Containerport Investment Appraisal and Risk Analysis: Illustrative Case Study

Abstract

There are considerable economic and political pressures to expand existing and develop new containerports to accommodate the increasing trade of containerized cargoes carried on ever-larger vessels. However, port development involves a major investment and poses many financial, economic, and environmental risks. The major sources of financial risk facing prospective terminal operators are reviewed and methods to identify the overall financial risk and importance of individual sources of risk are illustrated. Methods used focus on net present value and the use of extensive sensitivity analyses as well as the use of the more formal Monte Carlo analysis. A dynamic discrete-event model is also employed to assess the internal consistency and feasibility of a developer’s port plans and projected operations. Generalized data from previous early engineering-economic studies of a proposed port at Quonset Point, on Narragansett Bay, Rhode Island, are employed to illustrate the use of these methods. Four specific risks are considered: start-up volume of moves, growth rate of moves, costs, and efficiency of yard operations. Results suggest that the start-up volume and growth rate of moves are critical factors in the financial success of a proposed port. Results can be extended to more variables and refined when information on more current specific port plans becomes available.