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A Study on Cost Functions and Technical Efficiency of the Korean Container Terminals
Writer 최고관리자 Date 2019-03-05
Report No. 2018-16 Research Manager Seok Woo, Choi


▸ Korea’s container terminal operators vary depending on principal agents of ownership, development and operation. When the total cost of operators is mainly divided into three elements: the cost of labor, the cost of capital and other operating expenses, it shows the structural characteristics as follows;
- In general, the cost of labor accounts for approximately 40% of the total cost. The composition of the cost of capital and other operating expenses is different between leased terminals and private sector-invested terminals.
- For the recent five years (2013~2017), the average cost of labor and handling volume per one worker have shown an increasing trend. However, the difference between ports is quite large.
- The productivity of most terminal operators is also on the increase. In particular, the larger the size of a container terminal is, the higher its productivity per labor, equipment and facility is.
▸ Out of 29 container terminal operators operated in 11 ports in Korea, 13 operators responded to the survey. With these 13 terminal operators, the study estimated the translog cost function by utilizing a total of 116 observed values collected from 2007 to 2017. The major findings are as follows;
- The final analysis model was the translog cost function which consists of prices of three factors including the cost of labor, the cost of capital and other operating expenses as well as output volumes. When estimated with the iterative seemingly unrelated estimation (ITSUR) method, it showed statistically significant results.
- When analyzing the economies of scale with estimated coefficients, the result showed that Korea’s container ports have economies of scale throughout the all analysis periods and operators.
- With regards to the analysis of price elasticity and the elasticity of substitution between the factors of production, changes in demand of production factors are inelastic to changes in price. Also, the possibility of substitution between production factors was analyzed to be low.
▸ The study used the Stochastic Cost Frontier Approach to estimate the cost efficiency of individual terminal operators, while utilizing the Tobit Regression Model to analyze the determinants affecting the cost efficiency. The results are as follows;
- The cost inefficiency of Korea’s container terminal operators turns out to be low compared to that of leading companies. The deviation between operators is not that significant.
- According to the analysis of determinants affecting the cost efficiency, the cost efficiency is improved when the handling capacity of containers, the ratio of direct employment cost and the ratio of labor cost have increased.
- On the other hand, the longer the quay, the higher the inefficiency of the cost. The types of operation and the number of standard equipment did not have significant impact.
▸ Given a comprehensive analysis on the results, this study presents the following three policy suggestions to enhance the cost efficiency of Korea’s container terminals, increasing its competitiveness.
- (a) Securing the elasticity of the labor structure at ports, (b) Adopting innovative operating system for terminals , and (c) Introducing a system for establishing statistics data
Research Project Report 상세보기
A Study on Cost Functions and Technical Efficiency of the Korean Container Terminals
Report No. 2018-16 Research Manager Seok Woo, Choi


▸ Korea’s container terminal operators vary depending on principal agents of ownership, development and operation. When the total cost of operators is mainly divided into three elements: the cost of labor, the cost of capital and other operating expenses, it shows the structural characteristics as follows;
- In general, the cost of labor accounts for approximately 40% of the total cost. The composition of the cost of capital and other operating expenses is different between leased terminals and private sector-invested terminals.
- For the recent five years (2013~2017), the average cost of labor and handling volume per one worker have shown an increasing trend. However, the difference between ports is quite large.
- The productivity of most terminal operators is also on the increase. In particular, the larger the size of a container terminal is, the higher its productivity per labor, equipment and facility is.
▸ Out of 29 container terminal operators operated in 11 ports in Korea, 13 operators responded to the survey. With these 13 terminal operators, the study estimated the translog cost function by utilizing a total of 116 observed values collected from 2007 to 2017. The major findings are as follows;
- The final analysis model was the translog cost function which consists of prices of three factors including the cost of labor, the cost of capital and other operating expenses as well as output volumes. When estimated with the iterative seemingly unrelated estimation (ITSUR) method, it showed statistically significant results.
- When analyzing the economies of scale with estimated coefficients, the result showed that Korea’s container ports have economies of scale throughout the all analysis periods and operators.
- With regards to the analysis of price elasticity and the elasticity of substitution between the factors of production, changes in demand of production factors are inelastic to changes in price. Also, the possibility of substitution between production factors was analyzed to be low.
▸ The study used the Stochastic Cost Frontier Approach to estimate the cost efficiency of individual terminal operators, while utilizing the Tobit Regression Model to analyze the determinants affecting the cost efficiency. The results are as follows;
- The cost inefficiency of Korea’s container terminal operators turns out to be low compared to that of leading companies. The deviation between operators is not that significant.
- According to the analysis of determinants affecting the cost efficiency, the cost efficiency is improved when the handling capacity of containers, the ratio of direct employment cost and the ratio of labor cost have increased.
- On the other hand, the longer the quay, the higher the inefficiency of the cost. The types of operation and the number of standard equipment did not have significant impact.
▸ Given a comprehensive analysis on the results, this study presents the following three policy suggestions to enhance the cost efficiency of Korea’s container terminals, increasing its competitiveness.
- (a) Securing the elasticity of the labor structure at ports, (b) Adopting innovative operating system for terminals , and (c) Introducing a system for establishing statistics data
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