Managing Container Shipping Supply Chains

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Managing Container Shipping Supply Chains
Jasmine Siu Lee LAM Nanyang Technological
University, Singapore
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Objectives of the paper

• Competition in business nowadays is largely
  between supply chains, rather than between
  individual players only.
• Same in container shipping.
• Propose a model for achieving excellence in the
  container shipping supply chain.
• Address better synchronisation of the functions
  and the major partners involved, namely, shipper,
  shipping line and container port.
• i.e. develop a model for better integration in
  container shipping supply chain.

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Principles for managing the chains
The objective of every supply chain is to
maximise the overall value generated
(profitability).
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Minimising the overall cost
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Maximising the revenue generated
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Model for achieving excellence in container
shipping supply chain
3 purposes Planning, Execution, Monitoring
Benchmarking
Conditions
1. Local optimum at each cell
2. Global optimum at all cells
Material flow, Information flow Financial flow
are embedded
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Total cost concept
Cost, revenue and profit curves against the level
of average inventory
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Total cost concept

• The optimal shipment size plays a central part
  in determining the point of maximum profit in
  this case.
• If the shipper places relatively large size of
  shipments each time, inventory carrying cost in
  relation to the storage of goods when they arrive
  at the destination would be high.
• But lost sale does not occur very often.
• Also order processing and transport costs would
  be low because orders are not made frequently,
  vice versa.
• The optimal shipment size strikes the balance
  between the two forces that the lowest total cost
  and maximum profit can be achieved.

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Economies of scope
EOS C (q1) C (q2) C (q1, q2) / C (q1,
q2) where C (q1) and C (q2) represent the costs
of producing outputs q1 and q2 respectively. C
(q1, q2) denotes the joint cost of producing both
outputs. Economies of scope, the value of EOS
would be positive.
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Applications in practice

• A common phenomenon in the industry is the
  involvement of terminal operations and management
  by shipping lines.
• A firm, in this case a shipping conglomerate,
  may produce two related outputs, in this case,
  carrier services and terminal services, that the
  average cost of producing the outputs would be
  lower than if they were produced separately.
• Similarly, some shipping firms have their
  logistics arms offering third-party logistics
  (3PL) services that they would enjoy lower
  average cost of producing the related outputs,
  which are carrier services and 3PL services.

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Applications in practice

• EOS would probably occur where it is cost
  effective for ports to provide a wider range of
  terminal operations related services
• So that different terminals or terminal
  operators can share the fixed cost across the
  related outputs.
• It is common to see ports providing logistics
  services rather than only basic cargo handling.
• In the process, lower average costs can be
  achieved through the sharing of physical assets
  like distribution centres.

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An integrated chain would bring down cost

• Theory of economies of scope can be applied in
  the case of multi-firm supply chains.
• One of the reasons why shipping companies
  diversify themselves by producing related outputs
  like carrier services, terminal services and 3PL
  services.
• Explain why ports diversify themselves in
  providing related outputs like logistics services
  in addition to basic cargo handling.
• Production of these services by an integrated
  chain would be more cost effective than they were
  produced separately without partnerships among
  the supply chain members.
• ? Economies of scope of the supply chain.

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Demand complementarity
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Applications in practice

• Sea transportation services offered by carriers,
  cargo handling services offered by ports and
  logistics services offered by ports are
  complements.
• Any two of them can be put as X and Y, or all of
  them can be analysed together for the case of n
  services where n is 3.
• Service X and service Y are complementary in
  demand when a drop in the cost of using one of
  them rises the demand for another service.

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An integrated chain would increase revenue

• Service providers can work together to bring
  down the total generalised cost (more than
  out-of-pocket price) borne by the users.
• E.g. An integrated chain can reduce delays and
  breakdowns.
• Demand for the services and revenue generated
  would increase, assuming that the price in
  monetary terms is constant or does not decrease.

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Conclusions

• Integration on the container shipping supply
  chain can bind the partners in a cooperative
  relationship that enables the organisations to
  accomplish their goals collectively and
  efficiently.
• Efficiency and competitiveness of each of the
  supply chain partners, as well as the supply
  chain as a whole would be increased.
• Future research transaction cost and power
  relationships

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THANK YOU