Critically Analyse the Evolving Role of Ports as Logistics Hubs in International Supply Chains - Essay Example

?Critically Analyse the Evolving Role of Ports as Logistics Hubs in International Supply Chains Table of Contents Introduction 3 Literature Research 4 Dynamics of International Logistics 5 Maritime Logistics 5 Evolving Role of Ports 6 Role of Ports in International Supply Chain 7 Integration of Maritime Logistics with Evolving Global Supply Chain 8 Case Example - Role of Rotterdam Port as a Logistic Hub in International Supply Chain 11 Conclusion 14 References 15 Introduction Ports are often viewed as the geographical mediums which contribute to the business in any country. Ports facilitate to entice numerous trading activities within different nations. Ports not only act as a transport system, but also act as a medium of financial activity. Ports are logistic hubs which play a vital part in international business network (Lugt & Nijdam, 2005). Due to the continuous changes in global market context, the international business has changed significantly. Globalisation has eliminated numerous trade restrictions formerly imposed by the government of different countries which in turn has amplified the seaborne trade. The unprecedented growth of seaborne trade has generated huge impact on the logistics and global supply chain. The international supply chain has become quite multifaceted and this trend is stimulated by the demand of people all over the world. In line with the increasing change of demand, the logistics chains are changing continually with the improvement of ports. The paper is concerned with analysing the importance of port in global supply chain. The objective of the paper is to assess the various activities of port and how it has evolved to become one of the significant parts of logistics. Literature Research Due to immense economic development and growth in human population as well as in their demands, trade has increased significantly. This increase in trade is encouraged by trade liberalisation, subcontracting and lower transportation charges along with higher transportation competencies. The evolving financial and political atmosphere has increased the amount of global business, resulting in substantial changes in carriage, logistics and international supply chain. With regard to global business, the merchandise trade among nations has raised strongly. America, Africa and Middle East have demonstrated significant growths in import. The trade growth is higher than the global Gross Domestic Product (GDP) growth rate. The progresses in global GDP and merchandise business have essentially impacted on the seaborne business and the demand for transportation services. In the year 2007, the cargos transported through ports were forecasted to be around 8.02 billion tonnes which is similar to the yearly growth rate of 4.8%. In transportation, tanker represented almost one third of international cargo transportation. In seaborne trade, Asia was in the leading position with 40% share subsequently America which accounted for 23% share in seaborne trade in 2007. The shares of Europe, Africa and Oceania were 18%, 10% and 9% respectively. These three regions represented almost 80% of total freights (Buck Consultants International, 2009). According to an estimation of UNCTAD, the global seaborne trade will grow by 44% by 2020 and 88% by 2030 encompassing almost 11.5 billion tonnes and 16.04 billion tonnes correspondingly (Buck Consultants International, 2009). Dynamics of International Logistics Logistics is an activity which is liable for flow of materials. Usually, international logistics has been viewed as an integral part of commercial strategic planning. Logistics is considered as an unavoidable expense and appears within the boundaries of business. Organisations search for raw materials internationally in order to maintain low expenses. The expenses of logistics represent higher portion of sales. In present days, for several large multinational organisations, logistics expenses encompass more than 10% of sales revenue. These expenses are determined by internal as well as external aspects. Internally, the increasing tendency towards international sourcing of materials has led to high amount of network complexity. Externally, the rising expenses of oil, employees and real estates are increasing the cost of logistics. Ultimately, there are expenses and complexities associated with government rules in the international trade. These internal and external aspects create general strategic approach to influence higher economies of scale, develop import decisions and raise traffic densities (Taylor, 2006). Maritime Logistics Globalisation and transportation improvement, logistics incorporation and subsequent development of maritime logistics have redefined the operational role of carriage and ports in worldwide logistics and supply chain. The growth in international trade has rationalised the maritime sector bringing about new improvements, deregulation, liberalisation and higher competition. There have been vivid changes in the manner of international trade and transportation, categorised by the occurrence of B2B activities and combined supply chain. The business constancy and sustainability of maritime sector are largely dependent on how effectively it adjusts to the dynamic business environment. Traditionally, maritime logistics was considered as a key method of transporting components and finished products on an international scale. Maritime carriage i.e. shipping and ports are evidently related with transportation of products and people between two seaports through ocean (Song & Panayides, 2011). Evolving Role of Ports Structure of ports has transformed significantly in recent times due to international trade. Generally, ports were situated near major capitals, but development in international trade has resulted in constant reformation of ports. Improved specialisation in freight management, growing size of vessels and requirement for additional space for freight management and storage have resulted in port functions being focused at new larger areas. For instance, port of Marseille, which is surrounded by Barcelona city, has constructed a new terminal named Fos in order to cope up with the restraints on cargo capacity (Chin & et. al., 2009). At present, ports no longer serve only one city and the surrounding areas, but it also serves majority of inbound flows of materials in a nation. In case of port authorities, different stakeholders who are involved in port commerce, such as terminal workers, transport organisations, forwarders and customs authorities have started to cooperate closely with each other in order to enhance inner port related procedures and making the port more effective (Chin & et. al., 2009). Growth of vessel business, alliance of transport organisations along with higher economies of scale have facilitated to create an emergence of international ports. In developed nations, environmental and legal challenges have constrained a port’s ability to react in variable business situations. Every port confronts with unique set of situations and restriction. The competitiveness of ports relies on a blend of aspects such as position, proprietorship, administration, employee relation, client base and its neighbourhood network of transportation and logistics alternatives. These aspects define the accomplishment of a port and investment attractiveness towards the port (Pettit & Beresford, 2009). The ownership of a port can determine the effectiveness of port operation. With respect to ownership, the United Kingdom has taken major steps towards improving the port operation through privatisation. Unlike the UK, Malaysian ports are generally organised through long-standing lease rather than ownership sales. On the other hand, China uses joint ventures in order to reserve a minority of stake of port in the hand of government. In majority of nations, the franchisee of ports is approved at the terminal level rather than the entire port operation (Chin & et. al., 2009). Role of Ports in International Supply Chain Supply chain management is the epicentre of every organisation. Due to increased competition among organisations to expand the business and reach to broader customer segments, they are breaking the boundaries in between internal functions as well as major associates of supply chain such as customers, distributors, dealers and transporters. One of the major objectives of the new administration method is to involve everyone in the supply chain into a shared platform of logistics contact. In this context, ports act as a common site for transhipment with the intention of transporting products from one medium of transport to the other medium. Ports have generally created a link between the waterways, roadways and railways (Carbone & Martino, 2003). In the present times, ports play a vital part in the administration and direction of materials and information movement in organisations because transportation is an essential part of whole supply chain process. The objectives of port are to develop interactions as well as to align the wellbeing between the actors of port and clients in order to assure dependability, constant service and higher productivity (Carbone & Martino, 2003). Integration of Maritime Logistics with Evolving Global Supply Chain Maritime logistics is directly associated with international economic development and the requirement to carry products within global trade activities. In order words, the international economic condition directly affects the total quantity of global business which directly impacts on the seaborne trade quantity (Song & Panayides, 2012). Traditionally, port played the part of an enabler by concentrating on the facility of construction and setup for major ship related tasks such as loading and dispatching, temporary storage and intra-port functions. In present days, port plays a significant role in the global supply chain (Song & Panayides, 2007). Port plays a noteworthy part in the context of integrating the diverse activities and operations with supply chain. There are two thoughts of port supply chain incorporation namely intermodalism and organisational integration. Intermodalism is associated with the characteristics of vessel port administration. The acceptance of leanness and dexterity in organisation in present day’s business environment necessitates integration of ports in the supply chain. Integration of ports can be accomplished by information technology and communication along with commencement of value added functions which help to minimise expenses. A port which is integrated in the supply chain is characterised by continuous communication, removal of waste and cost reduction of business operations (Panayides & Song, 2007). The lean operation is a crucial measurement of port performance which conveys higher prominence in the port atmosphere and in the supply chain. In the modern context of globalisation, it is significant for ports to be considered as an integral portion of global supply chain which has substantial role for serving towards and enabling multimodal transport connection. Ports perform as logistic hubs and generate supply chain outlines (Panayides & Song, 2007). Port is considered as a portion of collection of bodies where diverse logistics and transport operatives are involved in carrying the value to the ultimate customers. Ports are progressively integrated in the global supply chain through following ways: Transpiration: Ports act as a connection in the distribution channel of products. The duration of transportation and expenses determine the way for internal distribution of products. The capability to provide well-organized and all-in-one connection to the neighbourhood regions can impact on the effectiveness of a port (Deshpande & Gaur, 2011). Warehousing: Warehouse is considered as a location for storing products for the purpose of distribution. With respect to ports, their warehouse facilities enable to attain economies of scale and are useful for storing bulk volume of goods. Therefore, multinational organisations generally localise their warehouses near ports in order to save the transportation expenses. It can also help in supply chain through quick flow of products (Deshpande & Gaur, 2011). Value Added Facilities: In ports, the value added facilities can be associated with the capability to assemble freights, for packaging, and for combining and separation of cargos. Thus, transporters in present days select those ports which can deliver these facilities. It not only improves the supply chain processes, but also enhances the competitiveness of an organisation (Deshpande & Gaur, 2011). Information Technology (IT): The port services have transformed the process of information management and distribution among the stakeholders. Through integration of IT, ports assist organisations in rapid processing of wide range of information. It is extensively used in ports in order to arrange the yard and maintain timetable for load discharges and container departure (Deshpande & Gaur, 2011). Channel Integration: Channel integration comprises the degree to which port administration cooperates with supply chain components to recognise profitable and supply chain performances which can facilitate to provide improved solutions for the businesses that are passing by the supply chain system (Deshpande & Gaur, 2011). Case Example - Role of Rotterdam Port as a Logistic Hub in International Supply Chain Globalisation has enabled to create real-time international marketplace and provide advantages to the multinational corporations while sourcing and delivering goods. With respect to international supply chain, multinational organisations are forced to conduct businesses internationally, at the same time, improve competency and effectiveness. Several aspects such as standardisation of products and services, low shipping expenses and evolution of IT have helped multinational organisations to secure raw materials and other components globally. In this context, Rotterdam port plays vital part in global supply chain (UNESCAP, n.d.). Rotterdam is the “gateway to Europe” and is considered as one of the most vital ports globally (Colophon, 2009). For international organisations, port of Rotterdam acts as a logistic hub in the European region. Since the early 1960s, Rotterdam port has taken the advantage of the opportunities of sea transportation by capitalising greatly in managing services and equipments for effective consignment of cargos to internal medium of transport. Rotterdam port has the capability to provide lodging to big vessels with fewer problems. The port setup of Rotterdam has allowed the formation of transhipment terminals and storage services to the organisations. Due to its simple logistics arrangement and liberalisation of transport services, Rotterdam is regarded as a logistic hub in Europe. In present days, majority of organisations accept centralisation in European port distribution which carries many logistical and other benefits to them such as minimisation of logistical expenses, higher sales, better business control, improved availability of goods, improved competitiveness, rapid reaction against any market trend, more money saving on employees and development of organisational system. Unlike other European Logistics Centres (ELCs), ports provide organisations the facility of re-export of products. These aspects increase the demand of ports among multinational organisations and businesses. In reaction to the higher demand of transporters for just-in-time delivery of goods, Rotterdam port developed distribution centres. It denotes the evolving role of ports as logistics hub for global supply chain. Rotterdam port has encouraged the creation of distribution centre for combining consignments to the port and generates port oriented job opportunities. The closeness of vessel station is a benefit for distribution centre in Rotterdam port which increases the speed of transportation. In order to encourage just-in-time delivery, Rotterdam port had developed “Distripark” which is an extensive, innovative, value-added logistics service with facilities for distribution functions at a sole place. This place is directly linked with vessel station and multimodal transportation facilities for delivery and using up-to-date IT system. ‘Distriparks’ deliver warehousing and dispatching services, comprising the storage and transhipment of freight and the packaging and shedding of goods. They also provide other inclusive services in order to satisfy diverse customer demand such as assembling, cataloguing, analysis/inspection, wrapping, sorting and billing, thus provide infrastructure for supply chain activities. In Rotterdam, numerous organisations are dedicated in storage and delivery functions by offering logistics facilities throughout Europe and other regions. The key benefit of the idea of Distripark is that the logistics hub is situated nearby the cargo terminal, which makes transportation rapid and inexpensive. Furthermore, from distribution centre, traders can select several transportation medium on the basis of time limit, expenses and destinations (UNESCAP, 2002). The evolving role of Rotterdam port can be measured from its quantity of shipment. The quantity of shipment from Rotterdam port has increased by 1% in 2011 to 434.6 million tonnes representing 4 million tonnes more compared to 2010. In the same way, the outgoing shipment is also increased by 1% in 2011 to 126 million tonnes compared to 2010. The quantity of dry goods which passed through Rotterdam port in 2011 was almost 87 million tonnes (3 million tonnes more than 2010). The total quantity of container was increased by 10% in 2011 to 123 million tonnes compared to 2010. In 2011, Rotterdam port had made itself as one of the biggest commodity shipments with respect to total throughput between European and Asian region (Port of Rotterdam, 2011). Conclusion The paper has sought to analyse the evolving role of port as a logistic hub in international supply chain by taking the example of one European port named Rotterdam. The port is analysed on the basis of supply chain services it provides as well as volume of shipment it carries. From the analysis, it has been observed that there is huge demand of port services for multinational organisations as a logistic hub due to its warehousing facilities, transportations facilities, value added services and other business related services. It can be said that economic and political conditions can also impact on the port activities as these are related with international trade. At present, the role of port is not limited to only providing transportation services; rather its importance has increased greatly as ports are involved in global supply chain activities which are a major part of business. As the economy of a country moves forward, there will be growing demand for supply chain. Through integration with the supply chain activities, ports can assist organisations to increase the capability for providing wide-ranging products and services to the customers. References Buck Consultants International, 2009. The Evolving Role of EU Seaports in Global maritime Logistics. Policy Department Structural and Cohesion Policies. [Online] Available at: http://biblio.central.ucv.ro/bib_web/bib_pdf/EU_books/0156.pdf [Accessed May 10, 2012]. Chin, H. & et. al., 2009. Global Ports: Trends and Opportunities. RREEF Research. [Online] Available at: http://www.rreef.com/content/_media/Research_GlobalPorts-TrendsandOpportunities4-09_LR.pdf [Accessed May 10, 2012]. Carbone, V. & Martino, M. D., 2003. The Changing Role of Ports in Supply-Chain Management: An Empirical Analysis. Maritime Policy & Management: The Flagship Journal of International Shipping and Port Research, Vol. 30, No. 4, pp. 305-320. Colophon, 2009. Rotterdam Facts & Figures. Media. [Online] Available at: http://www.rotterdamworldbrand.nl/media/Rotterdam%20Facts%20&%20Figures(1).pdf [Accessed May 10, 2012]. Deshpande, R. & Gaur, P., 2011. Impact of Supply Chain and Logistics on Role of Ports: A Case of India. Centre for Environmental Planning and Technology. [Online] Available at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFwQFjAA&url=http%3A%2F%2Fwww.stt.aegean.gr%2Feconship2011%2Findex.php%3Foption%3Dcom_docman%26task%3Ddoc_download%26gid%3D26%26Itemid%3D20&ei=bGSqT7bmNcbXrQeSp8w8&usg=AFQjCNFe9wtkghRsyrMJCeDo_GKotw-_RA&sig2=NTjoL3wLVa1F-YmKUvJ3dw [Accessed May 10, 2012]. Lugt, L. M. & Nijdam, M. H., 2005. The Changing Nature of Logistics Centres: Implications for Ports and Terminals. Erasmus University Rotterdam. [Online] Available at: http://sutranet.plan.aau.dk/pub/wp3%20publications/3.1.3_Changing%20Nature%20of%20Logistics%20Centers.pdf [Accessed May 10, 2012]. Panayides, P. M. & Song, D., 2007. Port Integration in Global Supply Chains: Measures and Implications for Maritime Logistics. International Journal of Logistics: Research and Applications, Vol. 12, No. 2, pp. 133-145. Port of Rotterdam, 2011. Annual report 2011. Port of Rotterdam Authority. [Online] Available at: http://www.portofrotterdam.com/en/Port-authority/finance/annual-report/Documents/annual_report.pdf [Accessed May 10, 2012]. Pettit, S. J. & Beresford, K. C., 2009. Port Development: From Gateways to Logistics Hubs. Maritime Policy & Management: The Flagship Journal of International Shipping And Port Research, Vol. 36, No. 3, pp. 253-267. Song, D. & Panayides, P. M., 2011. Introduction to Maritime Logistics. Kogan Page Publisher. Song, D. & Panayides, P., 2012. Maritime Logistics: A Complete Guide to Effective Shipping and Port Management. Kogan Page Publishers. Song, D. & Panayides, P. M., 2007. Global Supply Chain and Port/Terminal: Integration and Competitiveness. International Conference on Logistics, Shipping and Port Management. [Online] Available at: http://www.knu.edu.tw/tan/2007ILSC/index.files/files/3B-3.pdf [Accessed May 10, 2012]. Taylor, C., 2006. Five Reasons Why Global Logistics Is Moving from the Basement to the Boardroom — and ?ve Steps to Transformation. IBM Global Business Services. [Online] Available at: http://www-935.ibm.com/services/us/gbs/bus/pdf/bcw00009-five-reasons-why-logistics.pdf [Accessed May 10, 2012]. UNESCAP, No Date. The Port Industry. Free Trade Zone and Port Hinterland Development. [Online] Available at: http://www.unescap.org/ttdw/Publications/TFS_pubs/pub_2377/pub_2377_ch3.pdf [Accessed May 10, 2012]. UNESCAP, 2002. Commercial Development of Regional orts as Logistics Centres. Economic and Social Commission for Asia and the Pacific. [Online] Available at: http://www.unescap.org/ttdw/Publications/TFS_pubs/pub_2194/pub_2194_fulltext.pdf [Accessed May 10, 2012]. Read More