The Modern Port and Global Supply Chain Optimisation

Obiora MaduCEO - Multimix Academy

Opening Statements

• “Whosoever commands the sea commands the trade: whosoever commands the trade of the world commands the riches of the world and consequently

the world itself”.- Sir Walter Raleigh, a pioneer shipping magnate,

• "No matter how information technology advances, the world trade cannot be materialised without ports. This is exactly why every country needs to develop much more advanced and efficient ports for its prosperity

Dr. Mahathir, Prime Minister of Malaysia

INTRODUCTION

• Truly speaking, the challenges facing shipping and the world's ports today are not only related to the quantity but also the quality of services. The continuous progress of globalisation of shipping and trade business is resulting in increasing pressures on ports cost and improve operational efficiency.

• Ports are a critical part of global supply chains and also a major focus for global security.

• Transport is an integral part of the entire supply chain• Over 60% of cross border trade moves via water• Competitive position due to supply chain links• Support raw material acquisition, manufacturing and

distribution of finished products• Create synergies• Converge interests between port community players to

guarantee:– Reliability– Continuous Service– Good Productivity Level

Why are Ports Important?

• According to the SCM perspective, ports have been considered as part of the chains of companies involved, through upstream and downstream linkages, in the processes and activities that create value to the final client

• Robinson (2002): the port is considered as a Third Party Logistics (TPL) provider that intervenes in a series of different companies’ supply chains. His work focuses on integrative practices undertaken by shipping companies for the supply of complex logistical services, from intermodal transport to distribution of goods.

• Paixão and Marlow (2003) analysed the potential application of agile supply chain strategy to ports. The authors, in this case, identify the role of the port in supply chains with the contribution of large terminal operators in the process of integration with the other actors of the supply chains.

Ports in SCM: theory

• Ports today face two competitive challenges – the large increase in volumes and the need for greater efficiency. This presentation will identify catalysts for optimum future development of port infrastructure as well as the implication on export competitiveness, port commerce, inter-port co-operation and competition. It will also provide a framework for improving integrated logistics network as a tool for utilising the full capabilities of modern ports, provide some insights on the cost of poor logistics to country competitiveness and the sources of those higher costs. Beyond cost and time taken to deliver goods, the predictability and reliability of supply chains.

The Modern Port and Global Supply Chain Optimisation

The role of port in the SCMA

B

D

Firm ActivityResource Relationship

SC

L

H

RO

MTO

W

T

C

E

H

SC = Shipping Company; T = Terminal Operator; L = Logistics operator; H = Haulier; RO = Railway Operator; W = Warehouse; MT = Multimodal Transport operator

Port competitiveness Port Value Concepts• Port competitiveness is a topic of increasing relevance, given the importance of ports

both as source of value creation for the firms involved in the process of services production and, more in general, for the impact of port activities on the economic development of the “territory” in which the port is located.

The concept of value in the port studies is mainly related to: The impact of the port activities on the “territory”; The port firms involved in the process of services production (shipping

company, terminal operators, freight forwarder)

With reference to the port community, different perspectives very often conflicting :

Port Authority tries to maximise the value for the territory by adopting an industrial politics logic;

Port firms try to maximise the value for the final client, by adopting competitive strategies

The role of modern seaports

• The role of modern seaports involves integration in the supply chain and fulfilling this role means:

• greater ability of the port to satisfy customers and achieve its objectives.

• On this basis, it is hypothesised that specific measures of integration in the supply chain will be positively related to specific measures of port performance and competitiveness – the measures themselves reflecting contemporary logistics goals and not merely traditional efficiency measures.

The new role

• The change in the traditional role of ports to nodes integrated into global logistics supply chains has necessitated restructuring in many ports worldwide.

• It has also been necessary to adapt to those changes and separate port operations from port authority functions in accordance with the so-called landlord management model. African ports within the national port system in order to comply with the requisite changes.

Port Reforms

Port reform has taken place in many ports worldwide with different reasons for changes, of which the most general have been: • To improve productivity• To obtain financial autonomy• To rationalise port structures and minimalise bureaucratic intervention in

decision-making• To redeem debt obligations• To diminish the role of government in the operations of ports and maintain only

the landlord function• To become more business-orientated in order to be able to compete in the free

market• To deregulate the labour market and introduce business-based agreements• To attract private capital.

Strategic Channel Intermediaries: Ports• Port selection is a very important

part of the international logistics strategy.• Different ports often specialise in different

types of shipments.• Selecting the wrong port can add miles,

time, and therefore cost to a shipment not appropriately routed.

• Overall door-to-door transit time and variability most important factors

Seaports and Supply Chains

• Ports as members of a supply chain and a part of a cluster of organisations have a huge role to play for seamless operations

• Identified variables include:

– relationships between the port operators and the focal firm’,

– ‘supplied services that add value’,

– ‘information and communication technologies’, and

– ‘performance measurement indicators common to supply chain partners’.

– Introduction of the logistics concepts of ‘lean’ and ‘agile’

Integration Parameters

• Parameters to make-up the concept of port integration in supply chains-

• Use of Technology for Data Sharing• Relationship with Shipping Lines• Value Added Services• Mode Integration• Relationships with Inland Transport Providers• Channel Integration Practices and Performance

Why is Global Optimisation Hard?• The supply chain is complex• Different facilities have conflicting objectives• The supply chain is a dynamic system

– The power structure changes

• The system varies over time• Matching supply and demand is difficult.• Demand is not the only source of uncertainty:

– Lead times– Yields– Transportation times– Natural Disasters– Component Availability

Key Challenges faced within a Global Logistics Network• Lengthening of the Supply Chain• Difficulty & Cost Inefficiencies in Transportation

Execution• Lost Sales/Mismatch in Supply & Demand• Import/Export Compliance Procedures• Disconnect between International and Domestic

Transportation• Lack of Strong Technology support • Lack of Experience and Skill Sets

Characteristics of a World-Class Transportation Logistics Network

• Optimal Design of Global Supply Chain

• Integrated Planning and Execution Processes

• Integrated International and Domestic Logistics

• Global Logistics Visibility

• Dynamic Logistics Routes

• Logistics Process Automation

• Collaboration with Supply Chain Partners

• Compliance to Changing Regulations

• Making the Financial-Supply Chain Connection

Competitive performance measures for ports

• Price (cost advantage)

• Quality

• Reliability

• Customisation

• Responsiveness (From Marlow and Paixao, 2003; Tongzon and Heng, 2005 and others)

What are the Leaders doing?

• Laggards are taking the full brunt of rate increases and capacity/performance shortfalls

• Leaders are taking action to avoid these problems by:

– Trying to Improve overall service and financial performance

– Investing in the right place– Focusing on Value– Thinking End to End– Leverage Technology (Network

Design, Logistics, Visibility, Analytical Solutions, etc..)

– Tapping local Talent– Manage Risk

RevenueRevenue

CostsCosts

Working Capital

Working Capital

Fixed Capital

Fixed Capital

Shareholder Value

Shareholder Value

ProfitabilityProfitability

Invested Capital

Invested Capital

Laggard’s Silo View

Leader’s Holistic

Approach

Lower raw materials and finished goods inventory without sacrificing customer satisfaction or raising logistics costs

Shorter “order-to-$$$” cycles

Greater customer satisfaction (i.e., higher market share, greater gross margins)

more competitive delivery availability

Lower cost of goods sold - low freight rates at each business unit

Fewer physical assets (i.e., trucks, trailers, and much higher asset utilization

Global Transportation Logistics Network

Warehousing& Storage

Carriers

Customers

Shippers

Consolidators

Cargo HandlersLogistics Service Providers

Freight Forwarders

IMPORT STAKE HOLDERSGovernmen

tFreight Forwar

dersLocal

Commercial

Banks

Foreign Banks

Inspection

Agents

Customs Inspectors

Customs

Brokers

Shipping Compan

ies

Port Authori

ties

Gov. Agencie

s

Suppliers

THE IMPORTER

At the centre of various

assaults.

What’s the role of Port authority?

The port authority will concretely play a crucial role as the main governance actor of port by: promoting innovation through policy actions aimed at

improving the efficiency of port infrastructures and their connections within existing transport systems, according to environmental, social and economic sustainability criteria

favouring and stimulating free competition among port operators, through a proper concession of both terminal and land management to private business actors for the supply of value added services

Contemporary developments

• Contemporary developments in maritime transport and logistics indicate that ports should play an important strategic role as a member of a supply chain that involves sea and inland transportation.

• The paper puts forward six parameters conceptualised to account for most of the variation in the degree of seaport integration in logistics and supply chain management.

• – adoption of information and communication technologies,• – relationships with shipping lines,• – value added services,• – inter-connectivity/inter-operability with inland modes of transport,• – relationships with inland transport operators and channel integration

practices and performance

Trade costs

• Trade costs can be defined as the cost of transaction and transport associated with the exchange of goods over and above the marginal cost of production. Broadly defined, trade costs include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself.

• Such costs include transportation costs (both freight costs and time costs), policy barriers (tariffs and non-tariff barriers),

• communication costs, utility costs, and local distribution costs (wholesale and retail).

Improved trade logistics and facilitation

Improved trade logistics and facilitation can improve competitiveness by:

• I. Increasing profitability of existing exports and encouraging expansion in production

• II. Reducing delivery time and cost of imports, benefiting both domestic & export sectors

• III. Allowing manufacturers to enter high value market segments e.g. premium garments requiring shorter delivery cycles

• IV. Opening up new markets e.g. horticulture-flowers, fruits, etc.

Why Measure

• The case for understanding the cost and impact of global logistics is regarded as a non-issue with prominent researchers and authors of the discipline. It simply must be measured.

• “The distribution of products and services from the point of origin to point of consumption is a very important part of any country’s gross national product, and indicates how much ‘money’ the country has produced or made. Logistics activities thus mean money to a country.” (Voortman, 2004, p.13).

• “As the logistics functions become more integrated, they are able to achieve many efficiencies. But, a barrier to fully implementing an integrated logistics function is the lack of accurate information about costs.” (Fredendall and Hill, 2001, p. 213)

The World Bank Ranking

Countries that have high rankings and/or have shown significant gains have done so by showing consistently superior performance in key macro and microeconomic areas:

• Macroeconomic environment: high budget surpluses, low government waste, strong country credit rating, low inflation

• Strong public and private institutions: absence of corruption, business and governmental transparency, judicial independence, enforcement of property rights

• Technology and innovation: high spend on research and development (R&D), aggressive adoption of new technologies, university and industry research collaborations, active use of technology

• Education and training: high educational enrolment rates, excellent educational establishments, skilled labour force

Domestic Logistics Performance Index• The Domestic LPI looks in detail at the logistics environments in 116 countries.• For this measure, surveyed logistics professionals assess the logistics environments

in• their own countries. This domestic evaluation contains more detailed information on• 1. Countries’ logistics environments, processes and institutions• 2. Logistics performance time and cost• It uses five major determinants of overall logistics performance to evaluate the

logistics• environment and institutions and to measure logistics performance time and cost:• 1. Level of fees and charges• 2. Quality of Infrastructure• 3. Competence and quality of services• 4. Efficiency of services• 5. Sources of mayor delays (timeliness)

International scorecard

The international score uses six key dimensions to benchmark countries' performance and also displays the derived overall LPI index. The scorecard allows comparisons with the world on the six indicators and the overall LPI index.

The logistics performance (LPI) is the weighted average of the country scores on the six key dimensions: • 1) Efficiency of the clearance process (i.e., speed, simplicity and predictability of

formalities) by border control agencies, including customs;• 2) Quality of trade and transport related infrastructure (e.g., ports, railroads, roads,

information technology);• 3) Ease of arranging competitively priced shipments;• 4) Competence and quality of logistics services (e.g., transport operators, customs

brokers);• 5) Ability to track and trace consignments;• 6) Timeliness of shipments in reaching destination within the scheduled or expected

delivery time.

TOP 10 LAST TENGermanyNetherlandsBelgiumUnited KingdomSingaporeSwedenNorwayLuxembourgUnited StatesJapan

AngolaChadTajikistanMauritiusGeorgiaMacedonia, FYRLibyaMaliBotswanaBolivia

A Robust Benchmark

• As stated in the conclusion of the World Bank report, the Logistics performance index rankings and indicators provide robust benchmarks that may help policymakers - and particularly the private sector - to build the case for reform. “By showing countries how they compare with their competitors and shining a light on the costs of poor logistics performance, it is hoped that the LPI and its indicators may help countries break out of the vicious circle of logistics unfriendliness.”

Attacking Supply Chain Disruptions

• The recent rise in a number of calamities and the terrorist acts has brought much attention to the vulnerabilities of supply chains. Having pass through many hands that span continents and entities, the reliability and timeless of freight delivery become increasingly difficult to be assessed.

• Particularly, at seaports which is an indispensable node in global supply chain and where complex sea and land interfaces come into play, the role of ports in maritime supply chain disruptions needs be explored.

• The evolutionary developments in port functions through three generations usually refer to changes in types of cargo received, port activities and members as well as degree of involvement of the port community

• The post containerisation era witnessed marked progress in value- addedness and increasing integration into supply chains

• With the growing importance of port hinterland, coordination and cooperation with other transport nodes create anticipated means of creating synergies

• However, some dyadic players in a port supply chain have operational relationships but not

Phase 1- Assess the impact of disruption.

Port disruptions may cause companies to deviate from their existing supply chain strategies, and optimise cost versus service within the constrained environment. For example, cost-driven companies may have to move products via alternate ocean routes with longer transit times, leading to poor product availability and lost sales.

Companies focused on responsiveness may need to work with their logistics service providers to book space in advance, secure alternate routings, or pay rapidly increasing spot prices to keep freight moving.

Knowing the financial impact of disruption enables companies to develop a pre-disruption plan that balances investment in developing and implementing a contingency plan against the cost of responding without planning.

Phase 2: Explore options.• Align planned response to supply chain strategy. Contingency response

options for affected product flows resulting from a port disruption include:• Develop alternate sources of supply. Suppliers closer to demand points

will avoid material movement via transportation points or ports deemed to have higher risk of disruption.

• Build onshore inventory. Increase safety stocks of materials that are typically routed via ports with high potential for disruption.

• Plan for alternate routes. Map out and assess alternate, contingency routings to move products.

• Evaluate airfreight strategy. Examine the impact of a mode shift from ocean to air by comparing the trade-offs of cost, transit time, and service.

• Consider the constraints and benefits of each option in the context of your supply chain strategy to ensure the responses align with your supply chain goals and objectives

Other Options

• Postponement

• Strategic stock

• Rebalancing of the supply chain.

• Make-and-outsource

• Networked economic supply incentives

Phase 3: Prioritise the response options• Some response strategies, such as building

onshore inventory and developing alternate sources of supply, require long-term planning and implementation horizons. Thus, the earlier you start planning for the potential disruption, the more response options you have, and the better prepared you will be to minimise any impact.

Africa & Global trade cond.

• Africa is about 20% of the world population but Africa's contribution to global trade is less than 3 per cent last year. 

• This is hardly surprising considering that the most integrated regions in the world are also the most competitive at the global level. 

• The rising share of Asian countries in world trade underscores this point.  Whereas Africa's trade with external partners, in particular with emerging economies is growing very fast, trade amongst African countries is stagnant.   

• The level of intra-African trade is also very low compared to other regions of the world

Conclusion

The future ahead of us seems to be full of changes and challenges. Unthinkably, drastic changes and trends, which are yet under the water, may be emerging to even quickly replace present ones. Let us sail out together to the ocean of the 21st century with the spirit of challenges”. Shipping conference

Questions?