Wednesday, May 11, 2022

Optimizing global maritime supply chains: What is a ‘Dual Transaction’ in a container terminal?

In the thrust of nations towards ever higher competitive advantage[1], container terminals play a pivotal and indispensable role. Technological advances and competition amongst them, have forced terminals to raise their efficiency to remarkable levels. This was not always the case: there were times, during the protectionist years following WWII, when inefficient ports were tacitly encouraged by local exporting interests, seen as protection from foreign imports. These were the days of the general cargo freighter, often known to spend half of her time in port, waiting to berth, unload and load[2]. Seafaring was fun during those days. Today, the ship is turned around in two days and the terminal may be 50 kms or more from the city. Even if public transport did exist, the youngster would rather relax in his airco berth, or by the pool, or playing a game of snooker with his mates. At any rate, he would again be back home in a couple of weeks[3].

Simply put, efficiency means two things: Either we strive to achieve a certain output (i.e., number of containers handled per annum, or ships hosted in our berths) with as low a cost as possible; or, given a certain endowment of port resources (i.e., cost), we struggle to maximize the port’s output. The methodology commonly employed in this type of efficiency assessments is known as Data Envelopment Analysis (DEA): a mathematical programming approach, producing ‘frontiers’ of best practice (i.e., top efficiency), against which all other firms (in our case port terminals) can benchmark themselves; a procrustean bed, so to speak[4].

Whatever the case, cost control is the paramount consideration of port management. One of the ways to achieve this is to minimize the movement of containers and their handling-equipment in and around the terminal. A few examples might suffice: Minimize the turnaround time of ships (how many ship-to-shore cranes can I deploy on a large ship before I start realizing diseconomies?); Minimize container rehandles in the stacking yard (if a container departs in two hours, you may not stack other containers on top of it); minimize the distance between the berth and the stacking yard; minimize the distance an external truck must travel between the gate and the place where it must drop its export container; minimize the time a truck must wait in the parking lot before it can enter the terminal to pick up its container; and so on.

If one wants, and one must want, problems could become even more challenging: Stack containers in the yard according to the stowage-plan of calling ships; i.e., optimize ship stowage-planning and yard-planning simultaneously and well in advance, adjusting terminal-planning according to ship operations in previous ports. Yard-planning is an operations research (OR) challenge but, even in the largest of terminals, like Shanghai, Rotterdam, Singapore or Los Angeles, the problem has been efficiently solved through the development of advanced IT software. But if yard-planning is a challenge, stowage-planning may be an even bigger one: A stowage plan needs to take into account not only the ship’s port-rotation, but also a) stability considerations during loading (the clearance between the ship’s keel and the seabed, these days, may be less than half a meter, and if loading along rows is not even, touching the seabed could be disastrous); b) alliance-members’ dedicated bays on the ship; c) crane density; d) different sizes of containers; e) dangerous goods, and more. If stowage-planning and yard-planning are ‘challenges’ in themselves, trying to optimize them simultaneously is an OR nightmare. It is not by accident that my brightest students (in math and OR) work at PSA, DP World, Hutchinson and other global terminal operators.

But still we haven’t explained what are ‘dual transactions’ in container terminals.

There are two types of external trucks visiting a container terminal: those who bring export containers from the hinterland, to be loaded on arriving ships; and those who come to pick up import containers, already unloaded and waiting in the container yard. Usually, in both cases, one of the two legs of the trip is unproductive: the ballast leg, as we would say in shipping. A truck drops the container at the terminal and returns empty; another goes empty to the terminal to pick up an import container. This type of inefficiency -if we could call it that- not only leads to higher transport costs but, these days, it causes things even more important:  these are the negative externalities of land infrastructure use, i.e., pollution, congestion, and road accidents. It would be interesting at this point to make a small diversion.

The drive to efficiency, as we said above, has to do with maximizing output (e.g., number of containers handled) given a certain endowment of resources (cranes, land, people).  Today, however, there is a new factor entering the efficiency calculation: This concerns the minimization of negative externalities from port operations, such as sea and air pollution, noise, disturbances of sea ecosystems, accidents, impacts on local communities and on commercial activities (e.g., fishing, aquacultures, etc.), conflict with urban development plans, road congestion around the port and so on; the list goes on[5]. All these are called ‘negative output’ of port operations and reducing them is equivalent (or it should be seen as equivalent) to increasing ‘output’.[6] [7] The question of course here, as in all cases involving negative externalities, is how to price them, who should pay for them and how, and what would be the impact of higher prices on trade and welfare. But let us finish our diversion here and return to our dual transactions.

Can a hinterland consignee know which trucks take export containers to the port so that he can ‘book’ one to pick up his waiting import container and bring it to him? And can the truck going to the port to pick up an import container know who, in the hinterland, needs a truck to carry his export container to the terminal? Technically, this exchange of information shouldn’t be too difficult to organize, and a simple APP could take care of it. The impact of dual transactions on terminal management requirements, however, is considerable, and this is the problem we have tried to solve in this research, the development of which took us more than three years.  This is why[8]:

The terminal management system we have described above, i.e., stacking-berthing-gate (etc.) operations, now needs to be modified to accommodate the following dual transaction considerations: a) An incoming dual transaction (DT) truck cannot wait at the gate and needs to jump the queue; b) the truck cannot wait either at the queue of the export block to drop its container; priority should be given to it over the operations of internal terminal trucks and other handling-equipment; c) when the truck is ready to move to the import stack to pick up a container, the handling-equipment (e.g., bridge cranes, straddle carriers; reach-stackers, forklifts, etc.) should be ready and waiting and, ideally, the availability of the equipment should have been planned in advance. So, in short, if optimizing shore and yard operations jointly (we have carried out research where even gate operations are included in this optimization) in a nightmare, the inclusion in the problem of dual transactions makes the problem apocalyptic. This, because now one needs to develop a heuristic algorithm that jointly optimizes: gate; berth; stowage; yard; export/import blocks and handling-equipment deployment.

In an effort to address these issues, we have developed a bi-objective mixed integer programming model that optimizes the allocation of appointment quotas simultaneously with the deployment of (yard) cargohandling equipment. The model addresses the challenges posed by the different types of truck movement in the terminal, i.e., delivery, pickup, and dual transaction. These require different handling-equipment, involving various deadlines, and multiple priorities. To estimate the queuing length of external trucks in single or dual transactions (as well as that of internal trucks), we have set up a novel three-level vocation queuing model. For the bi-objective optimization, we propose a revised non-dominated genetic algorithm, to obtain the approximate optimal solution. Experimental results have proven the efficiency and effectiveness of our method, which outperforms all similar algorithms. We show that our vocation queuing model can estimate the prioritized queuing process more effectively in three respects: a) the 3-level queuing; b) discrete truck arrivals in the queuing system; c) non-interruption of servers. Our quota optimization design improves the model’s applicability to real cases, especially in the case of dual transactions. We finally demonstrate that the method proposed here, if adopted, could help terminal operators allocate quotas and simultaneously match the capacity of yard-handling, thus improving truck services, cost reductions and environmental impacts. The benefits to be enjoyed by port users, because of higher terminal efficiency, are only too obvious to be discussed.-

HH, May 2022.



[1] Michael E. Porter (1990) The Competitive Advantage of Nations. Macmillan Press Ltd., Basingstoke, UK.

[2] H.E. Haralambides (2021). Containerization and the port industry. The Elsevier Transport Encyclopedia, Roger Vickerman, Editor.

[3] Haralambides, H.E. (2019). Gigantism in container shipping, ports and global logistics: a time-lapse into the future. Maritime Economics & Logistics, 21(1), pp. 1-60.

[4] H.E. Haralambides, M. Hussain, C. Pestana-Barros and N. Peypoch (2010) A New Approach in Benchmarking Seaport Efficiency and Technological Change. International Journal of Transport Economics, 38.1: pp. 77-96.

[5] Haralambides, H.E. (2018) ‘Port Management and Institutional Reform: 30 Years of Theory and Practice’. In: H. Geerlings, B. Kuipers and R. Zuidwijk (eds.) Ports and Networks: Strategies, Operations and Perspectives. Routledge, Oxford and New York, 2018.

[6] Haralambides, H.E. and Gujar, G. (2012). ‘On Balancing Supply Chain Efficiency and Environmental Impacts: an eco-DEA Model Applied to the Dry Port Sector of India’. Maritime Economics and Logistics, 14(1).

[7] The efforts of the European Sea Ports Organization (ESPO) during the last decade to promote the Corporate Social Responsibility of European ports is truly commendable.

[8] Li, N., Haralambides, H., Sheng, H., Jin, Z. (2022). A New Vocation Queuing Model to Optimize Truck Appointments and Yard Handling Equipment Use in Dual Transactions Systems of Container Terminals. Computers & Industrial Engineering (2022), DOI: https://doi.org/10.1016/j.cie.2022.108216.

Sunday, February 27, 2022

Introducing the novel concept of 'Composite Connectivity' (of ports)

 

A lot of ink has been shed lately, both on the concept of (port) connectivity and on the aspirations of many ports to achieve international hub status. 

The importance of connectivity in particular, is today assuming greater dimensions in view of the strength of global shipping alliances (GSA), their ability to jointly ‘manage’ the supply of tonnage, and the negative impact such power has had on the frequency of services; the number of companies calling at a port; on containership sizes; and on call sizes. 

However, connectivity alone cannot explain the importance (and prospects) of a port as an international hub, its attractiveness to shippers, and its ability to develop new transshipment traffic (no matter how well connected a port is in the Arctic, or in Tierra del Fuego, it will never assume hub-port status). We argue that connectivity needs to be combined with measures of centrality, as these are derived from advanced network theory. 

We thus introduce the novel concept of composite connectivity: Through an innovative use of Two-Stage Data Envelopment Analysis (DEA) and complex network theory, we first evaluate the efficiency of ‘basic connectivity’ and use this as input in the second stage, which measures the strength of centrality. To do so, we employ such network theory measures as betweenness centrality, closeness centrality, and eigenvector centrality. The “Composite Connectivity Index” - CCI is thus obtained as the ratio of (our measures of) port centrality to port connectivity. The top nine mainland China ports are used as a case-study. 

Our results (and rankings) conform to the general perception on the international importance of the ports of Shanghai, Shenzhen and Hong Kong. The usefulness of CCI as a decision-support tool for ports with hub aspirations, as well as for their financiers and investors is, we believe, obvious.

HH

Sunday, February 13, 2022

Port devolution vs. recentralization: A reversal of conventional thinking?

[articulated from: Claudio Ferrari, Hercules Haralambides and Alessio Tei (eds.) 2022. Regulation and Finance in the Port Industry. Palgrave Studies in Maritime Economics, Palgrave Macmillan, DOI: 10.1007/978-3-030-83985-7_1].

From a historical viewpoint, the strategic significance of the port industry, both for foreign trade and national industrial development, has led many national governments to seek an active involvement in the development and control of port infrastructure. However, the scarcity of public financial resources; the unwillingness of the public sector to assume the market risk of specialization;  the limited ability of the public administration to run complex, risky, and increasingly commercialised activities, such as those of container terminals; the interest of carriers in having their own dedicated terminals and, finally, the increasing appetite of the private sector (Global Terminal Operators - GTO) in the often very lucrative port terminal investments, have given way to the devolution of decision-making authority from the ‘centre’ to the ‘periphery’. A period of national port reforms has thus started in the 1980s and 1990s, which is still underway in many countries.

Port reforms range from the simple commercialization of port operations to corporatization, and all the way up to full port privatization. But the private sector’s involvement in port business has often given rise to conflict between port and city administrations, particularly municipalities, many of which still believe that it ought to be themselves the lawful managers of ‘their’ ports [During my years as the manager of the Italian port of Brindisi, I vividly remember, the then mayor of the city, and member of the port’s supervisory committee, never missing the opportunity to declare that ‘he did not participate in committee meetings just in order to raise his hand and vote, but he was coming there to actually manage the port’!].

A reversal of the devolutionary trend can however be observed, increasingly, today, i.e., a recentralization of decision-making powers, through the integration of regional ports under a single authority. The trend is being championed by China, followed by Italy and other European countries. The premise behind this is simple: devolution has led to homogeneity of the port service, meaningless port competition and waste of scarce financial resources[1]. However, basic infrastructure such as that of ports is there to provide the platform on which companies compete, but it ought not be the subject of competition itself. Co-opetition is thus the new port model. In this, the development of basic port infrastructure (berths, terminals, channels, breakwaters, etc.) is centrally coordinated, to maximize regional benefit. The infrastructure is then meant to be used by private (or public) companies, i.e., port service providers such as terminal operators, towage companies, pilot corporations, stevedores, and a miscellany of port-related activity, in competition among themselves[2]. Competition here could be ‘competition in the market’ or ‘competition for the market’, the latter being the preferred model (concessions) of most ports[3]. But, to make this point crystal clear, someone needs to be out there to veto my ego-boosting managerial decision to build a new terminal, just because my next-door neighbour is doing so, or because carriers, in possession of significant market power these days, can successfully play one (container) port against the other.-

HH – February 2022



[1] I am not aware of a port-city not proud of its port: the need for expansion, real or imaginary, is always on top of the agenda of every city administration, particularly during periods of local elections.

[2] For more on ‘port integration’ and its models see: Shan Li, Hercules Haralambides and Qingcheng Zeng (2022). Economic forces shaping the evolution of integrated port systems - The case of the container port system of China’s Pearl River Delta. Research in Transportation Economics (forthcoming).

[3] I have described the difference between the two models in earlier communications. Competition for the market is the preferred model of the European Commission.

Sunday, October 31, 2021

OFFERING THE KNIFE THAT WILL STAB YOU IN THE BACK

Income stabilization and return on investment score much better for logistics companies than carriers. The reason? Logistics companies buy ship capacity if, when, and as much as necessary. That is, they are demand-driven and thus they 'ride' the business cycle. Carriers, instead, create shipping capacity (i.e. they are supply-driven) and then they try to sell it. And if things don’t go so well, they then go down, together with the ship, as it happened in the 2009 economic meltdown. Logistics companies instead suffered little then: they just didn’t buy capacity and they didn’t have to “pay the bank” for the  (laid-up) ship mortgage.

For years I have been arguing that if carriers want to go into logistics, they shouldn't be giving away their comparative advantage (i.e., the ship) by selling, wholesale, capacity to 3PLs. By doing this, I have argued, it is like giving your enemy the knife to stab you in the back.

Why do they do this?
«But to fill the ship», they will reply.
«And why can't you fill the ship alone?» I ask, «or together with your alliance partners?»
«Because it is too big», they will say.
«And why is it so big?» I insist.
«But in order to enjoy economies of scale», they immediately retort.
«But to enjoy economies of scale», I continue, «you first must fill the ship, while you know you can't. Are you therefore building megaships as a gift to your competitor?» 
Silence.
Check mate.

Full circle.
Vicious circle.
Nice huh?

In my “Gigantism in container shipping, ports and global logistics” (link below), I have proposed a pricing strategy for liner companies, leveraging on their comparative advantage, which is the ‘ship’. In short, 'charge more for the component of the supply chain where you have the comparative advantage, and less for the one where you must compete'. The overall price of the 'door-to-door' transport should remain the same. But the 3PL will have to pay more now for your ship, and this will give you the competitive edge you seek to enter 'logistics'.

Some carriers have listened; especially those controlling marine terminals. Others have not.

Monday, June 28, 2021

Do shipowners and ports see eye to eye?

 I just wrote up the intro to a nice little thing we do with two good colleagues from Turkey: Sedat Bastug and Soner Esmer, and I though I should share it in the network, until the full article appears.

The competitiveness of ports has received its fair share of attention in the scientific literature, perhaps more than many other sectors of the economy. This, because the crucial role of ports as the indispensable nodes in fiercely competing global supply chains is becoming increasingly felt by policymakers.

Factors determining the competitiveness of ports are many, but their importance is weighed differently by different stakeholders. This is normal in piecemeal assessments, which often resemble the time-honored fable of the blind men trying to assess an elephant. For instance, (port) costs may not be ‘declared’ of equal importance by all stakeholders, with some of them opting for higher efficiency in port operations, or better access to foreign markets (connectivity and centrality arguments), or a better hinterland access. At the end of the day, however, everyone’s interest is to minimize their costs, may this be achieved from higher operational efficiency, access to markets or from any of the above.

In the absence of a systems approach, or structural modelling, in the literature of port competitiveness (a project we are currently working on), the ranking of paired-comparisons attempted in the full article through the Fuzzy Analytic Hierarchy Process (FAHP) methodology takes us half way to our final objective. There is another objective here, however, summarized in the paper’s implicit questions: Are the criteria used by carriers in selecting a port of call the same as those valued as important by the ports themselves? Do the two actors, shipowners and ports, understand each other well? What is the value of a better ‘understanding’? Would shipowners look at the larger picture (generalized costs), over and above their preoccupation with port efficiency? And would ports understand that their good fortune of having a prime port location should not allow them to rest on their laurels, but understand that more needs to be done to attract the ship? As said, our questions are implicit and so are their answers. But by showing that ports and carriers do not always see eye to eye, we have covered a lot of ground towards helping them to eventually start thinking alike.

HH

Tuesday, June 15, 2021

Port Centrality and the ‘Composite Connectivity Index' - CCI

 

Port Centrality and the ‘Composite Connectivity Index’-CCI: Introducing a New Concept in Assessing the Attractiveness of (Hub) Ports

A lot of ink has been shed on the concept of (port) connectivity, following the pioneering work of Jan Hoffmann. This is particularly true these days in view of the strength of global shipping alliances (GSA) in ‘managing’ their joint supply of tonnage, and the impact this power has on the frequency of services; number o companies calling at a port; ship- and call sizes, and much more that I have covered before.

But ‘simple connectivity’ alone cannot explain the importance of a port as an international hub, its attractiveness to shippers, and its ability to develop new transshipment traffic. Connectivity needs to be combined with measures of ‘centrality’, as these are derived from network theory (no matter how well connected is a port in the Arctic, or in Tierra del Fuego, it will never assume hub-port functions). 

In our forthcoming research, I have therefore coined the term “composite connectivity”. Through the use of advanced optimization techniques and network theory (Two-Stage Data Envelopment Analysis), we first measure ‘connectivity’ and we use this measure as input to the second stage, which measures the strength of ‘centrality’. The “Composite Connectivity Index” - CCI is thus introduced as a weighted additive (or geometric) mean.

HH

 


Wednesday, May 12, 2021

IAME 2022, Seoul, Korea


International Association of Maritime Economists: IAME 2022, Seoul, Korea

Organized by 

Korea Maritime Institute (KMI) & Shanghai International Shipping Institute (SISI)


Reliving Ithaca.

In 1994, together with the late Richard Goss and the Korea Maritime Institute (KMI), we organized the Seoul KMI/IAME conference on “International Trade Relations and World Shipping”.

Next year, 28 years later, KMI will again organize the IAME annual conference in Seoul (together with SISI) and they asked me to lend a hand again; probably in a gesture of respect rather than anything else.

I immediately said ‘yes’ and as I was drafting my reply I couldn’t help thinking that walking down the memory lane, reliving one’s own journey to Ithaca, might for some be more challenging that the journey itself. 

But the memory lane is worth sailing; all 28 ports of call. 

HH

P.S. The photo was sent to me this morning by Professor Yong An Park, Chairman of the Organizing Committee.

Sunday, May 9, 2021

Evolution of Port Systems, Productivity Premia, and Executive Pay (in ports)

 

Shift-share analysis (SSA) was introduced in Creamer (1943)* and has been widely used as a tool of economic analysis in most areas of economics, predominantly in regional and urban studies. 

In our forthcoming research, we use SSA to understand the evolution of port systems (e.g., Adriatic, Tyrrhenian, Mediterranean, Persian Gulf, North Sea, Pearl River Delta, East and West-Coast US, etc.) and the competitive forces acting upon ports in proximity

In short, the idea here is to decompose port traffic growth in two constituents: one (share) which is due to the general growth of the economy, and the second (shift) which is growth achieved at the cost of a port’s competitors. The SSA decomposition has a great appeal also in cases of staff productivity premia or executive pay. And this is so because for the share part, in a way an automaton, we have only our good fortune to thank. But it is really only the shift part of growth for which one should be rewarded; i.e., growth that outperforms the market or, differently, market share ‘stolen’ from one’s competitors as a result of good management (and staff) performance. 

Years ago, while running a small Mediterranean port, I managed to introduce such a premium (and executive pay), in spite of ferocious resistance by both management and employees. In the end, reasonableness prevailed among my dedicated staff.

HH

* Creamer, D., 1943. Shifts of manufacturing industries. Industrial Location and National Resources, Washington, DC: US Government Printing Office, 85-104. 

Saturday, April 17, 2021

COVID-19, antitrust privileges of Global Shipping Alliances, and megaships again

 

For more than 30 years, I have been defending liner conferences and global shipping alliances, and the very 'unique' privileges antitrust laws have been affording them. I have been seeing conference price-fixing, and alliance capacity-management and information-sharing as low cost, self-regulatory arrangements, aiming to prevent competition in a declining average-cost industry (like liner shipping) from becoming destructive; no one would have wanted this[1].  

My views have not changed. But COVID-19 has shown us that carrier privileges have been abused, mostly due to the inertia of the (European) regulator and its passive, onlooking, stance. For, although one could somehow justify carrier capacity arrangements in the first half of 2020, no one could possibly defend current (2021) tariffs being more than three times their long-run average (see graph). This has brought discomfort to the consumer, instead of benefits, as required by the recently renewed block exemption regulation of the EC.

This week, transport, port, and logistics associations in Europe, in unity, have written to Ms. Vestager, the EU competition watchdog, asking her to initiate a formal investigation into carrier practices, following the example of the US. And she will have to do this. Convenient onlooking is over.

One of the things I have appreciated much in the letter of the transport associations -and I dedicate this to my colleagues, defenders of the megaship idea- is their statement (at long last...) that without the generous capacity-management privileges afforded to shipping alliances, these ships would not have existed.

I rest my case.

HH



[1] See our ‘Erasmus Report: Global Logistics and the Future of Liner Shipping Conferences’. https://www.researchgate.net/publication/294427101_The_Erasmus_Report_Global_Logistics_and_the_Future_of_Liner_Shipping_Conferences.

Thursday, April 1, 2021

From Just-in-Time (JiT) to Just-in-Case (JiC) logistics, or April’s Fool?

One of the great advantages of the container revolution has been the reliability it has afforded to the global production-transport-distribution system. It was as a matter of fact the container that ushered in the JiT systems and the consequent minimization of inventories.

JiT has impacted not only transport, but each and every aspect of our lives. When I travel, I know exactly what time I must leave home to get to Schiphol airport by, say, 17h45. But if the Metro does not run; the taxis are regularly on strike; or the motorways congested during peak hours, then I need to leave home one hour earlier. And this hour is my own ‘inventory cost’.

In ports in particular, containerization totally revolutionized the landscape: i.e., port operations, planning, development, competition, and the regularization of port labor. Pressure on port space is now relieved, and ship-time in port minimized. These developments have increased ship and port productivity immensely and have allowed ships to become ever bigger. By-passing the waterfront in the stuffing and stripping of containers, and thus having them ready in port to be handled by automated equipment, increased immensely the predictability and reliability of cargo movements, and enabled manufacturers and traders to reduce high inventory costs through the adoption of flexible Just-in-Time and Make-to-Order (MtO) production technologies. Inter alia, such technologies have helped manufacturers to cope with the vagaries and unpredictability of the business cycle and plan business development in a more cost-effective way.

Maersk’s boss, Soren Skou, seems to believe that all this may be changing. In an interview in the Financial Times (April 1, 2021) he seems to claim that we may be willing to shift away from JiT and MtO, in other words, we may be prepared to assume higher inventory costs, in order to protect ourselves from disruptions such as those of COVID-19 or the blockage of Suez by Evergreen’s Ever Given. 

This is indeed a shot from the hip and I would strongly question it: The costs of securing our supply chains, reconfiguring them and making them more resilient to disruption, are far far less than the costs we would be imposing on our fine-tuned global trading system by an increase in inventory costs (and the implied unreliability); we have made this calculation countless times.

Of course, for a carrier, some unreliability might come in handy but, this time, the consumer will just not buy it.

HX