Maritime Logistics
Maritime Logistics
Maritime Logistics
Logistics
Dong-Wook Song dedicates this book
to his beloved family members Sung-Hee,
Jee-Young and Jee-Hoon.
Maritime
Logistics
A guide to contemporary
shipping and port
management
Dong-Wook Song
Edinburgh Napier University
Photis M Panayides
Cyprus University of Technology
Koganpage
Publisher’s note
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A CIP record for this book is available from the British Library.
Maritime logistics : a guide to contemporary shipping and port management / edited by Dong-
Wook Song, Photis M. Panayides. – Second edition.
pages cm
ISBN 978-0-7494-7268-9 (paperback) – ISBN 978-0-7494-7269-6 (ebook) 1. Shipping –
Management. 2. Harbors – Management. 3. Business logistics. 4. Globalization. I. Song,
Dong-Wook. II. Panayides, Photis M.
HE571.M367 2015
387.068’7—dc23
2015000572
Typeset by Amnet
Print production managed by Jellyfish
Printed and bound by CPI Group (UK) Ltd, Croydon CR0 4YY
CO N T E N T S
List of figures xi
List of tables xiv
Notes on the contributors xvii
Preface xxvi
pa r T O N E Introduction 1
pa r t t wo Shipping logistics 107
Pa r t T h r ee Port logistics 225
pa r t fo u r Conclusion 425
20 Looking ahead 427
Photis M Panayides and Dong-Wook Song
Topics of investigation and their importance 427
Outcomes and implications 431
Index 435
LIST OF FIGuRES
Marine Academy, an MMA from the University of Rhode Island and a PhD
from Korea Maritime University.
César Ducruet is a Research Fellow at the French National Centre for Sci-
entific Research (CNRS), research laboratory Géographie-Cités (Sorbonne
University). His research interests as a geographer include transport net-
works, territorial integration, and spatial analysis, through the looking glass
of urban-port development and maritime networks, with a special focus
on Europe and Asia. His past experiences in Korea (KRIHS) and the Neth-
erlands (Erasmus University) have resulted in several collaborations with
many foreign colleagues, finalized in numerous book chapters and peer-
reviewed journals. He has given regular lectures in Asia (Korea, China) and
Europe (Belgium, France, the Netherlands, Italy), and is currently leading
the ERC Starting Grant research project ‘World Seastems’ about the evolu-
tion of global maritime flows since the late 19th century.
academic at several universities in Izmir since 1992 and was a Visiting Pro-
fessor at the Department of International Business and Logistics at Maine
Maritime Academy in the USA. In addition, she has been the founder and
coordinator of the graduate programme in Entrepreneurship and Innova-
tion Management at Gediz University. Her academic studies mainly focus
on green logistics, business logistics, supply chains, manufacturing processes
and transportation management. She has a number of published materi-
als, including articles in SCI/SSCI/refereed journals, book sections published
by Springer, Kogan Page etc, articles in conference proceedings and books,
two published by Ashgate Publications in the UK and one by Chamber of
Shipping in Turkey.
E very book has a reason why it ought to be prepared and published. The
book you are holding now is no exception. For over 50 years both edi-
tors have been collectively researching and teaching the subjects of shipping,
port and logistics management. Over the years, we observed an evolution in
discipline development with the convergence of two distinct fields of ship-
ping and port management; a convergence that occurred with the use of
another field of study: logistics and supply chain management. This change
has raised concerns as to the effectiveness of teaching the subjects in a tra-
ditional sector-oriented approach which does not offer the comprehensive
all-round knowledge required for the next generation of students. How-
ever, apart from the pedagogic value that this endeavour obviously brings,
the book serves as a stimulant to further research in this emerging field of
maritime logistics. Judging from the subjects that the contributors to this
volume chose to research and analyse, it is evident that there is an ample
opportunity for empirical investigations that will guide future practice in
maritime logistics.
We are grateful to all the contributors and reviewers for their profession-
alism to ensure the quality of all the chapters has been up to the standard
that was set right at the outset. A special thanks goes to Martina O’Sullivan,
a commissioning editor for Kogan Page, for her wonderful support and syn-
chronization throughout this arduous but thoroughly rewarding process.
Last but not least we feel obliged to acknowledge the publishing house,
Kogan Page. The decision to publish this volume by Kogan Page is testa-
ment to the innovativeness that has made them a leading publisher in the
transport and logistics field.
It is our hope that the present volume trains the next generation of mari-
time logistics specialists and initiates the further progression of this fascinat-
ing sub-discipline of logistics and supply chain management over the years
to come. The editors would love to hear from you on any area for improve-
ment and inclusion for future editions.
Dong-Wook Song
Photis M Panayides
August 2011
PART ONE
Introduction
Introduction 01
to maritime
logistics
D O N g -w O O K S O N g a N D p h OT I S M pa N ay I D E S
Background
Globalization and the technological revolution in the transport sector includ-
ing containerization, logistics integration and the consequent expansion of
the maritime industry have redefined the functional role of shipping and
ports in global logistics and supply chains and have generated a new pat-
tern of freight distribution. The rapid increase in world trade in the past
decade has restructured the global maritime industry, having brought about
new developments, deregulation, liberalization and increased competition.
There have been dramatic changes in the mode of world trade and cargo
transportation, characterized by the prevalence of business-to-business and
integrated supply chains. These changes have been embodied in the increas-
ing demand for value-added logistics services and the integration of vari-
ous transportation modes such as inter- or multi-modal transport systems.
As a consequence, the business stability and sustainability of the industry is
largely subject to how well it adapts to such a dynamic environment. There-
fore, high-quality logistics services and the effective and efficient integra-
tion of transport and logistics systems offered by a maritime operator (ie a
shipping company or port/terminal operator) has become an important issue.
Maritime logistics has been traditionally regarded as the primary means
of transporting parts and finished goods (viz outbound logistics) on a global
scale and has recently attracted considerable attention from academics and
practitioners alike. However, the term ‘maritime logistics’ is not easy to
define and its precise definition, scope and role within global supply chains
are yet to be established (Song and Lee, 2009). The first edition of the pre-
sent book Maritime Logistics (2012) is considered to be the first formative
approach towards the establishment of maritime logistics as an academic
discipline by setting up a disciplinary boundary, scope and contents.
4 Introduction
school of thought in shipping and port management and then describes the
mechanism of international trade and the specific role of shipping within
this mechanism.
In Chapter 3, Yercan and Yildiz focus on developments in international
maritime transport by emphasizing the developments in global trade. They
offer a broad idea of logistics and its interaction with international trade, by
providing general characteristics of logistics and the interrelation of various
business areas. They build a background to the interaction between logistics
and the transport industry within the global economy, followed by a more
in-depth discussion on the developments in the global economy and the
maritime transport industry in relation to international trade.
In Chapter 4, Lee, Nam and Song provide a precise understanding of the
concept of maritime logistics and a guideline for value creation of maritime
logistics systems. The chapter addresses such issues as the importance of
maritime transportation in an entire logistics system, the definition of mari-
time logistics and maritime logistics value, the main activities of maritime
logistics, and the process of maritime logistics, as well as the significance and
strategic implications for maritime logistics operators.
Bergqvist in Chapter 5 deals with hinterland logistics. Some of the load
units arriving at seaports are transhipments for other seaports, while others
have inland destinations. The hinterland transportation system enables load
units to be transhipped between seaports and inland destinations. The term
‘hinterland’ is often referred to as the effective market or the geo-economic
space in which the seaport sells its services. The logistics related to the hin-
terland involve many actors and activities, and require intense collaboration
and coordination to work effectively and efficiently. Hence, hinterland logis-
tics and transportation have become a crucial part of ensuring an efficient
supply chain.
Finally, Österman and Osvalder in Chapter 6 deal with the human ele-
ment of maritime operations, arguing that mechanization, automation,
information and communications technology have made many manual
tasks redundant, enabling ship and cargo-handling operations with a mini-
mum of manpower. However, there is still an area of potential to acknowl-
edge and develop in the effort to improve maritime logistics – the role of
the human element and the interface between human and technology in the
various man–machine systems in the global supply chain. The chapter puts
forward a number of ideas to be seriously considered in the industry for the
present and future.
Part Two covers topics related to the management of logistics for the
shipping sector. Chapter 7 by Hayashi and Nemoto analyses the global
intermodal transport that combines maritime and other transport modes,
explaining the concept of intermodal transport and its components and
characteristics, discussing the function of containers in the development of
intermodal freight transport and logistics, and introducing typical global
intermodal transport services with some examples in North America,
Europe and Asia. They discuss the role of intermodal transport facilitators
6 Introduction
and their services, and review and predict the development factors affecting
intermodal transport.
In Chapter 8, Ducruet and Notteboom analyse liner service networks
as configured by container shipping lines. They discuss the drivers of and
decision variables in liner service design as well as the different liner service
types. Next, the chapter provides a global snapshot of the worldwide liner
shipping network based on vessel movement data. The changing geographic
distribution of main inter-port links is explored in light of recent reconfigu-
rations of liner shipping networks. They move on to the position of seaports
in liner shipping networks referring to the concepts of centrality, hierarchy
and selection factors. They conclude by elaborating on the interactions and
interdependencies between seaport development and liner shipping network
development notably under current economic changes.
The growth of world container trade during the last decades reflects the
coalescent markets in the world. The geographic separation of supply and
demand has raised the expectations towards transportation services. Keep-
ing up with the growth of global container traffic was considered as one
of the biggest challenges. In addition, customers expect fast and reliable
services in a wide geographical network. Vessel capacity and utilization
provide only one possibility for competitiveness. Vertical and supply chain
integration are characterizing the modern transport industry, as transport
businesses are gearing up towards global logistics services based on the prin-
ciple of the ‘one-stop-shop’. In order to accomplish this goal, it is neces-
sary to integrate port, hinterland transportation and logistics management
services. It follows that strategic aspects of supply chain integration and
diversification are of significant importance in the contemporary shipping
industry. In Chapter 9, Panayides, Wiedmer, Andreou and Louca, after hav-
ing conceptually explained the basic concepts of diversification and supply
chain integration, analyse the recent trends, developments and current situ-
ation in the maritime shipping industry and carry out an empirical investi-
gation into the relationship between supply chain integration and shipping
firm performance.
Chapter 10 by Baird seeks to analyse container shipping line strategy
relating to the provision of added-value logistics services. The chapter aims
to identify, analyse and compare/contrast the logistics strategies of container
shipping lines. The study entailed the administration of a short question-
naire to survey the top 20 container shipping lines to help investigate these
questions. The results of the survey, plus supporting information, are ana-
lysed to provide a summary of container line strategy with respect to the
provision of logistics services. This analysis includes several brief case stud-
ies which seek to review and analyse the specific logistics activities and strat-
egies within several of the top 20 container lines. The case studies offer a
more detailed insight into the different approaches adopted by major global
container lines with respect to the development and provision of logistics
services. The purpose of the overall study is to help develop a wider picture
concerning what/how liner shipping competitors are doing with regard to
Introduction to Maritime Logistics 7
vessels, ports have to expand their capacity as well as equip these facilities
with a new generation of cargo-handling system designed to achieve greater
productivity and efficiency from a logistical perspective. Pursuit of greater
handling capacity does, however, require enormous financial resources and
professional expertise. Ports have been seeking private sector participation
through various forms of public–private partnership (PPP) schemes. This
chapter adds value to the body of literature in view of the growing trend in
port PPPs by performing an exploratory investigation into the impact of PPP
on port logistics performance through the discussion of examples from the
port industry and the respective countries’ situation.
Chapter 18 by Cetin discusses the organizational aspect of port logistics
with a conceptual framework established. The changes in the traditional role
of ports put responsibility on port authorities as the administrative bodies of
port organizations. Their landlord, regulator and operator roles are shifted
towards a ‘coordinator, facilitator and integrator role in port clusters, inter-
national transport, logistics and supply chains’. As the roles and functions
change, so too do the goals. The changing goals also change the organi-
zational effectiveness criteria. It appears that in today’s port business cir-
cumstances, commonly used port performance measures such as efficiency,
profitability and growth are not enough to assess a port organization’s suc-
cess at all points. With respect to the developments in logistics chains, the
chapter covers a wide range of related matters such as port logistics chain
integration, adaptability to the changes in the environment, customer ori-
entation and satisfaction, information and communication management,
service quality and provision of value-added and intermodal services, inno-
vation and resource acquisition.
Chapter 19 by Woo, Pettit and Beresford aims to investigate the effect of
supply chain integration of seaports on port performance by examining the
causal relationships among the integration strategies of seaport terminals
along the supply chain, and the antecedents and consequences of the integra-
tion strategies. The integration strategy is termed Port Supply Chain Integra-
tion (PSCI) and the antecedents of PSCI are identified as port supply chain
orientation. Logistics performance of ports is considered as consequences
of PSCI because it is suggested that a traditional performance measure such
as cargo throughput is not sufficient for a proxy of port performance in the
global supply chain era.
Finally, in Chapter 20, Part Four, Panayides and Song provide an overall
conclusion to the book by considering in particular how the topics discussed
can drive further research and development for the maritime logistics area.
References
Harrison, A and van Hoek, R (2011) Logistics Management and Strategy:
Competition through the supply chain, 4th edn, Prentice Hall, London
10 Introduction
Lee, E-S and Song, D-W (2015) Maritime Logistics Value in Knowledge
Management, Routledge, London
Panayides, P (2006) Maritime logistics and global supply chains: Towards a
research agenda, Maritime Economics and Logistics, 8(1), pp 3–18
Song, D-W and Lee, P (2009) Editorial: Maritime logistics in the global
supply chain, International Journal of Logistics: Research and Applications,
12(2), pp 83–84
Maritime 02
transport and
logistics as a
trade facilitator
aLBErT w VEENSTra
Introduction
In the last decade, international trade agreements and regional trade integra-
tion initiatives have significantly reduced the tariff-based barriers to trade.
Substantial barriers to trade remain, however. These remaining barriers are
often termed ‘non-tariff barriers’. In many bilateral and multilateral nego-
tiations, attempts are also made to reduce these barriers, but this turns out
to be much more difficult than reducing import and other tariffs. The reason
for this is that a number of these so-called non-tariff barriers are closely
related to, or caused by, the main conduit of international trade, namely
logistics and international transportation, and the non-fiscal government
supervision in the international movement of goods.
Ocean transportation has always been connected with trade. This rela-
tionship goes back hundreds, perhaps thousands, of years. During the
period of the great explorations of the world, trading and transport was
always one operation. This practice continues, with the large trading houses
in the world – Glencore, Cargill, Vitol, Trafigura, ADM, Noble Group, Louis
Dreyfus, Bunge and some lesser known (but not smaller) companies such
as Koch, Gunvar, Mercuria, Wilmar International, Arcadia, Mabanaft –
controlling a large part of the world bulk fleet, mainly through long-term
and short-term charter contracts.
In the mid-19th century, however, ocean shipping also became a business
activity on its own. The advent of the steam engine brought reliability and
predictability far beyond what sailing vessels could offer. This separation
of shipping and trade, however, brought a host of new challenges. One that
is still debated to this day is the exemption of cartel legislation for liner
12 Introduction
shipping that originates from the beginning of the 20th century. In Europe
and the USA, these exemptions have only recently been abolished.1
Another topic that has been hotly debated among maritime economists
is the way in which shipping and ports facilitate trade. Perhaps the biggest
supporter of this idea was United Nations Conference for Trade and Devel-
opment (UNCTAD). This United Nations initiative started in 1964 with the
ambition to change global trade by providing the poorer countries with an
independent role in trade and in transportation (Taylor and Smith, 2007). Its
golden years were the 1960s and 1970s, when, among others, the Code of
Conduct for Liner Conferences saw the light (see, for instance, Neff, 1980 or
Sturmey, 1986). This Code of Conduct was a typical instrument to (re-)forge
the link between trade and transport: one of the provisions said that trans-
port companies from two trading countries should be allowed to carry equal
parts of the trade and leave a limited trade volume to be carried by third par-
ties. This idea later became known as the 40/40/20 rule. The implied result
of this rule was that any trading country should thus form its own transport
capacity, in order to carry the allotted 40 per cent of its own trade.
Trade facilitation has developed from a narrow idea about the possibil-
ity to move goods between countries through ports to a much more exten-
sive concept, encompassing the general trade environment in countries and
between countries (Wilson et al, 2005). As a result, it is no longer the simple
opportunity of moving goods that defines trade facilitation, but also the ease
with which this can be done.
This chapter addresses the relationship between ocean shipping and
trade, by examining to what extent shipping nowadays still is a facilitator
to trade. For this purpose, we first briefly introduce the trade facilitation
school of thought in shipping and port management. We then describe in
some detail the mechanism of international trade, as well as the specific role
of shipping within this mechanism. We aim to connect this to the ongoing
work on non-tariff barriers, both theoretical and empirical, that has taken
flight in recent years. We finish with some concluding remarks and an out-
look on further research.
customer. For this purpose, the shipping lines all charge fees if the receiver
of goods takes too long to pick up the full container, or deliver the empty
container back. The first fee is called demurrage (not to be confused with
demurrage in bulk shipping), and the second fee is called detention. These
two fees are in the range of a few euros per day to as much as 75 euros per
day, chargeable after a so-called free period of several days. Of course, the
fees and free days are negotiable, so no shipping line’s customer will pay
the same as another customer. How the demurrage and detention fees are
established will depend on the party who books the transport, and their
negotiating power. For transport, this can be either the buyer or the seller.
Because of the need to keep track of containers in countries, formal obli-
gations to report unloaded containers to customs authorities in the destina-
tion countries, and the need to only provide the goods in the container to
the rightful owner, the shipping line maintains an administrative process in
ports in which some fees need to be paid, information for the party who
will pick up the container is exchanged, and the empty depot in which the
container needs to be returned is recorded. In many ports, this exchange
between the agent of the shipping line and the representative of the buyer
of the goods is a cumbersome process that takes time and effort. Only when
this process is completed can a transport be booked to pick the container
up in the port. Often this process cannot take place or be completed until
the container is physically unloaded. The buyer’s agent needs to track a
terminal’s website to find the unloading confirmation of the container, and
then verify all relevant information, take care of payments, and book trans-
port. The degree to which this process is supported with IT – usually a port
community system – differs strongly from port to port and from shipping
line to shipping line. RSM (2010) has estimated that in Rotterdam, the cost
related to these processes can range between 5–25 euros per container. For
a customs or freight forwarding agent, who gets 35–50 euros for the admin-
istrative handling of a container, this is a substantial cost driver. This is the
fourth issue.
A fifth issue is the overall performance of international container lines.
Vernimmen et al (2007) have reported on the impact of delays of ocean carri-
ers on logistics variables such as safety stock. Their figures, together with the
more recent analysis of Chung and Chiang (2011), result in an average delay
for shipping lines of 1.5 days. This delay translates into higher safety stock
levels, which are an additional cost for business. Obviously, there are differ-
ences between shipping lines, and therefore, the countries that are served by
shipping lines with relatively more delays are at a disadvantage compared to
countries that are primarily served by carriers with fewer delays.
A sixth issue is that customs authorities tend to use ship manifest data for
their initial risk assessment. Countries differ in the time at which they require
this information to be submitted. The United States and Europe require this
type of data to be submitted before departure from the origin country, and
in Europe more or less the same data needs to be submitted again a few days
before arrival in the port of destination. Other countries receive this data
Maritime Transport and Logistics as a Trade Facilitator 17
shortly before arrival of the ship, or use it to verify imports and exports after
loading and unloading has taken place. This formal obligation means that
shipping lines and their agents have had to set up a process to gather this
data at the right time from their clients or the clients’ agents. To indicate
that this imposes costs on the logistics chain, shipping lines charge US$ 25
for submitting pre-departure declarations to European customs authorities
in destination countries for every container. Another potential bottleneck
is the different ways in which shipping companies facilitate their agents in
different countries. In some countries, the information exchange between
customers’ agents and the shipping lines’ agents is fully digitized, while in
some countries, the information exchange is still with paper documents.
The latter is not only a problem for that country, but also for all the other
countries to which the ships are sailing to unload cargo. All errors and other
problems related to paper-based information exchange are transferred to
these destination countries as well.
A final point deals with the pricing structure of container shipping. The
complicated tariff structure of container shipping is well documented in
the maritime economics literature. It is well known that, apart from a base
transport tariff, shipping companies may charge a bunker adjustment factor
(BAF), a currency adjustment factor (CAF), port congestion charges, piracy
risk charges, terminal handling charges, war risks, security surcharges, win-
ter surcharges, dangerous goods and refrigeration surcharges, and document
fees. Cariou and Wolff (2006) looked into the BAFs and the underlying
bunker price developments, and found that these charges do not accurately
reflect the underlying cost development. In other words, some of these sur-
charges are used to raise the price for transport. These surcharges can eas-
ily raise the total transport bill by 50 per cent or more, and they make the
transport cost for ocean shipping complex and difficult to interpret. The
chosen Incoterms determine which party books ocean transport. This can
also have an effect on the height of certain charges, as well as the basic
transport tariff.
In summary, current shipping line operations result in time delay and
costs for logistics chains, either due to administrative processes, formali-
ties the shipping line has to carry out, or enforcement measures to increase
the circulation of containers. Hummels and Schaur (2012) estimate the
impact of time delays on trade, and find that each day’s delay reduces the
probability of trade by 1–1.5 per cent. Time delay really is a trade barrier,
and ocean shipping, which causes structural delays, can be seen as the cause
of this.
In addition, other complexities of container shipping may also cause a
barrier to trade. This is confirmed by Nordas et al (2006), whose analysis
builds on Hummel’s work, and includes logistics services. In their analysis,
poor logistics services also translate into time delays, which have a negative
effect on trade.
Some of the issues mentioned above exhibit a ‘transfer effect’. This is the
case for the quality of information in the shipping documents, and, under
18 Introduction
specific conditions, for demurrage and detention. For the former, the provi-
sion of information by the seller or his/her agent to the shipping line may be
so poor that the buyer will run risks of additional customs inspection, delays
and addition costs. For the latter, the condition is that the seller books trans-
port under the chosen Incoterms. This is common practice, for instance, in
the trade of fresh fruit originating from the southern hemisphere. In these
cases, the seller may choose to limit demurrage and detention free time in
the port of destination, since this is costly for him. The buyer will then be
very limited in his or her options to transport containers out of the port, or
run a high risk of incurring demurrage or detention fees.
To investigate to what extent this type of thinking has been recognized in
current efforts to measure non-tariff barriers to trade, in the next section we
look in some detail at these measurement efforts.
In 2014, the LPI was published for 160 countries. In Table 2.2 we provide a
summary of the top five and bottom five countries for 2014.
Note that the first three items could be seen as inputs for logistics perfor-
mance (customs, infrastructure, competence), and the last three (shipments,
tracking, timeliness) as output, effectively measuring time, cost and reliabil-
ity. The first three items are subject to policy-making.
The six components of the LPI are based purely on perception of
respondents. The LPI also has a ‘national’ variant, where countries can
evaluate themselves, which is based on targeted questions for each of the
six components. For instance, quality of trade and transport infrastructure
distinguishes between ports, airports, roads, rail, warehousing and telecom-
munication infrastructure, as well as quality of transport services for vari-
ous modes and logistics activity types. The outcomes of the national and the
general LPI are not compared for consistency.
While the analysis of the LPI is very country-oriented, the detailed data
per country do, in principle, allow a bilateral generalized distance analysis
on items that might provide some further insight in the way maritime trans-
port contributes to logistics performance, eg quality of port infrastructure,
quality of maritime transport, maritime transhipment delay on some major
trade lanes. Such a generalized distance measure could also be used to repre-
sent the transfer effect of ocean shipping, in the sense that a bigger gap may
result in a larger transfer effect.
For this chapter, the section on ‘trading across borders’ is the most relevant.
This area is characterized by the following items:
● number of documents for export;
● time to export in days;
● cost to export in US$ per container;
● number of documents to import;
● time to import in days;
● cost to import in US$ per container.
In Table 2.3 we summarize the overall value and the score on the trading
across borders category for the top five countries in the GDB index.
The focus of the GDB is very much on regulation. Within the trading
across borders category of the index (right-hand column of Table 2.3), there
is therefore a lot of attention on the customs-related impact on documents,
time and costs. This is not exclusively so, however. The time component of
the index also contains port and terminal handling and inland transport and
handling time, while the cost component contains costs related to port and
terminal handling and inland transport and handling. However, there is no
way to differentiate between customs-related documents, time and costs,
and transport-related documents, time and costs
Similar to the LPI, based on the trading across border indicators, a gen-
eralized distance measure could be obtained for combinations of countries,
but this measure would represent a combination of customs- and transport-
related items.
3 Sub-index C: Infrastructure
– Pillar 4: Availability and quality of transport infrastructure
– Pillar 5: Availability and quality of transport services
– Pillar 6: Availability and use of ICT
SOuRCE ET (2014)
Maritime Transport and Logistics as a Trade Facilitator 25
of services and the number of companies offering these services. The data is
available per country, but also for all country pairs.
To further illustrate that there is a relationship between some of the
transport-related indicators and trade, we present some results from Arvis
et al (2013). They derive a measure of trade costs from bilateral trade pat-
terns, and then test the impact of various determinants from the global trade
barrier measurement efforts and other sources on these trade costs. Their
analysis includes: the cost of starting a business (GDB), the LPI overall index,
the air and liner shipping connectivity indices, exchange rates, regional trade
agreement membership, tariffs, same country, common border, common
colonizer, common language (official and ethnographic), common border
and distance. They find that distance, tariffs and the costs of doing busi-
ness impact trade costs positively (in other words, they increase trade costs),
while all other measures decrease trade costs. This is clear evidence for the
development of further measures that help identify barriers to trade.
Notes
1 The Transatlantic Rate Fixing Agreement (TAA) was abolished in 1994, its
follow-up, the Transatlantic Conference Agreement (TACA), was eventually
terminated in 2003, and in 2006, the block exemption for liner conferences was
repealed altogether. In the USA, the Ocean Shipping Reform Act of 1998 also
effectively abolished conferences, even though it still allowed rate discussion
agreements between liner companies.
2 Private communication with a representative of the industry association of fruit
importers in the Netherlands, Frugi Venta.
3 http://lpi.worldbank.org/ [accessed 6 July 2014].
4 http://www.doingbusiness.org/ [accessed 6 July 2014].
5 http://www.weforum.org/reports/enabling-trade-valuing-growth-opportunities
[accessed 6 July 2014].
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International 03
maritime trade
and logistics
f u N Da y E r C a N a N D T u r K ay y I L D I Z
Introduction
The concept of logistics has been used in business for more than two dec-
ades. Logistics management, as an earlier and limited version of supply
chain management until the beginning of the 2000s, covers the physical
process of planning, organizing and controlling the flow of materials and
services from the supplier’s point to the customer’s as the end point. In addi-
tion to these aspects, the concept of supply chain management also includes
customer satisfaction, customer relations, financial flow and information
flow by making logistics functions a more integrated and complex group
of activities. Therefore, logistics support and the interaction of logistics and
supply chain management with local and global trade cannot be disregarded.
Indeed, as approximately 85 per cent of international trade is carried out
by maritime transport (eg ocean transport, seaways and inland waterways),
the role of maritime transport is considered to be crucial for global trading.
This chapter of the book focuses on developments in international mari-
time transport by emphasizing developments in global trade. The first section
of this chapter broadly discusses logistics and its interaction with interna-
tional trade. This section provides the general characteristics of logistics and
its interrelations with various business areas. The second section builds a
background to the interaction between logistics and the transport indus-
try in the global economy. The third section then discusses more in-depth
developments in the global economy and the maritime transport industry in
relation to international trade.
The objectives of this chapter are to:
● describe logistics;
● identify and address global economic growth and integrate it with
maritime trade;
30 Introduction
(Continued )
Ta B L E 3 . 1 Global economic growth 2005–2014 (annual percentage change) (Continued)
region/Country 2005 2006 2007 2008 2009 2010 2011 2012 2013a
Sub-Saharan Africa, excl. South Africa 6.7 6.5 7.7 6.6 4.9 6.4 4.8 5.3 5.4
South Africa 5.3 5.6 5.5 3.6 −1.5 3.1 3.5 2.5 1.7
Latin America and the Caribbean 4.5 5.6 5.6 4.0 −1.9 5.9 4.3 3.0 3.1
Caribbean 7.4 9.4 5.8 3.1 −0.1 2.6 2.4 2.5 2.7
Central America, excl. Mexico 4.8 6.4 7.0 4.1 −0.2 4.1 5.2 5.0 4.1
Mexico 3.2 5.2 3.3 1.2 −6.0 5.5 4.0 3.9 2.8
South America 5.0 5.5 6.6 5.5 −0.2 6.4 4.6 2.5 3.2
of which:
Brazil 3.2 4.0 6.1 5.2 −0.3 7.5 2.7 0.9 2.5
Asia 7.8 8.6 9.0 5.8 3.9 8.9 7.1 5.0 5.2
East Asia 8.6 9.9 11.0 6.9 5.9 9.5 7.7 6.0 6.1
of which:
China 11.3 12.7 14.2 9.6 9.2 10.4 9.3 7.8 7.6
South Asia 8.0 8.3 8.9 5.2 4.7 9.4 6.6 3.0 4.3
of which:
India 9.0 9.4 10.1 6.2 5.0 11.2 7.7 3.8 5.2
South-east Asia 5.8 6.1 6.6 4.3 1.2 8.0 4.5 5.4 4.7
West Asia 6.8 7.0 4.6 3.8 −1.7 7.0 7.1 3.2 3.5
Oceania 3.4 2.9 3.5 2.7 2.3 3.6 4.3 4.1 2.7
SOuRCE UN/DESA-Department of Economic and Social Affairs, 2013; UN, 2010, 2013; UNCTAD, 2010, 2013
NOTES
a. Partly estimated.
Ta B L E 3. 2 Growth in the volumea of merchandise trade, by geographical region, 2007–2012
(annual percentage change)
exports imports
2007 2008 2009 2010 2011 2012 Countries/regions 2007 2008 2009 2010 2011 2012
5.8 3.0 –13.3 13.9 5.2 1.8 WOrLD 6.6 2.2 –13.6 13.8 5.3 1.6
3.9 2.8 –15.5 13.0 4.9 0.4 Developed countries 3.7 0.0 –14.6 10.8 3.4 –0.5
of which:
6.8 4.9 –24.8 27.5 –0.6 –1.0 Japan 0.8 –0.9 –12.2 10.1 4.2 3.7
6.8 5.5 –14.0 15.4 7.2 4.1 United States 1.1 –3.7 –16.4 14.8 3.8 2.8
3.2 2.5 –14.9 11.6 5.5 –0.2 European Union (EU–27) 4.8 1.1 –14.5 9.6 2.8 –2.8
8.6 0.8 –14.4 11.3 4.2 1.0 Transition economies 26.1 16.0 –28.2 15.9 15.7 3.9
8.7 4.2 –9.7 16.0 6.0 3.6 Developing countries 10.6 5.3 –10.2 18.8 7.4 4.5
of which:
4.8 –2.8 –9.5 8.8 –8.3 5.7 Africa 11.2 11.6 –6.2 8.4 2.8 8.0
2.4 –0.6 –7.4 8.3 4.6 2.2 Latin America and the Caribbean 11.6 8.6 –17.9 22.5 10.8 2.5
15.0 7.3 –10.9 24.1 10.4 5.2 east asia 10.2 0.6 –5.3 22.7 7.4 4.3
21.8 14.9 –14.1 29.1 13.0 7.2 of which: China 14.1 2.4 –1.1 25.4 10.3 5.9
6.3 10.7 –6.1 10.0 8.8 –10.2 South asia 10.9 7.2 –5.5 14.0 6.0 2.0
15.2 2.1 –6.8 14.0 14.2 –2.5 of which: India 16.9 10.4 –0.9 13.8 9.1 5.8
6.9 7.4 –10.0 18.6 4.4 2.2 South–east asia 6.7 8.0 –15.8 22.0 6.7 6.0
2.0 –4.8 5.7 6.5 6.9 West asia 16.7 8.4 –14.2 8.4 8.1 5.8
from recession. This recovery played a crucial role in the expansion of the
total volume of global trade and improvements in the global economy.
However, the global recovery was slower than previous post-recession
recoveries, and it was particularly challenged by the uncertainties, fragile
economic conditions and political problems and transformations taking
place in several Middle Eastern countries at the beginning of 2011. As a
result, the annual increase in exports from developed economies dropped
to 0.4 per cent in volume terms in 2012, while that from developing econo-
mies (Asian countries 1.5 per cent, China 7.2 per cent) was up 3.6 per cent
(UNCTAD, 2013).
A growth in international trade positively affects the growth in interna-
tional transport services – the second largest category of commercial services
after the tourism sector – because of the movement and carriage of goods
from suppliers and producers to customers as end-users. Maritime trans-
port services are directly driven by global economic growth and the need to
carry goods internationally, and thus they are subject to developments in the
global economy. In other words, global economic growth directly influences
international trade, which, in turn, directly affects transport services and
therefore the world’s seaborne trade volumes (as a measure of demand for
shipping, port and logistics services). Maritime trade is the most commonly
used transport mode in international trade, representing about 85 per cent
of total transport volume. As demand for both maritime transport services
and logistics services derives from global economic growth and the need
to carry out international trade, the global shipping industry and maritime
transport activities (notably seaborne trade) could not escape from the con-
tractions in global GDP and international trade volumes in 2009.
In parallel with these economic declines and following the collapse in
economic growth and international trade, the total volume of international
seaborne trade shrank by 4.5 per cent in 2009. The total volume of goods
loaded was only 7.8 billion tons in 2009 compared with 8.2 billion tons in
2008. Similar to merchandise trade, however, world trade in commercial
services grew in 2012, and the total volume of goods loaded by using mari-
time transport services increased to 9.1 billion tons in 2012 (see Table 3.3).
Developing countries continued to have the largest share of global seaborne
trade with approximately 61 per cent of all goods loaded and 55 per cent
of all goods unloaded, reflecting their increasingly leading role in driving
global trade. The share of developed economies in global goods loaded and
unloaded was 32 and 44 per cent respectively, while transition economies
accounted for only 6.4 and 0.8 per cent respectively (UNCTAD, 2010).
After the recession in 2008, world shipments of tanker trade volumes,
including crude oil, petroleum products and liquefied natural gas (LNG), fell
by 3 per cent in 2009. As also illustrated in Table 3.3, total tanker cargoes
loaded amounted to 2.73 billion tons in 2008 and this dropped to 2.64 bil-
lion tons in 2009, before slightly increasing to 2.83 billion tons in 2012. The
major oil producers including the OPEC countries of western Asia were the
largest loading areas for crude oil together with transition economies, with
International Maritime Trade and Logistics 37
SOuRCE Compiled by the UNCTAD secretariat on the basis of data supplied by reporting countries
as published on the relevant government and port industry websites, and by specialist sources. The
data for 2006 onwards have been revised and updated to reflect improved reporting, including more
recent figures and better information regarding the breakdown by cargo type.
NOTE
a. Iron ore, grain, coal, bauxite/alumina and phosphate. The data for 2006 onwards are based on Dry
Bulk Trade Outlook produced by Clarkson Research Services Limited.
South-east Asia, Central Africa, the northern and eastern coasts of South
America, North and West Africa and Central America the major producers
and consumers of oil and gas. The major unloading areas included North
America, Europe, Japan and South-east Asia. With the strong demand in oil
from China, India, western Asia and Latin America, crude oil shipments to
these regions started to grow rapidly. In terms of the total volume of cargoes
loaded regardless of their type, global seaborne trade loaded dropped from
8.2 billion tons in 2008 to 7.8 billion tons in 2009, before rising to 9.17 bil-
lion tons in 2012 (UNCTAD, 2013). The total volumes of world seaborne
trade by type of cargo loaded and unloaded together with country groups
between 2006 and 2012 and world merchant fleet tonnage surplus by main
type of vessel in the maritime transport industry are illustrated in Tables 3.4
and 3.5 respectively.
The year 2009 was the most challenging in the history of the con-
tainer industry with dramatic declines. Container trade volumes declined
sharply by 9 per cent, totalling 124 million 20-foot equivalent units (TEU)
Ta B L E 3 . 4 World seaborne trade volumes by type of cargo and country group 2006–2012
goods loaded (millions of tons) goods unloaded (millions of tons)
Country Crude products Crude products
group Year Total & gas Dry cargo Total & gas Dry cargo
2006 7,682.3 1,783.4 914.8 4,984.1 7,885.9 1,931.0 894.2 5,060.8
2007 7,983.5 1,813.4 933.5 5,236.6 8,136.1 1,995.5 904.3 5,236.3
2008 8,210.1 1,785.2 946.9 5,478.0 8,272.7 1,942.1 964.1 5,366.5
World 2009 7,842.8 1,724.5 924.6 5,193.6 7,908.4 1,877.8 957.3 5,073.3
2010 8,408.9 1,787.7 983.8 5,637.5 8,443.8 1,933.2 979.2 5,531.4
2011 8,784.3 1,759.5 1034.2 5,990.5 8,797.7 1,896.5 1,037.7 5,863.5
2012 9,165.3 1,785.4 1050.9 6,329.0 9,183.7 1,928.7 1,054.9 6,200.1
2006 2,460.5 132.9 336.4 1,991.3 4,164.7 1,282.0 535.5 2,347.2
2007 2,608.9 135.1 363.0 2,110.8 3,990.5 1,246.0 524.0 2,220.5
2008 2,708.5 129.0 394.3 2,185.1 4,007.9 1,251.1 523.8 2,233.0
Developed
2009 2,540.1 118.6 355.0 2,066.5 3,499.8 1,149.8 529.4 1,820.6
economies
2010 2,865.4 135.9 422.3 2,307.3 3,604.5 1,165.4 522.6 1,916.5
2011 2,982.5 117.5 451.9 2,413.1 3,632.3 1,085.6 581.3 1,965.4
2012 3,162.9 121.6 447.3 2,594.0 3,678.8 1,097.7 573.7 2,007.5
2006 410.3 123.1 41.3 245.9 70.6 5.6 3.1 61.9
2007 407.9 124.4 39.9 243.7 76.8 7.3 3.5 66.0
2008 431.5 138.2 36.7 256.6 89.3 6.3 3.8 79.2
Transition
2009 501.8 151.3 41.6 309.0 60.5 6.1 3.0 51.4
economies
2010 515.7 150.2 45.9 319.7 122.1 3.5 4.6 114.0
2011 505.0 132.6 42.0 330.5 156.7 4.2 4.4 148.1
2012 542.1 136.6 41.1 364.4 149.2 3.8 4.0 141.4
2006 4,811.5 1,527.5 537.1 2,747.0 3,650.6 643.4 355.5 2,651.6
2007 4,966.6 1,553.9 530.7 2,882.0 4,068.9 742.2 376.8 2,949.8
2008 5,070.2 1,517.9 515.9 3,036.4 4,175.5 684.7 436.5 3,054.3
Developing
2009 4,800.8 1,454.6 528.0 2,818.2 4,348.1 721.9 424.8 3,201.3
economies
2010 5,027.8 1,501.6 515.6 3,010.5 4,717.3 764.4 452.0 3,500.9
2011 5,296.8 1,509.4 540.4 3,247.0 5,008.8 806.7 452.1 3,750.0
2012 5,460.3 1,527.2 562.5 3,370.6 5,355.7 827.3 477.2 4,051.2
2006 704.0 353.8 86.0 264.2 357.4 41.0 39.9 276.5
2007 708.9 362.5 81.8 264.6 375.9 45.5 45.0 285.3
2008 741.9 379.2 83.5 279.3 366.1 44.8 44.2 277.0
africa 2009 682.1 335.0 82.8 264.4 365.6 43.7 42.7 279.2
2010 754.0 351.1 92.0 310.9 416.9 42.7 40.5 333.7
2011 723.7 338.0 68.5 317.2 378.2 37.8 46.3 294.1
2012 787.3 370.1 72.6 344.6 407.7 35.9 51.7 320.1
(Continued )
Ta B L E 3 .4 World seaborne trade volumes by type of cargo and country group 2006–2012 (Continued)
goods loaded (millions of tons) goods unloaded (millions of tons)
Country Crude products Crude products
group Year Total & gas Dry cargo Total & gas Dry cargo
2006 1,030.7 251.3 93.9 686.5 373.4 49.6 60.1 263.7
2007 1,067.1 252.3 90.7 724.2 415.9 76.0 64.0 275.9
2008 1,112.2 234.6 93.0 784.6 433.8 74.2 66.9 292.7
americas 2009 1,050.6 219.4 89.6 741.7 387.0 74.2 65.4 247.5
2010 1,172.6 241.6 85.1 846.0 448.7 69.9 74.7 304.2
2011 1,239.2 253.8 83.5 901.9 508.3 71.1 73.9 363.4
2012 1,287.2 250.7 91.6 944.9 538.5 77.5 79.4 381.6
2006 3,073.1 921.2 357.0 1,794.8 2,906.8 552.7 248.8 2,105.3
2007 3,187.1 938.1 358.1 1,890.8 3,263.6 620.7 260.8 2,382.1
2008 3,211.8 902.7 339.3 1,969.9 3,361.9 565.6 318.3 2,477.9
asia 2009 3,061.7 898.7 355.5 1,807.5 3,582.4 604.1 313.1 2,665.2
2010 3,094.6 907.5 338.3 1,848.8 3,838.2 651.8 333.1 2,853.4
2011 3,326.7 916.0 388.2 2,022.6 4,108.8 697.8 328.0 3,082.9
2012 3,376.7 904.7 397.5 2,074.5 4,396.2 713.8 341.5 3,340.9
2006 3.8 1.2 0.1 2.5 12.9 0.0 6.7 6.2
2007 3.5 0.9 0.1 2.5 13.5 0.0 7.0 6.5
2008 4.2 1.5 0.1 2.6 13.8 0.0 7.1 6.7
2009 6.3 1.5 0.2 4.6 13.1 0.0 3.6 9.5
Oceania
2010 6.5 1.5 0.2 4.8 13.4 0.0 3.7 9.7
2011 7.1 1.6 0.2 5.3 13.5 0.0 3.9 9.6
2012 9.0 1.6 0.8 6.6 13.3 0.0 4.6 8.6
SOuRCE Compiled by the UNCTAD secretariat, on the basis of data from Lloyd’s Shipping Economist (various issues).
NOTE
a. End-of-year figures, except for 1990 and 2000, which are annual averages. This table excludes tankers and dry bulk carriers of less than 10,000 dwt and conventional
general cargo/unitized vessels of less than 5,000 dwt.
Ta B L E 3 . 6 Cargo flows on the major east–west container trade routes 2008–2012 (millions of TEUs and annual
percentage change)
asia–North North North europe–North
Years america america–europe america–asia asia–europe europe–asia america
2008 13.4 3.3 6.9 13.5 5.2 3.3
2009 10.6 6.1 11.5 5.5 2.8 2.5
% change 20.9 84.8 66.7 59.3 46.2 24.2
2008–2009
2010 12.3 6.5 13.3 5.7 3.2 2.7
2011 12.4 6.6 14.1 6.2 3.4 2.8
2012 13.3 6.9 13.7 6.3 3.6 2.7
% change 7.3 4.5 2.8 1.6 5.9 3.6
2011–2012
SOuRCE www.containershipping.com, April–June 2013; European Liner Affairs Association, 2010 Containerization International, August 2010
Ta B L E 3 . 7 Container port traffic 2004–2012 (million TEU)
economies/regions 2004 2005 2006 2007 2008 2009 2010 2011 2012
East Asia & Pacific (developing only) 102.4 96.2 114.8 139.5 155.73 147.75 175.33 192.52 205.67
East Asia & Pacific (all income levels) 174.2 193.8 217.8 250.2 269.31 247.67 287.16 311.36 325.57
Europe & Central Asia (all income levels) 71.1 75.8 81.3 91.6 98.30 83.99 94.54 101.49 104.18
Euro area 56.4 60.3 64.6 72.7 76.75 66.68 73.76 79.15 80.69
European Union 67.9 71.5 76.0 85.0 90.01 78.01 86.63 92.82 94.89
High income 194.4 232.7 246.5 265.2 286.15 253.49 284.38 299.70 305.10
Latin America & Caribbean (developing only) 19.4 21.9 24.8 27.5 29.24 27.11 32.76 34.99 36.38
Latin America & Caribbean (all income levels) 22.3 24.8 28.0 30.8 35.63 32.63 40.10 41.48 43.12
Lower middle income 105.8 100.4 119.9 144.4 44.58 44.67 51.87 55.05 56.91
Low & middle income 144.0 143.5 170.3 202.3 229.78 218.51 257.65 280.10 296.40
Middle East & North Africa (all income levels) 41.99 42.55 46.52 49.93 51.43
Middle income 143.3 142.7 169.4 201.3 226.59 215.34 254.05 276.28 292.30
High income: non-OECD 50.7 80.0 84.5 89.0 103.46 91.97 102.93 106.93 109.65
High income: OECD 143.7 152.7 162.0 176.2 182.69 161.51 181.45 192.77 195.46
OECD members 150.2 159.8 170.5 186.6 191.22 168.91 190.72 202.84 205.93
South Asia 8.5 9.9 11.9 13.7 14.44 14.77 17.32 17.94 18.10
Upper middle income 37.5 42.3 49.4 56.9 182.01 170.67 202.18 221.23 235.40
World 338.4 376.3 416.8 467.5 515.94 471.99 542.03 579.80 601.51
or 1.19 billion tons in 2009. The global financial crisis and economic reces-
sion contracted demand for consumer and manufactured goods and dura-
bles. Table 3.6 illustrates the cargo flows on the major East–West container
trade routes in the world. The annual percentage changes between 2008 and
2009 illustrate the declines on most major trade routes, with the dramatic
increase of 84.8 per cent in Atlantic container trade between the USA and
Europe one notable exception. Another was the annual increase of 66.7 per
cent in container trade between North America and Asia. These dramatic
changes settled down at the end of 2012 with percentage changes between
2011 and 2012 from 1.6 to 7.3 per cent, mostly in trans-Pacific container
trade (with the exception of a decline of -2.8 per cent in container trade
between North America and Asia).
More specifically, Table 3.7 and Figure 3.1 give an idea of the recent
container port traffic in total number of TEU as 20-foot-equivalent units by
700
600
500
400
300
200
100
0
EAS
HIC
MIC
UMC
OED
EAP
OEC
NOC
ECS
EUU
EMU
LMC
MEA
LCN
LAC
SAS
MNA
WLD
LMY
Note
Country Code Country Name Country Code Country Name
WLD World EUU European Union
EAS East Asia & Pacific (all income levels) EMU Euro area
HIC High income LMC Lower middle income
LMY Low & middle income MEA Middle East & North Africa
MIC Middle income (all income levels)
UMC Upper middle income LCN Latin America & Caribbean
OED OECD members (all income levels)
EAP East Asia & Pacific (developing only) LAC Latin America & Caribbean
OEC High income: OECD (developing only)
NOC High income: non-OECD SAS South Asia
ECS Europe & Central Asia (all income MNA Middle East & North Africa
levels) (developing only)
46 Introduction
region between 2004 and 2012. In this table, the development of container
port traffic is specified by different regions East Asia and the Pacific, the
European Union, Europe and Central Asia, Latin America and the Carib-
bean, the Middle East and North Africa, OECD members and South Asia)
and different income levels. In terms of the total number of TEU, container
traffic in East Asia and the Pacific reflects that to and from its leading ports,
such as Hong Kong and Singapore.
Despite these challenging developments, container shipping and interna-
tional maritime trade had started to recover from the global economic down-
turn by 2010. By mid-2010, gradual growth had emerged and increases in
total trade volumes had started to be recorded, especially to and from China.
By the beginning of 2010, the total world merchant fleet had expanded
by an impressive 7 per cent to reach 1.276 billion deadweight tonnes (dwt).
In addition, world container throughput declined by about 9 per cent to 465
million TEU in 2009, while total container trade in world seaborne trade
was forecast to increase by 11.5 per cent by the end of 2010.
Liner shipping is defined as a vessel carrying passengers and cargo that
operates on a route with a fixed schedule (Hinkelman, 2009). Liner shipping
emerged from the establishment of regular steamship lines on regular sched-
ules, calling at many ports at specific dates and times. The main advantages
of liner companies are their regularity and organization at a wide range of
ports regardless of the existence of cargoes (Pamuk, 2000). Liner shipping
is used for general cargo on fixed trade routes and on a fixed timetable. The
United Nations Conference on Trade and Development (UNCTAD) notes
that access to high-frequency, reliable and low-cost liner shipping services
largely determines a country’s connectivity to overseas markets and thus its
competitiveness globally (Hoekman, 2006; World Bank, 2007).
The configuration of liner shipping networks is important not only to
shipping lines, but also for the structure of such networks. The relative
position of a port on the network has a significant impact on the level of
transport costs (Marquez et al, 2006; Wilmsmeier and Hoffmann, 2008;
Wilmsmeier and Notteboom, 2009a). Therefore, the location of a port
within the network becomes strategic to ensure trade competitiveness,
which raises important questions about the determinants that lead to the
configuration of current networks and about how these could be influenced
(Wilmsmeier and Notteboom, 2009a).
Demand for containerized transport also affects the development of liner
shipping networks. The routing of containerized trade flows depends on the
strategies of shipping companies and demand of shippers for specific service
characteristics. As such, the location of a port or a region within the global
liner shipping network is determined by the density of trade flows to and
from a specific port or region (Wilmsmeier and Notteboom, 2009b).
The Liner Shipping Connectivity Index scores from 2004 to 2013 pre-
sented in Table 3.8 suggest how well countries are connected to global
shipping networks. This index is based on five components of the mari-
time transport sector: number of ships, container-carrying capacity of ships,
Ta B L E 3 . 8 Liner shipping connectivity values – ordered by 2013 rankings
rank Country Name 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1 China 100.00 108.29 113.1 127.85 137.38 132.47 143.57 152.06 156.19 157.51
2 Hong Kong SAR, China 94.42 96.78 99.31 106.2 108.78 104.47 113.60 115.27 117.18 116.63
3 Singapore 81.87 83.87 86.11 87.53 94.47 99.47 103.76 105.02 113.16 106.91
4 Korea, Rep. 68.68 73.03 71.92 77.19 76.40 86.67 82.61 92.02 101.73 100.42
5 Malaysia 62.83 64.97 69.20 81.58 77.60 81.21 88.14 90.96 99.69 98.18
6 United States 83.30 87.62 85.80 83.68 82.45 82.43 83.80 81.63 91.70 92.80
7 Germany 76.59 78.41 80.66 88.95 89.26 84.30 90.88 93.32 90.63 88.61
8 United Kingdom 81.69 79.58 81.53 76.77 77.99 84.82 87.53 87.46 84.00 87.72
9 Netherlands 78.81 79.95 80.97 84.79 87.57 88.66 89.96 92.10 88.93 87.46
10 Belgium 73.16 74.17 76.15 73.93 77.98 82.80 84.00 88.47 78.85 82.21
11 France 67.34 70.00 67.78 64.84 66.24 67.01 74.94 71.84 70.09 74.94
12 Spain 54.44 58.16 62.29 71.26 67.67 70.22 74.32 76.58 74.44 70.40
13 Italy 58.13 62.20 58.11 58.84 55.87 69.97 59.57 70.18 66.33 67.26
14 United Arab Emirates 38.06 39.22 46.70 48.21 48.80 60.45 63.37 62.50 61.09 66.97
15 Japan 69.15 66.73 64.54 62.73 66.63 66.33 67.43 67.81 63.09 65.68
16 Saudi Arabia 35.83 36.24 40.66 45.04 47.44 47.30 50.43 59.97 60.40 59.67
17 Egypt, Arab Rep. 42.86 49.23 50.01 45.37 52.53 51.99 47.55 51.15 57.39 57.48
18 Morocco 9.39 8.68 8.54 9.02 29.79 38.40 49.36 55.13 55.09 55.53
19 Turkey 25.60 27.09 27.09 32.60 35.64 31.98 36.10 39.40 53.15 52.13
20 Malta 27.53 25.70 30.32 29.53 29.92 37.71 37.53 40.95 45.02 49.79
21 Oman 23.33 23.64 20.28 28.96 30.42 45.32 48.52 49.33 47.25 48.46
(Continued )
Ta B L E 3 .8 Liner shipping connectivity values – ordered by 2013 rankings (Continued)
rank Country Name 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
22 Portugal 17.54 16.84 23.55 25.42 34.97 32.97 38.06 21.08 46.23 46.08
23 Greece 30.22 29.07 31.29 30.70 27.14 41.91 34.25 32.15 45.50 45.35
24 Panama 32.05 29.12 27.61 30.53 30.45 32.66 41.09 37.51 42.38 44.88
25 India 34.14 36.88 42.90 40.47 42.18 40.97 41.40 41.52 41.29 44.35
26 Vietnam 12.86 14.30 15.14 17.59 18.73 26.39 31.36 49.71 48.71 43.26
27 Lebanon 10.57 12.53 25.57 30.01 28.92 29.55 30.29 35.09 43.21 43.16
28 South Africa 23.13 25.83 26.21 27.52 28.49 32.07 32.49 35.67 36.83 43.02
29 Sri Lanka 34.68 33.36 37.31 42.43 46.08 34.74 40.23 41.13 43.43 43.01
30 Sweden 14.76 26.61 28.17 25.82 30.27 31.34 30.58 30.02 49.45 42.32
31 Mexico 25.29 25.49 29.78 30.98 31.17 31.89 36.35 36.09 38.81 41.80
32 Denmark 11.56 24.25 25.39 22.10 26.49 27.68 26.76 26.41 44.71 38.67
33 Canada 39.67 39.81 36.32 34.40 34.28 41.34 42.39 38.41 38.29 38.44
34 Thailand 31.01 31.92 33.89 35.31 36.48 36.78 43.76 36.70 37.66 38.32
35 Russian Federation 11.90 12.72 12.81 14.06 15.31 20.64 20.88 20.64 37.01 38.17
36 Poland 7.28 7.53 7.50 7.86 9.32 9.21 26.18 26.54 44.62 38.03
37 Colombia 18.61 19.20 20.49 21.07 21.64 23.18 26.13 27.25 37.25 37.49
38 Brazil 25.83 31.49 31.61 31.64 30.87 31.08 31.65 34.62 38.53 36.88
39 Argentina 20.09 24.95 25.58 25.63 25.70 25.99 27.61 30.62 34.21 33.51
40 Chile 15.48 15.53 16.10 17.49 17.42 18.84 22.05 22.76 32.98 32.98
160
140
120
100
2013
80
60
40
20
Germany
South Africa
Turkey
Panama
Morocco
Sweden
Saudi Arabia
China
Hong Kong SAR, China
Singapore
Korea, Rep.
Malaysia
United Kingdom
Netherlands
Belgium
Spain
Italy
Japan
Egypt, Arab Rep.
Malta
Portugal
India
Vietnam
Lebanon
Sri Lanka
Mexico
Denmark
Canada
Russian Federation
Poland
Colombia
Brazil
Argentina
Chile
Oman
Greece
France
Thailand
United States
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52 Introduction
Introduction
Maritime transportation, as a central integrated component of global logis-
tics systems, is enforced to provide not only transport-related services but
also other related and wider logistical services in a more efficient and effec-
tive manner. The maritime transport system which is deeply involved in the
entire logistics flows is often referred to as ‘maritime logistics’. The main
value of maritime logistics has been recognized as achieving a high rate of
both operational efficiency (such as reducing lead-time and business costs)
and service effectiveness (such as flexibility, responsiveness and reliability
in the service). Maximizing the maritime logistics value and successfully
integrating its value into global logistics, therefore, become critical strategic
objectives of the maritime industry. Despite its importance, however, a sys-
tematic approach towards defining maritime logistics and its value creation
from the perspective of industry professionals remains relatively untouched.
This chapter aims to provide a precise understanding of the concept
of maritime logistics (including definition and main activities of maritime
logistics) and a guideline for the value creation of a maritime logistics sys-
tem. The chapter will address mainly the following:
● the importance of maritime transportation in an entire logistics
system;
● a definition of maritime logistics;
● the main activities of maritime logistics;
54 Introduction
(Continued )
56 Introduction
SOuRCES Lu (2000), Notteboom and Winkelmans (2001), Robinson (2002), Bichou and Gray
(2004), Carbone and De Martino (2003), Panayides (2006), World Bank (2006)
SOuRCE Lu (2000); Heaver et al (2000); Robinson (2002); Notteboom and Winkelmans (2001);
Carbone and De Martino (2003); Bichou and Gray (2004); Roh et al (2007); Murphy and Daley (1992);
Bernal et al (2002)
Ma
• forwarding service:
rit
planning shipping route;
im
arranging payment of
eL
freight; documentation
Primary activity
og
required for customs
clearance or insurance
ist
ics
Shipping Lines Port Operators
Va
• shipping service: Ocean • port operations:
lu
providing shippers with movement shipping reception;
e
Shippers cargo space of ships; loading/offloading;
offering regular stevedoring; delivery of
schedules of sails for goods via inland
maritime carriage transportation
Ma
Logistics Services
Secondary activity
riti
me
Arranging inventory Inbound/outbound B/L; Warehousing; repacking;
management; packing; container tracking and
Lo
assembling; product
warehousing; inland information; intermodal
gis
mixing, etc.
transportation, etc. service, etc.
tic
sV
alu
Human resource management; information system; administrative skill; finance
e
their vessels, are the main customers of port/terminal operators; freight for-
warders, who work for shippers, are the customers of shipping lines. The
maritime logistics system generated from these inter-linked primary activi-
ties can be reinforced by being supported by the additional logistics ser-
vices of the secondary activities. The maritime logistics services can then be
offered at a time when all the operators in the system are well coordinated
as a single team (O’Leary-Kelly and Flores, 2002). If the maritime logistics
system can prove that the services are valuable enough for their customers
to willingly purchase the services, the maritime logistics value is created
(Anderson and Narus, 1991).
The maritime logistics value would be increased by satisfying customers’
needs with a higher quality of services (Rutner and Langley, 2000). As a
result, the highly valued maritime logistics service leads to the high perfor-
mance of individual operators and the entire logistics system. The concept
of maritime logistics value and its effectiveness is discussed in the following
section.
by a customer firm in exchange for the price paid for a product offering’
(Anderson and Narus, 1991). Although firms provide differentiated goods
or services, unless customers are satisfied with the goods or services offered,
those goods or services may not be valuable. Therefore, the maritime logis-
tics value should reflect how well the system fulfils customer needs. In this
sense, this paper defines the maritime logistics value as the extent to which
the maritime logistics system responds to customer demands by success-
fully managing the flow of goods, services and information in maritime
logistics.
The value can be discussed from a customer’s or a service provider’s
point of view. This paper focuses on the latter, since the value of a service
could be assessed by customers (Anderson and Narus, 1991). For example,
even though the service provider (ie a firm) regards their service as valuable,
if the service cannot be perceived as valuable by their customers, the service
ultimately could not be regarded as valuable. When examining the elements
that constitute the maritime logistics value, firms should initially identify
who their customers are and what they demand. Customers in maritime
logistics would primarily be shippers who are in demand for shipping and
freight forwarding services, and shipping lines are the customers of port/
terminal operators. However, since all of the activities in a logistics sys-
tem are inter-connected with each other and their operations are directly
or indirectly affected by others, the quality of maritime logistics services
may also affect the behaviours of all the players in an integrated logistics
system. For instance, delays in shipping or carrying cargoes may cause seri-
ous problems not only with processing other successive works but also with
delivering goods on time to the final consumers. Such problems may lead
to serious dissatisfaction among final consumers and others in the entire
logistics system. Therefore, the boundary of maritime logistics would not
be limited only to shippers or shipping lines. Rather, all the entities in the
whole logistics flow should be included as the customers of the maritime
logistics system.
As far as the customer needs of maritime logistics system are concerned,
the overall demands from all the customers in a logistics system should be
taken into account. Today’s customers seek a service that is quick, reliable,
flexible and yet also offers the lowest price. These components are associ-
ated with organizational efficiency and effectiveness. Thus, maritime logis-
tics value can be also reflected in the operational efficiency and effectiveness
of services offered (Lai et al, 2002).
Having suggested that ‘efficiency measures how well the resources are
utilized, and effectiveness concerned with the extent to which goals are
accomplished’, Lai et al (2002) measure operational efficiency and service
effectiveness widely used in transport logistics such as costs, assets, reliabil-
ity and responsiveness/flexibility. The first two criteria are about efficiency-
related indicators of a firm, while the other two are effectiveness-related
criteria. Table 4.3 indicates measurements representing the efficiency and
Defining Maritime Logistics and Its Value 61
SOuRCE Lai et al (2002)
Strategic significance of
maritime logistics value
As discussed in the previous sections, the maritime logistics value can be
created by maritime operators, eg shipping lines, port terminal operators
and freight forwarders. Today, the maritime operators are involved in global
business through moving goods across the world. Shipping lines navigate
on a regional and/or global scale carrying cargoes to a variety of destina-
tions. Large enterprises such as Maersk Line, MSC or APL have their own
subsidiaries in almost every country to and from which they transport prod-
ucts. Currently, they are also expanding their business scope by establish-
ing their own dedicated terminals across the world (Oliver, 2005). Small
and medium-sized shipping lines whose geographical coverage is relatively
small are more likely to specialize in a few shipping routes. However, most
of them do also have branches or agencies in countries at which their ves-
sels call, with the aim of reducing the uncertainty of the foreign market and
offering a more diversified service.
As one of the players in maritime logistics operations, freight forwarders
need to process a number of documents related to international trade on
behalf of shippers, and to handle logistics activities such as warehousing,
inventory management and inland transportation in both domestic and
foreign countries. Therefore, freight forwarders should be well versed in
the foreign countries where their businesses are involved. A great number
of freight forwarders proactively establish foreign branches and/or collabo-
rate with local companies in overseas markets so as to provide their cus-
tomers with more agile and differentiable services (Korea Shipping Gazette,
2009).
Port/terminal operators are also engaged with global operations. For
example, leading terminal operators, such as DP World, PSA Corporation
and Hutchison Port Holdings, are all actively expanding their business
boundaries across the world. Figure 4.3 shows the latest developments in
the global coverage of major port/terminal operators. As a consequence,
their operational scope inevitably overlaps with each other on a regional
basis, thus creating a situation where they compete against each other in
those markets (Janelle and Beuthe, 1997).
In the discussion so far, maritime operators are considered as global busi-
ness units whose operations are involved in more than one country (Hill,
2001). Their operations are globally inter-connected with each other and
the activities of one may inevitably affect the activities and performance of
another; as a result, this may have an impact on the performance of an entire
logistics system and supply chain. For example, unforeseen delays in loading
cargoes in Busan Port – cargoes which are supposed to be moved to Sydney
Port – may cause unavoidable delays in shipping and freight forwarding
operations, which in turn results in the decline in performance of the entire
logistics flows by delaying delivery of the product to the final customer.
Defining Maritime Logistics and Its Value 63
APMT
DPW Eurogate HPH Cosco
SSA Cosco PSA APMT HPH
Cosco
APMT DPW PSA DPW
Concluding remarks
This chapter outlines the concept of maritime logistics and its value, and
discusses strategic significance of maritime logistics value in today’s mari-
time operations within the context of global logistics and supply chains. As
reviewed in this chapter, maritime logistics is a system which encompasses
all the activities involved in both maritime transport and logistics manage-
ment. The maritime logistics value, the value created from the maritime
logistics system, can be maximized when maritime logistics operators offer
their services in the most efficiency and effective manner. As it may contrib-
ute to the higher performance of both individual maritime operators and
entire logistics system, maximizing the maritime logistics value has become
64 Introduction
one of the most significant strategic goals which maritime operators want
to achieve.
In conclusion, this study can provide a meaningful insight into what
constitutes a maritime logistics system and maritime logistics value, and
the question of how maritime logistics value can be enhanced, by sys-
tematically defining those phenomena. However, despite the consider-
able research underpinning this study, its impact must be limited, as the
concepts defined in this chapter have not been empirically tested. Future
studies will need to rigorously analyse the validity of these concepts by col-
lecting data from the maritime logistics field and statistically testing their
appropriateness.
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Advisory Facility
Hinterland 05
logistics and
global supply
chains
r I C K a r D B E rg QV I S T
Introduction
The hinterland transportation system enables load units to be transhipped
between seaports and inland destinations. Some of the load units arriving at
seaports are transhipments for other seaports, while others have inland des-
tinations. The term ‘hinterland’ is often referred to as the effective market or
the geo-economic space in which the seaport sells its services (Slack, 1993).
A similar definition is presented by van Klink and van den Berg (1998)
who define hinterland as the interior region served by the port. The logistics
related to the hinterland involves many actors and activities, and requires
intense collaboration and coordination to work effectively and efficiently.
Hence, hinterland logistics and transportation have become a crucial part of
ensuring an efficient supply chain.
From a seaport perspective, the nature and number of available hin-
terland services depends on its location and overall infrastructure. Some
seaports enjoy possibilities for inland waterways, while others are lim-
ited to land-based modes of transport. Containerization, in combination
with intermodal transport possibilities, has enabled the ports’ hinterland
to expand (Song, 2003). The increased hinterland of many ports has led
to an intensified inter-port competition (Bergqvist et al, 2013; Cullinane
and Wilmsmeier, 2011; Notteboom and Winkelmans, 2001). The com-
plexity of hinterland logistics in combination with inter-port competition
requires ports to be more proactive in their hinterland strategies. Hinterland
68 Introduction
Note Founded in San Francisco, Matson developed an intermodal container freight system including
trucks, trains and ships. The picture above illustrates a container on flatcar service (COFC). Reproduced
courtesy of Matson Navigation Company Inc.
From this historical review, we can conclude that innovations can have a
profound effect on the hinterland transportation system. At the same time,
their impact can be hard to predict at first.
The next section introduces key concepts, definitions and characteris-
tics related to hinterland transport. After the conceptual framework, the
hinterland transport system is described in three sections related to design,
strategy and management. A case study follows the hinterland transport
system descriptions relating to the case of the Scandinavian Railport Sys-
tem. Reflections and analyses based on existing literature and the case
study is then the basis for the following section on hinterland logistics
and its influence on global supply chains. The final section summarizes
key observations related to hinterland logistics and hinterland transport
systems.
Conceptual framework
The design of hinterland logistics systems can be based on a number of con-
cepts and technologies. This section introduces the most common concepts,
definitions and technologies used in hinterland logistics. Transportation has
a major role to play in the effective and efficient performance of the system
right along the entire supply chain. The main components of the transporta-
tion system are:
The hinterland transportation system can be described with the help of the
conceptual model developed by OECD (1992). According to this model,
the transportation system consists of five layers: material flow, transport
operation, information operation, transport infrastructure and telecom-
munication infrastructure (see Figure 5.3). In short, the material flow is
consolidated and operated by appropriate means of transportation. In the
traffic market, connections are made between vehicle flows, logistics service
providers, and infrastructure capacity. The coordination and operation of
material flows are supported by information exchange using telecommuni-
cation infrastructure. This model has been used by Bergqvist (2007), Hansen
(2002) and Wandel and Ruijgrok (1993), for example, as a framework for
analysing logistics structures and functions. The efficiency and accessibil-
ity of the transport system is determined by the efficiency of layers and the
interconnections between layers.
Demand (information)
Demand
Other (material flow) Other
supply users Information market
Transport market
chains Supply (messages)
Supply
(load unit flow) Informatics oparation
Transport
operation
In summary, the issues of design and strategy determine the accessibility and
effectiveness of the hinterland system. Adding the component of manage-
ment to the system determines the overall efficiency.
Even though there are three separate activities, they are highly interde-
pendent. The three components need to be developed simultaneously to
ensure the overall efficiency and effectiveness of the system. If well devel-
oped, the system offers effective and efficient hinterland accessibility. Con-
tinued discussions related to hinterland transport systems in this chapter
will relate to both conceptual models presented here.
Strategy
Efficiency
Management
74 Introduction
FREIGHT TRANSPORT
EU-27 USA JAPAN CHINA RUSSIA
billion tkrn 2011 2009 2010 2011 2011
Road 1734.1 1929.2 333.2(7) 5137.5 223.0
Rail 420.0 2309.8(6) 20.4 2946.6 2128.0
Inland 141.1 406.6 2606.9 61.0
waterways
Oil pipeline 118.6 829.8 202.2(8) 2422.0
Sea (domestic / 1407.7 286.6 179.7 4935.5 77.0
intra-EU-27)
NOTES
(1) Japan: data for passenger car, bus+trolley bus+coach and waterborne
are from 2009.
(2) USA: including light trucks / vans.
(3) Japan: including light motor vehicles and taxis.
(4) China: including buses and coaches.
(5) Japan: included in railway pkm.
(6) USA: Class rail.
(7) Jtapan: 2009.
(8) China: oil and gas pipelines.
Source European Commission (2013)
1.20
1.10
1.00
0.90
0.80
0.70
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(Continued )
80 Introduction
From Table 5.3 above, it is evident that intermodal transport services are
more complex, since they require coordination with more actors than, for
example, direct road services.
The advantages associated with designing and managing one’s own hinter-
land transportation system are:
●● Closed system. The choice can be made to open up the system for
other users or not. This option can be very valuable when the
strategic advantages of the hinterland transportation system are so
large that it has a significant impact on the overall competitiveness
and the distinct value proposition of the product/service.
●● Long-term commitments. This solution often requires large
investments in rolling stock, vehicles, locomotives, barges etc, which
implies that it is a long-term commitment. There are exit possibilities
through secondary markets, but these are often associated with
significant exit costs. Furthermore, the investments made in human
resources for designing, implementing and managing the system often
generate a significant payback time.
●● Control/risk. When a person manages a hinterland transportation
system, he/she is in total control of costs, which can be crucial in
a number of situations, such as if there is a significant risk of
higher market prices of the hinterland services or if there are
imbalances between supply and demand. The risks of highly
fluctuating costs/prices for hinterland transportation can be
limited if the owner controls the system and costs personally.
Another important aspect is that the owner is able to control the
issue of capacity.
The system can be totally tailored to one’s specific needs. A self-managed
system can be tailored according to timetables, load units, handling tech-
niques, storage facilities, IT systems, etc. The option also allows for greater
flexibility, eg frequency.
82 Introduction
(Continued)
84 Introduction
over time. Most services operate five to seven days a week, and the most frequent one,
which supports H&M’s central warehouse in Eskilstuna, operates 14 times a week in
each direction. As the system has developed, so have the inland terminals. Some have
developed sophisticated systems for information sharing, customs clearance, etc, and
can be regarded as dry ports (similar functions are offered inland directly at the seaport).
PORT OF GOTHENBURG
RAIL SYSTEM
Our rail shuttle system is based on
well-developed cooperation betwen
the Port of Gothenberg, the RAILPORT
terminals, several rail operators,
goods owners and the National
Rail Administration.
Port of Gothenburg
RAILPORT terminals
Port terminals
Daily trains besides
the Port of Gothenburg
Rail Shuttle System
Sundsvall
SWEDEN
Avesta
Oslo Hällefors Fagersta
Kristinehamn Eskilstuna Stockholm/
Karlstad Årsta
Örebro Stockholm/
Åmål
Hallsberg Södertälje
Nörrköping
Falköping
Jönköping
Nässjö
GOTHENBURG Torsvik
Vaggeryd
DENMARK Helsingborg
Åhus
Similar to the rail operations, the inland terminals are often operated by independent
terminal operators, especially the largest inland terminals. The small terminals are
generally operated by local logistics service providers.
86 Introduction
Most rail shuttles operate over distances of 250–450 km. The shortest shuttle, about 10
km from the port, connects the port with a stuffing and stripping terminal.
The hinterland transport system moved approximately 400,000 20-foot equivalent units
(TEU) in 2012 (see Figure 5.9), with a turnover of about €60 million (Bergqvist, 2009). The
system originates from a decision by the board of directors at the Port of Gothenburg,
stating that half of the growth in the container segment should enter or leave the port by
rail. The system has developed beyond this goal. In 2012, the Port of Gothenburg handled
about 900,000 TEU, which means that the hinterland transport system of rail shuttles has a
market share of about 45 per cent. Containers dominate the systems, but there is a strong
market interest in developing and incorporating more semi-trailers into the system.
60%
50%
40%
30%
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total Volume Port of Gothenburg 900000 TEU 2012.
Source Port of Gothenburg (2014)
The system of rail shuttles is estimated to decrease the transport costs by approximately
10 per cent as compared with direct road transport (Bergqvist, 2009). The system also
relieves congestion in the city of Gothenburg and decreases the carbon dioxide (CO2)
emissions by about 51,000 tons every year (Port of Gothenburg, 2011a). Furthermore,
the system employs about 400 persons (Bergqvist, 2009). For their achievements and
innovations related to the rail shuttle system, the Port of Gothenburg received the
Schenker Award in 2008. The award is one of the most prestigious prizes related to
the logistics industry in Sweden. The most recent development is the introduction of a
five-level grading system of the inland terminals, managed by the Port of Gothenburg,
to illustrate the assortment and level of services they offer. The rating is based on four
parameters: conditions and geographical location, range of services, safety and security
and physical layout (Port of Gothenburg, 2014).
The Port of Gothenburg expects the volumes and market share of the rail shuttle
system to grow even further. Nevertheless, with a wider and denser geographical
coverage of the hinterland, the hinterland transport system, with its rail shuttles and
Hinterland Logistics and Global Supply Chains 87
inland terminals, is running out of potential destinations. Until now, the Port of Gothenburg
has been able to develop the hinterland transport system without any real competition
from other ports. However, as ports in northern Europe look for ways to expand their
hinterlands, the competitive interface of the hinterland may change.
Conclusions
As a shipper, the hinterland transport system is a crucial part of your supply
chain. The modes you select, the supplier choice and the long-term perspec-
tive of your strategy are all important considerations when designing an
effective and efficient hinterland transport system and supply chain strat-
egy. In order to make the right considerations, it is important as a ship-
per to understand that hinterland logistics have unique characteristics and
dynamics.
As a logistics service provider, the hinterland transport system is no
longer an isolated part of the supply chain, but an integrated part of your
total network and total offerings. An attractive logistics service provider
must be able to manage both horizontal and vertical coordination and col-
laboration in the supply chain. Horizontal coordination is done by offering
single, multiple and combinations of transport modes; vertical coordination
is carried out by integrating different actors in the supply chain, such as
hauliers, shipping lines, ports, terminals, infrastructure manager etc. Only
by doing so is it possible to manage the inherent advantages and disadvan-
tages of individual transport modes and manage the coordination challenges
between actors.
In conclusion, hinterland logistics have become an integrated part of
global supply chains and their management. An in-depth understanding and
knowledge of hinterland logistics, and its unique conditions in each situa-
tion, are a crucial part of effective design and strategy regarding transport
systems, and ultimately of efficient global supply chain management.
References
APL (2011) Evolution of Rail in America [accessed 21 January 2011] from http://
www.apl.com/history/html/overview_innovate_rail.html
Bergqvist, R (2007) Studies in Regional Logistics: The context of public–private
collaboration and road-rail intermodality, Logistics and Transport Research
Group, Department of Business Administration, BAS Publishing, Gothenburg,
Sweden
Hinterland Logistics and Global Supply Chains 89
Introduction
Adventure and a will to engage in foreign trade have stimulated and advanced
development, building and utility of ships and ports since time immemorial.
Improved design of hull, propulsion and cargo-handling systems have con-
tinuously increased speed, capacity and reliability of sea transports. Simul-
taneously, efforts have been made to perfect manning both for onboard and
onshore operations in order to optimize transportation costs (Ding and
Liang, 2005; Stopford, 2009). Mechanization, automation, information
and communications technology have made many manual tasks redundant,
enabling ship and cargo-handling operations with a minimum of manpower.
A striking example of the technological development is the world’s largest
container vessel, the Emma Maersk, which is 397 metres long and normally
operated by a crew of only 13 people. She has a capacity equivalent of about
15,000 20-foot containers that can be moved at a crane rate of 30–40 con-
tainers an hour at leading container terminals.
However, there is an area of potential to acknowledge and develop in the
effort to improve maritime logistics: the role of the human element and the
interface between human and technology in the various man–machine sys-
tems in the global supply chain. As technological systems increase in complex-
ity, the gap between the human operator and the system tends to increase
as well. Operators have difficulties in understanding what the technological
system does and correctly detect and assess problems (Osvalder and Ulfven-
gren, 2008). The gap between human and machine has led to a number of
incidents and accidents over the years. One example is the container vessel
Savannah Express whose collision with a linkspan at Southampton Docks in
2005 after an engine failure was caused by the operators not fully understand-
ing the complex electronic control system for the main engine (MAIB, 2006).
A similar incident occurred in 2006, when the product tanker Prospero’s loss
92 Introduction
of control of the podded propulsion system led to heavy contact twice with the
jetty in Milford Haven; once forward and once aft (SHK, 2007). Neither of the
incidents led to human injuries or loss of lives. While the Savannah Express
needed only paintwork, the linkspan had to undergo major repair work before
it could be utilized again, thus disrupting service at Southampton Docks. The
Prospero was taken out of service for 10 days for subsequent investigations
and repairs. The jetty was declared to be unusable and was closed for repairs.
Due to the extent of the damage, a long-term restriction limited the berth’s
capacity from 165,000 to 100,000 deadweight tonnage. Further, the charterer
subsequently declined to charter Prospero and her sister vessels again.
The area for potential improvements in maritime transport systems is
also shown by the fact that despite significant changes of work – where
many manual and physically demanding tasks have been replaced by more
monitoring and operating of automated systems and machinery and more
administrative work – the maritime domain still suffers from a high level
of occupational accidents. Cargo handling in ports is considered one of the
most dangerous tasks (HSE, 2008; AV, 2011) and work-related mortality
for seafarers remains among the highest of all occupations (Roberts and
Marlow, 2005). This high incidence of occupational accidents and injuries
means that many individuals are afflicted with aches, pains and sometimes
lifelong disability and relegation from the labour market, but it also means
disruptions of output and heavy expense to businesses and the community.
Traditionally, the regulatory regimes surrounding maritime transport
have focused on improving technical aspects of shipping, often driven
by maritime disasters rather than through a proactive systems approach
(O’Neil, 2003). The Titanic, Herald of Free Enterprise, Estonia and Erica
are but a few of the catastrophes that have resulted in prescriptive measures,
principally in the area of ship design and equipment. But, in November
1997, the International Maritime Organization (IMO) adopted a resolution
acknowledging the human element as a complex multi-dimensional issue
that affects maritime safety and the protection of the marine environment
(IMO, 1997). Partly spurred by society’s increased concern for sustaina-
ble development in terms of safety, well-being of people and a minimized
impact on the environment, this resolution represents a move towards a
more holistic approach to maritime transports. In this resolution, the human
element involves every human activity performed by ships’ crews, shore-
based management, regulatory bodies, recognized organizations, shipyards,
legislators and other relevant parties, all of whom are required to cooperate
to ensure that human element issues are addressed effectively (IMO, 1997).
Social
Theory
needs
Practice
Technology,
Ergonomics and
environment
education
Design Management
●● accidents or injuries;
●● operational disturbances of machinery and equipment;
●● inspections and potential subsequent detentions.
Accidents and injuries are always likely to have a disruptive effect on opera-
tions, both at the time of the accident or injury, and in the aftermath with
potential subsequent internal and external investigations, repairs, replace-
ment of personnel, training and familiarization of new personnel. According
to the European Maritime Safety Agency (EMSA), loss of life and the num-
ber and cost of accidents remain significantly higher than 3–5 years ago.
During 2008, 754 vessels were involved in 670 accidents, and 82 seafarers
lost their lives on ships operating in and around EU waters (EMSA, 2009).
The high occurrence of occupational injuries compared to other industries
and the high costs for incidents involving crew members suffering from
mental ill-health (NEPIA, 2006) indicate significant potential for improve-
ments in this area.
Leading stakeholders within the maritime domain have stated that erod-
ing knowledge and competence across the industry is a major cause for
increasing accident tolls (Richardsen, 2008; Spencer, 2009). Supposedly, the
reasons for insufficiently educated and trained seafarers are that competence
is sacrificed for less expensive labour, but also lack of suitable mechanisms
to ensure a globally implemented minimum standard for maritime training
and control of competence (Ding and Liang, 2005). Lower manning levels
on board do not necessarily pose a problem per se. However, in addition
to the worldwide shortage of competent seafarers (estimates suggested a
Human Elements in Maritime Logistics 97
Outcomes
Physical Vibrations Ship motions causing slips, trips and falls (STF). + + –
environment Whole-body vibrations causing reduced cognitive performance + + –
and fatigue.
Hand-arm vibrations causing vascular, neurological and + + –
musculoskeletal disorders (MSD).
Physical load Work postures Strenuous working postures, manual handling etc, causing + + –
MSD.
(Continued )
Ta B L E 6 . 1 Human element issues and their effects from a maritime perspective (Continued )
Outcomes
Cognitive Work stress Work at sea is associated with considerable stress; especially + + –
regarding relationships with others and the home/work interface.
Many female seafarers experience sexual harassment and feel –
unsafe.
Organizational Work Poor organization of work and rest hours causing fatigue and + + –
organization alone work tasks.
Human Elements in Maritime Logistics 101
Concluding remarks
The present chapter has addressed overall system performance and well-being
in a maritime context. Further, the chapter has theoretically explored how
these concepts can be operationalized and related to human element issues.
104 Introduction
References
Anderson, DM (1983) From accident report to design problems: A study of
accidents on board ship, Ergonomics, 26, pp 43–50
AV (2011) Statistics from the information system on occupational accidents and
work-related diseases (ISA), 9 February 2011, Swedish Work Environment
Authority, Stockholm
Bailey, N (2006) Risk perception and safety management systems in the global
maritime industry, Policy and Practice in Health and Safety, 4, pp 59–75
Carter, T (2005) Working at sea and psychosocial health problems: Report of an
international maritime health association workshop, Travel Medicine and
Infectious Disease, 3, pp 61–65
Chapanis, A (1996) Human factors in systems engineering, John Wiley and Sons,
New York
Churchman, CW (1968) Challenge to reason, McGraw-Hill, New York
Human Elements in Maritime Logistics 105
Lützhöft, M and Dekker, SWA (2002) On your watch: Automation on the bridge,
The Journal of Navigation, 55, pp 83–96
MAIB (2006) Report on the investigation of the engine failure of Savannah
Express and her subsequent contact with linkspan at Southampton Docks, 19
July 2005, Marine Accident Investigation Branch, Southampton
Mossink, J and De Greef, M (2002) Inventory of socioeconomic costs of work acci-
dents, European Agency for Safety and Health at Work, Luxembourg
NEPIA (2006) Cabin fever: A growing cause for concern, Signals, North England
PandI, Newcastle
O’Neil, WA (2003) The Human Element in Shipping, editorial, WMU Journal of
Maritime Affairs, 2, pp 95–97
Österman, C, Rose, L and Osvalder, A-L (2010) Exploring maritime ergonomics
from a bottom line perspective (submitted for approval)
Osvalder, A-L and Ulfvengren, P (2008) Human–technology system, Work and
Technology on Human Terms, Prevent, Stockholm
Paris MoU (2009) 2008 Annual Report on Port State Control, The Secretariat of
the Paris MoU, Netherlands Ministry of Transport, Public Works and Water
Management, The Hague
Paris MoU (2010) Port State Control Inspections
Parker, AW, Hubinger, LM, Green, S, Sargent, L and Boyd, R (2002) A survey of the
health, stress and fatigue of Australian seafarers, Australian Maritime Safety
Authority
Perrow, C (1999) Normal accidents: Living with high-risk technologies, Princeton
University Press, NJ
Quinlan, M, Mayhew, C and Bohle, P (2001) The global expansion of precarious
employment, work disorganization, and consequences for occupational health:
A review of recent research, International Journal of Health Services, 31,
pp 335–414
Richardsen, PW (2008) Expensive safety hangover in the shipping industry, DNV
Roberts, SE and Marlow, PB (2005) Traumatic work related mortality among
seafarers employed in British merchant shipping, 1976–2002, Occupational and
Environmental Medicine, 62, pp 172–80
Ropohl, G (1999) Philosophy of socio-technical systems, Society for Philosophy
and Technology, 4
SHK (2007) Report on the investigation of the loss of control of product tanker
Prospero and her subsequent heavy contact with a jetty at the SemLogistics
terminal, Milford Haven 10 December 2006, Stockholm, Swedish Accident
Investigation Board
Spencer, C (2009) Standard Safety September 2009, The Standard PandI Club,
London
Stopford, M (2009) Maritime Economics, Routledge, London
Wiener, EL (1989) Human Factors of Advanced Technology (‘Glass Cockpit’)
Transport Aircraft, NASA Ames Research Center, Moffett Field, CA
PART TWO
Shipping
logistics
Intermodal 07
freight transport
and logistics
K aT S u h I KO h aya S h I a N D TO S h I N O r I N E MOTO
Introduction
As a consequence of containerization, maritime transport became integrated
with land transport, and resulted in the provision of efficient intermodal
transport. Intermodal transport that links factories and warehouses in many
parts of the world in a door-to-door manner has become a crucial service
for shippers such as multinational manufacturing companies that operate
globally. Shippers believe that concentrating business resources on their area
of expertise is competitively advantageous, and logistics outsourcing has
increased. Intermodal transport is the focal service in the wide range of
logistics services including storage, inventory control and packaging, and
has produced added value to maritime services which makes it an important
field in maritime research.
This chapter analyses global intermodal transport that combines maritime
and other transport modes. The first section explains the concept of inter-
modal transport and its components and characteristics. The next section
discusses the function of containers in the development of intermodal freight
transport and logistics. The third section introduces typical global intermodal
transport services with some examples in North America, Europe and Asia,
followed by a section explaining the role of intermodal transport facilitators
and their services. Finally, prospects and future issues are discussed by review-
ing and predicting the development factors affecting intermodal transport.
The following discussion will describe the definition and the background
from which each term emerged.
As shown above, the term multimodal transport was used originally in inter-
national maritime transport. However, in recent years the term intermodal
transport has been used extensively, aimed at the integration of systems. In
this chapter, intermodal transport is defined as seamless door-to-door opera-
tions using at least two different modes in an integrated manner.
Maritime
Road Transfer Transfer Road
Seamless door-to-door
Collection & Distribution Trunk line 1 Trunk line 2 Collection & Distribution
Seamless door-to-door
112 Shipping Logistics
In Europe, the use of rail transport and inland water transport, which are
environmentally efficient, are being promoted. Recently in China an inter-
modal transport system using DST and inland water transport has been
partially started (Figure 7.1).
The intermodal transport route might be significantly shorter than the
maritime transport route depending on geographic location. When com-
pared to the Asia/East Coast sea route that navigates through the Panama
Canal, the Asia/East Coast mini-land bridge route passing the West Coast
using the transcontinental trains can be shorter in terms of haul distance and
transport time. Similarly, the haul distance of the Siberia land bridge using
the Trans-Siberian Railway is shorter than that of the Asia/Europe sea route
that navigates through the Suez Canal.
There is a special type of intermodal transport that combines air and
sea transport which has distinctive characteristics. Because the air freight
container can only be used between airports, transhipment of freight at air-
port facilities is necessary. This is different from other types of intermodal
transport because common transport equipment is not utilized. During the
time when air freight rates were much higher compared to sea freight rates,
various combined air and sea services were seen between Asia and Europe.
However, combined sea and air services have declined due to reductions in
air freight rates brought about by intense competition among airline com-
panies and the proliferation of large airplanes. At present, they are partially
being used for emergency transport, and in cases when other airports are
used to avoid airport congestion (ie Chinese cargo headed for Europe is
transported by sea to Incheon Airport and transhipped there because of
congestion at Beijing Airport).
TCt
TCt : Traditional terminal cost
TCi : Container terminal cost
Costs for intermodal transport
VCt TCi
VCi
TCt
TCi
Distance
Road Sea Road
Distance
Road Sea Rail Road
114 Shipping Logistics
This intermodal transport has been called the ‘belt conveyor that stretches
across the sea’, and is an advanced transport service to realize international
just-in-time (JIT) transport.
Intermodal transport services offered by shipping companies include
MLB (mini-land bridge), IPI (inland point intermodal) and RIPI (reverse
inland point intermodal). MLB is a service that provides freight transport
to the US East Coast using transcontinental railway after having been trans-
ported to the various ports of the US West Coast by container ships. Trans-
port distance to New York is reduced by 2,200 miles compared with via the
Panama Canal, and the number of days for transport can also be shortened
to about 7–10 days. MLB is the oldest service started in 1972, and DST has
been in operation since 1984. Each shipping company introduces exclusive
DST matched to the specific ship and competes by reducing transhipment
and transport time (Ocean Commerce, 2009).
For freight going into the inland areas of the United States, there is the
IPI, which passes through the US West Coast, and the RIPI, which passes
through the US East Coast. In 1980, the West Coast shipping alliance started
IPI, and in retaliation, the East Coast shipping alliance started RIPI. As the
size of most ships is getting larger and over-Panamax, which cannot navi-
gate through the Panama Canal, IPI occupies the majority of transport to
inland areas at present.
Europe
In Europe, intermodal transport using railway or inland waterway was lim-
ited in the earlier stages of containerization. Before the integration of the
market in Europe, rail freight transport had been exclusively carried out by
118 Shipping Logistics
Asia
For rail freight transport in Japan, because the original 12-ft standard con-
tainer was being adopted, it was necessary to provide infrastructure that
accommodates the large-sized ISO containers, together with wagons and
handling equipment. Even though they made some efforts to transport ISO
containers at the major arterial networks, traffic volume has not increased
that much. One reason why it is difficult to achieve modal shift is that there
is not sufficient demand for long-distance transport because of limited
land area. Some other reasons include contradictory policies with negative
impacts on intermodal transport such as the eradication of railroad cross-
ings going to the ports to ease road congestion.
In China, railway plays an important role as a transport mode for long-
distance inland transport, while they face stringent capacity constraints
Intermodal Freight Transport and Logistics 119
because of huge transport demands for oil, coal, minerals and grains. The
Chinese government concentrates on container transport using railway,
arranges the container stations in the whole country, provides five fixed-
freight trains (with fixed arrival and departure stations, railway routes,
operation numbers, arrival and departure times and fares), and constructs
railway infrastructure along the major routes. Since 2004, the DST opera-
tion of a 160 TEU per train has begun on the arterial network to increase
the transport capacity of each train.
Inland water transport has been actively used in China. Its applicability is
especially high in the Yangtze River and Pearl River Delta, and the provision
of container terminals at inland areas is being promoted. Along the Yangtze
River they can transport over 2,000 km to inland Chongqing and Sichuan
using small container ships. A stable service has become possible with the
completion of the Three Gorges Dam. Intermodal transport using the Yang-
tze River has become an important transport mode to the companies located
in the inland areas.
Because there are only a few rivers that can be used and rail infrastruc-
ture is insufficient in other Asian countries, intermodal transport using these
systems is quite limited. However, demand for intermodal transport in the
region is expected to increase due to the regional integration of Asia and
industrialization of inland areas in the future, although industries have been
concentrated at the coastal areas until now. Therefore, the provision of an
international intermodal transport in other Asian countries is now being
explored.
Forwarders use the VOCC (vessel operating common carrier) space and
perform maritime transport as a NVOCC (non-vessel operating common
carrier). NVOCC is a business concept that was born out of deregulation
in the United States, which allows the selling of sea transport services to
shippers even if the ship is not owned. Forwarders provide various inte-
grated services by freely combining sea and land transport. Even among
the shipping companies, there are many cases in which they have estab-
lished forwarders as subsidiaries to flexibly use the sea transport of other
companies.
The main feature of this arrangement is in fulfilling the needs of shippers
by flexibly combining the transport services of the shipping company and
the land transport company. It is difficult for even large-scale shipping com-
panies with land transport subsidiaries to fulfil all the complex needs of ship-
pers only through the transport services the group companies could provide.
On the other hand, it is likely that forwarders have higher communication
costs with many companies, so they should be careful to monitor the whole
intermodal process in order to avoid unnecessary further coordination.
Logistics services
As a response to the globalization of shippers, shipping companies and for-
warders often set up in foreign countries. Through these overseas networks
of logistics bases, intermodal transport services were developed all over the
world. Important routes in terms of freight volume are from China and
ASEAN to Europe and America. Various transport services have been devel-
oped according to shippers’ demand, resulting in a global-scale intermodal
transport network.
For instance, Nippon Express, one of larger global forwarders, has estab-
lished foreign operations bases in more than 200 cities and developed many
intermodal transport services to and from these bases. In order to manage
these services as an organized network, the company has set up a special
intermodal transport department that develops new services and informa-
tion system such as cargo tracing and inventory management.
Shipping companies and forwarders offer not only intermodal transport
services, but have provided various services as well such as packaging, ware-
housing and logistics processing. Furthermore, some of them are trying to
provide third-party logistics (3PL) services responding to the advanced out-
sourcing needs of shippers. 3PL services consist of consulting and planning
as well as offering comprehensive services from the shipper’s point of view
in partnership with the shipper.
In the case of procurement logistics services for global manufacturers,
for example, 3PL providers could propose and manage the whole process
of procurement. It collects parts from suppliers, packs them into contain-
ers, clears customs, transports containers to distribution centres abroad,
manages inventory, and delivers to their factory just-in-time. In the case of
Intermodal Freight Transport and Logistics 121
services for the apparel industry, 3PL providers could inspect the products
thoroughly, check remaining needles, and perform other logistics processing
activities such as ironing and price tagging.
Notes
1 These definitions are intended for the work of the three inter-governmental
organizations, namely the European Community, the European Conference of
Ministers of Transport (ECMT) and the UN/ECE.
Intermodal Freight Transport and Logistics 123
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Transport
Developing liner 08
service networks
in container
shipping
C É S a r D u C ru E T a N D T h E O N OT T E B O OM
of gravity of these liner service networks has shifted to Asia. The dominance
of Asia is reflected in world container port rankings. In 2009, 14 of the 20
busiest container ports were in Asia, mainly in China. In the mid-1980s there
were only six Asian ports in the top 20, mainly Japanese load centres. The
emerging worldwide container shipping networks helped to reshape global
supply chain practices and supported the globalization in production and
consumption. New supply chain practices in turn increased the requirements
on container shipping service networks in terms of frequency, schedule reli-
ability/integrity, global coverage of services and rate setting.
This chapter analyses liner service networks as configured by container
shipping lines. In the first section we discuss the drivers of and decision vari-
ables in liner service design as well as the different liner service types. Next,
the chapter provides a global snapshot of the worldwide liner shipping net-
work based on vessel movement data. The changing geographic distribution
of main inter-port links is explored in the light of recent reconfigurations of
liner shipping networks. Third, we zoom in on the position of seaports in
liner shipping networks referring to concepts of centrality, hierarchy, and
selection factors. The chapter concludes by elaborating on the interactions
and interdependencies between seaport development and liner shipping net-
work development notably under current economic changes.
(Zohil and Prijon, 1999; Lirn et al, 2004). Shipping lines may direct flows
along paths that are optimal for the system, with the lowest cost for the
entire network being achieved by indirect routing via hubs and the amalga-
mation of flows. However, the more efficient the network from the carrier’s
point of view, the less convenient that network could be for shippers’ needs
(Notteboom, 2006).
Bundling is one of the key drivers of container service network dynamics.
The bundling of container cargo can take place at two levels: 1) bundling
within an individual liner service: and 2) bundling by combining/linking
two or more liner services.
The objective of bundling within an individual liner service is to collect
container cargo by calling at various ports along the route instead of focus-
ing on an end-to-end service. Such a line-bundling service is conceived as a
set of x roundtrips of y vessels each with a similar calling pattern in terms
of the order of port calls and time intervals (ie frequency) between two
consecutive port calls. By the overlay of these x roundtrips, shipping lines
can offer a desired calling frequency in each of the ports of call of the loop
(Notteboom, 2006). Line-bundling operations can be symmetric (ie same
ports of call for both sailing directions) or asymmetric (ie different ports
of call on the way back) (Figure 8.1). Most liner services are line-bundling
itineraries connecting between two and five ports of call scheduled in each
of the main markets. The Europe–Far East trade provides a good example.
Most mainline operators and alliances running services from the Far East to
North Europe stick to line-bundling itineraries with direct calls scheduled in
each of the main markets. Notwithstanding diversity in calling patterns on
the observed routes, carriers select up to five regional ports of call per loop.
Shipping lines have significantly increased average vessel sizes deployed on
the route from around 4,500 TEU in 2000 to over 8,000 TEU in early 2011.
These scale increases in vessel size have put a downward pressure on the
average number of European port calls per loop on the Far East–North
Europe trade: 4.9 ports of call in 1989, 3.84 in 1998, 3.77 in October 2000,
3.68 in February 2006, and 3.35 in December 2009. Two extreme forms of
line-bundling are round-the-world services and pendulum services.
The second possibility is to bundle container cargo by combining/linking
two or more liner services. The three main bundling options in this cat-
egory include a hub-and-spoke network (hub/feeder), interlining and relay
(Figure 8.2). The establishment of global networks has given rise to hub
port development at the crossing points of trade lanes. Intermediate hubs
emerged since the mid-1990s within many global port systems: Freeport
(Bahamas), Salalah (Oman), Tanjung Pelepas (Malaysia), Gioia Tauro, Alge-
ciras, Taranto, Cagliari, Damietta and Malta in the Mediterranean, to name
but a few. The role of intermediate hubs in maritime hub-and-spoke systems
has been discussed extensively in recent literature (see, for instance, Baird,
2006; Fagerholt, 2004; Guy, 2003; McCalla et al, 2005). The hubs have a
range of common characteristics in terms of nautical accessibility, proxim-
ity to main shipping lanes and ownership, in whole or in part, by carriers
128 Shipping Logistics
Port of call
Round-the-world service
Suez Canal
Panama Canal
Port of call
Round-the-world line bundling
service (Eastbound)
Pendulum service
Port of call
Pendulum service Eastbound
Pendulum service Westbound
Transhipment
Port of call hub
Port of call
Line-bundling service North Europe-Far East
Regional feeder services (end-to-end or line bundling)
Interlining
Interlining hub
Port of call
Line-bundling service North Europe-Far East
Line-bundling service North-Europe-South-America East Coast
Relay
Behavioural impacts
Market profile of trade route: on port selection:
Freight rates and freight rate volatily Port selection among
Port selection in strategic alliance
Earning potential ports with a moderate or
‘Must’ ports of call (shippers)
high level of substitutability
Use of dedicated terminal capacity
Inertia and embeddedness
TRADE ROUTE ANALYSIS PORT SELECTION PROCESS
Note Dark grey/shaded areas are decision variables in liner service design.
Source Author’s elaboration based on insights from Notteboom (2009) and Notteboom and
Vernimmen (2009)
with the actual port selection process; 3) vessel speed; 4) frequency; and 5)
vessel size and fleet mix. The array of liner service types and bundling options
available to shipping lines was discussed in the previous section.
Limiting the number of port calls shortens round-voyage time and
increases the number of roundtrips per year, thereby minimizing the num-
ber of vessels required for that specific liner service. However, fewer ports
of call mean poorer access to more cargo catchment areas. Adding port
calls can generate additional revenue if the additional costs from added
calls are offset by revenue growth. The actual port selection is a complex
issue. Traffic flows through ports are a physical outcome of route and port
selection by the relevant actors in the chain. The most relevant service-
related and cost factors explaining port selection by the main players of the
Developing Liner Service Networks 133
transport chain (eg shippers, ocean carriers, and forwarders) are identified
in the scientific literature on port choice: eg Murphy et al (1992); Murphy
and Daley (1994); Malchow and Kanafani (2001); Tiwari et al (2003); Nir
et al (2003); Chou et al (2003); Song and Yeo (2004); Guy and Urli (2006)
and Wiegmans et al (2008). Port choice has increasingly become a function
of the overall network cost and performance. Figure 8.3 incorporates the
approach of Notteboom (2009) to group port selection factors together in
the demand profile of the port, the supply profile of the port, and the mar-
ket profile of the port. Human behavioural aspects might impede carriers
from achieving an optimal network configuration. Incorrect or incomplete
information results in bounded rationality in carriers’ network design, lead-
ing to sub-optimal decisions. Shippers sometimes impose bounded rational
behaviour on shipping lines, eg in case the shipper asks to call at a specific
port. Wiegmans et al (2008) argue that port selection by shipping lines can
also be heavily influenced by the balance of power among the shipping lines
of the same strategic alliance, or the carrier’s objective to make efficient use
of its dedicated terminal capacity in specific ports.
The choice of vessel speed is mainly affected by the technical specifica-
tions of the vessel deployed (ie the design speed), the bunker price (see Not-
teboom and Vernimmen, 2009), environmental considerations (eg reduction
of CO2 through slow steaming) and the capacity situation in the market (ie
slow steaming can absorb some of the vessel overcapacity in the market – eg
Cariou and Notteboom, 2011 and Notteboom et al, 2010).
The number and order of port calls, the total two-way sailing distance
and the vessel speed are the main determinants of the total vessel roundtrip
time. The theoretical/optimal roundtrip time will seldom be achieved in
practice due to delays along the route and in ports giving rise to schedule
reliability problems. Low schedule integrities can have many causes ranging
from weather conditions, delays in access to ports (pilotage, towage, locks,
tides) to port terminal congestion or even security considerations (Notte-
boom, 2006). A shipping line can insert time buffers in the liner service to
cope with the chance of delays. Time buffers reduce schedule unreliability,
but increase the vessel roundtrip time.
When it comes to the service frequency, carriers typically aim for a weekly
service. The service frequency and the total vessel roundtrip time determine
the number of vessels required for the liner service. Carriers have to secure
enough vessels to guarantee the desired frequency.
Given the number of vessels needed and the anticipated cargo volume for
the liner service, the shipping line can then make a decision on the optimal
vessel size and fleet mix. As economies of vessel size are more significant
on longer distances, the biggest vessels are typically deployed on long and
cargo-rich routes.
Decisions on all of the above key design variables will lead to a specific
slot capacity offered by the new liner service. The resulting slot capacity
should be in line with the actual demand so as to maximize average vessel
utilization (given expected traffic imbalances, cargo dispersion patterns and
cargo seasonality and volatility).
134 Shipping Logistics
1996 Auckland
Honolulu
a
m
Guam
ha
Yo yo
ko
ng
ok
a T
elu
Mapta
an e g e
N zh un K
am
n
Long Beach
ig
sa
Seattle Duch Harbor Hong Kong
Sh
Los Angeles
Bu
en hsi
sh n
Tacoma
a
Sh ao
Vancouver
R
Honolulu
Houston
New Orieans
Savannah Charlesion
Norflok
Montreal Colombo
Kingston New york Boston
Fel
Halifax
Limassol
ix
Liverpool Homburg
sto
Rubao Brememaven
we
Rotterdam
Antwerp
Zeebrugge Mersin
Beilul
Piraeus Haifa
Barcelona Ashdod Hodeidan
Algeciras Fas Damietta
Alexandria Dyboti
Havre
Main port
Other port Port Elizabeth
Top 50 links Durban
Top 100 links Cape dpwn
2006
Sydney Melporne
Brisbane
Thursday island
Fremantle
Seattle
Oakland
g
si g
un
on un
e
Ka eel
ab
amyo
Q gy usa a
Sh gd ng K
K
ig ok
Sh T
in a n
Long Beach Dutch Harbor
Hong Kong
en n
Los Angeles
en iam ai
an ao
an B
zh e
Sh X gh
Tacoma Vancouver Singapoore
w
Manzanillo Lazaro Cardenas Port Klang
G
Veracruz
Charieston
Baltimore
Montreal
New york Halifax
Fel iverp
L
ixs oo
tow l
Rotterdam
e
Antwerp Mersin
Barcelona Piraeus Haifa
Aden
Lirquen Cadiz El Dekheila
Maunitius
Las Palmas Dyboti
Santos Pecem
Rio de Janeiro
Main port
Other port
Durban
Top 50 links Port Elizabeth
Top 100 links Cape dpwn
two nodes) than other transport networks such as airlines, Ducruet and
Notteboom (2012) underlined an increase in efficiency between 1996 and
2006, which is attributed to the expansion of the network as well as to
the emergence of new hub ports. Another important trend topologically
speaking is the decreasing hierarchical structure of the network, as observed
by Ducruet and Notteboom (2012) on a world level and by Ducruet et al
(2010a, 2010b) in North-east Asia and the Atlantic regions. Such a trend
results from the combination of various factors such as regional integration
processes (multiplication of intra-regional links, opening of new direct call
and multi-port services), dis-economies of scale in large gateway and hub
ports, and competition between existing and emerging hub ports.
thus tend to have a role as regional hubs, with fewer connections to local
ports that are not well connected to the rest of the network, and have no
option but to go through Surabaya and Miami, such as several Indonesian
and Caribbean ports. Surabaya and Miami thus benefit from their bridge
position towards such smaller ports to raise their centrality in the global
network. Such a trend is also visible in the work of Ducruet et al (2010a)
showing how Busan has increased its centrality within North-east Asia but
has simultaneously seen its centrality lowering in the worldwide network.
The extent to which network position relates to the hierarchy of con-
tainer throughput is a crucial question that can be tested in Figure 8.5. Inter-
estingly, the correlation with betweenness and with degree has increased
between 1996 and 2006, showing a better fit with container throughput. In
100000000 100000000
Container throughout (1996)
10000000 10000000
1000000 1000000
100000 100000
10000 10000
y = 844,78x1,649
R 2 = 0,5698
1000 1000
y = 3793,2x0,4967
R 2 = 0,3983
100 100
0
10
0
00
10 00
10
0
10
00
10
0
10
0
00
10
10
00
10
100000000 100000000
y = 2662,8x0,6193
Container throughout (2006)
1000000 1000000
100000 100000
10000 10000
1,8636
y = 490,51x
R 2 = 0,6602
1000 1000
100 100
0
10
0
00
10 00
10
0
10
00
10
0
10
0
00
10
10
00
10
Conclusions
The extensive worldwide container shipping networks are key to globali-
zation and global supply chains. The requirements on container shipping
service networks have tightened in terms of frequency, schedule reliability/
integrity, global coverage of services and rate setting. The evolutionary path
of liner shipping networks and port operations is characterized by drastic
changes as well as permanencies. Shipping lines have embraced a wide range
of bundling concepts and liner service configurations to drive container ser-
vice network dynamics. As global trade expands in economic and geographic
terms, despite difficult conjunctures such as the global financial crisis, new
ports and new shipping networks are regularly created to cope with demand.
Shipping lines logically adapt to such trends as well as influence them, some-
times by refining their services through rationalization or by creating new
service configurations through a combination of line-bundling itineraries and
transhipment/relay/interlining operations at pivotal ports of the network.
This chapter provided evidence about the increasing complexity and num-
ber of cargo movements that occur in parallel with increased concentration
and polarization, depending on the measures and methodologies applied for
revealing such trends. It discussed some fundamental aspects, such as the
economic and geographic dimension of the variety of services offered by
the industry, as well as the strong and growing interdependency between
maritime centrality and port throughput for container ports, although in this
simple equation, hinterland connectivity and port efficiency are not included.
Looking at the distribution of main trading routes as well as disaggregated
inter-regional and inter-port shipping links, the latter being compared with
146 Shipping Logistics
References
Ashar, A (2002) Revolution Now, Containerization International, January
Baird, A (2006) Optimising the container transshipment hub location in northern
Europe, Journal of Transport Geography, 14(3), pp 195–214
Cariou, P and Notteboom, T (2011) Bunker costs in container liner shipping: are
slow steaming practices reflected in maritime fuel surcharges?, in Current Issues
in Shipping, Ports and Logistics, ed T Notteboom, pp 69–82, UPA, Brussels
Chou, CC, Chu, CW and Liang, GS (2003) Comparison of two models for port
choice, Maritime Quarterly, 12 (3), pp 45–62
de Langen, PW, Nijdam, M and van der Horst, MR (2007) New indicators to
measure port performance, Journal of Maritime Research, 4(1), pp 23–6
De Monie, G (1997) The global economy, very large containerships and the
funding of mega-hubs, Port Finance Conference, London
Deng, WB, Long, G, Wei, L and Xu, C (2009) Worldwide marine transportation
network: Efficiency and container throughput, Chinese Physics Letters, 26(11)
Ducruet, C (2013) Network diversity and maritime flows, Journal of Transport
Geography, 30, 77–88
Ducruet, C, Lee, SW and Ng, AKY (2010a) Centrality and vulnerability in liner
shipping networks: Revisiting the Northeast Asian port hierarchy, Maritime
Policy and Management, 37(1), pp 17–36
Ducruet, C, Rozenblat, C and Zaidi, F (2010b) Ports in multi-level maritime
networks: Evidence from the Atlantic (1996-2006), Journal of Transport
Geography, 18(4), pp 508–18
Developing Liner Service Networks 147
Introduction
The integration of shipping companies in the transportation supply chain may
be regarded as a significant strategy in the effort to fulfil demand requirements
and maintain the viability of the companies in the contemporary environment.
The growth of seaborne trade during the last decades reflects the coales-
cent markets in the world. The geographic separation of supply and demand
has raised the expectation towards transportation services. Keeping up with
the growth of global seaborne commodity demand was considered as one
of the biggest challenges. In addition to the satisfaction of demand, shippers
and consignees have become more sophisticated and thus more demanding
with respect to the quality of the transportation service. Users of freight
transportation services provided by shipping companies expect fast and reli-
able service at a competitive cost and covering a wide geographical network.
The consequent growth of shipping companies, either organic or through
mergers and acquisitions, aimed at meeting the demand and fulfilling the
aforementioned requirements.
The downside of this development could be observed in the 2009 eco-
nomic crisis when the global maritime service industry suffered a sharp
decline in demand. Suddenly, the period of growth with huge investments in
vessels and service expansion had to be changed into capacity adjustment
due to the market decline. This has reminded companies and professionals
of the key characteristics of the freight transport industry, viz competitive
intensity, market volatility and cash-flow uncertainty.
150 Shipping Logistics
Handfield and Nichols (1999, p 5) list the following as the main drivers
of integration: the information revolution; the increased levels of global
competition, which create more demanding supplier- and customer-driven
markets; the emergence of new types of inter-organizational relationships.
Their study describes an integrated supply chain model, which encompasses
information systems (management of information and financial flows),
inventory management (management of product and material flows), and
supply chain relationships (management of relationships between trading
partners (Power, 2005). Lummus et al (1998) point out that the ascending
global competition forced companies to seek supply chain efficiencies. In
addition, the increasing specialization of products and processes has created
inefficiencies arising from the lack of integration.
Vickery et al (2003) emphasize two aspects in their conceptualization of
an integrative supply chain strategy. The first is the existence of integrative
information technologies, and the second is the existence of practices that
strengthen linkages between companies occupying different positions in the
152 Shipping Logistics
10%
5%
AGR in %
0%
–5%
–10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 e
Demand 10.7% 2.4% 10.5% 11.6% 13.4% 10.6% 11.2% 11.4% 4.3% –9.1% 11.1%
Supply 7.8% 8.5% 8.0% 8.0% 8.0% 10.5% 13.6% 11.8% 10.8% 5.1% 8.8%
World GDP 4.4% 1.8% 2.1% 2.6% 3.9% 3.4% 4.0% 3.7% 1.7% –2.1% 3.7%
Due to the market pressures, shipping lines have had to expand the range
of their services. The need arises primarily for managing the high volatil-
ity in the container liner business but in addition for fulfilling customers’
expectations. The pressure of geographically growing competitors forces
liner companies to find new solutions. Solutions included among others
the organization in strategic alliances of different forms (see Panayides and
Wiedmer, 2011) and mergers and acquisitions (see Alix et al, 1999; Fusillo,
2006; Heaver et al, 2000). Horizontal alliances were extensively studied in
the literature (eg Evangelista and Morvillo, 1999; Midoro and Pitto, 2000;
Slack et al, 2002; Song and Panayides, 2002). Slot charters, mergers and
acquisitions and alliance agreements are popular ways in which to provide
services in new geographic areas (Heaver, 2001). The vertical integration of
shipping lines has been less studied. The impact of introducing new logistics
services through vertical integration on firm success or performance has not
received the requisite attention.
Shipping line
Vertical integration
Limited service
Shipping agent
Asset Driven
High utilization
Terminal operations Pricing monopolies
Freight forwarding
High reliability
Holistic view
Inland transportation Supply Chain Driven
End-customer oriented
Logistics provider
(Continued )
Ta B L E 9. 1 Liner companies and their subsidiaries (Continued )
Tankers and Shipyard/
Shipping lines Terminal other shipping Logistics/ Container
Company (container) activities activities Multimodal production Others
5 Hapag Lloyd AG Hapag-Lloyd Holding with
minor shares in
container
terminals in
Hamburg and
Montreal
6 CSAV Group CSAV COSAN Transportation of SAAM (logistics
Norasia Container Lines SAAM vehicles, reefer activities)
Ltd. cargo, solid and
Companhia Libra de liquid bulks
Navegacao/Navegacion SAAM (tugboats)
CSAV Panama
7 NOL Group American President Line APL Terminal APL Logistics
(APL) Activities APL Log Transp.
Management Serv.
APL Log Wh
Management Serv.
Vascor, Ltd.
8 COSCO Group COSCO Shipping Lines COSCO Pacific Xiamen (bulk) COSCO Logistics COSCO passenger shipping:
Co. Cosco Bulk Carrier China Ocean Shipyard Group Tianjin Jinshen Ferry
Dalian (tanker) Shipping Agency Nantong Sino-Japan Int. Ferry
Guangzhou Ocean COSCO KHI Yingkou COSCO
Shipp (specialized) Ship Eng. Co COSCO Finance Co
Dalian COSCO COSCO Int. ship
Shipbuilding trading
CIMC (container China Marine Bunker
manufacturing)
9 Hanjin Shipping Hanjin Shipping Hanjin Pacific Hanjin Overseas Hanjin ZESCO (ship Samol Co.
Corporation Bulk Shipmanagement repair yard) (renewable energy)
(13 terminals) Hanjin Overseas Hanjin Logistics
Hanjin New Port Tanker Pte. HJLK (Transport.
Company Agency)
Hanjin Kerry Shandong Hanjin
Logistics Log. (ODCY)
Total Terminal Int.
10 CSCL China Shipping Container China Shipping China Shipping Shanghai Yanshan CSCL (Dalian) Data
Lines Terminal Refrigeration Storage and Processing
ShanHai Puhai Shipping Development Universal Shipping Transportation Co. International
Xiang Zhu Dalian Int. Co. Dalian Vanguard Int. Computer Co. (IT)
Container Terminal Shanghai HaiXin Logistics
various other YuanCang Int. Log. Universal Logistics
terminals Various cargo
agencies
11 Mitsui O.S.K. Line Mitsui O.S.K. Liner International MOL Bulk MOL Ship Minaminippon MOL Information
Utoc Corp. Container Terminal Shipping - Tankers Management Shipbuilding Co. Systems
MOL LNG MOL Ferry MO Tourist Co.
Transport Co. Blue Sea Network MO Marine
MOL Car Carriers (ferry and domestic Consulting
transport) MOL Finance
Tug-Boat and
Towing
12 NYK Line NYK Liner Trade Yusen Terminals Bulk Shipping NYK Logistics Yusen Real Estate
Inc. Nippon Cargo Crystal Cruises Inc.
Airline Co. NYK Cruise Co.
Monohakobi
Technology Inst.
(Research)
(Continued )
Ta B L E 9. 1 Liner companies and their subsidiaries (Continued )
Tankers and Shipyard/
Shipping lines Terminal other shipping Logistics/ Container
Company (container) activities activities Multimodal production Others
13 Hamburg Süd Group Hamburg Süd Alianca Bulk Columbus Logistics Hamburg Süd Travel
Alianca Hamburg Süd Service GmbH Agency
Tramp Shipping (CLS) Columbus Tours
Columbus Event Business
Shipmanagement GmbH
GmbH Alianca Consulting
14 OOIL Group OOCL Logistics Ltd. associated OOCL Logistics Maritime Delivery E-services
companies: Ltd. (cargo) Services Inc. Orient Overseas
Ningbo Yuan Dong Reefer Service (trucking) Building (real est.)
Terminal OOL Logistics investment:
Tianjin Port Warehousing and Kenwake Ltd.
Alliance Int. Transportation Soberry Investments
Container Terminal Intermodal Service Ltd.
Co. Wall Street Plaza
Wayton
Wealth Cap. Corp.
15 K Line K Line America, Inc. International RoRo services intermodal services, K Line Travel Ltd.
K Line Transportation Bulk shipping land transportation K Line Accounting
Service Tanker services Century Distribution and Finance Co.
LNG transport Systems
16 Zim Zim Integrated Shipping OOG & Project
Services Cargo
Reefer Containers Tanker
17 Yang Ming Group Yang Ming Marine Kao Ming Kuang Ming Jing Ming Transport Ching Ming
Corp. Transport Corp. Container Terminal Shipping Corp. Co. Investment Corp.
Corp. (bulk) Yes Logistics Corp.
Honming Terminal &
Stevedoring Co.
18 Hyundai M.M. HMM Container Lines Investment on 5 Cargo Service
terminals Wet Bulk
Dry Bulk
Tanker
Heavy-Lift Service
19 Pacific International PIL container liner Port and terminal PIL Logistics (SCM Singama IT services
Line business in solutions) Container
Singapore and Holdings Ltd.
Thailand (container
manufac.)
20 UASC UASC liner service Shipping Agencies Freight Forwarding Container
Tankers Land Transportation Repairs
Air Cargo Ship Repair
Storage
1%
9%
2%
3% 21%
6%
19%
40%
Expedited delivery
TRANSPORTATION CHAIN
Dataset
The sample consists of all firms listed in Compustat Industrial Segment and
Compustat Industrial Annual databases during the period 1986–2008. The
focus is on single- and multi-(business) segment firms that belong in the
deep-sea freight transportation industry (SIC code 4412). We further restrict
the multi-segment firms into those which generate more than 50 per cent of
their segment sales from supply chain-related industries (SSIC1 codes 4011,
4212, 4213, 4214, 4215, 4412, 4424, 4449, 4481, 4499 and 4731). This
approach resulted in multi-segment firms with the greatest chunk of sales
belonging in the firm’s supply chain. As a consequence we infer that multi-
segment firms are more likely to be integrated across the supply chain. The
final sample consists of 45 firms with 265 firm-year observations.
Methodology
In this section we describe the measurement of three sets of variables used
in the analysis: valuation effects from vertical integration, as the depend-
ent variable; vertical integration measures, as the key explanatory variables;
and determinants of firm value, as control variables.
Supply Chain Integration of Shipping Companies 165
Empirical results
Table 9.2 presents EV regression estimates. Regression model (1) replicates
the Berger and Ofek (1995) analysis using the freight transport sample. In
this sample, multi-segment firms as identified by SCI-1 should capture the
value of supply chain integration. In contrast to expectation, results show
that multi-segment firms are valued lower by 16.7 per cent relative to sin-
gle-segment firms (p-value<0.05). The results also demonstrate that profit-
able firms, larger firms and firms with higher investment activity are valued
higher (p-value<0.01, p-value<0.05, p-value<0.01, respectively).
Ta B L E 9.2 The relation between supply chain integration
and firm value
Deep Sea Freight Transportation Firms
excess Value – single and
multi-segment firms
(1) (2) (3)
Const. Yes Yes Yes
SCI-1 –0.167** 0.09677
(0.0843) (0.09927)
SCI-2 0.1399*
(0.0804)
Log TA 0.059** 0.9766*** 0.9874***
(0.0284) (0.2855) (0.2697)
CAPX/SALES 0.084*** 0.0378 0.03498
(0.0175) (0.0363) (0.0363)
EBIT/SALES 0.786*** –0.0055 –0.0046
(0.1703) (0.2617) (0.26256)
Log TA lag1 –0.2353* –0.2386*
(0.1311) (0.12818)
CAPX/SALES lag1 0.0248 0.0226
(0.04082) (0.0412)
EBIT/SALES lag1 –0.1448 –0.1379
(0.2263) (0.2242)
Log TA lag2 –0.0586 –0.05395
(0.1543) (0.1524)
CAPX/SALES lag2 0.00846 0.0067
(0.0218) (0.0214)
EBIT/SALES lag2 0.1365 0.145
(0.1213) (0.123)
LEV 0.614* 0.6154*
(0.20932) (0.209)
ASS2 –0.0554* –0.0555***
(0.0204) (0.01798)
Year/Firm fixed effects No Yes Yes
Clustered standard errors No Yes Yes
No of firms 45 45 45
No of observations 246 216 216
R2 0.2643 0.8805 0.8812
Supply Chain Integration of Shipping Companies 167
Campa and Kedia (2002) suggest that a proper investigation of the impact
of organizational structure on firm value should take into account the
endogenous nature of a firm’s decision to alter its organizational structure.
That is, firms with higher or lower firm value relative to single-segment
firms may be more likely to subsequently change their organizational
structure. To address such concerns, following Campa and Kedia (2002),
regression model (2) presents results after controlling for past firm per-
formance. In addition, the model also includes year and firm fixed effects
to capture time-invariant year- and firm-specific effects. Finally, standards
errors were adjusted for clustering at the firm level to control for poten-
tial bias into the standard errors estimates when residuals correlate across
time and/or across firm-year observations (Petersen, 2009). The results,
as expected, show that the coefficient of determination increases substan-
tially to 88.05 per cent. Interestingly, the coefficient estimate of SCI-1 turns
positive, as expected, albeit statistically insignificant. Most of the control
variables obey the expected sign, although some of them are statistically
insignificant.
Regression model (3) is similar to model (2), but includes the entropy
index (SCI-2) rather than SCI-1. SCI-2 should better capture variation of
the (multi-segment firm) supply chain integration relative to the SCI-1. The
results show that coefficient of SCI-2 is 13.99 per cent, larger than the SCI-1
coefficient, as expected, and statistically significant (p-value<0.10).
Overall, the empirical results support the presented conjectures of the pre-
ceding sections, and suggest that supply chain integration is value-creating.
References
Alix, Y, Slack, B and Comtois, C (1999) Alliance or acquisition? Strategies for
growth in the container shipping industry: The case of CP ships, Journal of
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Logistics 10
strategy in
container
shipping
aLfrED J BaIrD
Introduction
Globalization and increases in competitive pressures have led to many busi-
nesses developing logistics as a key part of their corporate strategy in order
to achieve cost and service advantages (McGinnis and Kohn, 2002). Effec-
tive management of the supply chain demands equally effective linkages
with other firms for the coordination of logistical flows of goods (Christo-
pher, 1998).
The emergence of specialized total logistics providers and contractors,
also known as ‘integrators’, particularly since the 1990s, signalled the start
of ‘complete logistics solutions and seamless origin–destination services’ pro-
vided on a global basis, and with far greater customer focus (Doganis, 1991,
p 320). The integrator considers its main advantage to be an ability to oper-
ate on a door-to-door basis, with conditions of carriage structured in order
to permit a seamless shipper-to-consignee service (Forster and Regan, 2001).
This raises the question for ocean carriers, namely: should container
shipping lines become active in providing added-value logistics services? Or,
alternatively, would ocean carriers do better to remain with a focus on what
arguably they know best – liner shipping? This paper seeks to analyse con-
tainer shipping line strategy relating to provision of added-value logistics
services. The aim is to identify, analyse and compare/contrast the logistics
strategies of container shipping lines.
The study involved a short questionnaire survey of the top 20 container
shipping lines to help investigate these questions. The results of the survey,
plus supporting information, are analysed to provide a summary of con-
tainer line strategy with respect to provision of logistics services. The study
172 Shipping Logistics
extends and updates the author’s earlier work in this area (Baird, 2006),
including reference to and discussion of more recent theoretical contribu-
tions on the subject of ocean liner shipping operators’ logistics activities.
The study includes several brief case studies which seek to review and
analyse the specific logistics activities and strategies within several of the
top 20 container lines. The case studies offer a more detailed insight into the
different approaches adopted by major global container lines with respect
to development and provision of logistics services.
The purpose of the overall study is to help develop a wider picture con-
cerning what/how liner shipping competitors are doing with regard to the
provision of logistics and value-added activities, to assess the extent of these
activities in terms of logistics services provided, and to offer an indication as
to how this might evolve in future.
Literature review
In maritime transport, the theoretical evaluation of supply chain management
has emphasized the power exercised by dominant firms in logistics towards
control of assets, technology and markets (Robinson, 2002). In liner ship-
ping there has been more focus on the industry integration of companies and
networks (Bergantino and Veenstra, 2001). The outsourcing of an increasing
number of activities perceived as not being strategic has occurred at the same
time as the general trend for firms to focus on what they regard as their core
business (Hamel and Prahalad, 1990). Heaver (2001) nevertheless cautioned
that, due to the essential spatial dimension of transport, the provision and
control of transport and logistics by a single enterprise is unlikely.
In the context of liner shipping, within an international market that is
becoming ever larger and more complex, growth and diversification has pre-
sented opportunities and challenges for companies (Carbone and Gouver-
nal, 2007). In liner shipping, the level of logistical integration and the level
of organizational integration constitute two variables which can be analysed
to help assess the degree of supply chain integration (Evangelista and Mor-
villo, 2000). In this regard, vertical logistical integration objectives can be
achieved directly through vertical (organizational) mergers and acquisitions,
and indirectly through horizontal mergers; this in turn results in the crea-
tion of larger organizations which tend to enjoy more bargaining power and
easier access to financial resources (Panayides, 2001). A further consequence
of this trend is that larger liner shipping companies develop greater market
power vis-a-vis other service providers, such as port authorities and termi-
nal operators (Meersman et al, 2005).
Liner operators therefore started providing logistics services in order to
meet demands from shippers for integrated supply chain solutions, for ser-
vice and price differentiation reasons and revenue stabilization, as well as to
increase long-run profitability and market share (Haralambides and Accario,
Logistics Strategy in Container Shipping 173
SOuRCE http://www.ci-online.co.uk/
The largest of the top 20 carriers is Maersk Line with 417 ships accounting
for 1.9 million TEU capacity. That company is followed by MSC, which has
435 ships totalling just under 1.9 million TEU capacity. In third position is
CMA-CGM with 264 ships and just over 1 million TEU capacity.
Below the top three carriers, all of the other top 20 carriers fall into the
200,000–600,000 TEU fleet-capacity range. This suggests that quite a gap
has now opened up between the leading three operators and the rest. This
gap is expected to widen further in future, taking into account new vessel
orders that have been placed for delivery over the next few years.
Industry focus
All liner companies surveyed have a focus on the retail and electrical/elec-
tronic sectors, with a strong focus also on consumer durables, automotive,
chemicals and consumer packaged products (Figure 10.2). There is rather
176
D
oc
Ch um
em Ph en
ic ar ta
m
0%
20%
40%
60%
80%
100%
al tio
s ac
operators
& eu n
Pe an
tr
tic d
0%
20%
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al Cu
oc
Shipping Logistics
Co he In st
ns m la om
nd
um ic s
al tr
er s an
Pa W sp
ck ar or
ag eh t
th
er O
th
er
Logistics Strategy in Container Shipping 177
Geographic focus
Development of lines’ logistics services has tended to focus, at least initially,
on the home market region and then to expand outwards from this base.
For Maersk, logistics services were initially introduced for the benefit of
European shippers, while at APL the early focus was on US shippers, and
for the three main Japanese lines the emphasis was on Japanese industries
to begin with.
A number of lines started to view offering value-added services in logis-
tics as adding faster growth and better profitability potential than basic
shipping, and hence these activities were expanded internationally. How-
ever, this was also due to the changing demands brought about through
industry globalization (Heaver, 2002).
Virtually all carriers (90 per cent) stated that they now have a global focus
covering more or less all trading regions, and most of these lines further sug-
gested they have the capability to provide specific logistics services almost
anywhere in the world (Figure 10.3). Only one of the lines appeared to have
retained a distinct regional focus (ie Hamburg-Sud, primarily towards Latin
America), but even with this carrier other regions are now being targeted.
80%
60%
40%
20%
0%
a
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178 Shipping Logistics
80%
60%
40%
20%
0%
Acquisition Creation of Strategic Creation of Other
new logistics alliance/joint new logistics
company venture division
80%
60%
40%
20%
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th
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they would seek to acquire logistics companies; however, the analysis in the
following section suggests that the actual potential for acquisitions may be
rather greater than this.
C a se st u dy
Maersk Line
AP Moller subsidiary Maersk Line views logistics as an increasingly important aspect of
its business. Subsidiary Maersk Logistics (formerly Mercantile, and Buyers) is operated
as a separate entity from the ocean carriage business. Maersk Logistics is free to offer its
services to other ocean carriers, and has the freedom to book cargo with other carriers if
this option is preferred.
Maersk Logistics has offices in around 100 countries, but is largely a non-asset-
owning company managing its quality through careful selection of subcontractors. The
company is involved in markets dominated by large freight forwarding requirements as
well as those in which large clients such as major retail chains have special needs for
more integrated services. In 2002, the then head of Maersk Logistics noted, perhaps
somewhat optimistically that: ‘the logistics activity could grow to outperform those of the
liner, but it will take a while’ (Le Lloyd, 2001).
Maersk Logistics has made a number of acquisitions over the years, including the
purchase in 2001 of USA-based Distribution Systems Limited (DSL). DSL had offices in 60
Logistics Strategy in Container Shipping 181
countries plus 1,500 employees, compared with at that time Maersk Logistics total of 3,500
employees. Wal-Mart was one of DSL’s major clients so the acquisition gave Maersk Line
potential access to a lot of this business.
While Maersk Logistics has extensive activities in the USA, Asia and Europe, the
company is increasingly active in North–South trades as well. Maersk Logistics moved
into Brazil as various industrial developments expanded there, such as Ford opening
a plant in Salvador (Thorby, 2003). A large number of multinational companies have
assembly plants in the Manaus Free Trade Zone (eg Sony, IBM, Toshiba) at which Maersk
Logistics also has a presence.
Maersk Logistics looks to establish global ocean freight contracts with clients
covering a number of trade lanes. In some markets Maersk Logistics regards itself as a
specialist in key sectors. For example, in South America the company specializes in the
footwear and retail industries, as well as fruit and vegetable exports carried in reefers.
Maersk Logistics markets its ability to provide shippers with a single point of contact
for all their transportation needs, including sea freight, airfreight, and offering a complete
package of value-added land-side services. The company promotes itself as a leading
provider of logistics solutions, managing and improving supply chains, from planning
and procurement through to the delivery of products to their final destination. In terms
of strategy, a key objective is the acquisition of logistics and distribution companies
in destination countries, which can also be used to enhance secondary (ie national)
distribution capabilities.
Like all major logistics companies, there is a strong emphasis on information
technology. Maersk Logistics’ M*Power web search facility allows users to check the
status of particular consignments. The user can view full details of orders, order plans,
containers, cargo receipts, B/L, as well as providing alerts of changes. Maersk’s own
in-house research established that customers want two main things in terms of logistics.
First, customers want to extend supply chain visibility beyond the international transport
move, and are looking for a single source of end-to-end supply chain visibility (Power,
2004). And second, there is considered to be a need to pull more players into the system
as customers want to see manufacturers, service providers and stores all linked up. This
requires an ‘engine’ interfacing with many different supply chain players.
The evidence suggests that Maersk, unlike MSC, is far more proactive in terms of
logistics activities, initially via acquisition. However, even today its logistics activities
are considered unlikely to exceed 25 per cent of its total liner revenues which means the
company is still some way from making logistics equal to liner shipping revenues.
CMA-CGM
CMA-CGM established CMA-CGM Logistics in 2001, although it was originally known as
Logistics-Link. CMA-CGM Logistics aims to develop customer services through what it
refers to as a ‘global logistics approach’. The company seeks to provide clients with a
single contact to answer all their needs concerning the logistics chain.
As most of the services sold by CMA-CGM are port-to-port, there was a belief in the
company that this was not enough in a changing environment. Although it was never the
intention to switch all customers into its own logistics service, there is a desire to offer
customers a wider range of logistics services. A key influence behind the new strategy
is the fact that more and more companies have outsourced, especially in the Chinese
182 Shipping Logistics
trades. To address this challenge CMA-CGM embarked on a joint venture with a Chinese
logistics partner which gave the ocean carrier access to several thousand TEU of
business each year (Boyes, 2004). The entry into the logistics business therefore has as a
primary aim to generate more cargo for the ocean services.
CMA-CGM Logistics intends to ‘help the client elaborate and prioritize his logistics
projects, as well as implement or adapt new industrial solutions’, such as packaging,
co-packing and co-manufacturing. CMA-CGM Logistics is established in both Europe and
Asia, with increasing exposure now in other growing markets.
In June 2004, CMA-CGM Logistics acquired an 80 per cent interest in the logistics
company Qualitair & Sea International, thereby further pursuing a strategy of
strengthening its portfolio of integrated, global logistics services, and enhancing its ability
to respond to customer needs for freight logistics, particularly in China.
At CMA-CGM, the strategy has therefore altered somewhat from a dedicated shipping
business devoted to ships and sea transportation, to selective investments in logistics as
well as development of more sophisticated IT systems (Dekker, 2001).
Nevertheless, as with MSC, the focus of this line is still very much on developing new
shipping services and fleet expansion, and the present level of logistics activity remains
limited. Hence, revenue derived specifically from logistics activity at CMA-CGM is still
estimated to be below US$ 1 billion annually, which is assumed to be less than 10 per cent
of total liner revenues.
APL
APL subsidiary APL Logistics (APLL) claims to have experienced double-digit revenue
growth during most years since 2000. Its growth in 2001 was 72 per cent, though this
reflected the acquisition that year for US$ 210 million of GATX Logistics, the second
largest warehouse-based contract logistics company in the USA. The acquisition
meant APLL at the time employed 5,000 people in logistics in 56 countries spread
across Europe, Asia and the Americas, with 30 million square feet of warehouse space.
That acquisition enabled APLL to serve customers more effectively through primary
(importing) and secondary (national) distribution phases of the supply chain. A further
acquisition followed in 2001 with the purchase of 51 per cent of the German freight
forwarding company Mare Logistik GmbH, representing APL’s first such acquisition in
Europe.
In 2000, the then CEO of APL stated that he wanted: ‘the logistics business to challenge
the liner business as a major breadwinner of the group’ (NOL, 2000). In 2001, APL’s total
liner revenues amounted to US$ 3.6 billion, while logistics revenues were US$ 723 million,
equivalent to 20 per cent; in 2004, logistics revenues exceeded US$ 1.0 billion, equating to
around 25 per cent of total revenues, with liner shipping accounting for 75 per cent; today,
logistics is believed to account for around one-third of APL’s revenues.
One argument put forward by APL to explain its increased investment in logistics
is that shippers and carriers have historically ‘been confused’ by their focus on freight
rate negotiations, instead of looking at opportunities to increase overall supply chain
efficiencies (American Shipper, 2001). APLL’s two key objectives are to increase revenues
and to be a leading global logistics service provider.
The purchase of GATX filled a perceived gap for APL. Previously, APLL was not able to
offer a fully comprehensive door-to-door logistics service to USA-based shippers. With
Logistics Strategy in Container Shipping 183
the addition of the acquired warehouses it had more flexibility in meeting customer needs.
APL also uses staff ‘implants’ to help customers outsource their logistics functions. Major
clients include Kimberly-Clark, the world’s leading paper tissue manufacturer, for whom
APLL manages several logistics facilities in the USA. An EDI link is in place between
APLL’s IT system, Total Logistics Solution (TLS, )and the client’s order processing system.
A real-time order-tracking system displays the arrival, yard, build and loaded status of
shipments, along with departure time. In addition, the company provides inventory staging
for Kellogg Company, the world’s largest cereal manufacturer. APL claims it has benefited
from synergies not only through a widening customer base, but because it is now able to
provide true end-to-end supply chain execution and visibility.
APLL has entered a number of emerging markets, for example the Kenya market
in 2004 through a partnership agreement with Fastrak Logistics, part of the Freight
Forwarders Kenya Group (Containerisation International, 2004). Fastrak operates logistics
facilities in the Port of Mombasa and inland at Nairobi. Value-added services offered
include purchase order management, export consolidation, warehousing and distribution.
APL Logistics’ main services include:
APLL concentrates its activity on four business ‘verticals’: automotive logistics, retail,
high-tech and chemicals. In this environment most of the customers are multinationals
and the company’s joint ventures are carefully constructed around these verticals
(Dekker, 2003). For example, an association with China’s Shenyang Transportation since
2002 helped to expand its business relationship with General Motors.
The key differentiators for APLL are its global presence, added to the application of
sophisticated IT products ‘as the backbone’ of its service. This is necessary due to today’s
operating complexity. For example, one of APLL’s customers sources from 14 different
countries in Asia and it expects the right information flow at all times. APLL’s suite of IT
products is considered to be fundamental to its differentiation strategy. The company’s
IT products are ‘carrier-neutral’, and customers have full supply chain visibility no matter
whether the carrier is APL or Maersk.
In terms of competition for logistics contracts, APLL does not come across many of the
top 20 carriers apart from NYK and Maersk when tendering for business; its main rivals
more often comprise the leading 3PL integrators. This tends to confirm the analysis here
that most of the top 20 ocean carriers actually provide rather limited logistics services.
APLL is continuing to open more distribution centres and increasing its partnerships
and services in certain areas. To some extent APLL sees itself as more of a 4PL, designing
supply chains and creating simulations of, for example, distribution centre locations,
184 Shipping Logistics
routing, and inventory control, and then finding the appropriate second- or third-party
logistics provider to run the client’s operations.
Of all ocean carriers APL is one of the most comprehensive in terms of providing
global logistics services, and this is reflected in the high share of total revenues estimated
to come from logistics (ie in excess of 30 per cent).
Evergreen Line
Apart from Asia (and Taiwan in particular), Evergreen Line is not thought to have very
much logistics activity outside of basic sea freight and inland transport. Evergreen has
no specific logistics subsidiary or division. In 2001 the company actually stated it had no
interest in logistics.
Instead, Evergreen sees its primary role as managing ships, containers and in
some cases terminals and this is by far its main focus. The company considers its role
is to provide excellent advanced transport systems to companies that need door-to-
door service. In 2002, Evergreen did, however, announce that it would be investing in
‘forwarding and logistics’ in Asia and South America (Heaver, 2002), but in fact this did not
mean very much more than establishing joint agencies.
At Evergreen the emphasis is very much on ships and developing new ocean transport
services, rather than on logistics and added-value activities. Activities from logistics in
Evergreen are estimated to be below US$ 1 billion per annum, so less than 10 per cent of
total revenues from liner shipping.
NYK
NYK Logistics is part of the Tokyo-based NYK Group, which was founded in 1885.
The NYK group has more than 30,000 employees around the world and offers various
transportation services including container transport, RoRo, bulk and energy resource
transport, terminals and cruises. When NYK started logistics solution businesses such as
warehousing and distribution in the mid-1980s, revenues from this new activity were only
about US$ 80 million a year. But since then revenues have steadily risen and in 2003 NYK
Logistics’ revenues reached US$ 2.7 billion.
NYK has invested in logistics on a large scale, and organic growth is its main emphasis
rather than setting up alliances or partnerships. NYK began with warehousing and NVOCC
businesses, and went on to set up subsidiary companies, country by country, all branded
as NYK Logistics to give a single global identity to customers. NYK Logistics is now
established in all of the main markets, including South America and Oceania.
NYK Logistics has some 11,000 employees (about one-third of the NYK Group total),
and 320 warehouse and office locations. The principal sectors of its involvement in
developing supply chain solutions are automotive, retail, consumer electronics, food/
beverage, medical/healthcare, special cargo, chemicals, material logistics and project
logistics.
NYK previously used a number of different logistics brands. In Europe the brand was
New Wave Logistics, and in Asia Ocean Consolidation Service and UCI Logistics Inc,
plus Yusen Air Service and Nippon Cargo Airlines. NYK now considers it is in the ‘total
transportation business’ and this includes supply chain management. In 2001 the company
was re-branded with a new title: NYK Logistics & Megacarrier. The new name was
intended to symbolize the new strategic emphasis. It also showed that NYK ‘catered for
Logistics Strategy in Container Shipping 185
everything’, covering all kinds of goods and supply chain requirements. Logistics within
NYK has been regarded as a steadier business than shipping, although liner shipping
performed particularly well over the period 2000–2007.
NYK IT initiatives include an e-commerce system called Pegasus which enables
customers to monitor and interactively manage online their total supply chains – the
system has a slightly different interpretation in each of NYK’s four main operating regions
(ie Europe, Americas, Oceania and Asia) to take account of different needs. In Europe the
logistics network covers 15 countries divided into geographic areas.
NYK’s logistics operations are categorized under two headings: asset-based services
and supply chain management. In terms of assets, over 25 of its worldwide distribution
centres are in Europe. It also has a 700+ vehicle road transport fleet in Europe. Logistics
revenues have been growing at upwards of 20 per cent per annum, which is faster than
liner shipping (5–10 per cent a year typically), helped by buoyant demand in key sectors
such as automotive, healthcare and consumer electronics (Anon, 2003).
NYK claims to benefit from synergies between its liner logistics and car carrier
divisions in the automotive sector as these have major customers in common. An
operational agreement has been signed with Cosco which permits NYK to use the latter’s
extensive network of warehouses in China, which combined with NYK’s close contact
with Japanese multinationals offers a good fit.
The company is looking for logistics businesses to buy in Asia, Europe and the USA,
and seeks to further develop its operations in South America. During 2001–2003, NYK
bought UCI Logistics in the UK and ETA Logistics in the USA. NYK is focusing heavily on
the automotive industry, with UCI acting as a main distributor for Toyota, Jaguar and Rover
from its hub in Milton Keynes, UK. NYK’s business plan seeks to expand logistics activity
to provide a truly global network of logistics companies. All its logistics businesses are
linked by IT systems via a global NYK-E Logistics software package. Reflecting the large
scale of its global logistics activities, NYK spends some US$ 1 million on IT development
annually.
Strategic groups
Strategic groups based on logistics service provision
Development of logistics services by container lines is not a clear cut issue.
However, it is evident that relatively few shipping lines have expanded their
logistics activities to become substantial LSPs in their own right, and those
that have, generally tend to be operated nowadays as stand-alone business
units with sophisticated IT systems. Although some of these units have in a
number of cases grown faster than liner activities, overall they are still some
way from matching liner operations in terms of income, or indeed profits.
Hence most of the top 20 container lines continue to adopt a strong
focus (and a higher level of investment) towards ocean transport services,
186 Shipping Logistics
Tier 3 carriers are those lines that provide minimal logistics services,
albeit in some cases with the possible exception of logistics activity con-
centrated within the home nation/market. These lines tend to have a very
limited share of total income derived from logistics activities, believed to be
188 Shipping Logistics
below US$ 1 billion per annum. Logistics service income for these lines will
therefore tend to amount to less than 10 per cent of income derived from
ocean transport services. For Tier 3 lines ocean transport is by far the pri-
mary focus of business strategy and investment. This analysis suggests that
13 of the top 20 container lines are Tier 3 carriers offering minimal logistics
services: MSC, Evergreen, CMA-CGM, Hanjin, CSCL, Zim, CSAV, Yang
Ming, HMM, Hamburg-Sud, HLCL, PIL, and UASC.
TIER 1
Maersk Line;
APL; NYK
COMPREHENSIVE
GLOBAL LOGISTICS
SERVICES
TIER 2
COMPREHENSIVE REGIONAL
LOGISTICS SERVICES
TIER 3
Conclusions
Many of the largest container liner shipping companies operating ships, ter-
minals, trucking, rail and inland depot operations have also developed or
acquired logistics capabilities, albeit to rather varying degrees. This has been
aided by the trend towards outsourcing of logistics functions by shippers to
3PLs. Thus, opportunities for carriers who are able to offer services similar
to 3PLs are considered to be greater now due to outsourcing.
While some carriers have made substantial investments in logistics assets,
through direct acquisition and/or organic growth, other carriers are them-
selves outsourcing their (and their customers’) logistics needs to non-carrier
LSPs. The use of strategic alliances and other forms of collaborative ven-
tures has increased, offering ocean carriers a rapid alternative entry into a
business that few seem to really fully comprehend themselves.
Analysis of the top 20 container lines’ logistics strategies has revealed
something of a hierarchical situation where lines are adopting rather dif-
ferent strategies as far as logistics and added-value services are concerned.
Tier 1 carriers, or those lines offering comprehensive logistics services on a
global basis, aim to grow logistics revenue up to or even beyond the level of
liner shipping revenue; however, in all cases they are still far from achieving
this goal, logistics accounting for an estimated 20–40 per cent of Tier 1 liner
operator revenues (or in excess of US$ 3 billion per annum).
Tier 2 carriers derive rather less income from logistics than Tier 1 carri-
ers, and tend to primarily focus what logistics capabilities they have on the
190 Shipping Logistics
References
American Shipper (2001) APL’s Jacobs calls for wider, long-term logistics contracts,
[email protected], 8 March
Anon (2003) NYK remains bullish despite decline in net profit, Containerization
International, July, p 25
Logistics Strategy in Container Shipping 191
Hwang, KS, Gray, R and Cullinane, K (2010) The logistics functions of shipping
lines: Perceptions of international shippers in South Korea and the UK, in
International Handbook of Maritime Business, ed K Cullinane, pp 103–22,
Edward Elgar, Cheltenham, UK
Lee, ES and Song, DW (2010) Knowledge management systems in maritime
logistics, in International Handbook of Maritime Business, ed K Cullinane,
pp 50–67, Edward Elgar, Cheltenham, UK
Le Lloyd (2001) Expanding Maersk lifts its profile in Central America, Le Lloyd,
Feb 15, p 4
McGinnis, MA and Kohn, JW (2002) Logistics strategy-re-visited, Journal of
Business Logistics, 23(2), pp 1–17
Meersman, H et al (2005) Ports as Hubs in the Logistics Chains, in International
Maritime Transport: Perspectives, ed H Leggate et al, Taylor & Francis, London
Midoro, R and Parola, F (2006) Logistics services and vertical integration: New
challenges for shipping lines, in Maritime Transport, eds J Olivella Puig,
R Marcet i Barbe and V Garcia, Proceedings of the Third International Congress
on Maritime Transport, 16–19 May, Barcelona
Musso, E et al (2001) Co-operation in Maritime and Port Industry and its Effects
on Market Structure, in Proceedings of the 9th World Conference on Transport
Research, eds C Park et al, 22–27 July, Seoul, Korea, WCTR Society (The World
Conference on Transport Research Society)
NOL (2000) News Release, NOL, Singapore, 19 June
Panayides, PM (2001) Antecedents and Consequences of Mergers and Acquisitions
in Liner Shipping: A Synthesis and Research Agenda, in Proceedings of the 9th
World Conference on Transport Research, eds C Park et al, 22–27 July, Seoul,
Korea, WCTR Society (The World Conference on Transport Research Society)
Power, T (2004) Two-way street, Containerisation International, April, pp 51–53
Robinson, R (2002) Ports as Elements in Value-driven Chain Systems: The New
Paradigm, Maritime Policy and Management, 29(3), pp 241–55
Thorby, C (2003) Into the melting pot, Containerisation International, August,
pp 28–31
Tanker shipping 11
logistics
rO B E r T D E S rO S I E r S
Introduction
The bulk movement of crude oil and petroleum products made up 23.8 per
cent of global maritime cargo movements in 2009, requiring 35 per cent of
the world fleet (Asariotis et al, 2010). However, much of the literature writ-
ten on cargo operations at the ship–shore interface has focused primarily on
general cargo, with more recent research focused on containerization. The
literature for tanker operations for the logistics practitioner has been sparse,
outside of environmental concerns and technical publications for tanker and
terminals operators.
This chapter focuses on the transfer of bulk petroleum at fixed terminal
facilities to introduce the reader to the logistics of bulk liquid. Three major
components of petroleum movement will be introduced (the petroleum
itself, the cargo terminals and the ships), followed by the practice of logis-
tics and the steps involved in transferring this increasing valuable liquid.
In addition to the physical movement of petroleum, contractual aspects of
petroleum movement and custody transfer will be discussed to add context
to the need for careful monitoring and proactive efforts by all parties on the
scene to prevent both fiscal and cargo loss.
A knowledge of the legal procedures and processes involved in the trans-
fer of bulk petroleum is important to understanding the constraints and
problems that can and do arise. This knowledge will allow the practitioner
to not only plan more effective operations, but enable all to take action to
improve the processes and make more effective and informed decisions.
Transfer components
Petroleum
The life of the useable litre of petrol begins its voyage as crude oil extracted
from beneath the earth’s surface. It is often pumped via pipelines to storage
tanks where some of the sediments, salts and water are allowed to settle out,
194 Shipping Logistics
Naphtha
Residuals
Marine terminals
Marine bulk oil transfer facilities should be designed for the safe and effi-
cient transfer of bulk petroleum between ship and shore. Due to the nature of
the materials being handled, transfer facilities should incorporate adequate
fire prevention design criteria and environmental protection systems. In the
Tanker Shipping Logistics 195
Pipeline
Storage Tank
Cargo Arms T-Jetty Levee Berm Truck Rack
United States, the design standards are given in the National Fire Protec-
tion Association’s guidelines, as well as other applicable local and national
codes, and established engineering practices. The design and maintenance
schedules should consider the hazards associated with marine vessels, as
well as tank trucks, pipelines and rail tank cars (API, 2005).
There are two basic types of marine petroleum facilities: marketing facilities
and refining facilities. Marketing terminals are generally used for receiving and
storing bulk crude oil or petroleum products for further transfer. Refining facil-
ities take crude oil delivered by tanker and refine it into various compounds, or
fractions. In many cases, the refinery also serves as a marketing terminal.
Regardless of the terminal type, there are several basic elements to petro-
leum terminals (Figure 11.2). The main components of the terminal are: cargo
transfer arms/hoses, cargo pipelines, cargo tanks, and inland transfer facilities
such as truck racks. The cargo tanks are surrounded by levees, or dikes, with
the area around the tank out to the levee referred to as a ‘berm’, a slightly
different use of the term than that often seen in common usage (API, 2005).
Depending on the location and size of the tanks, the transfer of petroleum
into and out of the tanks may be assisted by booster pumps to overcome head
pressure resulting from tanks located significantly above the transfer point.
Tank ship
Petroleum cargoes carried in bulk are most efficiently transported by tank-
ers designed specifically for the carriage of large liquid quantities.
Oil was originally shipped in wooden barrels, resulting in a messy and
risky voyage. In 1878, the Zoroaster, built for the brothers of Alfred Nobel,
of Nobel Prize fame, was introduced as the first ship to use its hull as con-
tainment for liquid petroleum cargoes (Baptist, 2000). In 1886, the Gluckauf
196 Shipping Logistics
was built and considered the prototype for the modern tanker, incorpo-
rating many of the features seen in today’s tankers, such as pressure relief
valves, cofferdams, cargo valves capable of being operated from the deck,
aft engine room and the ability to load ballast (Tusiani, 1996).
Up until the mid-1940s, tankers remained relatively the same size where
the market and trade patterns required larger tankers to meet the demands
for the recovery from the ravages of the two world wars. In the 1950s, ship-
owners embarked on a quest to build the largest tanker. With the closure of
the Suez Canal for eight years in the late 1960s, tankers were no longer lim-
ited by canal restrictions as they had to go around the Cape of Good Hope.
Economies of scale dictated that larger ships could carry larger quantities at
cheaper rates, culminating with the largest tanker built, the Seawise Giant,
at over 560,000 deadweight tons (dwt).
Today, modern tankers vary in size according to their cargoes and trade
routes. Table 11.1 provides an overview of the various tanker sizes used in
the carriage of petroleum. While a cursory look may seem to indicate they
are large floating tanks, their systems can be quite complex.
Contractual relationships
Charter parties
The legal requirements for the transfer of bulk petroleum are primarily con-
tained in the charter parties governing the ocean carriage of petroleum and
oil contracts governing the purchase and sale of petroleum.
A charter party describes the required performance of the ship in relation-
ship to the carriage and care of the cargo, as well as performance require-
ments for the ship. Common performance requirements are the carriage
Tanker Shipping Logistics 197
of the cargo with less than half a per cent loss from origin to destination,
ability of the ship to load or discharge the cargo within 24 hours or main-
tain 7.03 kg/cm2 (100 psi) at the manifold, and the cargo to have the same
characteristics upon discharge as when it was loaded (Schofield, 2000). This
requirement is often referred to as the pumping clause or warranty.
The requirements of the pumping clause should not be confused with
the allowed lay time as stipulated elsewhere in the charter party. While
the allowed lay time is cited as a total of 72 hours, 36 hours at the load
port and 36 hours at the discharge port, the lay time can be amended to
cover the expected conditions and delays that may be expected at various
ports (Edkins and Dunkley, 1998). However, when the time for operations
exceeds the allocated lay time, a penalty or demurrage is charged against the
charterer. Table 11.2 outlines some common causes of delays at a terminal
in Texas City, USA.
When the 24-hour time limit is not met, as laid out in the charter party,
it is commonly due to physical limitations of the equipment in use, such
as only one manifold connection, small piping, equipment malfunctions,
or lack of tank space. Weather and port congestion can also contribute to
delays in cargo operations. Thus, problems in these areas may require sig-
nificant financial investments.
The difference in lay time and pumping clause can be attributed to
the activities surrounding the actual transfer of cargo. As can be seen in
Figure 11.3, there are several activities that must be completed before and
after the cargo transfer. Some contractual allowances are made, with two of
particular note: notice of readiness and disconnection of cargo hoses/arms.
The notice of readiness (NOR) is the formal notification that the tanker
has arrived at the port or berth and is ready in all respects to load or dis-
charge cargo (Schofield, 2000). Typically, once the NOR has been tendered,
the lay time commences six hours later, or upon arrival at the berth (Edkins
and Dunkley, 1998) and continues until the hoses are disconnected. A com-
mon stipulation is that if the vessel is delayed in excess of three hours after
disconnection of cargo hoses solely, lay time or demurrage shall be deemed
to have continued without interruption from the disconnection of the cargo
hoses until the termination of such delay (MSC, 2002). A common example
of such a delay is the failure to deliver required documentation, such as the
bill of lading (B/L), to the ship or release the ship to sail.
When a tank ship arrives in port, the ensuing cargo operations have three
principal areas of concern: the performance of both the ship and terminal
in accordance with the charter party, the quantity of cargo transferred, and
the quality of the cargo.
At the end of the cargo operation, vessel release occurs when a person
in a position of authority accepts the results of the cargo transfer. This may
take the form of quantifying the cargo remaining onboard or verifying the
quantity of cargo transferred, and reflects an event that is useful in deter-
mining efficiency. It should be noted that due to departing restrictions, such
as channel congestion, weather delays such as restricted visibility or high
198 Shipping Logistics
• Pass figures
• e-mail files
• Mail hard copies
Responsibilities
When the tanker transfers cargo at a terminal, there are generally three
types of parties involved: the ship-owner, the charterer and the cargo owner.
Each of these parties has distinct responsibilities.
●● The ship owner, or ship manager, is responsible for maintaining tank
calibration tables, gauging and sampling equipment and all pertinent
facilities in good operating condition to enable the ship’s crew to
accomplish accurate cargo gauging, sampling and accounting. The
ship owner instructs the master to provide cargo-gauging and
200 Shipping Logistics
other conditions at either the terminal or the vessel which may affect the
above; and provide certified documents that might be used as a basis for
the recovery of losses, the settlement of demurrage and despatch claims and
assist in arbitration or litigation settlement (API, 1995, 2001b).
Quantity
Where the parties concerned agree, automatic tank level gauging and tem-
perature measurement systems may be used for custody transfer. Wherever
possible, the surveyor should take his own measurements and compare them
with those of the automatic gauge system.
Where terminals do not allow surveyors to take these, the surveyor should
be satisfied from the terminal’s gauge-proving records that the gauges are
satisfactory, and an appropriate note made in the general comments of the
survey report.
Before gauging, the surveyor must determine the nature and quality of
material in the shore lines and the total capacity of the lines from manifold
flange to the shore tank(s) in use. The steps taken to determine that the shore
pipeline was full of liquid are recorded. Often the line check may take the
form of a physical line displacement at the beginning of loading, by transfer-
ring petroleum from a single shore or ship tank to a single ship or shore tank
(API, 1998). This line displacement can also be used to determine the quality
of the petroleum when this may be of importance.
The terminal should arrange for lines and valves to be set so as to prevent
cargo being contaminated or lost through other lines and tanks, with writ-
ten confirmation. Inspectors must be satisfied as to the system’s integrity,
and attempt to verify previous line contents and characteristics.
When metering, the volumetric measurement of liquid flow is measured,
and thus used to determine the amount of cargo transferred between the
terminal and ship. Before loading, meter data should be recorded upon com-
pletion of the line-up (API, 2001b).
On board the vessel, it will be necessary to study the ship’s drawings and
plans to record details of the vessel. From the general arrangement plan,
the position of gauging points, the length and width of the tanks, the pipe-
line layout and the pipeline quantities may be determined. The surveyor
should also check the vessel’s calibration tables to obtain the tank heights
and whether the pipeline quantities are included in the tank capacities.
When possible, tanks should be visually examined from deck level to
obtain an accurate picture of the interior. Where the appropriate safety
precautions have been taken, tanks may be inspected by entry. A physical
inspection will normally be necessary to examine the condition of the tank
surfaces, heating coils, piping, submerged pumps, and to fully assess the
cleanliness of the tank and the integrity of the tank coating.
Where physical inspection is not necessary or impractical, the amount
and nature of any onboard quantity (OBQ) should be determined prior to
Tanker Shipping Logistics 203
Quality
In spite of efforts by the International Organization for Standardization
(ISO) to standardize petroleum products testing, many standards are estab-
lished by various national or business organizations. A single test may have
a variety of different methods by which a result may be obtained. This can
be compounded by two other factors: repeatability and reproducibility.
A laboratory analysis using the same method, equipment and, of course,
sample of material may get two slightly different results. This is recognized
as acceptable as long as the results fall within the range of repeatability.
A lack of reproducibility is where the result found in one laboratory may
differ from the results found in separate laboratory. The same test methods
and types of equipment may have been used, but a different result is found.
These results are also acceptable as long as they are within the range of
reproducibility (Intertanko, 1996).
Another area where a loss may be incurred is at the point of the shore stor-
age system. The shore tanks may have been improperly calibrated, improp-
erly gauged, or simply the difference is between empty and full tank shell
dimensions. Tanks also have bottom movement, or springing, that occurs
when the weight of the liquid increases (API, 2001b). Tanks are calibrated
at a fixed temperature, thus tank expansion due to heated cargoes can be
significant if one is dealing with high-temperature products in large tanks.
The volume in the tank will distort the tank by the effect of pressure on
the sides. The more pressure the greater the distortion. The distortion may
have been allowed for in the calibration tables or it may not. In a fixed
roof tank, the effect of this distortion may create a dip or upwelling that
may affect the ullage and thus the volume calculation (API, 2001b). Some
Tanker Shipping Logistics 205
tanks have floating roofs that can be affected by debris, standing water,
and snow and so on, affecting their weight and thus the ullage, resulting in
inaccuracies.
For the purpose of custody calculations, it is often assumed that large
pipelines are perfectly filled with the same grade of dry oil before and after
transfer. In practice, however, there is concern about the incidence of air or
void pockets and possible vapour locks in elevated sections of piping, as
well as the presence of free water tending to accumulate in lower sections.
With products, it is often slightly easier as line pigging (clearing the lines
through mechanical means) is more common and free water is less.
Thus, there are two ways in which a loss can occur when considering
pipelines. The first is simple and is easy to verify. That is that the line is not
in the same condition before and after use, for example the line had air or
water in it before use, but contains oil afterwards.
The way to check this is by performing a line push or displacement, or for
some products a slopping’ operation to a road tanker or similar. A displace-
ment is particularly valuable with crude oil where long pipeline systems
are in use, as a 30-inch pipe will contain about 45 m3 per 100 metres (API,
1998). Thus, it does not take much of a percentage in a long pipe to lose a
lot of cargo.
The second error in pipelines is that the pipeline contents are different
before and after. While the pipelines may have been full of oil before, it is
not known what the temperature or density of the material was. Obviously
this density difference would have to be quite large to affect the volume, but
the effect of only a small change in temperature is different: the effect of a
1°C change is about 0.01 per cent of the volume of the pipe.
Cargo losses
During the course of shipments of oil by tankers, it normally happens that
some operational losses occur whereby the quantity delivered at the dis-
charge port is somewhat less than the total supplied on board at the point
of loading. Losses occur, to a greater or lesser extent, over each stage of the
shipment, and may include evaporative losses of the most volatile fractions
or ‘light ends’ during loading, carriage, and discharge operations; additional
evaporative losses during crude oil washing operations; oil clinging to inter-
nal tank surfaces; increase in ROB (remaining onboard) in relation to the
initial OBQ; unaccounted hold-up in the vessel’s cargo lines and pumps;
and accidental spillage and leakage or diversion to non-cargo spaces (API,
1995).
There are four distinct stages during carriage where the loss occurs: load-
ing, voyage, vapour and washing (API, 1995). During loading, even with
closed loading systems, there can be a significant loss. The cargo is entering
the tanks under high pressure through a small aperture and immediately has
206 Shipping Logistics
a big empty tank to fill. Vapour generation on the surface is very rapid, par-
ticularly when the temperature of the air or inert gas in the tank is high. And
all the time this vapour is being forced out of the tank as the vessel loads.
It is hardly surprising that the old practice of topping off tanks with sticks
through open tank ullage ports has been done away with. The losses, quite
apart from the dangers, were considered too significant.
The losses occurring during the voyage depend on the weather condi-
tions and temperatures experienced in conjunction with the duration of the
voyage. As the gas and air in the ullage space heats up, there is a resultant
rise in pressure that is partially contained by the pressure-vacuum (PV)
valves. Eventually, this pressure will be released to the atmosphere allowing
further generation of gas to occur. As the vessel moves through a seaway,
this effect increases as the liquid surges in the tank, forcing the pocket of
gas in the ullage space either out of the PV valve or through other points,
and the tank starts to ‘breathe’ with the movement. Vapour is therefore
continually being lost to atmosphere and continually replaced with more
vapour from the liquid surface. At night the tank cools down and the tank
and air space also cool. A vacuum is formed which activates the PV valve.
Air then enters the tank and becomes saturated ready to be emitted the
next day.
A third area of vapour loss can occur during discharge. Upon sailing after
discharge, the empty tanks will be full of a mixture of oil vapour and inert
gas, much of which may be lost when ROB measurement is taking place.
Finally, there is an increase in vapour losses due to crude oil washing
(COW) operations. COW is used to clean the tanks by the spraying of the
crude oil against the walls and floors of the tanks. This spraying of a crude
oil stream inside a cargo tank generates vapours that can be vented to
atmosphere due to the over-pressurizing of the tanks.
Clingage, where petroleum adheres to horizontal and vertical surfaces of
cargo tanks other than the bottom surfaces, is another area of potential loss.
On crude oil tankers, tanks that have been COWed are often considered to
be free of sludge in the upper areas, on all verticals and most horizontals
down to the bottom. Clingage can be a significant factor in oil losses when
COW has not or cannot be performed.
The increase of ROB cargo after discharge against pre-loading OBQ fig-
ures can be relatively easy to quantify. However, variances in inspection
procedures may result in quantity differences that can be difficult to resolve.
The pipelines and pumps may also contain residual cargo oil creating fur-
ther measurement errors. While preparing the vessel for loading, tanks and
cargo pipelines may have been cleaned, resulting in very little cargo in the
pipelines or pumps (IP, 1989). However, after discharging the cargo, the time
it would take to recover the cargo from the pumps and the lines, as well as
ROB, may not be economically feasible when the value of the cargo quantity
is compared against the value of time of the lay time and demurrage as laid
out in the charter party.
Tanker Shipping Logistics 207
Conclusion
The logistics of transferring bulk petroleum is subject to a variety of uncer-
tainties and potential losses that need to be monitored and mitigated in
order to ensure effective and efficient operations. Losses are not limited to
quantity and quality, but also encompass the dimension of time. For those
engaged in the transport and transfer of petroleum cargoes, it is important
to understand these issues in order to balance the priorities between these
sometimes conflicting aspects of cargo transfer.
As tanker–terminal operations move into the future, additional pressure
will be placed on these operations that may affect the time to complete the
operations and impact the ability to effectively transfer a quality cargo in
the proper quantities. These pressures may result from security, environ-
mental and fiscal requirements and considerations. It is up to practitioners
to provide the oversight and management to minimize the costs while maxi-
mizing the benefits and opportunities.
Glossary
API: American Petroleum Institute.
API gravity: An American unit used in petroleum liquids.
B/L or BoL: The bill of lading.
Calibration table: A table, often referred to as a tank table or tank
capacity table, giving the volume of material held in a storage tank for
various liquid levels.
Clingage: Oil residues that adhere to the surface of tank walls and
structures on completion of discharge.
Cofferdam: The isolating space between two adjacent steel bulkheads or
decks. This space is commonly void, but may be used as ballast in some
vessels.
Critical zone: The volume close to the bottom of a floating roof tank
in which there are complex interactions and buoyancy effects as the
floating roof comes to rest on its legs. The zone is usually clearly
marked on tank calibration tables and measurements for custody
transfer should not be made within it.
Density: The ratio of the mass of a substance to its volume. Since density
is dependent on temperature and pressure these should be stated.
Floating roof: A tank roof which floats freely on the surface of the liquid
except at low levels when it is partially or wholly supported by ‘legs’.
Innage: The depth of liquid in a storage tank measured from a reference
level
Light ends: The low-density constituents which may be easily lost by
evaporation.
208 Shipping Logistics
Manifold: The final pipe of a cargo system before the shore connection.
The pipe through which cargo is discharged into the loading arm
ashore and from which loaded cargo is distributed to the various
cargo tanks.
Onboard quantity (OBQ): All the oil, water, sludge and sediment in the
cargo tanks and associated lines and pumps on a ship before loading a
cargo commences.
Quantity remaining onboard (ROB): All the oil, water, sludge and
sediment in the cargo tanks and associated lines and pumps on a ship
after discharging a cargo has been completed, excluding vapour but
including clingage.
Outturn: The quantity of cargo discharged from a vessel, measured by a
shore terminal.
Slops: Material collected after such operations as stripping, tank washing
or dirty ballast separation. It may include oil, water, sediment and
emulsions and is usually contained in a tank or tanks permanently
assigned to hold such material.
Stripping: The operation at the conclusion of a discharge whereby the
final part of the bulk liquid cargo is removed from a cargo tank.
Ullage: The distance from the ullage reference level to the oil surface.
The depth of free space left in a cargo tank above the liquid level. Also
known as outage.
Venting: The process of releasing cargo gas or inert gas to atmosphere by
way of the vessel’s venting system and vent stack.
References
API (1995) Section 5: Guidelines for Cargo Analysis and Reconciliation, American
Petroleum Institute
API (1998) Section 6: Guidelines for Determining the Fullness of Pipelines between
Vessels and Shore Tanks, American Petroleum Institute
API (2001a) Chapter 7: Temperature Determination, American Petroleum Institute
API (2001b) Section 1: Guidelines for Marine Cargo Inspection, American
Petroleum Institute
API (2005) API Standard 2610 Design, Construction, Operation, Maintenance and
Inspection of Terminal and Tank Facilities, 2nd edn, American Petroleum
Institute
Asariotis, R, Benamara, H, Hoffmann, J, Misovicova, M, Núñez, E, Premti, A,
Sitorus, B, Valentine, V and Viohl, B (2010) Review of Maritime Transport
2010, UNCTAD/RMT/2010, UN Conference on Trade and Development
Baptist, C (2000) Tanker Handbook for Deck Officers, Brown, Son and Ferguson
Ltd, Glasgow, Scotland
Branch, AE (2007) Elements of Shipping, Routledge, London
Edkins, M and Dunkley, R (1998) Laytime and Demurrage in the Oil Industry,
LLP Reference Publishing, London
Tanker Shipping Logistics 209
that the efficiency of land and marine transport has an impact on value added.
The handling conditions of dry bulk materials are influenced by a wide range
of factors (size, weight, water content, surface adhesion, ease of flow, extent
of compaction). Handling equipment is often custom designed for specific
dry bulk commodity. There are various types of contractual arrangement
used for the shipment of dry bulk. The command centre of dry bulk trade is
not always commensurate with dry bulk port location. Ships and consign-
ment size vary enormously. These conditions raise a series of key issues. How
has the dry bulk shipping fleet evolved? How is the commercial structure of
dry bulk trade responding to the globalization of economic activities? Above
all, how are these developments affecting dry bulk shipping logistics?
This diversity in the dry bulk fleet aims at answering the need to adapt
to the heterogeneity of bulk products, the different size of shipments, the
constraints of trade routes and the geographical conditions of ports of call.
Bulk carriers are thus essentially multi-purpose vessels in terms of size and
equipment facilities. These vessels can carry a wide range of different cargo
types and are often able to pick up backhaul cargo. They are considered as
logistics tools partially in competition in an open market economy (Gar-
diner and Couper, 1992; Packard, 2005).
NOTE X indicates on the charge of the shipping company; O indicates on the charge of the charterer.
ship and destination requiring intensive network control. Dry bulk supply
chain management is the management of the complete process in the inven-
tory and carriage of bulk commodities from production origin to destina-
tion locations.
Each segment performs part of the dry bulk shipping process. But trans-
portation output cannot be stored. Therefore, each segment must have
enough available capacity to meet the demand for service at the time needed.
This division of function of the transportation chain and the work involved
in storage, handling and transport determine the costs incurred and level of
charges to be paid.
For suppliers, the dry bulk logistics system is coordinated with produc-
tion scheduling. The demand for producers is generated by reduction rates
in stock levels and forecasting sales. Changes in inventories or sales are
translated into changes in production. Suppliers are in the first stage of the
logistics system. In logistics, the issue for suppliers is the production runs of
a single commodity with a view to making available the adequate volume of
commodity to be delivered within allowable time limits.
In moving minerals or grain from mines or farms, the objective is to pro-
vide volume movement to the first stage of processing. Relatively small vol-
umes of dry bulk commodities are carried by truck, barge or train. Trucks
are for short-haul movement of bulk commodities. With rail and barge trans-
port, bulk-carrying units are assembled into convoy for line-haul movement.
The aggregation of these vehicles to form trains or tows accounts for the
reduced cost of transportation per ton-km. The volume and speed of bulk
movement on land or river transport depend on road width, railway gauge
or water depth. The efficiency of dry bulk movement is strengthened with
the adaptation of transport vehicles for bulk commodities in terms of size,
design or technology employed. An important logistics issue is the empty
backhaul of trucks, railcars or barges. Dry bulk is subject to imbalance of
traffic between directions of vehicle movements. The cost may be offset by
diminishing the loading/unloading cost of terminal facilities.
Suppliers who trade bulk commodities for overseas markets secure ter-
minals where bulk products can be handled and shipped in the consign-
ment sizes required by the customers. This process of distribution involves
ports where terminal operators have made important investment in highly
mechanized handling facilities. Each terminal is marked by varied loading/
unloading rates and variable loading and unloading quantities. Terminal
operators have invested in automated operations embracing computer-
controlled conveyor systems with a view to increasing the utilization rate
of facilities. The logistics service requirement at dry bulk terminals per-
tains to handling capacity (Talley, 2009). Capacity refers to the volume of
throughput produced for a given period of time. Given the magnitude of
investments in specialized equipment, the pattern of dry bulk movement
reveals a concentration of both origin and destination at specialized ports.
The major part of dry bulk traffic is concentrated along selected mainline
ocean routes.
220 Shipping Logistics
Bulk commodities are often located far from demand locations. The
maritime transport of bulk commodities is inevitable as it offers the low-
est cost per ton-mile. Consumption centres own/charter ships or outsource
to 3PLs/4PLs. The work on bulk shipping logistics involving ship routing
and scheduling is confronted with various conditions. First, the company
assigns ships to meet customer orders, but the fleet is composed of ships
varying in capacity and operating costs. Second, the nature of the dry bulk
commodity affects the maximum stowage capacity. Third, bulkers do not
have fixed itineraries. A ship may call at a single production port, be loaded
with specific product followed by a call at specific consumption port to be
unloaded. In sharp contrast, a ship may call at several production ports in
succession before several consumption ports are called in sequence. Fourth,
the terms and conditions of freight rates for carrying bulk cargo are negoti-
ated between shippers and carriers in relation to demand and supply of bulk
shipping services. Freight rates determine the decision of bulk carriers in
adjusting fleet size. Fifth, a ship can load or discharge only one material at a
time and the limited number of jetties at each port imposes ship sequences
for dry bulk loading and unloading.
Those involved in the bulk supply chain aim to reduce this degree of
fragmentation with a view to integrate bulk supplies and physical distribu-
tion activities. The bulk shipping industry is adopting a more integrated
approach. Producers develop inland depots and port terminals to accommo-
date the needs of customers. Customers enter the bulk fleet shipping mar-
ket. Ports undertake joint planning with maritime and inland transportation
carriers. Various stakeholders synchronize and standardize their operations
along the transport chain to insure the fluidity of dry bulk traffic and infor-
mation flows. The development of an integrated approach among actors
and components of the dry bulk supply chain creates value by increasing
capacity, improving inventory management, reducing link uncertainties and
achieving profitability.
The performance of the dry bulk supply chain is constrained by the
chain’s weakest link (Berle et al, 2011). Fluctuating demand in the volume
and direction of international dry bulk trade affects the supply conditions in
the shipping market, impacting on freight rates which in turn influence the
decisions of firms in the marketplace. The volume of bulk commodity han-
dled by a port is determined outside the domain of the terminal operators.
Customers may maintain inventories against disruption of flows, preventing
a single supplier from affecting market demand. Port resources may not
be sufficient to prevent waterside congestion. Importers may seek alternate
sources of dry bulk products through the development of new agricultural
fields or the opening of new mineral deposits. Bulk supply chain stakehold-
ers may have conflicting objectives and be reluctant to share information
and technologies. These complex dynamics explain the limited number of
existing models of decision support systems used in practice. The develop-
ment of a systems approach for global dry bulk supply chain will always
remain a key logistical challenge.
Dry Bulk Shipping Logistics 221
The world dry bulk trade is growing faster than the world economy. The
cost of disruptions in the dry bulk supply chain for society, industry and
the can be particularly high for goods such as iron ore, coal and grain. The
capacity of the dry bulk supply chain to adapt to changes is a key issue in
sustaining its competitiveness. Assessing the vulnerability should help define
metrics with a view to understanding the resilience of dry bulk supply chain
and identifying adaptation strategies. Results can then be used to elaborate
alternative transport policies.
sector for the dry bulk shipping industry since these products can be carried
as shipment of a single freight commodity, display low value added and are
not subject to just-in-time production methods.
Dry bulk commodities are being containerized. Industry stakeholders
increase their competitiveness through containerized bulk freight. Traders
unitize dry bulk commodities with a view to reducing damage to goods
movement. Shippers benefit from container liners’ routing and scheduling.
Carriers take advantage of the opportunities of filling empty containers with
new cargo. The efficiency of dry bulk containerized freight associated with
logistics considerations is based on high load factors and intermodal con-
nections for transhipment and movement of products. The size of the local
market determines the volume, frequency and regularity in goods loaded/
unloaded. A fully-fledged intermodal transport network is a prerequisite to
achieve high value added. The development potential of dry bulk shipping
logistics in relation to containerized freight is concomitant with the creation
of economies of scale at sea, on shore and in the hinterland with a view to
lower costs and increased container volumes.
Conclusion
Bulk movements provide an important marker of the impacts of global eco-
nomic processes. The analysis of ships’ typology, vessel size and route pat-
terns closely mirrors pronounced shifts in the world’s economic geography.
The emergence of a market system among industries and shippers imposes
a complex interplay between the price of dry bulk commodities, the cost
of vessel chartering and fleet productivity. The capacity of stakeholders to
constantly adapt to changes is a key issue in sustaining their competitive-
ness. Dry bulk shipping must therefore be analysed in the broader context of
overcoming vulnerability in the bulk supply chain to achieve traffic fluidity.
The invocation of sustainable development, break bulk and containeriza-
tion suggests that challenges in dry bulk shipping logistics are becoming
indistinguishable from the activities of container and liquid bulk shipping
logistics operations.
References
Alizadeh, A and Nomikos, N (2009) Shipping Derivatives and Risk Management,
Palgrave Macmillan, Basingstoke
Berle, O, Asbjornslett, BE and Rice, JB (2011) Formal vulnerability assessment of a
maritime transportation system, Reliability Engineering and System Safety, 96,
pp 696–705
Branch, AE (2007) Element of Shipping, Routledge, London
224 Shipping Logistics
Introduction
Maritime transport of goods in containers has been growing at an impres-
sive pace. The increases in volumes transported have required a matching
increase in capacity on the supply side along with measures to exploit econ-
omies of scale and contain unit costs. To this end the maritime sector of
intermodal transport chains has employed ever larger ships (Cullinane and
Khanna, 2000); the latest vessels on order are reaching 14,000 TEU (World
Cargo News, 2006) to fully utilize the economies of scale. The other ele-
ments in the supply chain – port operations and hinterland access – must
accommodate such traffic efficiently (McCalla, 2007; Parola and Sciom-
achen, 2005).
As a result of growing containerized transport, the main problems fac-
ing seaports face today are lack of space at seaport terminals and growing
congestion on access routes. Despite heavy investments in container termi-
nal capacity, larger flows of containers severely strain seaport operations
(Mourão et al, 2002; McCalla, 2007). Port capacity can be increased by
physically expanding existing terminals (McCalla, 1999) at considerable
cost and endeavour, by adding extra equipment or improving productivity
by new forms of technology as analysed by Ballis et al (1997), or by work
organization as suggested by Paixão and Marlow (2003).
Transport services to a port’s hinterland are also strained by the increas-
ing flows. The European Union Road Federation (2008) noted that in the
period from 1996 to 2006 the European hinterland transport market share
for rail decreased while that of road increased: with a 76 per cent market
share, road transport dominates the inland freight transport in EEA member
countries. According to Parola and Sciomachen (2005) the modal imbalance
results in increased road traffic congestion, since a growth in maritime flow
228 Port Logistics
Depending on the role and the services offered, the transport industry
operates different kinds of terminals under different names. Table 13.1
reports a series of terms and definitions related to intermodal terminal facili-
ties, some of which have been used to characterize a dry port.
India introduced ‘inland container depots’ (ICDs) in 1983 and Indian
Customs (2007) bases its definition of an ICD on the UN ECE definition
of inland container depots, but restricts it to containers. India also uses the
term ‘container freight station’ (CFS), which differs from an ICD since con-
tainers are stuffed and stripped there. Hence, an ICD is a consolidation
node for containers whereas a CFS aggregates individual consignments into
containers. A CFS function might be added to an ICD. ICDs are normally
located outside the port towns but there are no site restrictions regarding
CFSs.
The term ‘freight village’, given in Table 13.1 with the definition of UN
ECE, although similar in concept, varies in definitions among countries:
Güterverkehrszentren in Germany, plateformes multimodales logistiques in
France, freight villages in the UK or interporti in Italy. They all provide
transhipment from one mode to another as well as auxiliary services such as
warehouses, customs, maintenance workshops, insurance offices etc.
Several possible definitions of dry port are actually included in the list
on Table 13.1. The ‘inland port’ as characterized by Harrison et al (2002) is
sometimes also termed a ‘dry port’. Moreover, Beresford and Dubey (1990)
use a dry port definition that corresponds to the definition of inland clear-
ance depot. This definition is very specific regarding ownership and services,
and in particular customs clearance, although with no mention of a particu-
lar type of connection to a seaport. Beresford and Dubey (1990) emphasize
the importance of a dry port as a common-user facility that would promote
the transfer of goods from origin to destination without an intermediate
customs examination, the so-called through-transport concept.
Hanappe (1986) refers to dry ports as ‘multifunctional logistics centres’
with a variety of firms operating at the same site. This description corre-
sponds to the concept of freight villages, according to UN ECE, since it
does not emphasize a connection to seaports nor does it specify the range of
services offered at the terminals.
The dry port UN ECE definition (‘an inland terminal which is directly
linked to a maritime port’) is rather broad in its meaning, therefore it may
apply to all the terminal facilities mentioned in Table 13.1 when linked to
seaports.
definition takes the UN ECE one stage further by implying the conscious
and strategic development of intermodal terminals in the seaport’s hinter-
land and in relation to the seaport. It also adds to the previous definition by
underlining the operational side of the connection to the seaport that makes
the dry port the actual interface for shippers to the seaport and the shipping
lines thus extending the gates of the seaport inland. This, in turn, implies a
focus on security and control by the use of information and communication
systems, not just for customs needs. Moreover, this definition highlights the
intermodal character of the terminal and the rail connection to the seaport.
A previous version of this definition emphasized the use of high-capacity
transport means between port and dry port, including rail and barge, since
some existing dry ports or advanced intermodal terminals use both means of
transport. However, the word ‘dry’ may seem contradictory when barges are
used. On the other hand there is a concept of inland port which is defined
by the use of barges. Therefore the definition referring to the use of rail is
deemed more suitable.
The functions taking place at a dry port include those of a freight termi-
nal which, as recalled by Slack (1999) are: transfer of cargo, mostly unitized,
between two modes; the assembly of freight in preparation for its transfer;
the storage of freight awaiting pick-up; and delivery and the logistical con-
trol of flows. In addition to all functions mentioned above, services such as
maintenance of containers, customs clearance, and other value-added ser-
vices should take place at a dry port terminal in accordance with customers’
needs.
The quality of the access to a dry port and the quality of the road–rail
interface determines the dry port’s performance. Scheduled and reliable
high-capacity rail transport to and from the seaport is therefore necessary.
To summarize, the main features of a dry port are:
●● intermodal terminal;
●● situated inland;
●● rail connection to a seaport with scheduled and reliable services;
●● offers services that are available at freight terminals and at seaports,
such as container maintenance, storage of containers, forwarding,
road haulage; and
●● customs clearance.
Conventional hinterland transport is based on numerous links by road and
only a few by rail, which is generally limited to serving major conurba-
tions at relatively large distances from the seaport, as shown on the left
of Figure 13.1. When dry ports are implemented the transport network is
rationalized as on the right of Figure 13.1, with road transport limited to
collection and distribution of intermodal units in the market areas of each
dry port. The figure also shows a seaport and the three types of dry ports –
close, midrange, and distant dry ports – that may be characterized based on
their function and location (Roso et al, 2009).
Dry Ports in Concept and Practice 233
productivity, since bigger container ships may call at the seaport. Road
hauliers lose a marginal market share in terms of road-kilometres, but
would still benefit from shorter waiting times at dry port terminals. In
cities not allowing long or polluting road vehicles, calling at a close dry
port is an alternative to splitting up road vehicles or replacing them with
less polluting vehicles.
Positive effects on regional development and job opportunities due to
the implementation of dry ports are exemplified by the cases illustrated
later in this chapter. This is consistent with the findings of Bergqvist and
Pruth (2006) who discuss regional attractiveness in terms of environmental
sustainability, cost-efficiency and transport quality through the establish-
ment of intermodal road–rail terminals, with the focus on regional logistics
collaboration.
Dry port implementation thus generates advantages for the actors of a
transport system, as summarized in Table 13.2. This illustrates how dry
ports have the potential to generate environmental benefits which can be
translated into cost reductions, as, for example, less congestion on the road
generates time and consequently cost savings for road carriers. This is dis-
cussed in Roso (2007), one of the few studies about environmental effects
of freight terminals. Roso (2007) shows that with a dry port in the system
CO2 emissions should decrease, queues and long waiting times at seaport
terminals should be avoided, and the risk of road accidents reduced.
Although a dry port implementation, as a sustainable logistics solution,
involves significant investments for the owners, the same has the potential
to gradually generate much higher total revenue for all actors of the system,
not just for direct investors. The dry port concept should be arranged as a
joint venture of all beneficiary stakeholders, of which the biggest one even-
tually is society.
Dry ports are useful facilities to accommodate some seaport activities
such as storage of containers to gain valuable space in ports where space is
an actual issue, typically large ports; however, seaports that do not face a
lack of space at their terminals will not gain by moving their storage area
to an inland terminal. On the contrary, they might lose a significant portion
of the profit (Roso, 2009b). When it comes to time savings that result from
implementation of a dry port into a seaport transport system, the same can
be obtained by eliminating queues at the seaport’s gates or by eliminating
storage at the seaport. The former gives significant gains, not only for the
seaport that performs better without congestion at the terminals, but for
the carriers who suffer from financial losses due to delays caused by the
congestion. Furthermore, there is a whole range of administrative activities
that could be moved inland with implementation of a dry port, generat-
ing further time and cost savings, specifically those related to customs and
truck transport paperwork. In an ideal situation direct loading/unloading
of a ship to/from a train would result in a significant reduction of internal
vehicle transport.
Ultimately, full implementation of a dry port could create seamless sea-
port inland intermodal access, ie smooth transport flow with one interface
in the form of a dry port concept instead of two, one at the seaport and the
other one at the inland destination (Figure 13.2).
The concept can be compared to the case of an increased level of func-
tional integration of supply chains (Notteboom, 2006), where many interme-
diate steps in the transport chain have been removed and therefore enabled
a so-called one-stop-shop, creating a single contact point on a regional or
even global level.
236 Port Logistics
Inland
Sea Port Inland Road
Origin terminal Destination
transport interface transport haulage
interface
Transport
network
Origin–destination
route with a dry
port as a part of
the network
success were the condition of the existing rail infrastructure, as well as regu-
lations (monopoly of the rail), which were eventually overcome. The dry
port generates advantages such as increased use of rail, which resulted in
increased volume and consequently lower transport costs, as well as lower
environmental impact and lower congestion at the seaports. Furthermore,
the use of the dry port brings competitive advantages to the seaports as well
as attracting new business to the area, resulting in the creation of new jobs.
The dry port is equipped with one rail-mounted gantry crane, three reach
stackers and three forklifts, for the handling of 60,000 TEU a year, on an
area of 14 ha. Full customs clearances as well as forwarding are available on
the site. There is a storage area for 2,500 TEU of loaded container as well as
a container depot for 1,700 TEU of empties.
Dry Port Rivalta Scrivia in Italy is 67 km away from the Port of Genoa
and is a spin-off of the adjacent freight village set up in the 1960s intended
as a dry port for Genoa. The dry port company Rivalta Terminal Europa
(RTE), set up in 2006, is mainly private but counts on shares by regional
public authorities. The RTE facility extends for 90 ha, part of which is still
being equipped. The rail terminal is connected by intermodal rail services
with several locations, but the most interesting service for this paper is a
rail shuttle connecting it with the Voltri container terminal in Genoa, with
no intermediate stop. Thanks to a change in customs procedures, the con-
tainers carried on those shuttles undergo inspections and clear customs in
the dry port, where a branch of the Genoa Customs has been set up. This
was the first application of such procedures in Italy. The dry port manage-
ment expects to extend it to connections with other terminals in Genoa.
The special rail shuttle started in 2009 with one service per day in each
direction, soon increased to two services per day, five days a week. As of
2014, the shuttle runs twice daily in each direction, six days a week, with
the possibility to add a third return service on any day. Each shuttle has a
capacity of 57 TEU, and allows for high cube containers. Shunting within
the dry port and to the adjacent rail station is performed on own account
and RTE owns shares in the company providing the traction between the
seaport and the dry port as well as in the company providing shunting in
the seaport. The RTE railyard consists of five tracks with a length of 750
m over which operates a rail-mounted gantry crane, with a second one
expected soon. Operations are also performed with four reach stackers
and four front loaders but it should be recalled that the facility deals with
a total traffic of 51,000 containers/year including other rail connections.
Services in the dry port include container storage, repair and cleaning, for-
warding and road haulage, and warehouses are being built. All containers
carried by the bonded shuttle between Rivalta and Genoa Voltri arrive
or leave the dry port by truck, and are mostly picked up or distributed
within a range of 70–100 km. The rail shuttle service avoids the need to use
trucks on the congested road system of the city of Genoa and crossing the
mountains that line the coast while the transit procedure reduces container
delivery time.
Dry Ports in Concept and Practice 239
Conclusions
A dry port is an inland intermodal terminal directly connected to seaport(s)
by rail where customers can leave/pick up their units as if directly to a sea-
port. The physical connection – the rail link used by intermodal services – is
one aspect which is made fully operational by the procedural set-up, allow-
ing shippers to refer to the gates of the dry port as if they were at the sea-
port. Dry ports are thus inland extensions of the seaports, are consciously
set up as such, and are not limited to the provision of mode transfer but
include coordinated and efficient services such as storage, maintenance of
containers, customs clearance, and tracing and tracking.
Dry ports may bring advantages for all operators involved as well as for
the environment thus making green logistics interesting rather than some-
thing perceived as an added cost. Operators’ advantages include cost and
time savings (due to reduced road congestion but also to the inland interface
of the port and the efficient document handling), bundling of containers
flows and economies of scale, space added to those in space-constrained
seaports, and regional development. Environmental advantages are fostered
by rationalization of flows and by the use of intermodal transport and may
include reduced congestion, less pollutant emissions, lowered accident risks,
avoidance of the need to use port cities’ roads and cross environmental
zones with trucks. Regional development and job opportunities are further
advantages for society as a whole.
Dry ports are to some extent extensions of seaports inland and as such
are part of the process of regionalization of seaports characterized by Not-
teboom and Rodrigue (2005). In that process, and due to the importance of
inland distribution, seaports expand their hinterland reach through a num-
ber of strategies including close links with inland freight centres based on
higher functional integration.
This chapter has discussed three examples of dry ports in Europe (Halles-
berg in Sweden, Coslada in Spain, Rivalta in Italy) and more have been
developed elsewhere in the world.
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Ballis, A, Golias, J and Abakoumkin, C (1997) A comparison between conventional
and advanced handling systems for low volume container maritime terminals,
Maritime Policy and Management, 24, pp 73–92
Beresford, AKC and Dubey, RC (1990) Handbook on the Management and
Operation of Dry Ports, UNCTAD, Geneva
Bergqvist, R and Pruth, M (2006) Public/private collaboration in logistics: An
exploratory case study, Supply Chain Forum 7(1), pp 106–16
Cardebring, PW and Warnecke, C (1995) Combi-terminal and Intermodal Freight
Centre Development, KFB-Swedish Transport and Communication Research
Board, Stockholm
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CER (2009) European Parliament sends clear message: Trucks should pay for
pollution and congestion they cause, press release, 11 March 2009
Cullinane K and Khanna, M (2000) Economies of scale in large containerships:
Optimal size and geographical implications, Journal of Transport Geography, 8,
pp 81–95
de Langen, PW and Chouly, A (2004) Hinterland access regimes in seaports,
European Journal of Transport and Infrastructure Research, 4(4), pp 361–80
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Publication, Transport RTD Programme of the 4th Framework Programme –
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of the 4th Framework Programme
European Union Road Federation (2008), European Road Statistics 2008,
International Road Federation, Brussels Programme Centre
Hanappe, P (1986) Plates-formes logistique, centres de logistigue, ports sec,
Recherche Transports Sécurité, Decembre 1986
Harrison, R, McCray, JP, Henk, R and Prozzi, J (2002), Inland Port Transportation –
Evaluation Guide, Center for Transportation Research, The University of Texas
at Austin, USA
Höltgen, D (1995) Terminals, intermodal logistics centres and European infrastructure
policy, Doctoral Thesis, European Centre for Infrastructure Studies
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gov.in/customs/cs-manual/manual_23.htm, 1 December 2007
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Intermodal 2010, Amsterdam
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freight transport more environmentally friendly than all-road freight transport?
A review, Nectar conference, 13–15 June, Umeå, Sweden
Leveque, P and Roso, V (2002) Dry port concept for seaport inland access with
intermodal solutions, Masters Thesis, Department of Logistics And
Transportation, Chalmers University of Technology
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their service areas, Journal of Transport Geography, 7, pp 247–54
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Dry Ports in Concept and Practice 241
Introduction
The word port can refer to either water-related or non-water-related ports
(Bichou and Gray, 2005). Ports located by lakes, rivers, inland waterways
and canals are other potential meanings of water-related ports, while non-
water-related ports are dry or inland ports (Wood et al, 2002; Bichou and
Gray, 2005). However, for the purpose of this chapter the word ‘port’ refers
to seaports.
Ports are defined as ‘a geographical area where ships are brought along-
side land to load and discharge cargo – usually a sheltered deep-water area
such as a bay or river mouth’ (Stopford 2009, p 81). Additionally, ports are
characterized as four-modal nodes where waterborne and land transport
can converge (Charler and Ridolfi, 1994; Paixão and Marlow, 2003).
Moreover, ports are referred to as ‘economic catalysts’ for the regions that
they serve. This characterization is grounded on the fact that ports trigger
the creation of many work positions both internally and externally (Wood
et al, 2002). In alignment with this view ports can be perceived as ‘clusters
of economic activity’. According to de Langen (2004) the main function of
ships and cargo accommodation that takes place at a port is responsible for
the attraction of various economic activities to the proximity of the ports.
Carbone and Martino (2003) consider ports as organizational clusters in
which various logistics and transport-related firms collaborate and provide
value for the final customer. In this view, the multifaceted combination of
products and services provided by the port cluster create the diversified port
offering (de Langen and Sharypova, 2013).
244 Port Logistics
The notion that ports are generators of trade and commerce can be traced
back to the era of the Phoenicians. At that time ports constituted the mar-
ket of the city as the main trade of products was undertaken around them
(Sletmo, 1999).
Additionally, van der Lugt et al (2013) characterize ports as business net-
works. Within these networks companies are interdependent for the holistic
development of the system. Thus, inter-firm relationships are of high impor-
tance. Additionally, according to van der Horst and de Langen (2008) and
Notteboom and Rodrigue (2012), effective network integration of port ter-
minal operators with transport or third-party logistics providers (3PLs) is in
many cases the strategy enabling the offering of door-to-door services by ports.
However, as this chapter focuses on ports in the logistics environment, a
relevant definition must be employed. Bichou (2009, p 2) defines ports as
‘the interface between land and a sea or a waterway connection providing
facilities and services to commercial ships and their cargo, as well as the
associated multimodal distribution and logistics activities’. This definition
matches the scope of ports in a maritime logistics environment as it com-
bines the main function of the port, which is the reception of vessels, with
the additional logistics services that ports are called on to offer as part of a
system.
The remainder of this chapter is divided as follows. Initially, the contem-
porary business environment of ports and its effects on ports are outlined.
The evolutionary development of ports on a global scale is then discussed
from three different perspectives. The first perspective is involved with the
port generations model, the second is involved with the privatization of
ports, while the third with the emergence and expansion of global port oper-
ators (GPOs). Finally, before the main theme of this chapter, which is the
development of port-centric logistics (PCL) in the UK over the last decade,
the unique paradigm of the ownership and management mandates of UK
ports is outlined.
a single administrative unit. However, they argue that far more frequently
terminals in various places around the world are linked under the common
management of a single global port/terminal operator or a shipping line.
UNCTAD’s definition of fourth-generation ports is constrained to the
spatial evolution of port and takes no account of other operational and
societal changes that occurred in port development during the 21st century.
Additionally, academics interpreted fourth-generation ports in a different to
that intended by UNCTAD (Verhoeven, 2010). In particular, Perez-Labajos
and Blanco (2004) argue that fourth-generation ports should focus on
attracting big logistics operators. Furthermore, Paixão and Marlow (2003)
argue that a fourth-generation port should become proactive rather than
reactive to the changes in their environment. Thus, they support the view
that port managers should adopt new strategies which encompass the con-
cept of agility.
control by extending operations further down the supply chain. The verti-
cal integration activities of container shipping lines shape the third wave of
GPOs development (Notteboom and Rodrigue, 2012). In particular, accord-
ing to Slack and Frémont (2005), Midoro et al (2005), Parola and Musso
(2007), and Notteboom and Rodrigue (2012) the vertical integration activi-
ties of shipping lines can be summarized in the following four forms:
●● a unique contractual agreement between a third-party stevedore
company and the ocean carrier;
●● acquirement of a minor shareholding of the terminal by the shipping
line;
●● joint venture between the shipping line and a third-party stevedore
company that will be associated with dedicated terminal use;
●● a dedicated terminal in which the shipping line or a terminal-
operating sister company will possess at least 51 per cent of its
shares.
Based on various GPO classifications Notteboom and Rodrigue (2012)
have proposed the following three group categories: stevedores, maritime
shipping companies, and financial holdings. The first category, stevedores,
refers to terminal operators that have expanded globally. The second cat-
egory, maritime shipping companies, refers to the vertical integration activi-
ties of container shipping lines. The third category, financial holdings, refers
to firms from various backgrounds that have adopted an interest in port/
terminal operations due to the revenue generation potential of the sector.
Pawlik et al (2011) identified a category of investors in port terminal opera-
tions which resemble the financial holdings category. They call them private
equity funds (PEFs) and argue that the expansion of PEFs in the port indus-
try represent a fourth wave of GPOs’ expansion. Table 14.1 shows the top
10 GPOs according to the Global Container Terminal Operators Annual
Review and Forecast of the shipping consultants firm Drewry (2013).
Port privatization
Ports are managed by port authorities (PAs), which are responsible for the
provision of the services needed to accommodate ships (Mangan et al, 2008).
Thus, they plan, authorize, coordinate and control and in some cases also
provide port services (OECD, 2011). PAs construct and maintain port infra-
structure which is then provided to other private entities under the form of
leases or concessions (Dooms et al, 2013). Additionally, PAs aim to enhance
the competitiveness of the port cluster (Dooms et al, 2013) and to secure
cargo by the promotion of an efficient intermodal system (Woo et al, 2011).
For the majority of the world PAs are public or semi-public organiza-
tions (Baird, 2002). The public involvement in the management of ports,
in the form of nationally or locally administered PAs, has been prevalent
since the early modern European era (Verhoeven, 2010). Public PAs exist
Port-centric Logistics in Concept and Practice 251
port infrastructure as well. It is possible that the PA may also be the port’s
landlord but examples where PAs and landlords are different organizations
exist (OECD, 2011).
Some ports are managed by the government of the country they are
located in, while others are managed by private companies (Stopford,
2009). However, few examples of ports exist which are entirely public or
private (Cullinane et al, 2002). The dissimilarity of port ownership models
obstructs the development of a common approach to ports, a problem that
also arises amongst ports with similar functions and roles (Bichou and Gray,
2005). According to Thomas (1994) diversity of ownership and organiza-
tional structure in ports exists because port development is influenced by
various social, political, cultural, commercial and military circumstances.
Interest in the effects of private sector involvement in PAs’ strategy forma-
tion was initiated by Goss (1990) who challenged the need for public sector
PAs (Verhoeven, 2010). It is a common understanding nowadays that the
operational efficiency of PAs is linked to the increased involvement of the
private sector in the ownership and operation of ports (Tongzon and Heng,
2005). Additionally, the efficiency of a port can create the basis for a nation’s
competitive advantage in international commerce, because ports are per-
ceived as vital links in global trade. Pallis and Syriopoulos (2007) argue that
port governance is a crucial determinant of port performance. The develop-
ment of port trajectories and their divergent governance structures are related
to the concepts of path dependency and lock-in, concepts which originated
in the fields of institutional economics and evolutionary economics respec-
tively (Notteboom et al, 2013). Regardless of their ownership structure, ports
should provide a certain set of facilities and services (see Table 14.2).
●● The service port model refers to those ports where the public PA is
the owner of the port’s land and assets and is responsible for the
management and operations of the port. Additionally, some of the
cargo-handling services can be conducted by an independend public
entity (Brooks and Cullinane, 2007). However, Cullinane and Song
(2002) argue that the service port model is by definition identical to
the comprehensive port model.
●● The tool port model refers to those ports where the PA is public and
is responsible for the development and maintenance of port
infrastructure and superstructure (Brooks and Cullinane, 2007).
However, some onboard, quay and apron operations are performed
by private organizations.
●● The role of the PA and its functions in the landlord model are the
same in each of the two or three models of port classification.The
tool port model can be considered as a modification of the landord
model (Cullinane and Song, 2002).
254 Port Logistics
warehousing activities (Cullinane and Song, 2002). Four different port types
existed in the UKL public or nationalized ports, trust ports, municipal ports
and company ports (Thomas, 1994). Liu (1995) highlights that in the UK
even public ports were not financially supported by the government. Instead
they were required to create revenue that would cover their operational
costs and finance any investment without subsidies or any other form of
financial support from the government. Additionally, UK public ports were
also free from any government interference in their management. To that
extent UK public ports were perceived as being similar to private ports with
the exception that UK ports were non-profit organizations and customers
had the right to appeal if they thought that port prices were unfair.
The British port industry was nationalized after World War II (Suykens
and van de Voorde, 1998). The British Transport Docks Board was created
which covered all the ports of the country, and in 1947 the National Dock
Labour Scheme was created. The aim of the labour scheme was to provide
balance between the bargaining power of employers and employees in the
most important UK ports. Additionally, the scheme aimed to preserve the
so-called dock work activities of registered dockers. These arrangements
granted privileges such as standardized payment even in periods of no work
availability (Asteris and Collins, 2009).
The scheme adversely affected the reliability and efficiency and increased
the cost of UK ports, which, in combination with the developments of con-
tainerization, resulted in the loss of UK ports’ competitiveness against lead-
ing ports in mainland Europe. A threefold strategy was adopted by shipping
lines in order to overcome the barriers set by the scheme. Initially, the ship-
ping lines preferred to call at ports that were not included in the labour
scheme, explaining the rapid development of the so far insignificant Port of
Felixstowe. Second, shipping lines preferred to tranship products through
continental ports which were not protected by similar labour schemes.
Third, they initiated a campaign focused on the removal of the constraints
of the scheme, which proved effective towards the end of the 1980s. This
deregulation resulted in increased efficiency of UK ports before the millen-
nium (Asteris and Collins, 2009).
The full privitization scheme of the UK has been implemented for three
reasons (World Bank, 2007). The first was the need to modernize the out-
dated institutions and installations in order to meet demand needs. The sec-
ond was the aim to achieve financial stability and targets with the increasing
flow of private funds. The third reason mentioned in the World Bank report
was involved with the establishment of labour stability and rationalization
which would be followed by a higher degree of labour participation in the
new organizations. Cullinane and Song (2002) maintain that the main rea-
son for the implementation of a full privitization scheme in the UK was the
poor financial performance of the ports.
The first UK port privatization scheme was implemented through the
Transport Act 1981 (Suykens and van de Voorde, 1998). The Act included
the managerial takeover of 19 ports, managed by the British Transport
Port-centric Logistics in Concept and Practice 257
Dock Board, by the newly formed Associated British Ports (ABP) (Cullinane
and Song, 2002). ABP was controlled by Associated British Port Holdings,
a government formed organization. However, in 1983 49 per cent of the
company’s shares were offered to private investors. Thus, Associated British
Ports PLC was formed, which had no ‘authority over the directors of ABP
with respect to the exercising of their statutory powers and duties as a port
authority’ (p 70). Goss (1998) argues that the abolishment of the labour
scheme which was discussed earlier was perceived as a prerequisite for the
implementation of privatization in UK ports. He further argues that no dis-
tinction between PAs’ statutory duties and economic functions, and the port
activities has been made by the government’s policy regarding the extent of
privatization level of ports at that time.
Further privatization of the remaining public ports was made in 1991
by the UK government (Suykens and van de Voorde, 1998). In particular,
according to Goss (1998, p 67) the Port Act 1991 enabled the government
‘to compel the remaining trust port to transfer their rights, duties, assets,
and liabilities to companies formed under the Companies Act, which would
then be sold to some other company’. The preferred scheme supported by
the government was the management–employee buy-out (MEBOs) (Farrell,
2013). Furthermore, in 1992 five trust ports were voluntarily sold: Tees and
Hartlepool, Clyde, Forth, Medway and the Port of London (Tilbury) (Baird,
1995).
In addition, in 1993 the Secretary of State for Transport, using the pow-
ers under the Ports Act, was able to force the remaining trust ports, with
annual turnovers above £5 million, to pursue privatization (Baird, 1995).
In particular, the Port Act 1991 was focused on the privatization of trust
ports and was applied to the majority of PAs. The Department of Transport
intended to sell those ports by competitive tender in order to achieve the
highest possible price. Furthermore, PAs had the right to proceed with the
formation of a limited company that could take over the property, rights,
liabilities and operations owned by the PA (Baird, 1995).
According to Farrell (2013), the acquisition prices of those trust ports
were low, a fact responsible for the enduring ‘get rich quick’ image of the port
sector. Baird (2013) argues that the increased profits of UK ports, ever since
the various deregulations and privatization schemes, attracted the interest of
the banking community in UK ports. In particular, UK ports were re-sold to
private equities1 under highly leveraged transactions. One result of this is that
the profits made by ports are used to pay off those transactions. This situation
prevents the development of new advanced port infrastructure, a fact that
can endanger the future international competitiveness of UK ports. Addition-
ally, the UK Department for Transport does not encourage port investment,
as this requires ports to contribute to enhanced road and rail infrastructure
and results in lengthy and expensive public enquiries (Baird, 2013).
From the discussion above it is clear that UK ports belong to a specialized
category of private ports that is not encountered in the rest of the world.
Furthermore, several disadvantages have been identified regarding the UK
258 Port Logistics
port (Falkner, 2006). Wall (2007) argues that a focus on the development
of Teesport as a northern gateway is the result of the need to decongest
the UK’s southern ports which face strong pressures and have no plans to
develop their infrastructure further. Particularly, Asteris and Collins (2009)
argue that the development of PD Ports at Teesport is one of the two port
projects, the deep-water port development of Peel ports at Liverpool being
the second one, that have been approved outside the south-east of the UK.
The managers of Teesport exploited the fact that ‘big’ retailers have moved
their warehousing operations near to the ports in order to attract more ship-
ping lines to call there (Falkner, 2006).
The implementation of PCL implies various benefits for ports and their
users. Four distinct categories of benefits can be identified: environmental,
operational, cost savings, and increased competitive advantage related ben-
efits. The following sections provide an overview of those benefits.
Environmental benefits
Piecyk and McKinnon (2010, p 31) evaluate the forecasts for ‘CO2 emis-
sions of road freight transport in 2020’. They argue that the extensive use
of the hub-and-spoke system increases road-kms, thus an increase of tonne-
kms is expected. However, the expected development of PCL can balance
out the increase of road-kms, as some parts of the supply chain can be
eliminated. Furthermore, Monios and Wilmsmeier (2012b) argue that the
expected environmental benefits of PCL can help ports to seek government
support for the development of their infrastructures to accommodate PCL
activities.
The advantage of using rail or canals for inland transportation and thus
reducing road-kms and the associated CO2 emissions is highlighted by
many practitioners. In particular Analytiqa (2007) provides the example
of Eddie Stobart. The company claims to eliminate 13,000 annual truck
journeys by using rail services instead. Additionally, Wall (2007) argues that
reduced emissions will occur from the use of red diesel within the bonded
areas of ports that implement PCL. Moreover, removing unnecessary road
movements by delivering to the retailers’ DCs directly, instead of moving
cargo to the DCs in the Midlands and then redistributing them according
to demand will aid green initiatives and reduce carbon emissions (Allen,
2008a; Anon, 2011a; Hearn, 2012; Mannix, 2012). Dossetter (2010) and
Anon (2011b) support this argument by describing the reduction in carbon
emissions as a result of the PCL and airport-centric approach of Samsung
and their inland distribution partner Yusen (previously known as NYK-
logistics) who claimed to have saved 869,880 road-kms. Anon (2010a)
and Jack (2010) argue that fewer road-kms equals lower CO2 emissions.
Anon (2010a) justifies this speculation with the example of Taylors of Har-
rogate, a tea company that signed a contract with Teesport to handle all
their imports. This new contract is expected to result in 100,000 road-miles
reduction per annum, as Teesport is conveniently located closer to their DC
260 Port Logistics
compared with the two ports that were previously used as import points.
However, in this case the reduction of road-miles is caused by the difference
in distance between the DC and the port used and not because of any PCL
activities.
Operational benefits
Mangan et al (2008) mention faster repositioning of containers as one of
the main operational benefits of PCL. According to the definition of PCL,
containers will not travel to inland DCs, thus they can be available for
shipping lines faster as they can be unloaded within the port’s premises.
Additionally, the full weight capacity of containers can be utilized. Weight
restrictions for road transportation prohibit the full capacity utilization
of imported containers. However, as the containers can remain within the
port’s premises, in the case of PCL, such restrictions will not apply. McKin-
non (2014) argues that shippers have verified increased container loads of
imported containers and in addition he identifies opportunities for the full
weight utilization of containers if a PCL model is adopted for the outbound
movement of containers as well. By this practice exporters could also be
benefitted by PCL. He particularly argues that 1.5 tonnes extra load per
container would result in a 6 per cent reduction in vehicle-kms and assorted
CO2 emissions. Moreover, Pettit and Beresford (2009) suggest that road
congestion between the port and logistics centre can be reduced as a result
of fewer empty runs.
Furthermore, Neale (2006), Analytiqa (2007), Allen (2008a), Falkner
(2009), Tindall (2009), Jack (2010), Anon (2011b), Mannix (2012), Landon
(2013) and Clark (2013) argue that the implementation of PCL can lead to
faster distribution as a result of the reduced number of transportation legs
in the supply chain and the elimination of empty runs, which are also linked
with easing of road congestion and the removal of expensive and wasteful
practices from the supply chain. Analytiqa (2007) and Falkner (2009) also
suggest that increased visibility can be introduced into the importer’s inven-
tory levels the inventory can be managed at a single point prior to further
inland distribution. Wall (2007) argues that operational benefits can be real-
ized because the implementation of PCL can allow the owner of the cargo
to use a single point for import, customs clearance and storage of the goods.
Allen (2008a, 2008b) mentions that PCL can reduce the double handling of
containers and imported goods, a fact that directly influences the containers’
turnaround time. Moreover, the reduction of double handling reduces the
risk of cargo damage (Jack, 2010). Tindall (2009) and Anon (2010b) com-
ment that increased operational efficiencies can be achieved by the use of
rail services or canals for inland distribution, a fact that can reduce the num-
ber of trucks approaching the port to load and unload cargo. Anon (2012)
mentions that improved operational efficiencies are expected to benefit the
retailers who use the shared storage facilities such as the Wynyard logistics
park at Teesport.
Port-centric Logistics in Concept and Practice 261
passive to active. Moreover, the authors argue that additional VAS provided
within the port’s premises as a result of PCL implementation will increase
port revenue.
Monios and Wilmsmeier (2012b) build on the same argument and sug-
gest that the increased revenue for the ports will be secured by the increased
cargo throughput derived from the presence of the retailers’ establishment
close to the port. The new role of ports after the implementation of PCL and
the fact that VAS can help ports to support this new role, is also mentioned
by Pallis et al (2011). Pettit and Beresford (2009) argue that the thrust for
supply chain integration in the case of PCL is promoted by the provision
of VAS. Additionally, Monios and Wilmsmeier (2012a) suggest that ports
can become more integrated in supply chains because of the influences of
inland transportation after the implementation of PCL. From another point
of view Feng et al (2012) argue that if the Humber port invested in PCL,
retailers could be attracted to set up warehouses in the proximity of the
port and the need for inland transportation and logistics services within the
direct hinterland of the port will be created. According to the authors this
practice can bring competitive advantage to the port and increase the port’s
competitiveness. Additionally, PCL together with the port regionalization
and the development of hub-and-spoke networks can provide productivity
gains for the terminal operators (van Asperen and Dekker, 2013).
Dossetter (2010) and Smith (2010) use the Samsung–Yusen example and
argue that Samsung was able to enter new market segments and increase
service levels because of the enhanced logistics performance and market
capability provided by the application of PCL. Anon (2011a) argues that
PCL can help a port to gain hub status and achieve competitive advantage
over ports that are considered only as feeder ports. Moreover, the same
author argues that PCL increases the VAS and the service level provided by
the port which will be to the direct benefit of the port users. One example
is the advanced inventory systems adopted by the Port of Tilbury which can
increase the visibility of inventory for cargo owners.
Furthermore, PCL can optimize the inbound supply chain, and can
increase supply chain efficiency (Anon, 2008; Mannix, 2012). Finally, Song
(2013) argues that the competitive advantage of a single-point-control solu-
tion can be provided by the implementation of PCL. This practice increases
the control of the supply chain and the provision of VAS.
model showed that transport costs, transit times and payment terms can
affect routing decisions. However, conclusions regarding the effects on rout-
ing decisions and the implementation of PCL have not been provided. Such
a relationship must be evaluated by further research.
More recently, Monios and Wilmsmeier (2012b) expressed concerns that
the application of PCL will undermine the advantage of intermodal trans-
port, as the container will break into smaller loads at the port. Moreover,
the authors also mention that PCL can influence exporters, as containers
will remain at the port and will not be available inland. Similarly, storage
facilities at ports can interrupt the seamless flow of cargo between ports and
dry ports (Ng et al, 2013).
Additionally, Monios and Wilmsmeier (2013) argue that companies
located at regional UK ports which have implemented an PCL strategy
might encounter the risk of raised prices of shipping lines and no alternative
choice.
Demirbas et al (2014) identified, by case study research, certain disadvan-
tages and constraints of PCL. They particularly argue that one of the prereq-
uisites for the adoption of PCL strategy is land availability. However, PCL
can be implemented outside the perimeter of the port. The risk in this situ-
ation is that the port needs to ensure high-quality service provision even in
those premises. Failure to do so can lead to customer and reputational loss.
Additionally, their findings lead them to conclude that PCL can increase
both the complexity of operations at the port and the responsibilities of the
port operating company which will need to sort imported goods against
orders and notify the responsible bodies for their collection. Another factor
that increases the complexity of PCL operations is the fact that the port is
required to work with different ICT systems of the various entities involved
in the PCL operations (Demirbas et al, 2014). Coronado Mondragon et al
(2012) anticipated this implication in the implementation of PCL and sug-
gest the use of dedicated short range communication (DSRC), which is a
form of intelligent transport system (IST), in order to overcome these issues.
Further disadvantages can be identified from the practitioner’s point of
view. Particularly, concerns are expressed regarding the risks involved with
the multi-user warehousing functions proposed by some PCL operators.
These risks need to be evaluated and included in the new contracts between
warehouse operators and cargo owners (Joyce et al, 2013). Moreover, Joyce
et al (2013) express concerns about potential negative effects on the perfor-
mance of the supply chain, caused by loss of control over its legs. This is due
to the fact that the owner of the cargo will not be in control of a particular
segment as it used to be prior to the implementation of PCL.
Tindall (2009) also expresses concerns about negative effects of PCL. The
first concern is related to PCL at Teesport. As the geographical location of
this port is in the north of England shipping lines might not be willing to
call there because of the increased travel time. The second concern regards
the port land cost and particularly the fact that it might not be possible to
balance out the high land costs with the cost savings the cost savings derived
264 Port Logistics
from the elimination of inland journeys. Hearn (2012) is concerned with the
road congestion risk involved in case of inadequate rail connections to the
port and the risk and cost associated with relocating warehouses. However,
none of the concerns have been supported by empirical research.
From the discussion above, the various advantages and disadvantages of
PCL appear to be concentrated only in the UK. The following section aims
to justify this phenomenon, and also aims to support the view that PCL is
not a new strategy for container ports on a global scale, as similar activities
have been identified since the 1980s, but it is a new strategy for container
ports within the UK.
constructed based on the PCL concept (eg Teesport, London Gateway, Liv-
erpool 2), while other existing major ports altered their strategies in order to
implement PCL (eg Felixstowe, Humber, Grangemouth, Tilbury and others).
Examples such as Tesco, Asda and Sainsburys, the UK’s top three retailers,
which set up warehouses at Teesport and Felixstowe, confirm the fact that
retailers have shown a great interest in this concept (Wall 2007; Analytiqa
2007; Mangan et al, 2008; Clark, 2013).
Before any conclusion it must be made clear that PCL was initially
adopted as a strategy by medium-sized container ports in the UK as a way
to compete with the greater container ports in the south.
Port of • • •
Felixstowe
Port of •
Southampton
Port of Tilbury • •
Port of Liverpool •
Thamesport •
Port of •
Grangemouth
Belfast Harbour • •
Port of Hull •
Tees and •
Hartlepool
Port of •
Immingham
Bristol •
Clyde •
Tyne • •
Gateway • •
Conclusion
Ports around the world have developed in various ways in order to cope with
the ever changing business environment in which they operate. Although there
is considerable diversification among types of port, the UK example stands
unique amongst developments in other parts of the world. As discussed, UK
ports have been entirely privatized, a fact that resulted in the loss of their com-
petitive position and a need to change their strategies. Over the last decade
many container ports in the UK have adopted the so-called PCL strategy as
a way to enhance competitiveness and experience many other benefits. These
benefits have been identified in the extant literature and have been presented in
four categories environmental, operational, cost saving and increased compet-
itive advantage. However, the implementation of PCL is associated with sev-
eral disadvantages which were also extensively discussed. Finally, the chapter
supported the view that PCL is not a new universal strategy for container
ports, but a new strategy for container ports in the UK. Before this chapter
ends it must be mentioned that the current practices of PCL are focused at a
single port. The ambitious developments in the west of the country where a
‘network of PCL operations’ is created will expand the ‘narrow focus’ of PCL
beyond the limits of the port per se. The centre of those developments is the
Port of Liverpool, where a major new container terminal is being built. This
new terminal will be connected with distribution centres along inland water-
ways and with other ports, thus offering an extended network of PCL.
Note
1 Private equity is an asset class consisting of equity securities in operating
companies that are not publically traded on a stock exchange (Baird, 2013, p 159).
References
Allen, N (2008a) Gaining the edge, Logistics Manager, pp 19–21
Allen, N (2008b) Taking a full measure, Logistics Manager, pp 44–44
Port-centric Logistics in Concept and Practice 269
Introduction
Since the hub-and-spoke concept was introduced to the aviation market
after the US airline deregulation in the late 1970s, it has become a pri-
mary distribution model employed by leading international logistics compa-
nies. This pattern drives companies to consolidate large-scale shipments at
major terminals (ie hub) and to redistribute smaller-scale shipments to their
respective destinations via radial links (ie spoke). In the field of logistics and
supply chains, however, the hub concept has been often introduced under
various terms based on functionality, such as logistics centre, logistics zone,
freight terminal, distribution centre, and warehouse. Such a heterogeneous
terminology for the concept of ‘logistics hub’ seems still to be in usage by
practitioners and academics alike. Having recognized this rather ambiguous
concept and its definition in the literature, this chapter attempts to define the
logistics hub concept as it applies to the maritime industry by synthesizing
existing studies/perspectives and examining its possible implications.
1978; since then the route structure has been adopted by a large number of
airlines that operate in the deregulated market. A hub is strategically located
at an airport utilized as a collection–distribution centre for passengers and
serviced generally by a single carrier (Cavinato, 1989). Since the Deregula-
tion Act eliminated routing restrictions, networks based on a hub-and-spoke
architecture have proliferated in the US freight transportation industry as
well. In the 1990s, the hub concept became the primary distribution model
employed by logistics integrators such as DHL, TNT, UPS, and FedEx, and
leading international carriers. Shipments coming from several origins are
consolidated at major terminals (ie hub) and redirected to their respective
destinations through radial links (ie spoke) (Cavinato, 1989).
The hub concept has been often introduced under various terms mainly in
accordance with its storage and transportation functionality: eg logistics cen-
tre, logistics zone, freight terminal, distribution centre, warehouse, intermodal
terminal, international transport terminal, intermodal terminal and so on.
According to Rimiene and Grundey (2007), the ‘logistics facilities’ (or
‘logistics centre’) concept appeared around 30 years ago and can be classi-
fied into three different generations over the course of its evolution. Euro-
platform (2004) provides a precise definition of logistics centre: the hub for a
specific area where all the activities relating to transport, logistics and goods
distribution, both for national and international transit, are carried out on
a commercial basis by various operators. Johnson and Wood (1996) view a
logistics centre as a cost reduction centre which is defined as a facility where
commodities move constantly to the end of circulation and warehousing
and other relevant costs are reduced as much as possible. UNESCAP (2002)
states that a logistics centre should be equipped with all the public facilities
necessary to carry out all logistics-related activities. Logistics centres serve
a variety of purposes including cargo transhipment, production synchro-
nization, facilitating business and trade, whereas others aim to strengthen
the logistics capability for transforming a region into a more attractive or
competitive market. However, the fundamental requirements for a logistics
centre are being on a nodal point of transport network, common infrastruc-
tures, intermodality, and logistics and transport services (Bhutta et al, 2003).
Over time there have been changes to how things are produced stored
and moved, which have been significant for the development of logistics
centres. The logistics facilities concept could, however, be derived from three
different perspectives: a ‘traditional logistics and supply chain management’
perspective (ie distribution centre or warehousing); a ‘freight transport’ per-
spective (ie load centre, freight village and transport node point); and a
‘foreign direct investment’ perspective (ie international logistics zone and
international free trade zone). Rimiene et al (2007) provide three stages of
development of logistics facilities: 1960s to 1970s, 1980s to early 1990s,
and mid-1990s to the present. In the first stage, logistics facilities are viewed
as mere warehousing and as a physical location for inventory, with no direct
linkage with production. Relevant references, terms and highlights are sum-
marized in Table 15.1.
Ta B L E 1 5 . 1 Perspectives on logistics centre/hub
Perspectives Types of hub Key points references
Traditional Logistics Distribution Centre / ● Place for a physical facility used to complete the procedure for the product Rushton et al (2006);
and Supply Chain Warehouse line adjustment in the exchange channel. Cavinato (1989);
Perspective ● Warehouse for storing finished goods. Europlatform (2004);
●
Johnson and Wood
Facility from which wholesale and retail orders can be filled.
(1996)
● Place where consignments from different origins are grouped and/or split.
● Control the product flow in contrast to storage.
● Place for creating value-added services.
● Connecting link between producer and customer
Freight Transport Freight village / ● Place for transport, logistics and goods distribution functionality. Europlatform, (2004);
Perspective Logistics node Bhutta et al (2003)
● Provide geographic coverage.
● Facilities which include warehouse and storage area.
● Provide for public service and full territory access.
Freight Terminal ● A terminal for freight transport modes change Bhutta et al (2003);
Roso (2005)
● Provide a service for handling operation
● Place for value-added services
Dry Port ● Inland location for consolidation and distribution of goods Ng and Gujar (2009);
Roso (2005)
● An integrated and intermodal extension of ports.
Foreign Direct International Logistics ● Parts of the territory of a state where any goods introduced are Reynaud and Gouvernal
Investment / Zone (or International generally regarded, in so far as import duties and taxed are exempted. (1987);
International Facility Free Trade Zone) Min and Guo (2004)
Location Perspectives ● Space for an arrangement where different trading entities, usually
member countries, agree to cut or scrap taxed in order to lower
business costs and remove bureaucracy
278 Port Logistics
2005). The fundamental (main) hinterland is the space over which a port
has near exclusivity for providing services. The competition margins are the
areas where other ports are in competition. The fundamental hinterland is
being challenged by intense port competition with a port regionalization
mainly composed of competition margins and few fundamental hinterlands.
Notteboom and Rodrigue (2005) explain four phases of port development
(called Bird’s model) in terms of level of functional integration: setting, expan-
sion, specialization and regionalization. The important role of the hinterland
can be found in the last phase: the hinterland reach of the port through a
number of market strategies and policies linking it more closely to inland
freight distribution centre. Lee et al (2008) provide three regional patterns of
hinterland concentrations in three geographical areas: North America, West-
ern Europe and South and East Asia. According to their research, current
Asian ports are characterized by ports concentrated in coastal region with
relatively low hinterland coverage.
UNESCAP’s report (2005) provided three evolutional patterns of port
development. Until the 1960, ports played a simple role as the junction
between sea and inland transportation systems. At that time, the main
activities in the port region were cargo handling and cargo storage, leav-
ing other activities extremely unrepresented. Such a way of thinking greatly
influenced relevant people in government and local administration. It also
influenced people related to the port industry, who considered it sufficient to
develop and invest only in port facilities, as the main functions of the port
were cargo handling, storage and navigation assistance. It was for these rea-
sons that important changes in transportation technology were neglected.
Moving to the next pattern of development (ports built between 1960
and 1980), ports had been run either by central/local government or by port
authority, so the port service providers could understand each other and coop-
erate for mutual interests. Activities were expanded ranging from packaging,
labelling to physical distribution. A variety of enterprises were also founded
in ports and hinterlands. Compared to first-generation ports, these second-
generation ports were characterized by a tighter relationship between freight
forwarders and cargo owners. It could be said that the second-generation
ports had begun to notice the needs of customers, but when it came to keep-
ing long-term relationships with customers, they took a passive attitude.
From 1980, container transportation developed quickly, and the new
intermodal transport system emerged. Production and transportation activi-
ties were linked to form an international network. The former services func-
tion was expanded to include logistics and distribution services. Environment
protection is becoming more important, so the ports are developing closer
relationships with those in their surrounding neighbourhoods. Compared to
the past, today’s port authorities are focusing on efficiency rather than effec-
tiveness. In the third-generation ports, the needs of customers are analysed
in detail and port marketing has been actively engaged. The late 1980s saw
the emergence of major changes (Notteboom and Rodrigue, 2005). Custom-
ers began to ask ports to provide a greater variety of services. Providing
Container Hub Ports in Concept and Practice 281
Economic theories
As Wooldridge (2008) noted, economic theories and econometric models
are useful tools, which are based on the development of statistical methods
Container Hub Ports in Concept and Practice 283
study has been limited to a single variable, the authors conclude that
the study could be complemented with other information sources
and perspectives which include information on container throughput
handled by trade route, financial data, operational data and general
economic impact.
Apart from above three econometric models, the Japanese economic devel-
opment theory called the ‘Flying Geese Paradigm’ could also be identified
as vital in this respect, as this theory explains economic and industrial
development in East Asia, and the maritime transport sector that are mainly
influenced by a nation’s economic growth and industrial development. The
term ‘flying geese pattern of development’ was originally coined by Kaname
Akamatsu (1961) The flying geese model explains the ‘catching-up process’
of industrialization of late-coming economies. Japan was flying at the head
of the Asian economies, leading the formation of the other flying geese.
Korea and Taiwan were flying closely behind Japan, followed by the mem-
ber countries of the Association of South East Asian Nations (ASEAN),
then by China at some distance. Akamatsu’s original model has been devel-
oped by Kojima and Ozawa, students of Akamatsu, and the flying geese
model is well established to explain economic and industrial development,
and trade patterns in East Asia. There is a close relationship between eco-
nomic and industrial development and the maritime industry, as the latter
(mainly the development of shipping, seaports and containerization) plays
a key role during a nation’s growth. Therefore, the model can be adapted to
prove how and why North East Asia’s maritime container ports have been
developed.
Production
Export
Import
Year
Source Kwan (2002)
Container Hub Ports in Concept and Practice 285
relations among the nodes (Freeman, 1979). The centrality concept shows
how many inter-relationships an actor is involved in with other actors in
the network, regardless of sending and receiving directionality (ie volume
of activity), whilst the prestige concept indicates how many directed ties an
actor receives from other actors, but the actor does not initiate such rela-
tions (ie the actor’s popularity is greater than extensivity) (Wasserman et al,
1994; Freeman, 1979).
These two concepts (centrality and prestige) are potentially highly appli-
cable to the maritime transport and logistics sector, which is in essence a
network-based industry. Measuring the centrality is a widely used meth-
odology in the field of transportation: for example, Ducruet et al (2009),
Blonigen and Wilson (2006), and Ducruet et al (2010). Ducruet et al (2010;
2009) examine North East Asia’s hub port status according to central-
ity measurement with ‘degree centrality’ and ‘betweenness centrality’).
The degree centrality can be simply measured by the sum of direct net-
works between nodes: a sum of direct network connection by shipping
lines between two ports. The betweenness centrality is a measure of a
node within a graph, and nodes that occur on a number of shortest paths
between other nodes have higher betweenness than those that do not: the
sum of proportions, for all pairs of ports, in which a main port is involved
in a pair’s geodesics.
These centrality measurements would be a useful tool to diagnose the
regional hub port competition in North East Asia or even other parts of
the world where a number of adjacent ports make significant efforts to be
key ports in that region. Currently both Japanese and South Korean con-
tainer ports have lost their competitive position to Chinese ports in terms
of container throughput. However, it does not necessarily indicate that they
have also lost their relative hub port status; it might have been maintained
or even have been strengthened, based on network analysis. An analysis of
regional hub port competition based on network theory would deliver a use-
ful insight into how regional ports build an advantage against competitors
and cooperate each other within the region.
Concluding remarks
This chapter has attempted to make a meaningful concept and definition of
maritime logistics hubs in the spirit of an effective literature review enhanc-
ing academic knowledge. There have been a number of empirical studies on
the topic but these have been conducted under vague assumptions or defini-
tions of maritime logistics hubs, generally proxied in a form of container
hub ports. While those empirical analyses have their own merits by offering
a fact-based picture of industry trends over the past years, they are unfortu-
nately unable to clarify issues of what a maritime logistics hub or container
hub port is, what factors make a hub, how to predict the next steps, and
Container Hub Ports in Concept and Practice 287
what measures, in terms of policy and strategy making, are required to make
a hub. It is hoped that this chapter initiates further discussion and scientifi-
cally rigorous examination into the topic from a variety of qualitative and
quantitative perspectives. This line of study will surely be beneficial to those
engaged in port development and policy-making, in daily port operations
and management, and other strategically related industry sectors.
Nevertheless, the existing literature is not rich enough to be directly
applicable to the topic concerned, and the boundary of disciplines associ-
ated with the issue is still high, which makes it difficult to reach a consensus
on the concept, definition and scope of the matter. It is sincerely hoped that
we in the maritime academic community can deal with these issues in an
objective and scientific manner so that our understanding and knowledge
are elevated and embellished.
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Container Hub Ports in Concept and Practice 289
Introduction
In recent decades, the container port sector experienced unprecedented
transformations, which profoundly re-designed industry structure and its
competitive boundaries (Song, 2003; Bichou and Bell, 2007). The explosion
of globalization made world economies increasingly interrelated as a result
of focused manufacturing and growing international trade. In this context,
the World Bank favoured the process of integration and trade development,
also stimulating port reform in developing countries and financing numer-
ous terminal projects (Peters, 2001). This new economic and institutional
environment, which also heavily impacted on advanced economies, offered
many investment opportunities in port facilities worldwide and progressively
opened the stevedoring market to global competition (Olivier et al, 2007).
Some terminal operators, previously bounded within national borders,
paved the way to industry internationalization and started to outgrow their
respective home ports. Hereinafter, numerous container port multinational
enterprises (MNEs) expanded operations overseas, looking for portfolio
diversification, network and scale effects in their cost base and additional
financial margins (Olivier, 2005; Peters, 2001). The port industry is now
witnessing an increasing number of terminal projects fuelled by the mas-
sive diffusion of containerization in global commodity chains (Parola et al,
2013). These overseas initiatives entail a high degree of complexity in terms
of amount and variety of allocated resources, eg financial investment, mana-
gerial and organizational skills, staff, ICT etc (Fung et al, 2011). Besides,
they expose the parties involved to a range of commercial, technical, regula-
tory, political and financial risks (Estache and Pinglo, 2004). The magnitude
292 Port Logistics
(eg equipment, quay line, yard space, staff etc) to special ship owners.
Then we can identify two diametrically opposite ways of conceiving termi-
nal operations and service provision, ie the ‘dedicated’ and the ‘common-
user’ formulas (Notteboom and Rodrigue, 2012). These models are ideally
located at the two ends of a service continuum, which contemplates a large
spectrum of organizational and marketing solutions as well as different
shareholder structures (Olivier, 2005).
The fully dedicated terminal is a facility which is devoted to one customer
only. Whole infrastructural resources, staff and managerial capabilities are
dedicated to provide handling services to such clients (Heaver et al, 2001;
Cariou, 2003; Drewry, 2008). Suppliers and customers can profit from mutual
benefits in terms of operational efficiency and productivity but, at the same
time, both might lose organizational flexibility and control (Haralambides
et al, 2002). Stevedores use this option for ‘locking in’ the customer, although
the return is lower than running multi-user terminals. On the customer side,
this option allows for better integration of maritime and port operations
and the attainment of high-quality handling services. Basically, ocean carriers
can obtain dedicated terminal services in different ways (Parola and Musso,
2007). First, shipping lines can stipulate a special contractual arrangement
with a stevedoring company for being the unique customer of the facility
(without any equity commitment). Alternatively, ocean carriers might decide
to be more directly involved in terminal management and service provision,
becoming shareholders of the facility. Such equity commitment might lead
either to the holding of minority or even majority stakes. In some cases, the
carrier decides to take full managerial control of the facility (100 per cent
share), and to self-produce handling services for its own vessels (cost-centre
approach) (Frémont, 2007; Olivier et al, 2007).
A common-user (or multi-user) terminal, by contrast, is a facility where
the stevedoring company has to seek cargo in a competitive market and man-
age a customer portfolio for making money (profit-centre approach). Each
client presents diverse needs in terms of number, type and size of vessels to
be served, generates different cargo volumes and, as a consequence, holds a
specific bargaining power with regards to the supplier (Cariou, 2003; Slack
and Frémont, 2005). Notwithstanding, the terminal operator should be able
to ensure good service levels to all customers, preventing in principle any
discrimination in favour of any one of them. This solution is more flexible for
the carrier, which could easily decide to move to other facilities, even in the
short term, avoiding sunk costs. However, service quality might be lower than
in dedicated terminals, especially in case of traffic peaks and deployment of
mega-vessels, which notoriously need a higher amount of (ad-hoc) resources
(Midoro et al, 2005). The stevedore, contrary to what happens in fully dedi-
cated facilities, should be equipped with a smart commercial department able
to secure significant traffic volumes as no customer can be taken for granted.
In business practice, however, a wide array of intermediate solutions exists
between the above two (extreme) options, offering diverse compromises
in terms of customer base balance and shareholding structure (Parola and
296 Port Logistics
Musso, 2007). Until the late 1990s, fully dedicated terminals (or berths) were
relatively common, especially in some geographic areas (eg USA, Japan, Tai-
wan). Afterwards, carriers and stevedores tried to find hybrid and more flex-
ible solutions. For instance, the stevedore may contractually provide berthing
and crane priority for some special customers, allocate a reserved produc-
tive capacity (eg the ‘virtual terminal agreements’ stipulated between PSA and
some clients in Singapore) or even dedicate specific terminal resources, as well
as allow a cargo-volume-based discount on handling charges (Notteboom
and Rodrigue, 2012). In other cases, the carrier might get semi-dedicated ser-
vices as a minority (usually less than 20 per cent) shareholder of the terminal.
A 50/50 joint venture between the carrier and the terminal operator is also
common for dedicating even more resources to the (only/main) customer–
shareholder. Finally, in the case of a partially- (POS) or wholly-owned subsidi-
ary (WOS), the shipping line has the managerial and strategic control of the
facility and autonomously decides handling charges (or simply reporting costs,
in case of internalized transactions) and resource allocation. Usually, the spare
capacity of the facility is used for serving third-party customers (eg members
of the same consortium or strategic alliance and, residually, other carriers), in
order to exploit available resources more extensively and increase turnover.
high market potential, were turned into profit centres. Undoubtedly, such
migration towards a hybrid business model sounds attractive and risky at
the same time. Critical concerns are not mainly related to the organizational
and operational transformations needed to provide appealing services for
potential third-party clients, but to the marketing and strategic implications
of the whole challenge. Hybrids in fact must demonstrate to rival shipping
lines that they are able to provide reliable services at a good price (like a
pure stevedore), adopting a fair, transparent and non-discriminatory behav-
iour in service delivery and customer care (Frémont, 2007).
The demonstration of the complexity of such a process is provided by the
case of APM Terminals, the major hybrid operator. This firm, belonging to
the AP Moller-Maersk Group, set up a separate port division in 1999 and
only after a long multi-step process was able to become a trusted stevedor-
ing provider, with a separate brand name and logo as well as an autonomous
position and strategy inside the group. Contrary to most hybrids, indeed,
liner business is a sister company for APM Terminals, not a parent company
(Drewry, 2013). Other successful hybrid operators are: NYK Line (internal
division of the carrier), MSC (Terminal Investment Limited), Cosco Group
(via Cosco Pacific) and Cosco Container Line, CMA-CGM (Terminal Link),
and China Shipping (China Shipping Terminal Development).
port facilities has decreased over the last few decades. In the early 1990s the
public sector still controlled almost 45 per cent of container port through-
put, while in 2012 its share dropped to about 23 per cent (Drewry, 2013).
This trend is expected to continue as in many locations there is a larger
number of private port expansion programmes in comparison to those pro-
moted by the state.
Against a world throughput of 622 million TEU (2012), a large group
of about 50 container port MNEs handles approximately 385 million TEU,
which represents over 60 per cent of overall volumes. The industry is rather
concentrated as the top five players hold roughly a 30 per cent share. Pure
stevedores are the most active terminal operators, accounting for more than
30 per cent of the world throughput. In this category, PSA International
(50.9 million TEU in 2012), Hutchison Port Holdings (44.8) and Dubai
Ports World (33.4) are the market leaders. Global hybrids are the second
force as they control over 10 per cent of the whole port volumes. Among
them, APM Terminals (33.7), Cosco (17.0), MSC (14.2) and China Shipping
Terminal Development (8.6) are the dominant ones. Finally, both ocean car-
riers and financial operators attract around 9 per cent of the world through-
put each. Hanjin (7.8) and Evergreen (7.3) are the most aggressive carriers
whereas Merchant Holdings (20.8) and AIG Highstar Capital (9.1) lead the
financial operators’ category.
The internationalization of this business has been triggered by many fac-
tors, which stimulated terminal operators to invest abroad (Bichou and Bell,
2007; Midoro et al, 2007). Basically two drivers are common to all players
undertaking overseas ventures, regardless of the business model adopted.
The first force generating momentum for MNEs’ expansion was the port
reform and liberalization process taking place in many countries. This
opened up a lot of investment opportunities over the last 20 to 30 years
(Cullinane and Song, 2002). A second powerful factor was the massive rise
of container port volumes, which have been experiencing two-digit growth
rates for many years. It is hard to find an industry like the port business
which has achieved a relentlessly fast growth (except for 2009) for such a
long period of time. The increase in demand characterized numerous coun-
tries progressively joining container trade and this stimulated firms to start
their internationalization drive (Peters, 2001).
Besides these two drivers, which have continued to affect all container
port MNEs for many years, numerous other drivers impacted firms in a
more peculiar manner. These drivers, in fact, appear to be more time- and
firm-specific. The materialization of such drivers in the industry followed
specific temporal patterns and stimulated breakthrough changes (eg grow-
ing economies of scale, diffusion of transhipment etc). Also, these drivers
affected the business models/types of operators in different ways, thus mak-
ing the internationalization process an uneven game. Therefore, we can
argue that the timing of internationalization of container port MNEs is
inextricably linked to the emergence of specific circumstances and events
boosting foreign expansion (Olivier and Slack, 2006).
Fi g u r e 1 6 .1 Time scale of internationalization of container
port MNEs
Business
1984
1985
1986
1977
1978
1979
1980
1981
1982
1983
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
Shareholders Home
model
Sea‐Land carrier US
P&O Ports stevedore UK
K Line carrier JP
OOCL carrier HK
APL (pre‐NOL) carrier US
APM Terminals hybrid DK
Mitsui & Co. stevedore JP
Hyundai carrier KR
Evergreen carrier TW
Cosco Container Lines hybrid CN
China MerchantHoldings Internat. finan op HK
Eurokai stevedore DE
Hanjin carrier KR
NYK hybrid JP
MOL carrier JP
Yang Ming Line (YML) carrier TW
Hutchison Port Holdings stevedore HK
Wharf Holdings (MTL) finan op HK
Cosco Group (Cosco Pacific) hybrid HK
ICTSI stevedore PH
SSA Marine stevedore US
PSA International stevedore SG
Group TCB stevedore ES
APL Terminals (NOL) carrier SG
NWS Holdings finan op HK
P&O Nedlloyd carrier UK/NL
CSX World Terminals stevedore US
Dubai Ports World stevedore AE
Eurogate stevedore DE
HHLA stevedore DE
BLG stevedore DE
MSC (TerminalInvest.Ltd.) hybrid CH
Dragados stevedore ES
Grimaldi Group carrier IT
Portek stevedore SG
Wan Hai carrier TW
Bolloré Group carrier FR
CMA‐CGM (Terminal Link) hybrid FR
Global Ports Investments stevedore RU
Peel Ports Group stevedore UK
Hapag‐Lloyd carrier DE
National Container Company stevedore RU
CSAV (SAAM Ports) carrier CL
Zim Ports carrier IL
Babcock & Brown finan op AU
Deutsche Bank finan op DE
Macquarie finan op AU
Goldman Sachs finan op US
OTTP fund finan op CA
Global Infrastructure Partners finan op US
Ultramar stevedore CL
Morgan Stanley finan op US
Euroports stevedore LU
China Shipping Term. Develop. hybrid CN
Brookfield finan op CA
JP Morgan (Noatum) finan op US
Shanghai International Port Group stevedore CN
Gulftainer stevedore AE
Yildirim Group stevedore TR
Citi Infrastructure Investors finan op US
AIG Highstar Cap. (Ports America) finan op US
Jurong Port stevedore SG
Legend
delay in market entry domestic phase
Source Author’s elaboration from Drewry annual reports (various years), corporate websites and specialized press
1972
1973
1974
c phase
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
internationalization
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
market exit
2008
2009
2010
2011
2012
2013
304 Port Logistics
Given such premises, it becomes easy to understand that the time scale of
internationalization is a rather complex issue in this industry, as many waves
of entry overlap each other. The first investments abroad started in the early
1960s but only in the 1990s did the process begin to show its real momen-
tum. Players exhibit rather heterogeneous entry timings and a diverse length
of the pre-internationalization phase (Figure 16.1). This means that some
operators decided to accumulate a large stock of domestic experience before
internationalizing while others undertook apparently more risky strategies,
penetrating foreign markets right from their inception. For clarity, we first
outline the different waves of internationalization for each type of operator
(business model) separately.
The internationalization of pure stevedores can be split into three waves. In
the late 1980s some firms decided to expand overseas to look for new oppor-
tunities and to diversify their risk. Their home ports/countries became more
competitive settings and incumbents needed to find additional revenue streams
in other locations. P&O Ports (later taken over by Dubai Ports World), Hutch-
ison Port Holdings (HPH), SSA Marine, International Container Terminal Ser-
vices Inc (ICTSI) and Eurokai were the major firms who paved the way in this
industry (Midoro et al, 2005). Later on, the financial success enjoyed by these
actors stimulated a second wave of operators to emulate the same overseas
ambitions. PSA International, Dubai Ports World (DPW), CSX Corporation
(later taken over by Dubai Ports World), BLG, HHLA, Dragados and Group
TCB are the brand names of the key followers. More recently, even after the
financial crisis, a latest group of stevedores entered the market (Rodrigue et al,
2011). Some of them belong to countries that experienced the benefits of liber-
alization at a later stage such as Russia (Global Ports Investments and National
Container Company), Turkey (Yildirim Group) and Chile (Ultramar).
The internationalization drive of carriers can be divided into three waves
as well (Midoro et al, 2005). Basically, shipping lines have been asked to
satisfy the evolving needs of their core business. The origins of carriers’
investment in port facilities date back to the very beginning of the container
revolution (first wave). The lack of standardized terminals represented the
main driver of these ventures. Sealand (later acquired by Maersk), Matson
and K Line were the protagonists of trans-Pacific trade and established dedi-
cated terminals in key ports. Afterwards, the massive spread of intermodal
transport in North America forced carriers to better integrate sea–land
operations for gaining efficiency and preserving financial margins. A second
wave of vertically integrated carriers materialized: APL, Maersk, Evergreen,
Hanjin, MOL and NYK Line.
Despite such interests in overseas facilities, a substantial breakthrough in
the internationalization trend only happened in the late 1990s. The accelera-
tion in vessel size growth required enormous investments and the availabil-
ity of highly efficient terminal hubs (Cullinane and Khanna, 1999). Thus,
other carriers started to run facilities for safeguarding service standards and
the financial resources invested in maritime assets. MSC, CMA-CGM, Wan
Hai, ZIM, CSAV and China Shipping comprised this latter wave of shipping
Multinationalizing Container Ports 305
lines, among others. Finally, this category of actors gave rise to some hybrid
operators, as explained earlier in this chapter. Since the early 2000s a hand-
ful of carriers (eg Maersk, CMA-CGM, Cosco, MSC, China Shipping etc)
transformed their organization and strategic orientation towards the port
business and focused on third-party traffic (Drewry, 2013).
The internationalization of financial operators unveils different patterns
with respect to traditional players. Already in the 1990s, early entrants
with a financial background expanded overseas from the Hong-Kong set-
ting: China Merchant Holdings International (CMHI), NWS Holdings and
Wharf Holdings Ltd (Olivier, 2005). These ethnic Chinese conglomerates
are investment-holding companies with interests in infrastructure sectors
and who diversify risk by managing large portfolios of assets. Their geo-
graphic focus is, however, quite narrow as they basically invested abroad
in China mainland and in the Far East. The financial industry has taken a
more active role in global port affairs only in recent years, understanding
that container ports are an attractive domain for asset allocation with a
high potential for cash-flow generation. A second wave of financial play-
ers, in fact, materialized in the second half of the 2000s from the United
States, Germany, Australia and Canada (Rodrigue et al, 2011; Baird, 2013).
These firms aggressively entered the port business and undertook financial
transactions to acquire stakes in single or multiple facilities. AIG Highstar
Capital (Ports America), Deutsche Bank, Babcock & Brown (liquidated),
Macquarie, Goldman Sachs, JP Morgan, Morgan Stanley, Brookfield and
Citi Infrastructure Investors are the main equity firms of this wave.
The combination of the above waves under one unique analytical frame-
work now provides considerable insight into the in-depth meaning of the
whole process. Figure 16.2 sheds light on the temporal overlaps in market
entry, which affected the industry’s internationalization, by illustrating the
internationalization patterns which characterize each container port MNE’s
business model. Foreign experience is compared with total experience, in
order to appreciate the length of the domestic incubation period before
undertaking overseas ventures. The diagonal line pinpoints firms which
internationalized since their establishment. In total, four groups of play-
ers have been identified. First, ‘international pioneers’ (I) are MNEs which
quickly became international since their inception in the 1970s or early
1980s. This group basically includes ocean carriers, such as K Line, OOCL,
Hyundai, Evergreen and Cosco Container Line. The stevedore P&O Ports
constitutes a notorious exception belonging to this cluster of firms, which
paved the internationalization drive of the whole business. ‘Domestic fol-
lowers’ (II) are firms which entered the port sector some decades ago but
needed a rather long domestic period before internationalizing. These con-
tainer port MNEs have been preceded by carriers in overseas expansion but
have been able to catch up to the early movers by undertaking aggressive
expansion strategies later on. This group mainly consists of stevedores such
as HHLA, Group TCB and SSA Marine as well as the current leaders HPH,
PSA and DPW.
306 Port Logistics
50
35
Foreign experience (years)
III
30
internatinal
followers II
25
20
15
domestic
born globals followers
10
IV
5
0
0 5 10 15 20 25 30 35 40 45 50
Total experience (years)
Note Foreign and total experience has been calculated at 2014 or at the last available year (in case
of market exit or acquisition by another player).
Source Author’s own elaboration from Drewry annual reports (various years), corporate websites,
and specialized press
‘International followers’ (III) are other container port MNEs that basically
act as imitators. This group has a rather heterogeneous composition, includ-
ing stevedores, eg ICTSI, Eurogate and SIPG, as well as carriers, eg Wan Hai,
APL Terminals and Bolloré Group. Finally, the industry experienced the rise
of some ‘born-global’ firms (IV), characterized by a latecomer status cou-
pled with a rapid internationalization drive. These container port MNEs are
business organizations that aim to derive significant competitive advantage
from the use of resources and the provision of services in multiple countries
from the earliest days of their establishment. This group is populated by the
financial operators recently approaching the port business and by latecomer
stevedores (mainly) from emerging economies, eg National Container Com-
pany, Global Ports Investments and Yildirim Group.
expansion and diversify risk across various regions (Notteboom and Rod-
rigue, 2012). Some distinctions, however, must be taken into account given
the diverse business models adopted by container port MNEs and the spe-
cific drivers affecting them. For instance, integrated carriers which dedicate
their stevedoring efforts to defending the core business do not necessarily
need to grow fast if their shipping network is already well supported. Pure
stevedores, instead, might be tempted to undertake new ventures in search
of additional revenues if opportunities pop up (Drewry, 2013).
In this section we briefly explore temporal and spatial dimensions of (for-
eign) growth and show the unique internationalization pathway of some
MNEs. Addressing the recent rise of MNEs from emerging economies, IB
literature provides empirical evidence that their internationalization process
is at odds with mainstream assumptions. Yeung (1999) states that Asian
MNEs undertake overseas paths of expansion following a logic of their own.
Li (2003) and Warner et al (2004) argue that these MNEs have to ‘leapfrog’
conventional temporal phases of internationalization and perform diverse
patterns of a wider geographic scope. Other emerging streams of literature
focus on the rise of born-global MNEs (Bell et al, 2001), arguing that extant
management theories are not able to explain the non-incremental dynamics
of internationalization of these firms, characterized by a very limited domes-
tic phase of incubation.
In this regard, the container port industry constitutes an ideal site for
debating about spatio-temporal dimensions of internationalization in ser-
vice industries, given the fast international opening of local markets and
the unconventional overseas expansion of some private firms. As argued by
some scholars (Olivier et al, 2007; Notteboom and Rodrigue, 2012; Parola
et al, 2014; Satta et al, 2014b) evidence from this sector questions the appli-
cability of mainstream internationalization theories (Johanson and Vahlne,
1990) to container port MNEs from emerging economies and to born-global
equity firms. Some container port MNEs from emerging countries, often as
latecomers, undertake accelerated non-sequential patterns of internationali-
zation in an attempt to catch up with the early entrants. Besides, the recent
rise of born-global equity firms demonstrates that these financial operators
have an unsurpassed capacity to commit large amounts of resources and
establish new subsidiaries by taking over stakes in multiple locations (Not-
teboom and Rodrigue, 2012).
Figure 16.3 corroborates such arguments by unveiling the speed at which
container port MNEs grow over time and the geographical spread of a
firm’s operations.
Two groups of firms demonstrate superior growth rates. First, some leading
stevedores coming from emerging economies (ie PSA, DPW, HPH and SIPG)
show a high speed of expansion, confirming themselves as a powerful force
spearheading the internationalization drive. Second, we find a handful of finan-
cial operators, which recently penetrated the industry as born-global firms, fol-
lowing irregular pathways: Citi Infrastructure Investors, AIG Highstar Capital,
Goldman Sachs, Deutsche Bank (RREEF) and OTTP Fund. Nonetheless, the
geographic scope of these fast-expanding container port MNEs appears rather
308 Port Logistics
3000
Citi 5 10 20
DPW
Infrastucture
Investors Firm size (million TEU)
2500
PSA
Pace of firm growth
1500 Cosco
Group P&O
SIPG Deutsche MSC Ports
Bank
1000 China Goldman
Shipping Wharf Holdings Sachs
OTTP
fund CMA-CGM
500 ICTSI
Evergreen
LOW
0
0.25 0.75 0.25 1.75 2.25 2.75 3.25
Note Pace has been calculated as the average throughput growth (000 TEU) in the 2002–2011 period;
the degree of geographic diversification has been calculated using an entropy measure conceived
by Jacquemin and Berry (1979) and further developed by Vachani (1991). For details regarding the
construction of the index see Satta et al (2014). Data refer to 2011 or to the last available year (in case
of market exit or take-over by another player); bubble size indicates average firm size (throughput)
during the monitored period.
Source Author’s elaboration from Drewry annual reports (various years), corporate websites, and
specialized press
differentiated. Top stevedores from Asia (except SIPG) have to date managed
broad and diversified portfolios of assets, the result of a fast expansion process
regardless of geographic distance concerns. Equity firms, by contrast, despite
the fast growth, seem to be quite selective in their market entry (Anglo-Saxon
areas) and do not have a geographically spread focus yet. Even though adopt-
ing a different business model, APM Terminals and MSC also belong to this
cluster of firms characterized by an accelerated expansion.
The majority of container port MNEs undertake regular expansion
drives at a slower pace and achieve a narrower geographic scope. Some
of them are promising born-global stevedores (eg Yildirim Group, Global
Ports Investments, National Container Company and Ultramar) which still
have to demonstrate their full potential, while others are in a rather inactive
position or are even dismantling non-core stakes/facilities.
Multinationalizing Container Ports 309
large acquisitions could impose on the firm rather accelerated growth paths,
producing ‘time-compression diseconomies’ and negative effects on perfor-
mance because of organizational concerns as well as environmental mis-
adaptation in the (new) host countries.
Figure 16.4 depicts the evolution of entry mode options over the last
decades. Empirical evidence shows that internal solutions were dominant
prior to 2000, with a slight preference for regular concession (under the
privatization umbrella). Ocean carriers opted for regular concessions while
pure stevedores favoured greenfield projects. The latter exploited their large
amount of financial resources committed to the (core) business, as well as
their know-how in terminal design. After 2000 BOT schemes became a
widespread entry mode, given the need to expand port physical bounda-
ries and find offshore/deep-sea terminal solutions. In addition, financial
transactions turned into the most preferable choice not only for private
equity firms but also for pure stevedores. Recent literature (Notteboom and
Rodrigue, 2012; Parola et al, 2013) demonstrated that external entry strat-
egies increasingly assumed a ‘multiple acquisition’ dimension (eg DP World
on CSX and P&O Ports, PSA on HPH, Goldman Sachs on SSA Marine
etc), as company take-overs often involve two or more terminals in multi-
ple locations. In the 1997–2013 period approximately 40 multiple finan-
cial transactions took place, for an overall amount of resources committed
equal to US$ 40 billion.
Another essential dimension in growth strategy implementation is the
degree of commitment in new ventures. Firms have a variety of options along
a continuum, which is typified by diverse degrees of equity engagement,
250
1962–1999 2000–2011
200
Number of entries
150
100
50
0
Concession Acquisition Concession Acquisition
Greenfield Multiple Greenfield Multiple
acquisition acquisition
stevedores carriers hybrids financial operators
Source Author’s elaboration from Drewry annual reports (various years), corporate websites, and
specialized press
Multinationalizing Container Ports 311
APL Terminals
0.8 Firm size (million TEU)
Bolloré Group
HHLA Evergreen
APMT
Deutsche SIPG Ports
Bank America
0.6 NYK HPH
CMA- Hanjin
CGM MSC Cosco
Group DPW
0.4 Wharf
Holdings
PSA
China
Eurogate Merchent
CSCL SSA Holdings
0.2
Yildirim Goldman
Group Sachs
0
0 10 20 30 40 50 60 70 80 90 100
No. of EJV terminals in the portfolio
Note Bubble size indicates firm size, ie the annual throughput of the overall terminal portfolio.
Source Author’s elaboration from Drewry annual reports (various years), corporate websites, and
specialized press
basic, stevedores are more involved in EJV terminals than competitors. PSA,
HPH, DPW are indeed the three players that most resort to the collaborative
option. In terms of average equity participation, stevedores and financial
groups unveil a higher commitment (around 60 per cent share) than car-
riers (54 per cent) and hybrids (52 per cent). In greater detail, substantial
disparities come out among port MNEs, although many are concentrated in
the 40–60 per cent range. Market leaders adopt similar strategies, with the
exception of PSA, which demonstrates a lower commitment (below 40 per
cent). Some stevedores show a high equity engagement (ICTSI, Gultainer,
HHLA etc) in contrast to others (SSA Marine, Yildirim Group, Eurogate).
Among hybrids, MSC, CMA-CGM, Cosco and China Shipping are clus-
tered in a similar position, whereas APM Terminals is close to the top pure
stevedores.
window’ and the progressive scarcity of available port space for green-
field projects somehow forced international terminal operators to abandon
stand-alone paradigms (Heaver et al, 2001). The need for a large amount
of financial resources for financing mega-terminal projects also played a
decisive role in feeding this trend. In the 2002–2011 period the number
of EJV terminals strongly increased, climbing from 136 to 336 facilities at
approximately a 10 per cent growth rate per annum. To date, over 70 per
cent of port terminals, where at least one container port MNE is involved,
are run under an EJV scheme, demonstrating the massive trend towards
cooperation.
The stevedore–carrier dyad is the most common combination in EJV
solutions (Parola and Musso, 2007). Despite the bargaining fight at trans-
actional level, these players also have complementary objectives and can
share financial and operational risks (Olivier, 2005). EJV terminals jointly
owned by carriers and/or hybrids are increasingly widespread. Conversely,
the cooperative relations among international stevedores are extremely rare,
as they are reluctant to share resources, know-how, confidential informa-
tion and respective customer bases. Domestic stevedores may actively take
a part in building up EJV schemes and often assume a mediating role with
local institutions and business background. In turn, national players can
utilize the EJV (‘foreign’) experience accumulated in the domestic market
(ie inward internationalization) to become international and invest abroad
(outward).
The acceleration in EJV development worldwide provoked a break-
through in mainstream cooperative paradigms, which are no longer
anchored to single ventures but relate to multiple facilities across the globe.
Greater awareness of the regional and multi-regional nature of inter-firm
agreements arose from the emergence of a complex architecture of vol-
untary dyadic ties within the container port industry (Vanelslander 2008;
Soppé et al, 2009). Some scholars (Lam and Yap, 2011) started to address
this phenomenon, using as a basis the assumptions of inter-organizational
network theory. Parola et al (2014), adopting community detection analysis
techniques, demonstrated that inter-firm (equity) networks are not random,
as container port MNEs tend to cooperate in a selective way, building up
‘cliques’ (hidden families) of affiliated members. Such hierarchical network
structure arises from the sum of direct and indirect dyadic relationships,
which, instead, might appear mimetic if taken individually. The notion of
cliques derives from network theory and concerns stable groups of firms
more densely interconnected with each other than with other firms. Notably,
cliques stimulate the birth of new business ties as partners of partners tend
to frequently become partners as well (Watts, 1999).
In line with recent studies (Parola et al, 2014; Satta et al, 2014a),
Figure 16.6 shows the network architecture of collaborative ties in the
container port industry. Many port MNEs establish dense (equity) rela-
tions with other MNEs as well as domestic firms, resulting in clique
formation.
Fi g u r e 16. 6 Cooperative EJV networks and cliques in the container port industry (2011)
India Deve...
Podyian C... Industrial...
Industry F... Callao P...
QIC Ltd p... AbuDhabi Bangkok Mo...
ESCO
Global Inf...
National C...
Delo Group Oman Gover...
Ilyonevsk... Zhanjiang...
Baosteel... Oslo-local Fomen-Por... Institutio...
Pension fu...
Zhanjiang... Aquba Deve... Seaport Te... APMT
Inteis Group
Kerry Hold...
Geslao de...
John Keels... Chiwan Wha... Mawan - lo... Loxus
Sri Lanka... Container
Jebsen & Co. PT. Transin...
Tumas Group...
National B Aarnus local
Sherizhen D... PYI Corpor... Mitsui & Co...
Peony Inve... Egyptian P... Ras Al Kna...
MTL (Wharf... Entreprise...
CMH Alwa
Dongbu Cor... Marubeni a... Wenzhou Po... Suez Caral... Kanoo Group
Southern W...
Shinyoung... Colon Port... Vietnam Na...
Osaka Port... SIPG
Suzhou Por... Jiangyin P...
Nanjing Po...Yangzhou H... APL Termin... Huijan Qu...
Salgon Por... Zhangjiang Ghana Port...
Qingdao Po... Xiangyu... Famen Xia...
Evergreen Zhangzhou...
Afken Hold... Zhangjiang... Getma inte...
Vertex Fin... Rhenus... ACHHLA
Cosco Group UWS Holdings STO Logist...
PIL China Inte... OOCL Bollore Gr... Hapag-Lioyd
Omani lnve... Horbor Inv... Tianjin Po... jinjang P...... P. Thailan... Morgan Sta...
Steinweg e... Sun Hung K...
HNN Haigang in... Pari Asia I... Conakry Po...
Government... Djen Djen...
Jardina Pa... Yingkou Po... China-Afri...
ACNA-Ma... PSA Dongpergl...
Saigon Inv...ECT Employ... Hibiki Con... Ningbo Por...Port of Da...
Tan Thuan...
Lexton Tha... Guangzhpu... HRH Trust...
Gdynia doc... Quanzhou P...
Sinmardev... Port Autus.. China Reso...
Dalian Por...
Persero Pe... Zhuhai Por... Universal...
HPH Kelang Mul... Zhanjiang... Zim Ports Latin America
Myanmar Po... Qinhuahgda... Nanhai Nun...
Fuqing Por... CSCL Aden PA Denmas-Vie... Container..
MTS holdin... ABG Group Guangzhou... Global Por...
Panama Por... Qasim Local Citi Infra...
Xianten Hal... Fuzhou Por... Lianyungan... Jinzhou Po...
Duisport
Alexantria...Zhou Po... Lin’s Grou... Qihzhou Po... Antwerp Lo... EPAL-Ent...
Djihouti PA
DPW ATI General Sa...
Tuticorin... United Lin... Sokna Port...
Pengauli... Luka rijeka
Cosco CLines... Dongguan PA Constanza... Port Qasim Yantai Por...
Shantou Po... Samsung Co... ICTS
YML Incheon Mi... CFM Mozam... Cauced... Cochin Por... SDIC
K-line CMA-CGM Egis Ports Hyundai Easan Local
Sealogis G... Intramar (... Makassar P...
Hyundai Tacoma-I... Barcelona...
Green Fina...
Abidjan-...
Yildirim G...
Klaipeda p... Gruppo inv...
Sinotrans
KCTC Hanjin POMTOC Lead Compagnia... Compagnia...
Ports Amer... Pelindo III
Pyongtaek... Port of Od...
Souria Hol...
Gdansk Local Malaga -I...MSC Limber Kum... Eurokai
Gyeongi-DO Sinokar Macquame
Wan Hai Eurogate Port Autho...
CP&O
Dole Port of Ho... Sapir
Qasim Local Citi Infra...
Xianten Hal... Fuzhou Por... Lianyungan... Jinzhou Po...
Duisport
Alexantria...Zhou Po... Lin’s Grou... Qihzhou Po... Antwerp Lo... EPAL-Ent...
Djihouti PA
DPW ATI General Sa...
Tuticorin... United Lin...
Sokna Port...
Pengauli... Luka rijeka
Cosco CLines... Dongguan PA Constanza... Port Qasim Yantai Por...
Shantou Po... Samsung Co... ICTS
YML Incheon Mi... CFM Mozam... Cauced... Cochin Por... SDIC
K-line CMA-CGM Egis Ports Hyundai Easan Local
Sealogis G... Intramar (... Makassar P...
Hyundai Tacoma-I... Barcelona...
Green Fina...
Abidjan-...
Yildirim G...
Klaipeda p... Gruppo inv...
Sinotrans
KCTC Hanjin POMTOC Lead Compagnia... Compagnia...
Ports Amer... Pelindo III
Pyongtaek... Port of Od...
Souria Hol...
Gdansk Local Malaga -I...MSC Limber Kum... Eurokai
Gyeongi-DO Sinokar Macquame
Wan Hai Eurogate Port Autho...
CP&O
Dole Port of Ho... Sapir
Pan United... Container... Noatum UPLas Palmas
Petroships...
Mota-Engil...
Bilbao For... Mariner Sp... Gallozzi G...
Jiangsu Ch...
Saigon New... Kaohsiung... NYK Servicos S...
Gulftainer
ABP Abu Dhabi... Irish Coat ... Ports ...
Matson Nav...
Nagoya Por... Deutsche B...
Goldman Sa... mmingham...
Ngow Hock... Georgia PO... Dublin Pot...
MOL Logisted S...
Forth Ports
Sociedad P...
Sumtomo W... SSA
Sankyu
Seattle o...
Nickel & L... Havana Con...
HeilbronMotta Santa Chuz...
Valencha...Grupo Empr...
Ege Gubre
Source Author’s elaboration from Drewry annual Port Autho...
reports (various years), corporate websites, and
TCB
specialized press. Figure drawn by Simone Caschili Inversione...SAAM Ports
Empresas N...
Montecon S.A Tucumann (...
Advent Int...
CMB - Inve...AGUNSA Redram (Br...
Soifer (Br...
Ultramar Ransa
BELFI (Con...
316 Port Logistics
and the relational ties are shared fairly and no clear leadership emerges. It is
an example of democratic organization, where Hanjin, Evergreen, and Ports
America (AIG Highstar Capital) constitute the backbone of the cluster, which
is also supported by Macquarie and other carriers. In this clique no stevedore
is involved.
Concluding remarks
The new economic and institutional environment in which ports operate
triggered a number of container port MNEs to outgrow their home country,
paving the way to industry internationalization. The nature and ultimate
strategic objectives of container port MNEs are not univocal. Some hetero-
geneous business models established themselves in the market and mutually
affect each other.
Pure stevedores from emerging economies and equity firms from Anglo-
Saxon countries presented unique spatial and temporal dynamics of inter-
nationalization, which impose a new analytical lens with regard to those
offered by traditional IB theories.
This chapter provided an extensive overview of the container port
business state of the art and evolution, analysing cutting-edge trends and
managerial practices. In particular, the main business models have been
introduced, emphasizing the strategic implications of firm growth. This
study explored the drivers of internationalization, characterizing different
business models and shed light on spatio-temporal dimensions of overseas
expansion. Finally, the chapter expanded knowledge of inter-firm partner-
ships in the industry, revealing that container port MNEs are organized in
cliques in order to share risk across multiple locations.
Despite the fruitful academic debate on this topic, many promising
streams of research are still under-explored and deserve more attention by
scholars. First, future studies have to achieve a more sophisticated under-
standing of the objectives and strategic attitudes of financial operators, being
aware of the profound differences among equity firms. Second, the unique
internationalization drive of some container port MNEs makes this industry
a meaningful empirical context for expanding traditional internationaliza-
tion theories and adopting innovative perspectives. Third, the accelerated
resort to EJVs and the formation of cliques still require a massive analytical
effort in a number of directions. Clique leadership and governance, intra-
clique management ties, geographic scope of cliques, role and functions of
domestic members in clique organizational structure, and clique evolution
and survival are just a few of the cutting-edge themes to address. Finally,
to date academic literature has neglected to include economic and financial
performance into the mainstream analytical frameworks of container port
MNEs. This is a major gap, which must to be bridged despite the lack of
easily accessible data.
318 Port Logistics
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Public–private 17
partnerships
and port logistics
performance
J a S M I N E S I u L E E L aM , f r a N C E S CO pa rO L a
a N D p h OT I S M pa N ay I D E S
Introduction
Developing and operating ports is a highly capital-intensive business. The
rapid pace of technology advancement has seen tremendous growth in ves-
sel sizes in various shipping sectors including container ships, dry bulk car-
riers, and tankers. For example, nowadays ultra large crude oil carriers are
greater than 320,000 dwt. A mainline vessel operating on the Asia–Europe
trade route would range above 9,000 TEU in size. In fact, the largest con-
tainer ship that operates on this trade holds the record at 18,000 TEU in
size. In order to handle these vessels, ports have to expand their capacity as
well as equip these facilities with a new generation of cargo-handling system
designed to achieve greater productivity and efficiency from the logistical
perspective. Today, ports are seen as important nodes where efficiency in
logistics has become a critical source for competitive advantage and holds
the key for anchoring supply chains and their corresponding cargo traffic
(Zhang et al, 2014). Failure to do so could lead to the inevitable loss of
connectivity and hub status and eventual relegation to spoke port status.
Conversely, success in this could result in significant economic gains in the
form of revenue growth, value-added gains, more taxation and employment
opportunities for the local city as well as the hinterland which the port
serves.
The pursuit of greater handling capacity requires enormous financial
resources and professional expertise that many ports around the world do
not possess. As such, ports have been seeking private-sector participation
322 Port Logistics
8000
7000
6000
5000
4000
2000
1000
0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Multi‐purpose terminal Liquid bulk terminal Dry bulk terminal Container terminal
Source Authors’ elaboration from the World Bank’s Private Participation in Infrastructure (PPI) project database
324 Port Logistics
Over the last 30 years, PPP schemes have been increasingly adopted in ports,
especially in those countries which needed to reform their port operations
for attracting private funding, managerial expertise and innovative capabili-
ties. In particular, developing countries were protagonists for a spectacular
surge in port infrastructure PPP activities as reported by the Private Partici-
pation in Infrastructure (PPI) project database of the World Bank. Within
the 1986–2013 timeframe, over 400 projects have been recorded in low-
and middle-income countries (Figure 17.1), taking into account the port
facilities in which private parties assumed operating risks (and often also
equity shares). Overall, the accumulated amount of investment in the period
was over US$ 70 billion. Container (US$ 38.2 billion, 184 projects) and
multi-purpose (US$ 24.3 billion, 131 projects) facilities attracted the major-
ity of investments, followed by dry and liquid bulk terminals (US$ 9 billion
in total, 94 projects).
The magnitude of the investment bears witness to the significance of
the overall trend over time. After the acceleration that took place in the
late 1980s, however, the investment materializing in the following years
reveal rather dissimilar figures which derive from the fast-changing envi-
ronmental conditions and the volatility of time–window opportunities. This
heterogeneity becomes even more noteworthy when analysing cross-regional
(Figure 17.2) and cross-country differences. The timing of the port reform
process, the positive (or negative) attitude of governments towards liberal-
izing port activities, the presence (or absence) of entry barriers for overseas
investors and the evolution of the institutional conditions in each host coun-
try are just some of the factors which profoundly influence the development
of PPP schemes over time. Figure 17.2 shows the long-term dramatic rise of
investment in the East Asia and Pacific region which, however, witnessed a
remarkable decline in recent years.
The Middle East and North Africa entered the port PPP game at a later
stage (2000s) and showed a quite irregular trend. South Asia had already
initiated PPP activities in the mid-1990s but investment volumes remained
quite modest and irregular until the recent growth. Sub-Saharan Africa was
a region marginalized from containerization and main trade lanes until a
few years ago, whereas it now enjoys remarkable levels of investment in
port infrastructures. Finally, Latin America and the Caribbean region dem-
onstrated high levels of activity, providing numerous PPP opportunities in
ports, and even gaining momentum in the post-crisis period. Notably, lead-
ing countries in port PPPs in terms of the total amount of generated invest-
ment are the People’s Republic of China (almost US$ 14 billion), Brazil
(US$ 11.1 billion), India (US$ 7.6 billion), and Nigeria (US$ 7.1 billion).
Amongst the top 15 countries some latecomers also appear in the ranks such
as Turkey, Chile, and Peru (Figure 17.3). Again, remarkable differences can
be seen with regard to the type of facilities involved in PPP schemes. Beside
those countries which appear mostly ‘specialized’ in container terminals
(eg China, Mexico, Egypt), others demonstrate a more diversified portfolio
of interests (eg Brazil, India, Nigeria, Colombia).
Fi g u r e 17.2 Port PPPs in developing countries 1986–2013: Investment breakdown per geographic region
9000
8000
7000
6000
5000
4000
3000
1000
0
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sub‐Saharan Africa South Asia Middle East and North Africa Latin America and the Caribbean
Europe and Central Asia East Asia and Pacific
Source Authors’ elaboration from the World Bank’s Private Participation in Infrastructure (PPI) project database
326 Port Logistics
16000
14000
12000
Total investment (US$ million)
10000
8000
6000
4000
2000
0
China
Brazil
India
Nigeria
Pakistan
Malaysia
Colombia
Turkey
Mexico
Arab Rep.
Chile
Philippines
Indonesia
Peru
Vietnam
Egypt,
Container terminal
Source Authors’ elaboration from the World Bank’s Private Participation in Infrastructure (PPI)
project database
A government’s ability to devise and carry out sound policies and regu-
lations that encourage and make room for private-sector development is
measured by its ‘regulatory quality’ (Kaufmann et al, 2010). To be success-
ful in promoting the private sector and attaining economic growth, having
an effective legal and regulatory framework is vital (Hafeez, 2003). A weak
institutional structure, on the other hand, decreases the potential of growth
due to poor design and implementation of policies (Jalilian et al, 2007). For
private investors to participate in PPP initiatives, they will be seeking growth
in their business as well as the country’s economy. Hence, this implies that
PPP initiatives are affected by regulatory quality.
The United Kingdom attained 95 per cent for Regulatory Quality in
2012’s World Governance Indicator. Its efforts in port PPP include having a
National Policy Statement under the Planning Act 2008. Under the National
Policy Statement, frameworks are developed to select suitable proposals for
port developments. This allows investors’ proposals to be regulated and
simplifies the process for selection. It is also more cost-effective for inves-
tors to work towards a standard requirement. Having such regulations
can therefore attract more private investors to take part in port PPP and
contribute to its success. This in turn enhances port logistics performance.
The UK is ranked 10th overall for its logistics performance. For example,
the 3.5 million-TEU London Gateway, as the newest port investment from
private terminal operator DP World, will be the UK’s largest and deepest
container facility (IHS Fairplay, 2011). London Gateway aims to substan-
tially enhance the port’s logistics performance by reducing delivery times
and investing in distribution centres.
The ‘market openness’ of a country is also considered a vital institutional
factor in affecting port PPP. It can be characterized by the amount of govern-
ment intervention which is not limited to just tariffs and subsidies (Stensnes,
2006). An open market can thus allow economic actors to trade without any
external constraints. Such a market encourages the entry of investors into
the market as barriers to entry are reduced. As such, this can greatly influ-
ence port PPP since the private sector’s participation is crucial.
There are many cases of opening the market to increased competition
so as to improve performance. In the context of ports, besides opening the
market for private terminal operators, many port services are also liberal-
ized to increase access to the market. This is justified by the EU’s constant
attempt to liberalize port services to make them more efficient, providing
more opportunities for the private sector’s involvement, thereby contribut-
ing to the enhancement of a port’s logistics performance.
One example is pilotage services in Denmark. Denmark, ranked first in
the ICC’s Open Market Index, adopted a Pilotage Act in 2006 to introduce
competition to its state-owned pilotage service in an attempt to enhance
the efficiency of pilotage services. Danish Pilotage Service, the first private
pilotage company in Denmark, competed with the state-owned DanPilot.
However, based on the experience of some countries, giving market access
for pilotage services may be detrimental to safety as well as efficiency since
PPPs and Port Logistics Performance 333
NOTES
1. World Governance Indicators: percentile rank among all countries (2012), ranging from 0 (lowest) to 100 (highest) rank (derived from World Bank).
2. Doing Business Indicators: ‘market openness’ reflects the numbers of years (at 2014) from the start of the port privatization process in each country (authors’ own elaboration from
Drewry Shipping Consultants, corporate websites, Port Authorities annual reports, and specialized press); ‘ease to start a business’, ‘contract enforcement’, and ‘protecting investors’
reflect the country rank (where 1 is the highest position and 189 the lowest), as defined by World Bank (2013).
338 Port Logistics
etc, have a high standing and thus seem to demonstrate that the existence of
a limited number of effective procedures for setting new business stimulates
PPPs in ports. Similar evidence emerges for the variable contract enforce-
ment. Except for China, which ensures short timing and low costs in resolv-
ing commercial lawsuits, other leading PPP nations are ranked low. Finally,
the variable protecting investors provides evidence which is rather consist-
ent with theory. The protection of minority shareholders against directors’
misuse of corporate assets appears to be a relevant institutional dimension
capable of affecting port PPP development.
Conclusion
Public–private partnerships (PPPs) have increasingly became a common tool
in the development, modernization and privatization of port operations
worldwide. In particular, since the late 1990s port PPP schemes have been
largely adopted both in many advanced and developing countries, charac-
terized by a spectacular surge of private investments (World Bank, 2012b).
This chapter conducted an exploratory investigation into the impact of
PPP frameworks on port logistics performance, also raising the importance
of environmental country-related factors in conditioning the development
of public–private cooperative arrangements. In this perspective, the study
feeds the academic debate on the advantages and disadvantages of PPPs
and questions the need to include some institutional dimensions for a more
complete understanding of port PPP trends.
In this regard, this chapter has provided an extensive analysis of major
institutional factors that would affect the impact of PPPs on port logistics
performance, based on the institutional framework of Daude and Stein
(2007) and the empirical data provided by the World Bank (2012b). Over-
all, three World Governance indicators and four Doing Business indicators
have been identified and discussed bringing some anecdotal evidence for
corroborating theoretical arguments. Based on the examples from various
ports, PPPs could improve port logistics performance primarily attributed
to the private sector’s operational and managerial expertise. However, there
are also examples showing the capability of the public sector in achieving
a high level of port logistics performance. Hence, having PPPs would not
be the only or major way to advance port logistics performance. Further,
an in-depth investigation into the top 15 developing countries pioneer-
ing port PPPs disclosed some mixed results in relation to the explanatory
power of institutional factors in affecting PPP’s growth. Some institutional
factors, indeed, seem to be influential only in specific countries, and thus
generate apparent contradictions in the understanding of the overall pic-
ture. Actually, such outcomes might be biased by the unique legislative
environment in which ports operate: governments often establish ad hoc
territorial legislative regimes in ports, provoking institutional asymmetries
PPPs and Port Logistics Performance 339
with respect to the investments carried out in the rest of the country, for
instance in other types of infrastructures. In other words, ports could rep-
resent a unique setting where the assumptions of previous scholars (Daude
and Stein, 2007; Kaufmann et al, 2009) trying to capture the influence
of institutional factors in business practice need to be contextualized and
partially rethought.
This chapter has contributed to increasing awareness of the complexity
of this theme, and has raised the urgency of performing extensive empiri-
cal research for a clearer understanding of these arguments. In particular, it
could be valuable to investigate other analytical dimensions besides those
approached in this study, and to carry out cross-industry comparisons
among various types of PPP transport infrastructures (eg airports, railroads,
motorways, pipelines) which might be affected in different ways by institu-
tional factors.
Note
1 In this chapter we utilize some Doing Business indicators provided by the World
Bank. In addition we also elaborated the variable market openness, defined as
the numbers of years (at 2014) from the start of the port privatization process in
each country (authors’ own elaboration from Drewry Shipping Consultants,
corporate websites, port authorities’ annual reports, and specialized press).
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PPPs and Port Logistics Performance 341
Introduction
Seaports are uniquely structured social and technical organizations (or
systems) and the most vulnerable nodes in logistics chains directly affected
by the oscillations in the logistics and transport markets. The develop-
ments in the supply chain, logistics and transport industry such as the
horizontal and vertical integration between actors, product and process
innovations, shortening product life cycles, minimization of time to mar-
kets, advances in information and communication technologies, new prac-
tices in manufacturing and logistics, restructuring of logistics networks
and repositioning of regional and local distribution centres, developments
in intermodal transport and, as a result of these, changes in the expecta-
tions of the players in the supply chains, have all changed the roles of
ports from being places providing loading and discharging operations to
intermodal terminals in the supply chain system that add value to port
users and final customers. Ports have become the most important logistic
link in the production, distribution and consumption chains of econo-
mies worldwide (Sanchez, 2006) and parts of intermodal networks, with
competition increasingly taking place between complete logistics chains
instead of between ports (de Langen and Chouly, 2004). The competi-
tiveness of ports within logistics chains is thus a much higher priority
than it was before. Due to restructuring in the markets surrounding ports
and accelerating competition in the logistics, transport and port indus-
try, organizational effectiveness (OE), which is a rather new concept for
port studies aiming to assess the success of seaports, is becoming more
344 Port Logistics
Fi g u r e 18 .1 Conceptual framework
Changes in...
(Continued )
348 Port Logistics
SOuRCE UNCTAD (1992); World Bank (1992); van Klink and van den Berg (1994); van Klink (1995);
Notteboom (1998); UNCTAD (1999); UNESCAP (2002); Beresford et al (2004); Alderton (2008); Paixão
and Marlow (2003); Yan (2009); European Parliament (2009); Verhoeven (2010); Teurelincx (2011)
The changing roles of ports in logistics chains are commonly studied from
the perspectives of port logistic chain integration, port – hinterland relations
and value added in logistics chains. There have been a number of papers on
the orientation and integration of ports and terminals into the supply and
logistics chains (Carbone and De Martino, 2003; Song and Panayides, 2008;
Notteboom, 2009; Pettit and Beresford, 2009; De Martino and Morvillo,
2008; Panayides and Song, 2008, 2009; Woo and Pettit, 2009). The Council
of Supply Chain Management Professionals (CSCMP) declares that supply
and logistics chain ‘includes coordination and collaboration with channel
Port and Logistics Chains 349
SOuRCE UNCTAD (1998); Baird (2000); World Bank (2007); Verhoeven (2010)
land value and port throughput (de Langen, 2009; Estache and Trujillo,
2009). By stressing the efficient management and development of the port
estate as an entrepreneur, and also when seen from the value chain perspec-
tive, Verhoeven (2010) states that the principal function of contemporary
port authorities is the landlord function.
Baird (1995, 2000), Baltazar and Brooks (2001), Brooks and Culli-
nane (2007) and Verhoeven (2010) categorize the traditional roles of port
authorities into three headings: ‘regulator’, ‘landlord’ and ‘operator’ (see
Table 18.2). Estache and Trujillo (2009) use the term ‘strategic’ instead
of landlord function and state that strategic activities of a port authority
include port planning and development, preparation of the business plan
and management of the economic interactions regarding port infra- and
superstructure. UNCTAD (1998) advocate that beside the landlord and
regulator functions, a modern port authority has to concentrate its efforts
on the provision of policy-making, port planning, promotion and training.
De Langen (2009) classifies the traditional landlord roles of port authori-
ties into four categories as traffic, area, customer and stakeholder manage-
ment. Stakeholder management issues are of great importance considering
the need for the involvement of port authorities into the hinterland chains.
the power of private players and reduced the role of the port authority (Ver-
hoeven, 2010). In particular, after the 1990s, the power of port authorities
with regards to port administration were gradually decreased (Meersman
and van de Voorde, 2002).
Estache and Trujillo (2009) organize the need for changes in port author-
ities around two themes: ‘operational’ and ‘strategic’. Operational includes
the poor monitoring of economic and financial performance and the effects
of bureaucratic environment; at the strategic level, political interference is
the main reason for change in port authorities’ roles. Van der Lugt and de
Langen (2007) summarize the reasons for these changes in the roles of port
authorities as follows:
(Continued )
Ta B L E 18 .3 Port authorities’ changing roles in logistics chains (Continued )
Study Port authorities’ roles Port authorities’ functions
van der Lugt and de ‘Port Authority beyond Landlord Function’ *activities beyond the landlord function (port hinterland activities)
Langen (2007) ‘Coordinator in Port Clusters’ -own/non-own port-related activities
-operational and supporting activities
-activities within port boundaries and extending hinterland
*creating platforms that facilitate collective action in port clusters
*training, consulting, innovation, ICT services, port promotion, investing in hinterland
facilities
Cahoon and ‘Integrator in Supply Chains’ *integrating the port into the business relations network shaping supply chains
Notteboom (2008)
De Martino and ‘Identifier of the Critical Assets’ *improving port infrastructures and their connections within existing transport systems
Morvillo (2008) *keeping in mind the criteria of environmental, social and economic sustainability
*allowing free competition between port operators through concessions of terminals
and spaces for the supply of value added services
*enhancing the collaboration and co-ordination of port activities through IT systems
*promoting the development of its own hinterland by creating economical, relational
and social connections between the port and the market place
de Langen (2009) ‘Coordinator in Port Clusters and *investing in rail and barge terminals in port and hinterland
International Transport Chains’ *setting infrastructure access rules for rail and road
*investing in port community system
*setting the conditions in concession contracts
*enabling competition and reducing entry barriers
Estache and Trujillo ‘Facilitator of Intermodal Coordination and *having focused policy and strategic responsibilities
(2009) of Logistics Integration’ *integrating into regional, national or supranational ports
*having a mandate to support multiple ports within a region or across a port range
European Parliament ‘Facilitator in Logistics Chains’ *optimizing port processes and infrastructure
(2009) *playing a central role in developing platforms in conjunction with all stakeholders in
order to address issues affecting logistics performance
*promoting and sustaining an efficient intermodal transport system
*developing strategic relations with the hinterland
Notteboom (2009) ‘Facilitator in Port Hinterland Networks’ *setting up task forces together with various stakeholders to address issues affecting
logistics performance
*establishing links with inland and dry ports
*improving the port–hinterland interface
*structuring hinterland networks
*promoting an efficient intermodal system in order to secure cargo under conditions of
high competition
Woo and Pettit ‘Port Supply Chain Integrator’ *providing facilities for value-added logistics and intermodal transport
(2009)
Haugstetter and ‘Collaborator in Supply Chains and *networking and cooperating beyond port boundaries
Cahoon (2010) Logistics Networks’–’Port Cluster *gaining knowledge and integrating information by the use of strategic collaborations
Manager’ in supply chain networks
Verhoeven (2010) ‘Port Community/Port Cluster Manager’ *Landlord and regulator functions.
‘Entrepreneur’: Investing in the port *Operator functions: dynamic use of concession policy in combination with real estate
hinterland development role.
‘Facilitator’: Strategic partnerships with *Economic functions:
inland and dry ports–cooperation with – solve hinterland bottlenecks and facilitate the coordination between port
neighbouring ports stakeholders
– provide training and education
– provide ICT services
– promotion
– lobbying
*Societal functions:
– accommodate conflicting interests
– lobbying
– promote positive externalities
356 Port Logistics
●● Economic dimension:
– solving hinterland bottlenecks;
– coordinating port stakeholders;
– providing training and education;
– providing information and communication technology (ICT)
services;
– port promotion;
– lobbying.
●● Social dimension:
– promoting positive externalities;
– accommodating conflicting interest;
– lobbying.
In this context, it can be deduced that involvement within the hinterland and
logistics chains, cooperating with the stakeholders both inside and outside
the port by solving conflicting interests and using the latest ICT for coordi-
nation in port community are the main concerns of today’s port authorities.
According to some other studies (European Parliament, 2009; Notte-
boom and Winkelmans, 2001a; Notteboom and Rodrigue, 2005), the main
role of port authorities is to act as ‘facilitators within logistics chains’ and
their changing functions are as follows:
●● optimizing port and logistics processes and infrastructure;
●● focusing on value-added logistics;
●● playing a central role in developing platforms in order to address
issues affecting logistics performance;
Port and Logistics Chains 357
Pallis, 2008, Karatas Cetin and Cerit, 2010a, b, c). As Brooks (2007) states,
it is not enough to use only broad organizational performance measures
such as volume throughput, sales volume and profitability, especially at the
time of change in port environment. Since the goals of the ports and port
authorities change over time, so should the effectiveness measures needed
to achieve them. Table 18.4 lists 13 port effectiveness measures which can
explain the effectiveness of port organizations at all points in this new
competitive landscape. It is necessary to clarify that this study does not
deal with all of the 13 measures determined. It would be unreasonable to
deny the importance of commonly used port performance measures such as
productivity, efficiency, profitability and growth. However, this study aims
to expound new criteria which are becoming crucial for ports to achieve
effectiveness and sustain competitiveness within the logistics chains. The
measures are derived from the results of the Delphi study applied in Kara-
tas Cetin and Cerit (2010a) and a comprehensive review of 38 theoretical
and empirical publication on organizational effectiveness (Karatas Cetin
and Cerit, 2010b), which resulted in 108 different effectiveness measures.
The result of the review shows that the most frequently used effectiveness
measure is ‘adaptability/flexibility’ (appeared in 17 of 38 studies). Other
main effectiveness criteria include the tangible measures (Sahni, 2000) such
as productivity, profitability, growth and efficiency, which are more con-
veniently measured than eg adaptability, integration, and information and
communication management.
In accordance with the conceptual framework, due to the developments
in logistics chains and their impacts on ports’ roles, goals and functions,
it is proposed that some other criteria including integration, adaptability,
customer satisfaction, information and communication management, ser-
vice quality, innovation and resource acquisition are gaining importance
over the others. The review of port studies concerning the effectiveness,
success and competitiveness of ports (see Table 18.5) indicates that ports
and port authorities should focus on the following factors to sustain their
competitive positions in view of the developments in supply and logistics
chains:
●● supply chain integration practices: organizing activities beyond port
area in its hinterland;
●● facilitation of inter-connectivity with other modes of transport;
●● agility/adaptability: adapting to the new logistics trends;
●● the development of information and communication technologies,
and availability of powerful information channels;
●● provision of high-quality value-added and intermodal services;
●● customer orientation and satisfaction, familiarity with customer
needs;
●● innovation and knowledge sharing.
Port and Logistics Chains 363
NOTE The measures listed are extracted through a survey study conducted by the author in August
2010.
Ta B L E 18. 5 Port success/effectiveness measures
Haralambides, et al (1997) Effective Management Factors: clear description of objectives and area of authority and responsibility,
accountability and control, adequate rules and regulations, good statistical and information systems,
analytical accounting and cost control, quality control, human resource development.
Suykens and van de Voorde Port hinterland transport connections.
(1998)
Coltof (2000) Market share, geographical location, availability of port facilities, hinterland, frequency of lines, port
service quality, reliability, financial position.
Notteboom and Adoption of a market-oriented management system based on clear goals, managerial skills and
Winkelmans (2001a) accountability, commercial attitude, mentality, entrepreneurial culture, providing value-added logistics
services, investing in information systems, providing intermodal connections and port networking.
Notteboom and Flexibility to adapt quickly to changing opportunities, integral approach to logistics issues in transport
Winkelmans (2001b) chains.
UNESCAP (2002) Providing a diverse range of highly integrated port services.
Chlomoudis, et al (2003) Increased quality of services, high levels of flexibility/adaptability, closer integration with other
transport modes, higher levels of product and process innovation, better management and marketing
strategies, more efficient labour mobilization and participation.
Marlow and Paixao (2003) Agility, leanness.
Paixao and Marlow (2003) Adapting to 21st century logistics trends, delivering higher value and intermodal services, internal and
external integration within logistics chains.
Bichou and Gray (2004) Ability of ports to interact with channel members, integrate into logistics, trade and supply channels.
De Langen (2004) Value generated by the port cluster.
De Langen and Chouly Ability of a port to serve markets in the hinterland efficiently by improving the quality of hinterland
(2004) transport services.
Park and De (2004) Productivity, profitability, marketability, overall efficiency.
Song and Yeo (2004) Customer orientation
Notteboom and Rodrigue Inland accessibility, capability to fit into the networks that shape supply chains, the availability of
(2005) powerful information channels and the capability of having knowledge transfer among the parties.
Panayides (2006) Provision of value-added services, facilitation of inter-connectivity/inter-operability with other modes
of transport, hinterland accessibility, leanness, agility, time compression, the performance of other
parties in the supply chain.
Sayareh and Lewarn (2006) Adaptability, productivity, profitability, efficiency, growth, planning, communication/information
management, stability, output quality, customer satisfaction, leadership, human resource
management, professionalism.
Baltazar and Brooks (2007) Fit between strategy, structure and environment.
De Langen and Van der Fit between local environment, port governance model, strategy and port resource/capabilities.
Lugt (2007)
Notteboom (2007) Reliability and flexibility in services, transparency in port governance, external coordination and
control, planning and concession policy approach, customer orientation, information management
and communication, logistics orientation, community support and strong environmental record.
Brooks and Pallis (2008) Effective use of strategies, structures, and task environment to meet the mission and stated goals.
(Continued )
Ta B L E 18. 5 Port success/effectiveness measures (Continued )
Cahoon and Notteboom Ability to integrate the port effectively into the networks of business relationships that shape supply
(2008) chains, familiarity with customer needs, being solution based in encouraging trade facilitation
throughout the logistics chains and networks, developing pricing and communications strategies that
clearly articulate the port service offering and value proposition for customers.
Song and Panayides (2008) Price, quality, reliability, customisation, responsiveness.
Notteboom (2009) Ability to fit into the networks that shape supply chains, close coordination with logistics actors
outside the port perimeter, integrated approach to port infrastructure planning, ability of port
community to exploit synergies with other transport nodes and players in logistics network.
Panayides and Song (2009) Establishing information and communication systems that facilitate the integration of supply chain
partners, providing value-added services, efficient operation of multimodal systems, engaging in
supply chain integration practices.
Pettit and Beresford (2009) Ability to provide tailor-made services.
Haugstetter and Cahoon Innovation, growth, sustainability, knowledge sharing and management, information systems,
(2010) collaboration in logistics networks, open communication, learning and strategic thinking.
Port and Logistics Chains 367
respect, it can be inferred that TESCI measures can also be regarded as the
measures of port/terminal effectiveness.
Regarding the increasing importance of logistics chains, Suykens and
van de Voorde (1998) state that the success of a port is not exclusively
dependent upon its own performance, but also upon other factors such as its
connections with the hinterland. The strategy of developing port networks
with hinterland nodes and dry ports in the hinterland has become widely
accepted as a viable strategic option (de Langen and Chouly, 2004). Panay-
ides (2006) indicates that port authorities can contribute to port effective-
ness in logistics chains by proper planning for the smooth and cost-effective
flow of cargoes by considering the transportation flow beyond the port’s
boundaries.
Customer satisfaction
Both the horizontal and vertical integration in the transport industry result
in a concentration of power amongst port customers and an increase in
the bargaining power of customers over port management. This empha-
sizes the importance of ‘customer satisfaction’ in the port industry. As real
competition is not ‘port against port’ but rather supply chain against supply
chain’ (De Martino and Morvillo, 2008), the ports need to respond rapidly
to markets that are driven by sudden changes in customer demand to sustain
their competitive positions in the market (Yusuf, et al, 1999). The chang-
ing role of ports is heavily dependent upon the supply chain strategies of
those who use these ports (Mangan et al, 2008). Therefore, ports need to
re-think the measurement of their performance and systematically monitor
whether they serve their users effectively and with a full understanding of
users’ needs (Vitsounis and Pallis, 2010). To be effective, ‘ports must become
more familiar with the needs of port customers and in encouraging trade
facilitation be solution-focused, not only within the port but throughout the
logistics chains and networks’ (Cahoon and Notteboom, 2008, p 2). Song
and Panayides (2008) found that the relationship between ports and ship-
ping lines has beneficial effects on reliability and responsiveness of ports.
Effectiveness-oriented port authorities recognize that they must first meet
the needs of customers whose product and service expectations are more
sophisticated and varied than before (Baltazar and Brooks, 2007; Brooks
and Pallis, 2008). Woo et al (2008) also emphasize the importance of effec-
tiveness, by stating that in the global supply chain era, port performance
should reflect effectiveness aspects of ports from customers’ perspectives.
Innovation
Prastacos et al (2002) argue that to successfully manage change, organiza-
tions need to be innovative and flexible. Chlomoudis et al (2003) state that
in a changing and restructuring port environment, the main issues that a
modern port must address are: increased quality of services, high levels of
flexibility and adaptability, closer integration with other transport modes,
higher levels of product and process innovation. Ports should create and
promote innovation to integrate themselves within supply and logistics
Port and Logistics Chains 371
Resource acquisition
As ports are open systems, having inputs, processes and outputs and interact-
ing with their internal resources to the changing environment (Karatas Cetin
and Cerit, 2010b), continuous acquisition and efficient use of port resources
are critical for the survival of port organizations. As a proponent of the
systems approach to OE, Yuchtman and Seashore (1967) indicate that uni-
versally required resources are: personnel, physical facility, technology, and
money as a liquid resource. The main resources of ports are: port infra- and
superstructure, equipment and information and communication technology,
financial resources and human capital (Karatas Cetin and Cerit, 2010b, c).
‘Within ports, resources are those necessary to perform both port and value-
added logistics activities’ (De Martino and Morvillo, 2008, p 584). These
key resources, defined in literature as ‘critical assets’ (Cox et al, 2002), have a
central position for the acquisition of value in the supply and logistics chains.
Conclusion
The developments, restructurings and shifts in the power of the actors in
logistics and supply chains combined with accelerating competition lead
port organizations to extend their activities towards hinterland and logistics
chains, and thence re-assess their goals and means of performance measure-
ment. Within a framework, the interrelations between the changes in the
supply and logistics chains, the roles and goals of ports and port authorities,
and, where effectiveness is directly related with the goals, the changes in the
measures of port effectiveness, have been explained in this study.
Principally, this study deals with the changes in ports’ and port authori-
ties’ roles as a result of the new trends in logistics chains and the impor-
tance of port authority strategies and activities for repositioning the ports
in these chains. In their study, van der Lugt and de Langen, (2007, p10) ask
the rhetorical question, ‘Why should port authorities get involved in the
hinterland?’ The answer is ‘to ensure port competitiveness’. Answers can
372 Port Logistics
be extended by stating that ports are central nodes in supply and logis-
tics chains (Bichou and Gray, 2004; Notteboom, 2007, 2009); port, fore-
land and hinterland are closely bound together in a symbiotic relationship
(Notteboom, 1998); ports are not competing as sole entities but as parts of
complete transport and supply chains (Suykens and van de Voorde, 1998;
Verhoeven, 2010; Notteboom and Winkelmans, 2001a); and coordination
and control of the whole supply chain by the port is a more important factor
than its internal strength in port competition (Carbone and Martino, 2003).
However, another question is, ‘What should port authorities do to achieve
port effectiveness within logistics chains, what are the factors (measures)
that should be considered?’ In order to develop effective ports within logis-
tics chains, port authorities should function as a coordinator, integrator and
facilitator in logistics chains, follow the market developments, promote and
sustain efficient intermodal transport systems, develop strategic relations
with the hinterland and supply chain partners, invest in the port community
system and cooperate closely with inland terminals and neighbouring ports.
In accordance with the new roles of port authorities, this study attempts
to identify the effectiveness criteria of port organizations that are gain-
ing importance through developments in logistics chains, which are port
logistics chain integration, adaptability to the changes in the environment,
customer orientation and satisfaction, information and communication
management, service quality and provision of value-added and intermodal
services, innovation and resource acquisition.
It is believed that, although commonly used performance measures are
still viable, they are not sufficient for the overall performance evaluation
of port organizations functioning in an environment with a high degree of
complexity and uncertainty. However, as a suggestion for further studies, it
should be admitted that one limitation of the effectiveness measures is that
they are mostly intangible and their assessment would depend on percep-
tive judgements rather than concrete facts: thus they cannot be measured as
conveniently as tangible measures like growth, profitability or efficiency. In
consequence, in order to maintain their competitiveness in logistics chains,
ports should focus on the factors identified in the study and seek ways to
improve their performance in each factor. Being efficient is no longer enough
for success in the new competitive landscape.
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Introduction
This chapter primarily aims to investigate the effect of supply chain inte-
gration of seaports on port performance by examining the causal relation-
ships among the integration strategies of seaport terminals along the supply
chain, and the antecedents and consequences of the integration strategies.
The integration strategy is termed ‘port supply chain integration’ (PSCI)
and the antecedents of PSCI are identified as ‘port supply chain orientation’
(PSCO). Logistics performance of ports (LPP) is considered as consequences
of PSCI because it is suggested that traditional performance measures such
as cargo throughput is not sufficient for a proxy of port performance in the
global supply chain era (Panayides and Song 2008; Bichou and Gray, 2004).
Structural equation modelling (SEM) is used to validate the constructs and
rigorously test the relationships among the constructs.
This chapter is organized as follows. Prior to the examination of the causal
relationships, an extensive literature review is carried out to identify the
literature pertaining to the logistics performance of supply chain-oriented
ports and to figure out how ports have been researched in relation to supply
chain management and integration. Subsequently, we examine how seaports
should be understood and considered in a supply chain by clarifying ter-
minology relevant to supply chain management and port operation. The
following sections develop a research model consisting of constructs and
measures through a literature review and interview programme, and exam-
ine the hypothesized relationships using SEM analysis.
382 Port Logistics
those of traditional studies which see seaports as a node between sea and
land transport. They argue that seaports should be viewed as parts of supply
chains (Robinson, 2002; Bichou and Gray, 2005) and as an extended system
which can interact with other members in the supply chain. In this context,
a number of papers investigate the integration strategies and practices of
seaports along supply chains (Carbone and De Martino, 2003; Tongzon
et al, 2009) and their impact on performance (Song and Panayides, 2008)
(see Table 19.3).
Terminal operations
This approach seeks optimal solutions in terminal operations and appears
to be a separate field from port management and policy studies. It is indis-
pensable in coping with increasing container transportation and achieving
higher efficiency in seaports. Its importance is also shown by the 11 per cent
Logistics Performance of Supply Chain-Oriented Ports 385
proportion of total papers for this category, even though a number of opti-
mization studies were classified in other categories such as demand and
supply analysis and port selection. With the increasing interest in optimized
terminal operations, a variety of review studies and methodological discus-
sions have been provided in recent times (Monaco et al, 2009; Stahlbock and
Vos, 2008; Steenken et al, 2004). Research topics were identified according
to the processes of terminal operation, thus they are not as detailed as the
review studies are (see Table 19.4). The sea-side operation subset is con-
cerned with ship planning processes and loading/unloading processes such
as berth allocation, stowage planning, quay crane scheduling and queueing
problems.
The yard operation subset includes storage space design, yard cranes and
carrier transport. Land-side operations deal with rail and truck operations
and modal-split optimization. A group of studies adopted an integrative
approach which views port operations as terminal operations as a whole,
based on the awareness that improved terminal performance cannot neces-
sarily be obtained by solving isolated problems but by an integration of vari-
ous operations connected to each other. In this category, sea-side operations
and yard operation studies have shown arising trend in the 2000s.
1980s 2000s
Economics Geography
Economics Geography
Transport Transport
Economics Geography
Transport Transport
Economics Geography
Marketing Regional Environmental
Strategic Industrial Planning Studies
Management Relations
Public
Management Administratior
Operations Logistics/ Politics
Research SCM
Operations
Research
Integration
TOC Port
along supply
strategy performance
chains
diversified demand patterns with lower price and higher quality than before
(Heaver, 2001; Slack et al, 1996). To deal with these requirements, ship-
ping companies have integrated horizontally through mergers, acquisitions
and strategic alliances, and vertically through operating dedicated terminals
and by providing integrated logistics and intermodal services (Notteboom,
2004). Additionally, shipping companies have rearranged service networks
with the dual aim of global coverage and diversification. The reactions of
shipping companies ultimately affect every facet of the maritime industry,
especially port operations (Slack et al, 2001).
The principal challenges ports face from this structural change are that
their main customers, ie shipping lines, are becoming more powerful with
stronger bargaining power, and that competition between ports is more
intense both at inter-port and intra-port levels. Many studies suggest that
ports have had to evolve across the range of their activities to cope with the
challenges (Notteboom and Winkelmans, 2001; Robinson, 2002). However,
two strategies are primarily suggested: the development of global networks
which can be achieved by horizontal integration, and integration along sup-
ply chains which relates to vertical co-ordination.
NOTE ICS: information and communication systems; VAS: value-added service; MSO: multimodal system and operation; SCIP: supply chain integration practices;
DC: distribution centres.
Logistics Performance of Supply Chain-Oriented Ports 393
Suppliers Customers
Auxiliary service
providers Terminal Sea
access
Resource Shipping
Casual labour companies
suppliers – Physical facilities
– Transport
Equipment equipment
leaser Land
– Labour Inland
access
– Computer systems transport
Materials
providers
providers
– Operational policy
(Oil, crane part
etc)
Exporters Retailers/
Customers
Wholesalers
Warehouse
Truck/
Rail
Suppliers Manufacturers
Suppliers
Terminal
Warehouse
Shipping Terminal
Truck/Rail
their supply chain for fast introduction of product and service innovations
into the markets. Thus, firms have embraced SCM to increase organiza-
tional effectiveness and to achieve organizational goals such as improved
customer value, better utilization of resources, and increased profitability.
Mentzer et al (2001) also state that specific drivers to supply chain manage-
ment may be traced to the trends in global sourcing, an emphasis on time
and quality-based competition and their respective contributions to greater
environmental uncertainty. Cooper and Ellram (1993) define SCM as ‘an
integrative philosophy to manage the total flow of a distribution channel
from the supplier to their ultimate user’. SCM is also defined as the integra-
tion of key business processes to end-users through original suppliers that
provide products, services and information that add value for customers
and other stakeholders (Lambert et al, 1998).
Despite the various dimensions of understanding about SCM, the main
concept of SCM is ‘integration’. Bowersox and Closs (1996) argue that to
be fully effective in today’s competitive environment, firms must expand
their integrated behaviour to incorporate customers and suppliers. They
refer to this extension of integrated behaviours, through external integra-
tion, as SCM. According to Cooper and Ellram (1993), SCM is viewed as
lying between fully vertically integrated systems and those where each chan-
nel member operates completely independently. Chow et al (1995) state that
the concept of integration is central to logistics. According to them, integra-
tion is the degree to which logistics tasks and activities within the firms and
across the supply chains are managed in a coordinated fashion.
The relationship between supply chain management (SCM) and firm per-
formance have been examined by a number of researchers (eg Li et al, 2006;
Shin et al, 2000) as shown in Table 19.8. Mentzer et al (2001) demonstrate
that the improvement of competitive advantage within the supply chain is
the motive for, and the consequence of, SCM. They propose that competi-
tive advantage can be achieved through enhancing customer value and sat-
isfaction by implementing SCM. Li et al (2006) present empirical evidence
that SCM practices have a direct impact on the financial and marketing
performance of an organization. Researchers also identified the relationship
between supply chain integration and firm performance, as integration is
the main concept underpinning SCM, and strategic integration is expected
to impact firm performance. The results of most research indicate that the
higher the level at which integration occurs, the better firm performance is
(Johnson, 1999; Lin et al, 2005).
Johnson (1999) identified five antecedents of strategic integration (depend-
ence, age, continuity expectation, flexibility and relationship quality) and
showed that dependence, continuity expectation and flexibility positively affect
strategic integration, and, in turn, strategic integration enhances performance.
Mentzer et al (2001) differentiate supply chain orientation (SCO) from SCM,
defining SCO as ‘the recognition by an organization of the systemic, strategic
implications of the tactical activities involved in managing the various flows in
a supply chain’ and calling ‘the actual implementation of SCO across various
Ta B L E 19 . 8 Causal relationships in SCM literature
Literature Causal relationships
Shin et al (2000) SMO → Supplier/Buyer Performance
Li et al (2006) SCM Practices → Organisational Performance/Competitive
Advantage
Chow et al (1995) Strategy / Structure → Integration → Performance
Stank and Traichal (1998) Organisation Design → Integration → Performance
Johnson (1999) Dependence, Age, etc → Integration → Performance
Mentzer et al (2001) SCO → SCM → Competitive Advantage
Vickery et al (2003) Integrative IT → Integration → Customer service → Performance
Min et al (2007) MO → SCO → SCM → Firm Performance
NOTE SMO: supply management orientation, SCM: supply chain management, SCO: supply chain orientation, MO: market orientation, IT: information technology.
398 Port Logistics
Components of PSCI
Considering the intensive efforts to conceptualize SCM and supply chain
integration concepts, it is fair to say the components of PSCI have rarely been
identified. Fortunately, a few recent works (Carbone and De Martino, 2003;
Panayides and Song, 2008; Song and Panayides, 2008; Tongzon et al, 2009)
have presented the components or validated the constructs which can be used
to conceptualize PSCI (see Table 19.9). Carbone and De Martino (2003) iden-
tified four SCM components by interviews with French terminal-operating
companies (TOCs): mutual relationships, supplied services, information and
Logistics Performance of Supply Chain-Oriented Ports 399
Antecedents to PSCI
TOCs may have different attitudes to SCM practices and characteristics which
facilitate or impede the implementation of the integration strategy. It would
be very useful to terminal operators to investigate which organizational char-
acteristics and attributes contribute to facilitating the implementation of inte-
gration strategies. TOCs’ organizational characteristics and attitudes towards
PSCI are adopted as antecedents to PSCI in this research, and are termed as
port supply chain orientation (PSCO). This term was adapted from supply
chain orientation (SCO) which is used as an antecedent to SCM. Studies on
the factors or organizational characteristics facilitating the integration strate-
gies of ports are more limited. The features this research attempts to iden-
tify can be interpreted as the ‘resources’ or ‘capabilities’ of a firm from the
resource-based view. This view considers the tangible and intangible aspects
of a firm’s resources enabling it to implement strategies that improve its effi-
ciency and effectiveness (Barney, 1991). Such resources can encompass physi-
cal capital resources, human resources such as knowledge, and organizational
resources such as inter-organizational relationships.
Effective PSCI requires a TOC to have ‘orientation to inter-organizational
relationships’ through sharing similar goals and philosophies with supply
chain members and building up and maintaining trust and cooperative norms
(McAfee et al, 2002; Mentzer et al, 2001; Min and Mentzer, 2004; Panayides
and So, 2005a; 2005b). According to McAfee et al (2002), relationship orien-
tation is required for the establishment of long-term r elationships with supply
chain members and is characterized by mutual trust, interdependence, shared
attitudes and beliefs. De Martino and Morvillo (2008) demonstrated that
the willingness to establish relationships with supply chain members having
collaborative spirit and mutual trust entails a higher level of involvement
of ports in supply chains. Bichou and Gray (2004) also indicated that the
ability of TOCs to interact with supply chain members improves the level of
integration along the supply chain. Wu et al (2004) showed that higher levels
of behavioural determinants such as trust and commitment result in higher
levels of supply chain integration.
In addition, a TOC is required to appropriately manage ‘human and finan-
cial resources’ to implement PSCI strategy (De Martino and Morvillo, 2008;
McAfee et al, 2002; Paixão and Marlow, 2003). Gowen and Tallon (2003)
suggested that HRM practices such as employee training and support enhance
supply chain integration by providing better trained and enthusiastic employ-
ees, which is consistent with other SCM studies (eg Dooly and Fryxell, 1999;
Dow et al, 1999). Scarbrough (2000) demonstrated that for tighter supply
chain integration more effective HRM is required by securing necessary skills
and capabilities of employees. Human resources need to have knowledge and
experience to develop the concept, to set up appropriate strategies depending
on their capabilities, and to create new services tailored for particular ship-
pers’ sophisticated demands (Notteboom and Winkelmans, 2001). It is espe-
cially important to provide training and support to make human resources
see beyond the traditional practices implemented in the fragmented physical
Logistics Performance of Supply Chain-Oriented Ports 403
transport era to integrated logistics in the global supply chain era (Bichou and
Gray, 2004). Relationship-oriented firms, in contrast to transaction-oriented
firms, make a long-term investment in their employees such as training and
compensation and the employees invest in the establishment of long-term
relationships with supply chain members (McAfee et al, 2002). As human
resource management and the establishment of relevant systems to implement
PSCI strategy such as information and communication (ICS), intermodal
transport and value-added logistics require a considerable investment, finan-
cial resources are necessary to manage the desired strategy (ie PSCI) (McAfee
et al, 2002; Marlow and Paixão-Casaca, 2003). The importance of financial
resources is also supported by the interviewees: in terms of how willing a
TOC is to invest for supply chain practices and how high a priority the TOC
has in investment for supply chain practices. The ‘top management team’ of
the TOC should also have leadership and commitment to change their strate-
gic direction and support the implementation of the strategies (Mentzer et al,
2001; Min and Mentzer, 2004). The team has a critical role in transforming
an organization towards the new approach in that it shapes an organization’s
values, orientation and direction (Lambert et al, 1998; Loforte, 1991).
1991; Fugate et al, 2010). Adopting the definition and constructs devel-
oped by these studies, Woo et al (2008) and Beresford et al (2011) devel-
oped measures to evaluate port performance in aspects of both efficiency
and effectiveness using confirmatory factor analysis (CFA). This study used
port performance measures consisting of effectiveness concerning external
aspects of port operation such as service quality (reliability, timeliness, infor-
mation provision), customer orientation (responsiveness, flexibility etc) and
service price (level of cargo-handling charge, etc), and efficiency concerning
internal operational aspects such as sea and land operation and cargo opera-
tion (ship waiting time, ship turnaround time, cargo-handling time, time
from entry to exit of port, etc) (see Appendix 19.1 for details).
NOTE * Percentage in ‘responded’ column stands for proportion of response of each group in subtotal
responses.
interviews with practitioners and academics. A large pool of items for PSCO,
PSCI and port performance was generated from the relevant literature. Dur-
ing the interviews with 21 industry and academic experts, the theoretical
framework of this study and the generated measurement items were dis-
cussed, completing the first draft of the questionnaire with a 5-point Likert
scale. Subsequently two practitioners and an academic reviewed and com-
mented on the draft version of the questionnaire, which was re-structured
and re-worded. Appendix 19.1 provides the full list of measurement items
and their sources. The questionnaire package was distributed to 191 target
respondents. The survey questionnaire asked TOCs to evaluate their ter-
minals, responding to the items in the questionnaire. In contrast, SCs and
FDWs were asked to evaluate the terminals they frequently use in both the
selected ports. Accordingly, the maximum possible number of responses that
this study could obtain was 311 (71 from TOCs and 240 from SCs and
FDWs). 127 responses were received (52 from TOCs and 75 from SCs and
FDWs), with a response rate of 40.8 per cent (see Table 19.11).
models (PSCO, PSCI and LPP) are validated. PSCO and PSCI were proposed
as second-order constructs which contain two layers of latent constructs,
and LPP as a third-order construct with effectiveness and efficiency, which
are second-order constructs. Model validation in a measurement model
examines overall model fit and construct validity comprising unidimension-
ality, reliability (scale and composite), convergent validity and discriminant
validity. For structural models, overall model fit is assessed to make sure
how well the structural model fits into the collected data. Structural coef-
ficients are then examined in terms of statistical significance, which decides
whether proposed hypotheses are rejected or not. Nomological validity,
defined as the extent to which measures of different but related constructs
correlate to each other in theoretically predicted ways (Min and Mentzer,
2004), is also assessed.
Measurement models
Prior to the analysis, the collected data were screened and no missing data
were found. Some extent of multivariate non-normality was shown and
bootstrapping was successfully applied as a remedy to non-normality as
suggested by Byrne (2001). The CFA results for PSCO, PSCI and LPP pre-
sented in Table 19.12 show that the overall model fit for the three measure-
ment models is reasonably acceptable. The Comparative Fit Index (CFI)
and Tucker-Lewis Index (TLI) are marginally higher than 0.90 except for
TLI value for PSCI which is 0.89. Standardized root mean square residual
(SRMR) values are all lower than 0.08. The normed fit chi-square statistics
for PSCI equals 2.0 while those for PSCO and PP are greater than 2.0. The
acceptable model fit indices also confirm unidimensionality. The values of
Chronbach’s alpha (>0.7), composite reliabilities (>0.7), and the average
variance extracted for each of the constructs indicates (>0.5) that construct
reliability was confirmed for the measurement models. All items’ loadings
on their corresponding constructs were high (ranging from 0.66 to 0.95)
and significant at the 0.001 significance level (t > 3.29) except for an item
in the EFF 1 construct, of which loading is 0.52, but significant at the 0.001
significance level, and does not appear to harm the overall model fit. This
demonstrates adequate convergent validity.
Discriminant validity was evaluated with the method suggested by Kline
(2005) and Fornell and Larker (1981): 1) the correlation between latent vari-
ables is lower than 0.85; 2) the AVE of each construct is higher than 0.5; and
3) the AVE of each latent variable is higher than the squared inter-construct
correlations. The comparisons for PSCO and PP met the criteria presented
in the previous section. Two inter-construct correlations in the PSCI model
were higher than 0.85 (VAL-SCIP 0.87; OR-TMS 0.89) and their squared
values (0.75; 0.79 respectively) were also higher than the relevant AVEs (VAL
0.67 SCIP 0.71; OR 0.69 TMS 0.73). The details of this test are provided in
Appendix 19.2. Considering that this method applies very conservative crite-
ria and the higher-order measurement model requires high correlation among
Ta B L E 19 . 1 2 CFA results for the first order constructs of PSCO, PSCI and PP
No. of Standardized range of
Constructs items loadings range t-values Crs aVes α-values
Port Supply Chain Orientation (PSCO)
OR 7 0.72–0.89 9.40–12.91 0.94 0.69 0.94
HR 3 0.77–0.89 10.13–12.14 0.87 0.69 0.87
FR 3 0.67–0.90 8.37–10.79 0.86 0.68 0.87
TMS 5 0.74–0.91 9.91–14.66 0.93 0.73 0.93
χ2=306.65 (df=124); χ2/df=2.4. CFI=0.92; TLI=0.91; SRMR=0.056
Port Supply Chain integration (PSCi)
ICS 8 0.67–0.86 8.31–11.19 0.88 0.56 0.89
LTR 4 0.66–0.90 10.83–15.73 0.90 0.67 0.89
VAL 5 0.65–0.93 7.41–13.33 0.91 0.67 0.92
IMT 6 0.72–0.88 8.40–12.14 0.90 0.61 0.92
SCIP 6 0.71–0.90 9.79–14.99 0.94 0.71 0.93
χ2=617.85 (df=305); χ2/df=2.0; CFI=0.91; TLI=0.89; SRMR=0.058
Logistics Performance of Port (LPP)
EFC
Service quality (EFC1) 6 0.72–0.90 9.39–13.18 0.93 0.70 0.93
Customer orientation (EFC2) 4 0.84–0.91 12.90–15.46 0.93 0.77 0.93
Service price (EFC3) 3 0.91–0.97 18.45–22.38 0.95 0.88 0.95
EFF
Sea and land operation (EFF1) 5 0.52–0.92 8.48–9.03 0.90 0.65 0.90
Cargo operation (EFF2) 3 0.76–0.92 11.40–11.51 0.94 0.81 0.90
χ2=373.124 (df=177); χ2/df=2.1; CFI=0.93; TLI=0.92; SRMR=0.069
NOTE CR: composite reliability; AVE: average variance extracted; α-value: Chronbach’s α.
410 Port Logistics
Fi g u r e 19 .6 Structural model
cISCS1 cISCS2 cLTR1 cLTR2 cVAL1 cVAL2 cIMT1 cIMT2 cIMT2 cSCIP1 cSCIP2 cSCIP3
cFR1 cFR2 cHR1 cHR2 cOR1 cOR2 cTMS1 cTMS2 cEFC1 cEFC2 cEFC3 cEFF1 cEFF2
first-order constructs, those cases not meeting the suggested criteria can be con-
sidered to be acceptable. Based on the acceptable validation of the first-order
constructs, validation of the three hypothesized higher-order measurement
models was attempted. The results were successful since the overall model
fit indices were acceptable (2.0<χ2/df<2.4; 0.90<CFI<0.93; 0.89<TLI<0.91;
0.57<SRMR<0.70) and all the factor loadings from the higher-order con-
structs to the corresponding first-order constructs were high (ranging from
0.73 to 0.97) and statistically significant at the 0.001 significance level.
Structural model
The structural model was constructed for testing the hypothesized causal
relationships as shown in Figure 19.6. In constructing this model, a partial
aggregation method, which uses composites of 2–4 measurement items as
observed variables for their corresponding latent variables, was applied to
reduce model complexity and identification problems (Bagozzi and Heath-
erton, 1994; Leone et al, 2001).
The SEM results in Table 19.13 showed that the proposed model achieved
acceptably good fit. The normed chi-square statistics are higher than 2.0 but
below the recommended value of 3.0 suggested by Bollen (1989). CFI (0.90)
and TLI (0.89) do not indicate excellent fit but reasonable and acceptable
fit, and SRMR (0.057) is far below the suggested threshold. The individual
paths were also evaluated. Path PSCO-PSCI was statistically significant at
the 0.001 significance level with the critical ratio of 9.90. The standardized
regression weight was 0.96 indicating the impact of PSCO on PSCI is both
Logistics Performance of Supply Chain-Oriented Ports 411
positive and very strong. Path PSCI-LPP was also significant at the 0.001
significance level and the standardized regression weight was 0.95. This also
indicates PSCI influences PP positively and very strongly. All the factor load-
ings of first-order factors on the corresponding higher-order factors were
significant and high, ranging from 0.7 to 0.96. In addition the factor load-
ings did not show substantial difference from those in the measurement
models, demonstrating the measurement models’ validity and stability (Hair
et al, 2010). The SEM results also supported nomological validity of PSCO
and PSCI measurement models because the PSCO-PSCI path was theoreti-
cally expected to make a positive contribution to LPP.
Conclusion
With regard to the results and findings of the empirical research, first, the
three constructs, PSCO, PSCI and PP, were successfully validated with the
412 Port Logistics
(Continued )
Ta B L E 19 . 1 4 Latent and observed variables for PSCO (Continued )
Measurement items Source
TMS (Top Management Support)
Top management repeatedly tell employees that our continued success depends on its adapting to new Min and Mentzer (2004)
logistics environment such as supply chain integration (TMS1) Min et al (2007)
Interview findings
Top managers repeatedly tell employees that building, maintaining, and enhancing long-term relationships
with supply chain members are critical to our business’s success (TMS2)
Top managers repeatedly tell employees that sharing valuable strategic/tactical information with supply
chain members is critical to business’s success (TMS3)
Top managers repeatedly tell employees that sharing objectives and philosophy is critical to our business’s
success (TMS4)
Top management offers various education opportunities about supply chain management and integration
(TMS5)
NOTE * References in the ‘Source’ column represent sources for all the items in each block where they belong.
Ta B L E 19 . 1 5 Latent and observed variables for PSCI
Measurement items Source
iCS (information and Communication System)
Providing information concerning shipment and cargo tracking (ISCS1) Vickery et al (2003)
Sharing information concerning inventory management with supply chain members (ISCS2) Min and Mentzer
Exchanging information concerning supply and demand forecasts with supply chain members (ISCS3) (2004)
Exchanging information concerning marketing strategy with supply chain members (ISCS4) Min et al (2007)
Using integrated EDI (Electronic Data Interchange) to communicate with partners in the supply chain (ISCS5) Panayides and Song
Using integrated information systems to share data/information with partners in the supply chain (ISCS6) (2008)
Adopting computerized service systems for supply chain operations (ISCS7) Interview findings
Using the latest IT technology to support supply chain goals (ISCS8)
LTr (Long-Term relationships)
Reducing channel complexity to closely work with a selected set of Shin et al (2002)
supply chain members (LTR1) Min and Mentzer
We have facilitated a strong and long-term supply chain relationship fostering cooperation with each other (2004)
(LTR2) Min et al (2007)
Relationships with supply chain members are based on trust rather than contractual obligations (LTR3) Interview findings
Having guidelines for developing and maintaining long term relationships with supply chain members (LTR4)
VaL (Value-added Logistics)
Having adequate facilities for adding value to cargoes (VAL1) Panayides and Song
Capable of adapting a service to meet the customers’ specifications (VAL2) (2008)
Capable of launching new tailored services should the need arise (VAL3) Interview findings
Capable of delivering services tailored to different market segments (VAL4)
Capable of handling different types of cargo (VAL5)
(Continued )
Ta B L E 19 . 1 5 Latent and observed variables for PSCI (Continued )
Measurement items Source
iMT (inter-Modal Transport)
Having the capacity to convey cargo through the most diversified routes/modes at the least possible time Panayides and Song
(IMT1) (2008)
Having a variety of services to handle the transferring of cargo from one mode to another (IMT2) Interview findings
Having adequate connectivity for the multimodal interface (IMT3)
Having reliable service operations for the multimodal interface (IMT4)
Providing cost-effective multimodal operations (IMT5)
Evaluating alternative routes for the more efficient multimodal transport of containers via our Terminal (IMT6)
SCiP (Supply Chain integration Practices
Collaborating with other supply chain partners to plan for greater supply chain optimization (SCIP1) Panayides and Song
Seeking to identify other competing supply chains for containers that might flow through our terminal (SCIP2) (2008)
Comparing the cost and time of cargoes flowing through our port and those of the cargoes flowing through Interview findings
other competitive ports (SCIP3)
Benchmarking the logistics/supply chain options available for cargoes that will flow through our port vis-a -vis
alternative routes via competing ports (SCIP4)
Seeking to identify least cost options for the transport of cargoes to hinterland destinations (SCIP5)
Constantly evaluating the performance of the transport modes available for linking our port/terminal to its
hinterland destinations (SCIP6)
NOTE * References in the ‘Source’ column represent sources for all the items in each block where they belong.
Logistics Performance of Supply Chain-Oriented Ports 417
NOTE * References in the ‘Source’ column represent sources for all the items in each block where
they belong.
418 Port Logistics
Appendix 19.2
Ta B L E 19.17 Port supply chain orientation (PSCO)
Fr Hr Or TMS
FR 0.68 0.4 0.5 0.45
HR 0.66*** 0.71 0.59 0.71
OR 0.71*** 0.77*** 0.69 0.79
TMS 0.67*** 0.84*** 0.89*** 0.73
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Logistics Performance of Supply Chain-Oriented Ports 421
I n the first edition of this volume of readings in maritime logistics our aim
was to propagate further the development of this interesting area that
combines maritime transport and logistics management. Evidence suggests
that this aim has been achieved bearing in mind the considerable interest
that was shown for the first volume. On this basis the aim for the second vol-
ume remains strong and clear, bearing in mind the need for further empirical
research and development of scholarly thought in maritime logistics. The
combination of the two concepts is a natural consequence of the convergent
managerial and physical objectives in the transportation of goods and com-
modities from production to consumption. The combination is also evident
from the contributions in this volume. This concluding chapter provides an
overview of the contributions from two perspectives. The first perspective
reviews the chapters by highlighting the topics of investigation as well as
their importance. The second perspective focuses on what we have learned
from the contributions in the volume and highlights topics that may be the
subject of future scholarly investigation.
business environment of ports and its effects on those ports. The evolution-
ary development of ports on a global scale is thereafter discussed from three
different perspectives. The first perspective is involved with the port gen-
erations model, the second with the privatization of ports, while the third
with the emergence and expansion of global port operators (GPOs). Finally,
before the main theme of this chapter, the development of port-centric logis-
tics (PCL) in the UK over the last decade, is discussed, the unique para-
digm of UK ports regarding their ownership and management mandates is
framed.
The concept of the hub port has been at the centre of maritime practice
for a good part of the last two decades. Despite this it seems that defining
exactly what a maritime logistics hub is has been an elusive concept, accord-
ing to Nam and Song (Chapter 15). They identify several empirical analy-
ses that use rather abstract definitions of maritime logistics hubs generally
proxied to container hub ports. Therefore, the authors attempt to tackle this
gap by not only defining the concept of the logistics hub but also by describ-
ing its application to container ports. The chapter concludes by providing
implications as to policy and strategy that will enhance the ability of aspir-
ing ports to become hub ports.
Chapter 16 by Parola aims to provide an exhaustive overview of the
container port business state of the art and evolution, depicting mainstream
trends and common managerial practices. For this purpose, extant academic
literature has been scrutinized in depth and critically discussed. The chapter
conceptualizes the nature and typology of stevedoring services, enlightening
the differences between dedicated and multi-user facilities. In addition, it
introduces business models of leading market players, exploring the main
drivers of growth. The chapter provides an analysis of spatio-temporal
dimensions of container port MNEs’ internationalization, illustrating the
timing and the geographic scope of overseas expansion. There is also a
description of the most common firms’ entry patterns and expansions of the
understanding of inter-firm partnerships, which originate ‘hidden families’
of cooperation across multiple locations.
In Chapter 17, Lam, Parola and Panayides add value to the body of port
literature by focusing on the growing trend in port public–private partner-
ships (PPPs). The study aims to perform an exploratory investigation of
the impact of PPP on port logistics performance through the discussion of
examples from the port industry and the respective countries’ situation. In
particular, the authors identify relevant institutional factors to frame the
discussion and draw inferences. Based on the examples from various ports,
PPPs could improve port logistics performance primarily attributed to the
private sector’s operational and managerial expertise. However, there are
also examples showing the capability of the public sector in achieving a high
level of port logistics performance.
Centin (Chapter 18) provides an organizational view of ports and logis-
tics chains. In particular, the author examines improvements in organiza-
tional effectiveness that can be achieved by organizational developments
Looking Ahead 431
context of this combination and this is where further research may focus.
Value includes improved efficiency and effectiveness, but also strategic value
from the expansion and offer of additional services.
Bergqvist (Chapter 5) concludes that the hinterland transport system is
a crucial part of the supply chain of shippers and logistics service provid-
ers. An in-depth understanding and knowledge of hinterland logistics and
its unique conditions in each situation are a crucial part of effective design
and strategy regarding transport systems and ultimately of efficient global
supply chain management.
In developing logistics systems and infrastructure, one must not overlook
the human element as highlighted by Österman and Osvalder (Chapter 6)
who focus on the maritime domain, identifying causes of occupational
hazards and their physical as well as company-related economic effects.
Hayashi and Nemoto (Chapter 7) conclude that under a globalized envi-
ronment, more varied alternative intermodal transport routes are required
in order to fulfil the changing and growing needs of the shippers. Shippers
are also interested in optimization of the global supply chain, cost and qual-
ity as well as service frequency. In order to achieve such goals the authors
state that cooperation is required between countries, especially develop-
ing countries, to plan on international intermodal transport infrastructure
requirements.
The development of liner shipping networks and the design of liner ser-
vices in a maritime logistics context are analysed by Ducruet and Notte-
boom (Chapter 8). The chapter breaks new ground by discussing the drivers
of liner service design and by exploring the changing geographic distribu-
tion of main inter-port links in light of liner network configurations and in
also considering the network position of seaports by referring to the con-
cepts of centrality, hierarchy and selection factors.
Panayides et al (Chapter 9) in their study of the supply chain integration
of shipping companies and the valuation effects thereof provide preliminary
confirmation that the supply chain integration trends in shipping compa-
nies and liner shipping in particular are value-creating. They conclude that
studies in the general literature indicating a diversification discount do not
necessarily apply in the unique setting of the maritime logistics industry. Of
course, bearing in mind that at a strategic level not all companies choose to
be diversified in the supply chain, the authors highlight the need for further
studies to distinguish between the performance implications of supply chain
integrated (diversified) and non-integrated shipping companies. Bearing in
mind the key question for management decision makers of whether or not
to integrate supply chain within maritime logistics, the area is very promis-
ing for further empirical investigation.
Baird (Chapter 10) reveals some interesting findings with respect to the
involvement of liner shipping carriers in offering logistics services. In par-
ticular, he found that several top 20 carriers maintain a wide portfolio of
logistics investments and capabilities and hence derive considerable income
from these activities. Despite this, the size of a carrier is not directly related
Looking Ahead 433
customers 60, 61, 167, 280–81, 362, ease to start a business 333–34, 336–37
363, 370, 394, 417 econometric models 282–84
customs 13, 15, 16–17, 18, 21, 22, 230, economic
231, 331 conditions 328, 386
and dry ports 237, 238 dimensions (port authorities) 356
and hinterland transport 83, 116 growth 32, 33–35, 36–37
CYKH 131 theories 282–85
effectiveness
Danish Pilotage Service 332–33 government 331, 335, 336–37
data organizational 343–44, 358–72,
calibration 202, 204–05, 207, 210 430–31
manifest 16–17 service 60–61, 63
dedicated efficiency 60–61, 63, 102, 104, 360,
equity ventures 294 362, 363, 403, 404–05
terminals 295, 296 port 13–14, 384
deficiencies, inspections 97–98 see also inefficiencies
degree centrality 140, 145, 286 EJVs 311–13, 434
delays 16, 17, 25, 60, 61, 83, 197, 198 electrified railways 75, 77
demurrage 16, 18, 25, 197, 201, 258, Emma Maersk 91
261 empirical analysis, port logistics
Denmark 332–33 406–11
deregulation 8, 54, 120, 121, 247, 256, employee satisfaction 363
257, 275–76, 292 Enabling Trade report 22–25,
see also regulatory environment 25–26, 431
design, liner service 131–33 entry summary declaration (ENS) 18
detentions 16, 18, 25, 96, 97–98, 102, environmental impact 104, 236, 239,
104 247–48, 259–60, 280, 433
developing economies (countries) 14, accidents 98
36, 38–39, 50, 122, 292 dry bulk shipping 222
port PPPs 323, 324, 325, 326 transport systems 75–77, 118, 234,
direct supply chains 393 235
discharge oil losses 206 see also sustainable development
distance 137–40, 221, 229 Equasis 98
distant dry ports 233 equity
distribution firms 300, 308
capacity 221 funds, private 250
centres 276, 277, 278, 391 ventures
disturbances, operational 97, 104 dedicated 295, 296
Doing Business Indicators 329–38 EJVs 311–13, 434
domestic followers 305, 306 50/50 296, 311
DP World (Dubai Ports World) 62, 63, ergonomics 92–98, 99–100,
251, 322, 332 101, 104
and container ports 301, 302, 308, Erica 92
310, 312, 314–15, 316 Ericsson 98
stevedoring services 297, 305, 307 Error Correction model 283
dry bulk shipping 7, 41–42, 162, Estonia 92
211–23, 321, 323, 326, 429 EU-27 33, 75, 76
dry ports 7, 85, 227–39, 243, 433 Eurogate 63, 251, 297, 302, 306, 312,
DSTs (double stack trains) 116–17, 312, 314, 315
118, 119 Euromax Terminal 330
438 Index
LSPs 79–81, 88, 171, 189 mergers and acquisitions 149, 153, 172,
see also integrators 249, 309–10, 389
LTRs 400, 415 Miami 143–44
midrange dry ports 233
M&A 149, 153, 172, 249, 309–10, 389 minority shares 311
machinery damage 97 Mitsul O.S.K. Line 159
McLean, Malcolm 69, 114 MLB (mini-land bridge) 117
Madrid 237–38 MO 398
Maersk Line 62, 69, 130, 131, 157, MOL 131, 159, 174, 186, 298, 302,
174, 177, 180–81, 186 304, 315
and container ports 304, 305 MSC (Mediterranean Shipping
Malaysia 328, 336 Company) 62, 130, 131, 157,
management 73, 82–87, 386 174, 180, 188, 331
HRM 402–03, 413 and container ports 299, 302,
manifest data 16–17 304–05, 308, 312
Marco Polo Programme 118 MT Convention 110
marine terminals 194–95 multimodal transport 4, 71, 110–11,
maritime logistics 3–4, 29, 30–32, 119–21
53–64, 171–90, 431–32 multinational enterprises (MNEs)
centres (facilities) 276, 278 8, 291–93, 296–308, 317,
chains 343–72 430, 434
channel perspective 349 multinationalization 291–317
hub concept 8, 275–87, 433
ports 258–418 National Fire Protection
service providers 79–81, 88 Association 195
see also integrators National Policy Statement (Planning
maritime port logistics chain 393 Act 2008) 332
market negotiations 81
conditions 14, 328 Netherlands 330–31
openness 332, 336–37 network
orientation 398 analysis 316
value 165 theory 285–86
marketing terminals 195 networking, port 357
Matson Navigation Company 69–70, networks
114, 304 interlining 129
measurement liner service 6, 125–46, 432
centrality 286 relay 129
crude oil 201–02, 203–04, 205, 206 New World Alliance 131
financial 96 Nippon Express 120
lean port performance 389 noise levels 94, 99, 101
organizational effectiveness 359–72 NOL Group 158, 163, 298
performance 96–98 non-tariff barriers 11, 18–19, 23, 25
port performance 387, 389, 403–05, North America 111, 116–17, 211
407–11 notice of readiness (NOR) 197
ROB 205, 206, 208 NVOCC 120
transport 60–61 NYK Line 131, 159, 162–63, 174,
mental health 96, 100, 103 184–85, 186
merchandise trade growth (2007–2012) and container ports 299, 302, 304,
35, 36 312, 331
442 Index
VAL 175, 177, 245, 264, 279, 281, 346, Zeebrugge 130, 142, 265
350, 400, 415 Zim 160, 175, 188, 302, 304, 316
Valencia 130, 143 Zoroaster 195
EDITION
DONG-WOOK SONG
2ND
“International trade is growing faster than the global economy – and most
trade continues to be seaborne. Orders may be placed electronically, but the PHOTIS M PANAYIDES
actual movement of the goods still requires ports and ships. Maritime logistics
is thus evermore important for any country’s development. Understanding
contemporary shipping and port management is vital for businesses and
MARITIME LOGISTICS
policy-makers in leading their companies and countries. Written and edited
by some of the world’s most renowned maritime economists, this new edition
of Maritime Logistics is both timely and important.”
Jan Hoffmann, Chief, Trade Facilitation Section, UNCTAD, and President,
International Association of Maritime Economists
PHOTIS M PANAYIDES
logistics, global supply chains, maritime transport and future trends and
DONG-WOOK SONG
developments.