Investment in container ports along the Maritime Silk Road in the context of international industry transfer: the case of the port of Colombo

Abstract

In the context of industry transfer, we study the problems of port investment and port pricing for sites where manufacturing plants may be relocated. We propose an optimization method that considers mutual feedback between port investment and international industry transfer, and find the equilibrium for industry transfer and port supply. In equilibrium, port and industry are unwilling to further increase their scale. First, dummy links are added to the physical transport network to represent the manufacturing plants relocated to new sites (namely, industry transfer) and production activities. In this way, the physical transport network is expanded into a super-network in which the activities of plant relocation, production and transport can be analysed. Next, with the aim of relocation being to minimize total production cost, we adopt the user equilibrium traffic assignment model to analyse the path choice behaviour of products in the super-network and determine the relocation situation (namely, manufacturing amounts transferred from the original sites to the new sites). In the model, we study the impact of port investment on land prices and labour wages—endogenous variables which impede production links—thus showing the interactions among port services, industry transfer and regional economic growth. We use the Port of Colombo in Sri Lanka as a case study. Based on our model, the Port of Colombo should build eight new container berths, and port charges should be 111 USD/TEU. In this scenario, a value of 31.31 billion USD of annual products is generated, from plants relocated from China to Sri Lanka. The results show positive feedback with an upper bound between port investment and the number of relocated plants. In the initial stage of port growth, there is also positive feedback between port investment and return, and the inflection point exists in the yield curve.