Providing competitive advantage for gateway ports
Port centric logistics needs little introduction
There are a few things about port centric logistics (PCL) we should clear up at the beginning.
Firstly, there is nothing new about the concept of PCL – most port managers would say that ports have provided warehousing and lot-specific deliveries forever. And they’re right. What’s changed now is who is asking, why and what they require.
Secondly, PCL is not about using valuable port land for valueadding activities. In fact, the biggest benefits of PCL might come from locating just outside the port curtilage. Finally, PCL is not a viable proposition for every port. If you operate a pure transhipment hub, with no or minimal gateway traffic moving into the hinterland, then PCL is not necessarily for you. Some of the rationale and principles behind PCL may still apply, especially those relating to energy use and avoiding waste, but little else.
PCL is driven by a number of desirables:
- The imperative of reducing costs across the entire supply chain – be it global or regional
- To add certainty to delivery times and undertake timely quality checks, and
- To respond to societal pressures.
There are other reasons, of course, and we’ll come across some of them as we develop the theme in this paper.
Supply chain pressures
Our world is changing and these changes are becoming increasingly unpredictable as economic conditions buffet producers, consumers and transportation service providers from every direction. Who would have thought in those heady days of 2007 and 2008 that the large, so-called ‘fast’ container ships would now be plotting how to steam at speeds where they could be overtaken by the Clipper sailing-ships from almost two centuries ago ?
This, along with the manipulation of slot availability by hard pressed liner operators, has simply added to the woes of shippers and their global logistics providers, because on top of everything else, that elegant JIT system of having a continuous production line providing an optimum inventory exposure has just blown out of the window. So now that the shipper cannot rely on fast deliveries, there is a greater need for certainty; certainty of knowing when the consignment is going to arrive and certainty in the knowledge of the condition of that consignment. Who is going to provide this service and how will they do that?
In the UK context, the conventional wisdom was to take the containers to the ‘golden triangle’ for consolidation and onward despatch to satellite distribution centers or to the processor. This involved a laden journey of the container and an empty haul back to the port for restitution. PCL enables the ‘system track and trace’ to be augmented by ‘mark one eyeball’ to report consignment received, checked and the quantity and condition confirmed at a point that is much more local to the port. Note again, not necessarily inside the port, but co-located, so as to minimise and perhaps even avoid the ‘inspect and confirm’ transport leg.
Cost pressures
Rising energy prices, but perhaps more importantly volatile energy prices, are adding to this uncertainty. Everyone is looking at ways to reduce fuel consumption, avoid unnecessary journeys, avoid carrying less than full loads and increase rail and, preferably, increase sea miles over road miles. The same goes for multiple handling. Every time someone touches a container or consignment, it adds to the risk of damage or loss – on top of increasing the cost.
PCL allows the shipper or his global logistics partner to preplan bulk deliveries of containers from the port, turn-out in the security of their own premises- adjacent or co-located to the port using their own trained staff- and return containers without the risk of incurring demurrage and damage. Reports to the cargo owner, at this point, carry the certainty of consignment having been received in correct quantities and in sound condition.
The theory behind logistics strategies for major importers looking to reduce supply chain costs are already pretty well known. Robert Leachman from the University of California, for example, described the options for large US retailers importing products from Asia.
The ‘push’ strategy is appropriate for low value goods to reduce transportation costs. Importers make their allocation decisions when the product is still in Asia. They ship the containers intact through a US seaport and on to an inland distribution center before they decide the final destination. The ‘push/pull’ strategy is employed to reduce inventory carrying costs. Consumer goods imported through a major gateway are trucked to a nearby distribution center where they sit until the retailer determines where in its regional network the product will end up.
But what about strategies for the port? Traditionally, the port’s customer for most non-bulk products has been the shipping line. This is especially true on the burgeoning containerised trades. Deeper and wider channels, 1 kilometer long clear quays in a straight line, rail-mounted ship to shore gantry cranes (extending from handling just a few containers across deck to spanning 22 rows of containers) and large yard to store containers, which are sometimes stacked up to six high. So the shipping line, quite rightly, has determined the development of container terminals. But who would deny the inherent lack of stickiness of a shipping line’s custom? Most port managers would testify to the experience of being told that a line would gladly call at his terminal – no problem with facilities, productivity, reputation and perhaps even rates – but they need their customers to want them to call at that terminal. And no prizes for guessing what the cargo owner customers say: yes, we would happily move our containers through your facility but our shipping line of choice doesn’t call there.
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