The Stochastic Frontier Model for Technical Efficiency Estimation of Interconnected Container Terminals

Abstract

Nowadays, container terminals are subject to extensive technological changes and specific transformations. Changes applied to terminals tend to increase their ability to offer high- end personalized services to the customers and finally affect the competitiveness. The estimation of efficiency corresponds to terminals’ ability to increase the production with a specific level of inputs and has been the topic of many studies, especially those conducted on a wider regional or global level. The main objectives of our research are to evaluate the model, conduct sensitivity analysis, and estimate technical efficiencies on a sample of North Adriatic Ports Association (NAPA) interconnected medium-sized terminals, located in the narrow geographic area, on the same transport corridor thus representing each other’s competition. For that purpose, we have implemented a stochastic frontier approach on a balanced panel dataset of first-order and additionally introduced control input variables with Cobb-Douglas and trans-logarithmic functional forms. The stochastic production frontier estimation shows the range of NAPA terminals’ technical efficiencies from 65.24% to 93.92%, with a global average of 78.49% and a positive trend of 1.28% over the observed period of time. Our findings also indicate that NAPA terminals with the highest estimated technical efficiencies do not necessarily need to be the most productive ones, and vice versa.