Development of a Strategy for Port Expansion: An Optimal Control Approach

Abstract

Development of economically efficient expansion strategies for ports and transport infrastructure in general is highly relevant in view of the increasing need for justification of public funding for such projects. Optimisation of the investment and congestion costs, taking into account economies of scale and utilisation rate, and addressing the questions of when, with what size and with what relief interval capacity a port should be expanded, constitutes a generic problem in the planning of infrastructure. The derivation of such strategy, using optimal control theory and incorporating the balance between marginal investment costs and marginal benefits (here, reduction of congestion costs), is presented in this paper. The outcome is applied to a typical port planning problem, in which the optimal expansion strategy is determined for a container port that is confronted with steady demand growth. Recommendations comprise directions for further extension of the proposed modelling approach by the (1) use of non-linear demand patterns, (2) introduction of competition and (3) consideration of internal efficiency improvement alternatives. Major investments in Dutch ports, such as a second seaward expansion of Rotterdam port – a €2.9 billion project – and the presence of fierce competition between European seaports illustrate the relevance of this research effort.