Port capacity investments under uncertainty: the use of real options models
24 februari 2020
University of Antwerp, Stadscampus, Graduation Hall, Grauwzusters Cloister - Lange Sint-Annastraat 7 - 2000 Antwerp (route: UAntwerpen, Stadscampus
Prof. Eddy Van de Voorde, Prof. Hilde Meersman
PhD defence Matteo Balliauw - Faculty of Business and Economics
Port operations are important for worldwide and regional trade and for the development of regions. Investments in port capacity are required to perform these activities. Port infrastructure and some superstructure investments involve large sums of money, are irreversible and involve a lot of uncertainty. In the literature, real options (RO) have been identified as a methodology to improve investment decisions with a flexible size and timing under uncertainty. Elements of existing RO models from other sectors, suited for port capacity investment analyses, are combined in a framework, together with specific port-economic characteristics. Based on this, new RO port models are constructed to meet this thesis' objective, which is to study how optimal port capacity investment decisions are influenced by different port- and project-related economic characteristics under uncertainty.
In the developed models, throughput level, timing and size of the investment are flexible. As an addition to the literature, the users' congestion costs are added to the RO models for port capacity investments. Next to a base case benchmark model, a second model adds the possibility of a partially or fully publicly owned port authority (PA), as well as the division of cash flows and activities in a landlord port model between the two investing actors: the PA and the port operator. A third model adds inter-port competition to the base case model: two new ports, competing in quantities, are constructed according to a Stackelberg leader-follower model. A final model considers port expansion of one service port, as well as the construction lead time.
If port customers are on average more waiting-time averse, new port investment projects need to be developed later, and their size needs to be larger as well. In the case of port expansion, such an investment should be made earlier, whereas the impact on size is limited. Uncertainty leads to later and larger investments. Increased public ownership leads to earlier and larger investments in new ports, whereas expansions projects are even more anticipated if the public share is larger. In landlord ports, the two investing actors can agree to follow the investment strategy that would be optimal under a service port configuration. Otherwise, the PA can use the concession fee to force the terminal operator to invest in the PA's optimum. Inter-port competition reduces the option value of waiting. This leads to earlier and smaller leader investment, compared with its unrestricted strategy. The follower however will invest later and more.