The Effect of Demand Uncertainty on Port Terminal Costs

A recent survey found that 40 per cent of vessels arrive later than planned, so demand uncertainty is a salient feature of port terminal activity. Terminals facing greater demand uncertainty and that wish to cater for this will incur extra costs to avoid the risk that shipping companies replace them. We estimate a short-run cost function using data on three Spanish port terminals which includes demand uncertainty as a regressor. We find that demand uncertainty has a significant effect on costs and we quantify this. Not taking demand uncertainty into account may lead to port terminals' efficiency being underestimated. © 2011 LSE and the University of Bath