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.

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[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.

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

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

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[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.