6.
As in the cross-sectional model, because the value of r
u
=r is high, the ineciency disturbance u
makes a more important contribution to the total variation represented in the error component
than do the uncontrolled shocks denoted by v.
Given the parameters in Table 6, we are now able to compute the time invariant terminal
operator-level eciency by applying the formula given in (10). Fig. 6 shows the specic eciency
for the seven major Asian container ports/terminals in the sample.
As distinct from the results achieved when considering the cross-sectional model, Singapore
is measured at the highest level of productive eciency, with Pusan second, Kobe third and
Kaohsiung fourth out of the major ports in the region. The mainland Chinese port of Shanghai
again appears as the least ecient operator. The main dierence in results compared to the cross-
sectional model is the dramatic improvement in the measured eciency level of Kobe and indi-
Table 6
Maximum likelihood estimates of panel frontier model for Asian container ports/terminals
Coecients Asymptotic t-ratios
Constant 9.648
11.427
lnX
1
0.363 1.973
lnX
2
0.427 1.991
lnX
3
0.145 1.741
k 1.437
r
2
v
0.119
r
2
u
0.171
Log-likelihood )81.913
k r
2
u
=r
2
v
.
*
Not signicant at the 1% level.
758 K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762
cates very clearly the abnormal eect of its earthquake upon the data collected and the results
produced by the ensuing analysis.
6. Conclusions
Although not wholly conclusive, the results achieved from this application of the stochastic
frontier model provide evidence of the eciency rankings of a selection of container ports and
terminals within the Asian region. There exist certain anomalies, however, which seem to suggest
that the method of analysis does not necessarily produce robust results. This might be inferred
from the divergent results obtained for Kobe from the cross-sectional, as opposed to the panel
data analysis. As such, the impact of catastrophes may well be a fruitful avenue for further
investigation and provide much-needed justication for the omission of outliers from the sample.
One major intervening variable which might well have inuenced the results achieved within
this study is the dichotomous positions of some of the sample ports/terminals with respect to the
level of market regulation of container terminal operations, particularly on the supply side. Whilst
recognising that there could well be other inuential intervening variables, simultaneously con-
trolling for each of the individual eects of both private sector participation and market dere-
gulation will allow greater ne tuning in policy assessment and/or formulation. Within the context
of the container terminal industry, the greater cross-sectional variation in the combinations of
these two variables which comes from using a larger panel sample (particularly one with greater
diversity in geography and political economy) will permit the isolation of dierences in their static
eects. Similarly, time-series variation in the sample will facilitate the assessment of the dynamic
impacts of changes in policy.
On the basis of purely a subjective appraisal of the results obtained, however, there does seem
to be some support for the notion that greater privatisation within, and/or deregulation of, the
market does seem to be closely associated with enhanced productive eciency. This empirical
investigation, however, yields no denitive and irrefutable link between the degree of private
Fig. 6. Major Asian container port/terminal-specic time invariant eciency.
K. Cullinane et al. / Transportation Research Part A 36 (2002) 743762 759
sector participation and the level of productive eciency. Although there certainly appears to be
some justication for the belief that there exists a positive relationship between the two, the most
persuasive inference to be drawn from the analysis is the consistency with which large throughput
operations appear to outperform their smaller counterparts in terms of eciency; a factor which is
likely to further reinforce the existing dominant market positions of certain ports and terminals in
the region.
Acknowledgements
The authors are grateful to the British Council, Hong Kong and the Hong Kong Polytechnic
University who provided the funding for this research under the UK/HK Joint Research Scheme
(Project Numbers JRS 94/38, G-T149 and G-S976). We would also take this opportunity to ex-
press our appreciation of the many container ports and terminals in Asia who provided us with
the supplementary data necessary to undertake this analysis. Finally, we would express our
heartfelt thanks to Professor Frank Haight and two anonymous referees for suggestions which
have undoubtedly improved the paper.
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