Recommendations to port service pricing for container cargoesin the port of hai phong joint stock company

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MINISTRY OF TRANSPORTATION MINISTRY OF EDUCATION & TRAINING
VIETNAM MARITIME UNIVERSITY
STUDENT NAME: VU THI TUYET
DISSERTATION
GLOBAL STUDIES AND MARITIME AFFAIRS
RECOMMENDATIONS TO PORT SERVICE PRICING
FOR CONTAINER CARGOES IN THE PORT OF HAI
PHONG JOINT STOCK COMPANY
HAI PHONG – 2015
MINISTRY OF TRANSPORTATION MINISTRY OF EDUCATION & TRAINING
VIETNAM MARITIME UNIVERSITY
STUDENT NAME : VU THI TUYET
CLASS : GMA02
STUDENT ID : 50101
DISSERTATION
GLOBAL STUDIES AND MARITIME AFFAIRS
RECOMMENDATIONS TO PORT SERVICE PRICING FOR
CONTAINER CARGOES IN THE PORT OF HAI PHONG
JOINT STOCK COMPANY
Supervisor : MSc. Hoang Thi Lich
Division : Global Studies and Maritime Affairs
Faculty : Economics
HAI PHONG – 2015
Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
PREFACE
Port not only plays an important role in the circulation of goods but also becomes
the gateway connecting nation with the world. Thanks to the economic development
and the increasing trade of goods among regions and countries, the port provides
different types of services to meet the increasing demand of the international and
national economy. Port service price is one of the most essential nodes of port to
attract more customers and enhance competitive ability, and port’s attraction
depends significantly on not only service quality but also port service price. Port
service price is one of the concerned criteria which impacts to the satisfaction of
customers who use the port services. Therefore, port pricing is associated with the
prediction of demand, investment decisions and developed strategies of port. This
dissertation will present and the price system and pricing method of the Port of Hai
Phong joint stock company to meliorate the price system of the Port of Hai Phong
Joint stock Company to strengthen competitive ability. I am responsible for my
report and ensure that this is my own. If I violated about copyright infringement, I
will be punished by university and department.
Student
Vu Thi Tuyet
VU THI TUYET – GMA02 Page
Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
ACKNOWLEDGEMENT
During the period of practicing time in the Port of Hai Phong Joint Stock Company,
I received the guidance from Master of art Hoang Thi Lich, leader and all the staffs
of the Port of Hai Phong. Therefore I acquired more knowledge for my dissertation
and future job.
First of all, I would like to thank to instructor “Master of Art Hoang Thi Lich” who
helped me and guide me a lot to complete this report. I am looking forward to
assessing and commenting from teachers for my report. This helps my dissertation
become better.
I would like to express my sincere gratitude to the leader and all the staffs of the
Port of Hai Phong for the helps to my research, for their patience, motivation, and
immense knowledge. Their guidance helped me in all the time of research and
writing of this dissertation.
VU THI TUYET – GMA02 Page
Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
TABLE OF CONTENTS
PREFACE................................................................................................................. i
ACKNOWLEDGEMENT......................................................................................ii
LIST OF ABBREVIATIONS.................................................................................v
LIST OF TABLES................................................................................................vii
LIST OF FIGURES.............................................................................................viii
INTRODUCTION...................................................................................................1
CHAPTER I: LITERATURE REVIEW...............................................................3
1.1. Port services for container cargoes.........................................................3
1.1.1. Port services...........................................................................................3
1.1.1.1. Port service definition.......................................................................3
1.1.1.2. Classification of port services...........................................................3
1.1.2. Container cargoes..................................................................................5
1.1.2.1. Container cargoes definition.............................................................5
1.1.2.2. Port services for container cargoes...................................................5
1.2. Port service pricing..................................................................................6
1.2.1. Port service price...................................................................................6
1.2.1.1. Definition..........................................................................................6
1.2.1.2. Factors affecting to the port service price.........................................6
1.2.2. Port service pricing................................................................................9
1.2.2.1. Principles on port service pricing......................................................9
1.2.2.2. Port pricing method..........................................................................9
CHAPTER II: PORT SERVICE PRICING FOR CONTAINER CARGOES
IN THE PORT OF HAI PHONG JOINT STOCK COMPANY.......................12
2.1. General introduction of the Port of Hai Phong JSC………………...12
2.1.1. History of Hai Phong Port Joint Stock Company.................................12
2.1.2. Infrastructure.......................................................................................13
2.1.2.1. Navigation channel.........................................................................13
2.1.2.2. System of berths.............................................................................13
2.1.2.3. Storage system................................................................................14
2.1.2.4. Equipment.......................................................................................14
2.1.4. The business result of the Port of Hai Phong Joint Stock Company....18
2.1.5. Development plan of the Port of Hai Phong Joint Stock Company.....21
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
2.2. Port serice pricing method for container cargoes in the Port of Hai
Phong Joint Stock Company.............................................................................22
2.2.1. The service price system for container cargoes being applied in the Port
of Hai Phong JSC............................................................................................22
2.2.1.1. The price of 3 main services for container cargoes.........................23
2.2.1.2. The prices of other services for container cargoes..........................26
2.2.2. Port pricing method for container at the Port of Hai Phong JSC..........26
2.2.2.1. National regulations and private regulations on port pricing..........26
2.2.2.2. Port pricing method........................................................................29
2.2.2.3. Example of port service pricing for container handling..................31
2.3. Evaluations to port service price system and port service pricing
method for container cargoes of the Port of Hai Phong JSC.........................33
2.3.1. Advantages..........................................................................................33
2.3.1.1. Stable price system.........................................................................33
2.3.1.2. Concise pricing method..................................................................33
2.3.2. Disadvantages......................................................................................34
2.3.2.1. Limitations of domestic and foreign pricing...................................34
2.3.2.2. Limitations of pricing method.........................................................37
CHAPTER III: RECOMMENDATIONS TO PORT SERVICE PRICING
FOR CONTAINER CARGOES IN THE PORT OF HAI PHONG JOINT
STOCK COMPANY.............................................................................................39
3.1. Recommendations to the Port of Hai Phong Joint Stock Company. .39
3.1.1. Recommendation to pricing method....................................................39
3.1.2. Recommendation to implementation scope.........................................39
3.1.3. Recommendation to implementation time...........................................40
3.1.4. Recommendation to pricing strategy...................................................40
3.1.5. Recommendation to application of IT system.....................................41
3.2. Recommendations to authorities..........................................................41
3.2.1. Recommendation to the Ministry of Transport....................................41
3.2.2. Recommendation to the Ministry of Finance.......................................41
3.2.3. Recommendation to the Viet Nam seaports Association.....................42
CONCLUSION......................................................................................................43
REFERENCES......................................................................................................44
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
LIST OF ABBREVIATIONS
CFS Container Freight Station
CY Container yard
DWT Deadweight tonnage
EU European Union
FEU Forty-foot equivalent unit
FIATA International Federation of Freight Forwarders Associations
IT Information technology
JSC Joint Stock Company
LCL Less than container loading
MT Metric Tons
NVOCC Non – vessel operating common carrier
ODA Official Development Assistance
TEU Twenty-foot equivalent units
VIMARU Viet Nam Maritime University
VINALINES Viet Nam National Shipping Lines
WTO World trade organization
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
LIST OF TABLES
Table 1.1: Port services for ship and cargo………………………………………….4
Table 1.2: Direct services and intermediary services of port ……………………….4
Table 1.3: Advantages and disadvantages of each port pricing method …………..11
Table 2.1: The navigation channel of the Port of Hai Phong ……………………...13
Table 2.2: Key area at berth of the Port of Hai Phong …………………………….13
Table 2.3: Equipment of the Port of Hai Phong Port Joint Stock Company……….15
Table 2.4: Cargoes throughput of the Port of Hai Phong Joint Stock Company from
2011 to 2014………………………………………………………………………..18
Table 2.5: The performance indicators of the Port of Hai Phong Joint Stock
Company in 2014…………………………………………………………..………20
Table 2.6: The domestic price and foreign price of warehousing service for general
container……………………………………………………………………………23
Table 2.7: The price of warehousing service for reefer container…………………23
Table 2.8: Price of container handling of the Port of Hai Phong ….………………24
Table 2.9: The price of packing goods on container and withdrawing goods out of
general container……………………………………………………………….......25
Table 2.10: The price of packing goods on container and withdrawing goods out of
reefer container…………………………………………………………………….25
Table 2.11: Price of container weighing at the Port of Hai Phong Joint Stock
Company…………………………………………………………………………...26
Table 2.12: Price of container transport inside the port……………………………26
Table 2.13: Price of container inspecting…………………………………………..26
Table 2.14: The rate of salary deductions………………………………………….31
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
Table 2.15: The price of container handling at the Port of Hai Phong JSC...
…………………………………………………………………………….....33
Table 2.16: The comparison between domestic price and foreign price of
warehousing service for container…………………………………………………34
Table 2.17: The comparison between domestic price and foreign price of
stevedoring service for container…………………………………………………..36
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
LIST OF FIGURES
Figure 2.1 Organization diagram of the Port of Hai Phong JSC…………...............16
Figure 2.2: Total cargoes throughput of the Port of Hai Phong Joint Stock Company
from 2011 to 2014………………………………………………………….………19
Figure 2.3: Total container throughput of the Port of Hai Phong Joint Stock
Company from 2011 to 2014………………………………………………………19
Figure 2.4: The comparison between domestic price and foreign price of
warehousing service for general container…………………………………………35
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
INTRODUCTION
1. Necessity
In the process of economic integration and globalization, liberalization of
international trade, Viet Nam makes effort to implement open-door policy to enrich
international relations. Maritime sector plays a vital role in the development of the
economy of country. More than 90 percentages of imported and exported cargoes
are transported by sea. In addition, container is considered as a great revolution in
the marine industry because transporting by container helps the volume of goods
traded worldwide increase. With the scientific and technological development,
transporting containers on super vessels is no longer strange. Annually, around 72%
of containers throughput went to the southern ports of Vietnam and 26% of
containers throughput went to the northern ports [CITATION Van09 \l 1033 ].
However, with open-door policy and the rapid growth of seaports especially
container terminals, Viet Nam still is not able to gain competitive ability compared
to other ports in the region such as Singapore, Hong Kong and Bussan port…
because of issues related to port service price for container cargo. Port services
pricing for container cargo has long been a controversial issue concerning a large
number of ship-owners, shipping companies and ports.
There are several distinctive gaps in the price system of port services for container
cargoes in the port of Hai Phong port joint stock Company in particular and in other
ports of Viet Nam in general. Firstly, the port service pricing for container cargo is
not based on a systematic and specific method. Secondly, there has existed the
discrimination between domestic price and foreign price in the port services. The
disparity between domestic price and foreign price is considerable, leading to the
inequality between domestic shipping lines and foreign shipping lines. This
alleviates the attraction of the Vietnamese ports in the context of economic
integration and trade liberalization. It is necessary that pricing port service for
container cargoes need to study rigorously and deeply.
Via the study on systematic issues related to port services pricing for container
cargo, I will refer to some recommendations to port pricing for container cargoes in
the Port of Hai Phong in order to not only ensure economic benefits for port and
customers but also enrich competitive ability of port in the globalization era.
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
2. Research objective
The objective of research is to standardize the port price system and port pricing at
the port of Hai Phong JSC, especially improve the price system for each kind of
service of container cargoes based on cost foundation and other factors to compute
sufficiently to enhance competitive ability in the regions and the world.
3. Research scope
Research scope focused on the Port of Hai Phong Joint Stock Company. Research
scope is limited in the port service prices for container cargoes at the Port of Hai
Phong JSC from 2010 to 2014.
4. Research methodology
Researches methods are used in this dissertation are: empirical methodology,
statistical methodology, comparative methodology.
5. Research findings
In the Topic “recommendations to port services pricing for container cargo in the
Port of Hai Phong Joint Stock Company”, the price system of port services for
container cargo in the Port of Hai Phong JSC will be analyzed. Also the port service
pricing method of the Port of Hai Phong will be analyzed to assess application level
and efficiency level. From the analysis of statistics and deep understanding on
situations and drawbacks of port service pricing method in Hai Phong port, I
therefore will set up new method to build the port services price applied in the Port
of Hai Phong in the future in order to minimize the disadvantages of old method
used in the Port of Hai and ensure that the new method of port service pricing could
be suitable with practical market.
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
CHAPTER I: LITERATURE REVIEW
1.1. Port services for container cargoes
1.1.1. Port services
1.1.1.1. Port service definition
According to the traditional view, the main task of the port is stevedoring, however,
according to the modern view, the business field of the port is expanded, the port
not only provides cargoes stevedoring service but also provides many different
services related to the distribution of cargoes such as supervising the cargoes
transported to the final destination.
According to Britannica dictionary, port service is an industry that provides
invisible or tangible objects for customers who are ship-owner, shipping agency,
cargoes- owner and consignee trustees. There are no specific concepts and fully
definition about port services in Britannia dictionary, port services are defined that
port economics activities are service industry which provides the equipment or
facilities of port for cargoes handling and ship docking. Overall, it is very difficult
to define exactly and fully in terms of “port service”.
The world in general and Vietnam in particular have not given an specific definition
of port service because of the diversification of port service which always change
and transform to the needs of the market .
Each country has a different explanation about the definition of seaport services. In
this dissertation, the port services are defined by the world trade organization
(WTO): “Port services are the use of port resources including infrastructure and
facilities, labor forces to provide service toward vessel, cargo and passenger for
customers. Port plays a role as a supplier and ship-owner, shipping agency, cargo
owner and consignee trustee are considered as a customer”[ CITATION WTO91 \l
1033 ].
1.1.1.2. Classification of port services
According to the provision 1 of the decree 10/2001/ND-CP of the Government
dated on March 19th 2001 about the classification of port services. Port services are
grouped according to the objects served and the nature of service[CITATION
Gov01 \l 1033 ].
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
(a) Port services classified according to the objects served
Table 1.1: Port services for ship and cargo
Group 1: Services for ship Group 2: Services for cargo
 Ship support  Cargo stevedoring
 Ship escort  Cargo tallying
 Ship repairing  Warehousing
 Ship cleaning  Forwarding
 Mooring and unmooring  Package
 Dredging  Consolidation
 Towage  Cargo transport
 Pilotage  Withdrawing and putting goods
 Maritime rescue on container
(b) Port services are classified according to the nature of service
Table 1.2: Direct services and intermediary services of port
Group 1: Direct services Group 2: Intermediary services
- Ship supplying - Ship-broker: middleman signs the contracts related
- Ship repairing to maritime activities requested by the cargo-owner
- Towage under each specific contract. For example, cargo
- Ship hygiene insurance contract, cargo transport contract.
- Cargo tallying - Non-vessel operating common carrier (NVOCC):
- Cargo stevedoring According to Decree 335 of China, “NVOCC is the
- Warehousing carrier receiving cargoes from the shipper and issuing
a B/L or other documents of their own, then
arranging transportation process through other
international carriers and taking responsibility for
those cargoes with customer as the actual
carrier”[CITATION Dec01 \l 1033 ].
1.1.2. Container cargoes
1.1.2.1. Container cargoes definition
According to ISO No.668 about container characteristics, container is considered as
a kind of special cargo which plays an important role as a transport tool, container is
a box in which goods can be stored and transported. Container is designed with
sustainable and strong characteristics to be suitable with the re-use. Container is
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
specially designed for purpose: container cargoes are shipped by different modes of
transport. Equipment installed of container enables convenient handling,
particularly when container is transferred from a mode of transport to other modes
of transport. It is designed for easy packing or withdrawing goods out of the
container; with volumes equal to 1or more cubic meter[ CITATION ISO91 \l
1033 ]. There are seven kinds of containers following ISO standard: General
purpose container, bulk container, named cargo container, reefer container, open-
top container, platform container, and tank container.
1.1.2.2. Port service for container cargoes
 Service of container stevedoring:
- Stevedoring container from a Ship (barge)  CY.
- Stevedoring container from a Ship (barge)  truck, barge at wharf.
- Stevedoring container from Ship’s hold  barge or another ship at water
area.
- Other modes of handing (according to requirement of customer)
 Service of warehousing container including general container and reefer
container:
- Service price for general container is calculated according to the number of
day container stored at the warehouse or CY of port.
- Service price for reefer container is calculated according to the number of
hour port running electricity for container.
 Service of putting goods on container and withdrawing goods from container:
- Packing goods on container/withdrawing goods in container from CY 
truck
- Packing goods on container/withdrawing goods in container from CY 
ship/ wagon/ barge before transporting goods to the warehouse of port.
- Putting /withdrawing goods from one container at CY  other container at
CY.
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
 Container forwarding: is the container transportation service to destination, in
which freight forwarder sign contract with shippers, also signed contract with
the carrier to perform the service[CITATION FIA \l 1033 ].
 Container weighing: is the service requested by customer, container is
transported to weighing station for weighing to check the actual weight of the
container to meet the provisions of the Health, Safety and the Law. Other wises,
container weighing service help ship-owner to prevent situation - withdrawing
goods out of container.
 Container cleaning and repairing: is the hygiene service for empty container,
cleaning container shell - warning stamps, deodorizing chemical poison to
ensure sanitation for container to re-use [ CITATION MAE15 \l 1033 ].
1.2. Port service pricing
1.2.1. Port service price
1.2.1.1. Definition
According to the textbook of port economics published in 2015, the term “port
service prices” is briefly named “port prices”. It is difficult to define “port prices”.
The port prices are defined by the definition of port service price for vessel, cargo
and passenger. Port prices are the price applied for cargo, vessel, and passenger.
“Port price for passenger” is called port ticket price and often combined with train
ticket price. “Port price for cargo” is price paid by cargo-owner for port when using
facilities and equipment of port to handle cargoes. “Port price for vessel” is price
paid by ship-owner for port when docking at berth and using port services including
ship’s hold hygiene, mooring and unmooring, ship escort [CITATION Uni15 \l
1033 ].
The services price which is the prices established by service provider is negotiated
between service provider and customer. The port services price is the price which is
paid for port by customers who are ship-owners, ship-agency, cargo-owners and
trustees. Port service price is divided into two types which are port service price in
fact, the port service price based on real cost.
1.2.1.2. Factors affecting to the port service price
(a) Environmental pollution factor
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
A port need to consider the impacts from outside factors the port's activities affect
those who do not use the port services. If the external impact is negative, people
who do not use port services will bear the cost of this external influence rather than
port operators. One of the typical examples is the cost of air and water pollution.
Ship docking to the port causes air pollution when the ship engines are run to supply
electricity for ships. Ship causes water pollution because ship emits the toxic from
ship ballast water to at the port area. Air pollution affects to the health of people
living around the port. Ballast water can contain strange animals and plants from
foreign ports where ship ran through, also this strange animals and plants may have
adverse effects on local animals and plants. Therefore, people who do not use port
services (those live near the port area) must bear the cost of environmental cost.
It is supposed that port operators seek out the effective operation target to maximize
net profit of port services, and in which the port service price are applied according
to marginal cost. However, if the port must bear the environmental costs when
providing port services, port services price according to marginal cost do not play a
role in maximizing the net profit of port services.
In case of port service prices affected by the environmental cost, to achieve the
target of maximizing net profit, the environmental costs of port must also reflects
the variable costs of the port, or in other words the price according to the
environmental costs must reflect the marginal social cost (the internally marginal
cost and externally marginal costs). Therefore, a port is capable of achieving target
of effective exploitation as well as maximizing net profit of port services when Port
Authority requires the port operators to take responsibility for the environmental
costs or Port Authority collects charges of those who cause pollution. For example,
the activeness of the port operators for the environmental costs will have positive
effect if imposing the polluted tax on heavily polluting ships (this tax is equivalent
to the externally marginal cost) to remediate pollution.
(b) Congestion factor
Port congestion incurs when people using port services are intervened by the use of
other resources of the port, therefore service time in port will increase (Service time
is the time the ship stays at the berth whether it works or not).
Port congestion may be spontaneous or intentional. Intentional congestion incurs
when the port has the priority, for instance port has the priority in serving ship and
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
transport vehicles inside the port for a special kind of cargo rather than serving ship
and transport vehicles of other cargoes. Spontaneous congestion occurs in any
normal exploitation activities of the port.
When port is congested, it will lead to increase in a range of costs such as cost of
detention of the vessel, the cost of waiting time ..., and the import-export business
enterprises have to suffer from these costs so that it can reduce the profit of
businesses. Frequent and prolonged congestion at port will decrease the competitive
ability of ports in transshipment service which considerably contribute to revenue
for the State budget[CITATION ToT08 \l 1033 ]. Cost for the time a ship waiting
for an available berth (or cost of waiting of ship to be served) is the highest
congestion costs which incur when demand exceeds supply. Congestion at berth
occurs when the ship must wait to be docked at berth because that berth also serves
another vessel [ CITATION Vie13 \l 1066 ]. Congestion due to handling cargoes
occurs when a vessel docking at berth must wait to be handled until another vessel
ended the process of cargo handling when resources for stevedoring the ship is
limited.
Congestion at the port gates occur when transport vehicles enter or go out the port
gate, and congestion at port gate occurs when loading and unloading cargoes onto
trucks and trains.
Port service price for (waiting time) port congestion is collected to increase the
capacity of service with the fixed resource, for example, when the trucks stand in
line for entrancing the port. Some ports such as Los Angeles and Port of Long
Beach has applied for program “pier pass”, in which the truck receiving container at
port must take a fee on each container during peak hours and take no fee at normal
hours. The objective of the program is to transform transportation flow from peak
hour to normal hour; thereby the service capability of the port gates in 24 hours is
enhanced.
(c) Market factor
Port prices are affected by price fluctuation of competitors and some goods on
market. For example, the increase of petroleum price leads to high price of port
service because of the rise in material. In nature, many port operators make decision
on port pricing based on susceptibility of price of competitors and the demand of
potential market. This can motivate competition and reduce the monopoly power of
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
some ports. Market factor is a common thesis in early literature review for port
pricing[CITATION Ben79 \l 1033 ].
1.2.2. Port service pricing
1.2.2.1. Principles on port service pricing
Pricing port services need to comply with national and international principles:
 Pricing port services had to match with international practices and the real
situation in Vietnam seaports in the process of economic integration in
regional and the world.
 Pricing port services had to match with the economic development policies of
the party and Viet Nam government (business law with provisions in
Document 4211/BKHDT-business registration, Decree 78/2015/ND-CP dated
11/01/2015 by Government)[CITATION Bus \l 1033 ].
 Pricing port services had to ensure coverage of the costs, accumulating capital
for re-investment in infrastructure as well as machinery and equipment.
 Pricing port services must be flexible to meet the need of the market and
increase competitiveness in the fiercely competitive market at present.
 Pricing port services had to abide by the price frame for container handling
issued by the Ministry of Finance to unified price management.
1.2.2.2. Port pricing method
Market share of each strategic commodity market in each year and each period of
time, price is given to customer matching with reality. The price of monopoly types
of cargoes can be raised at a reasonable price, the price of competitive cargoes can
be balanced based on average cost to create the largest competitiveness. In general,
each type of service prices will be priced in different methods. Some basic methods
for port pricing literature are considered.
(a) Port pricing based on average cost
This pricing method is calculated by the fixed cost, variable cost and demand
estimated for providing port service. It is equal to (sum of fixed cost and variable
cost) which divides the number of demand estimated for providing port service.
The advantage of this method is to ensure that income will be equivalent to the total
cost if demand estimated for providing port service is performed. This method can
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Recommendations to port service pricing for container cargoes in the Port of Hai Phong JSC
achieve the overall financial goals, named as non-subsidized prices. With the port
having high rate of fixed costs, the increasing yield can significantly reduce cost per
unit.
The disadvantage of calculation method based on average cost is that there are two
trends in setting port service price, price may be set to be higher than real demand
or price may be set to be lower while demand is much higher [CITATION
MAL06 \l 1033 ].
(b) Port pricing based on variable cost
This pricing method is calculated by variable cost, demand for providing port
service and equipment. Specifically, it is equal to variable cost which divides the
amount of (demand for providing port service and equipment).
In general, this method is only suitable when variable costs account for a large
amount of total costs. For example, the labor cost for stevedoring bulk cargoes. In
fact, pricing port service based on variable costs is not performed, just on the
theory. However, this method encourages the effective use of the resources of port.
The reason why method of pricing port service based on variable costs is not
implemented is that the variable costs of equipment and port services are so low that
the deficit cannot be offset. Therefore, this method cannot be considered as a basis
to set price for port services.
(c) Port pricing based on marginal cost
This pricing method is calculated by marginal cost and demand for providing
service following the plan. Specifically, it is equal to marginal cost which divides
the amount of (demand for providing service following the plan).
Pricing port service based on marginal cost requires the relationship between
variable costs and desired output which needs to be clarified during the price being
performed. The change of using resource needs to be calculated when demand
increases. To have information about marginal cost, it waste much time to collect
because the change of variable cost in a period of time is considered on its
correlation and other fluctuation elements of demand. In addition, it is very difficult
to estimate and predict marginal cost in both short – term and long – terms. Also it
is hard to divide marginal cost following to charge categories because of the
difficulty of demand prediction. According to port economics text book, the
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