Economies of scale and scope for cargo handling firms in Spanish ports.

Cargo handling in ports is a multioutput activity, as freight can arrive in many forms like containers, bulk, rolling stock, or non-containerised general cargo. Each type of movement involves the use of both common and specialised inputs. In this paper the operation of cargo handling firms in ports is analysed by means of the estimation of a multioutput cost function, using monthly data on three firms located at the Las Palmas port in Spain. Both size and traffic mix is first shown to be sufficiently diverse as to allow for a reliable estimation of a representative flexible (quadratic) cost function that permitted the calculation of product specific marginal costs, economies of scale (general and by firm) and economies of scope. Containerised cargo is shown to present the smallest marginal costs for all firms, while non-containerised general cargo has the largest. The largest firm exhibits constant returns while the smaller are still in the increasing returns zone, which suggests the convenience of increasing their scale of production. All firms exhibit economies of scope for every possible partition of the product set, which indicates the inconvenience of cargo handling specialisation by type. Prevailing average minimum prices are found to be of comparable magnitude (slightly larger) regarding the estimated marginal costs. This observed minimum price level suggests that they could be potential second best (Ramsey) prices needed to cover costs in the presence of increasing returns. For the covering abstract see ITRD E126595.