Maritime Transport and Logistics - Research Paper Example

Maritime Transport and Logistics Table of Contents 1.Introduction 2 2.Maritime Transport and Logistics 3 2.1.Integrated Door to Door Logistics Services 5 2.2.Factors Influencing the Efficiency and Effectiveness 9 Conclusion 13 References 15 Bibliography 17 1. Introduction Logistics may be defined as “the practice of scheduling, implementing and controlling the well organised, cost effective flow and storage of raw material, in-process inventory and finished products and related information from the point of origin to the point of consumption as per customer demand” (Ailawadi & Singh, 2005). It goes beyond saying that the overall process of logistics involves a chain of interrelated activities that have to be sequentially performed in order to align the operations with the organisational value chain as well as customer expectations. From the definition it may be comprehended that logistics is an integral component of supply chain management (SCM) and hence it also plays a vital role in the area of inventory management. In the light of the scope of this research it is necessary to understand logistics as well as its amalgamation with maritime transport. Prior to going into the details of the topic it will be justifiable to outline the concept of total logistics which may be described as a theory that “aims to treat the many different elements that come under the broad category of distribution and logistics as one single integrated system” (Rushton, Croucher & Baker, 2006). To augment this definition Rushton et al. (2006) further suggest that this concept should address to the logistics system taken as a whole, instead of any subsystem or individual element (e.g. storage, transport, etc.), and “an understanding of the concept is especially important when planning for any aspect of distribution and logistics” (Rushton, Croucher & Baker, 2006). However, Bloomberg et al. (2004) integrates integrated logistics with the function of SCM by defining the latter as “The process of planning, organising, and controlling the flow of materials and services from suppliers to end users/customers. This integrated approach incorporates suppliers, supply management, integrated logistics, and operations” (Bloomberg, LeMary & Hanna, 2004). They have also blended this area of study with the interesting domain of strategic management and have highlighted upon the importance of quality through their observation that modern business enterprises have been striving to “enhance customer service by providing superior integrated logistics to clients through efficiency (desired product/service mix at an acceptable cost), effectiveness (meeting customer requirements), and differentiation (creating value through unique logistical service)” (Bloomberg, LeMary & Hanna, 2004). With the aim of probing further into the concept of integrated door to door logistics services, this research will comprise an extensive literature review in order to identify and evaluate the factors that influence the efficiency and effectiveness of this function which is intricate as well as interesting. 2. Maritime Transport and Logistics It is an obvious fact that the maritime industry – comprising transport as well logistics – plays a vital role in global cargo business by providing “a cheap and high carrying capacity conveyance for consumers” (Tseng, Yue & Taylor, 2005). Owing to this aspect it also enjoys “a vital position in the transportation of particular goods, such as crude oil and grains” (Tseng, Yue & Taylor, 2005). However, the main disadvantages associated with this industry are longer transportation times, and dependence on weather factors. It has also been observed that maritime logistics organisations employ large-scaled ships as well as cooperative operation methods in order to save costs while enhancing competitiveness in a business environment that is characteristically laden with risks. As the customers care more about the quality of service and are ready to compromise on delivery price, such organisations are necessitated to “build new logistics concepts in order to increase service satisfaction, e.g. real-time information, accurate time windows and goods tracking systems” (Tseng, Yue & Taylor, 2005). Depending upon the various parameters associated with this genre of global business, the industry may be categorised into three broad types, viz. linear shipping, tramp shipping, and industry shipping. Figure 1: Comparison between Line and Tramp Shipping (Source: Verlaat, 2008) Linear shipping involves the use of same ships, price, routes, and standardised voyages. Tramp shipping is characterised by irregular price, unsteady routes as well as schedule, and it delivers particular cargo such as crude oil. The third type, i.e. industry shipping is required to deliver raw materials, and it often calls for specialised containers. In order to understand the factors which influence the efficiency and the effectiveness of integrated door to door logistics services, provided by the container lines, in the current market place, an intermediary section will attempt to throw light upon the particular type of services. Subsequently, the factors will be discussed in detail. 2.1. Integrated Door to Door Logistics Services This particular basket of services arises from international transport on which the development of a competent international logistics strategy is centred. Apart from the international conventions that are associated with the various transport modes it is equally important for the organisations to understand their economic aspects. Branch (2008) opines that “global logistics usually embraces combined transport or multi-modalism such as road/sea/rail, road/air/road, rail/sea/rail, which form the supply chain in transport terms on a door-to-door basis” (Branch, 2008). It has been observed that the global transport industry went through dramatic changes owing to the pressing demands of the highly integrated world economy, and as a consequence, “maritime and air transport services are no longer associated with the port-to-port and airport-to-airport movements, but rather an integral component of comprehensive door-to-door transport services” (Branch, 2008). The various factors that have been responsible in bringing about this gradual evolution are technological advancements in the areas of containerisation, and Information and Communication Technologies (ICT), globalisation of manufacturing and production processes, and modernisation of infrastructure. These services have also been augmented through ancillary services such as freight forwarding, warehousing, consolidation, and electronic tracking. Branch (2008) has observed that “logistics companies or third-party logistic providers – 3PLs – provide some or all of these services” (Branch, 2008). While Bolumole (2001) opines that 3PLs are involved in “transportation, distribution, warehousing, material handling, inventory control, packaging and inspection” (Green, Turner, Roberts, Nagendra & Wininger, 2008), Swonski (2005) argues that their services include contract transportation, transportation procurement, shipment tracking, management as well as consulting in terms of logistics and freight, inventory management, and marking out reverse logistics along with value-added services (Green, Turner, Roberts, Nagendra & Wininger, 2008). It may be observed that vertical integration has gained substantial popularity as an efficient tool for achieving globalisation as “most major liner shipping companies have subsidiaries focussing on the same business and often serving primarily the parent sea carrier” (Branch, 2008). Dr. C. John Langley Jr. has observed that “shipper-3PL relationships are being impacted significantly by the prevailing uncertainty and economic volatility in global markets” and has opined that “it is very important for 3PLs to mitigate or reduce any financial risk or service level impact that this may cause” (Capgemini, Georgia Institute of Technology, Oracle and Panalpina, 2009). However, according to Jim Morton, “companies worldwide are still dealing with the effects of the economic downturn, but shippers should embrace the opportunity to rethink their supply chains and the role that 3PLs can play in helping to attain business goals” (Capgemini, Georgia Institute of Technology, Oracle and Panalpina, 2009). This may be sufficiently justified through the example of FreightMinds® who demand that “there are many reasons why to rely on FreightMinds® International Logistics for Global Freight Forwarding, Transportation and Logistics Support Services, but in addition to this, and because of our capacity of using a carefully balanced mix of proactive, experienced personal service coupled with our modern technological systems and interfaces in support of our customer’s demands for integrated support” (FreightMinds International, n.d.). The door to door service may be described as a major service that is provided to different customers by the global logistics industry, in order to enhance their satisfaction as well as comfort (Sudalaimuthu & Raj, 2009). The distinct merits intrinsic to the door to door service are that it reduces the overall costs pertaining to freight as well as insurance; helps in avoiding the use of intermediaries such as customs broker and/or forwarder, and expenses such as detention charges; eases the trading activities between overseas partners; eliminates the liabilities associated with damage and loss; improves the vital activity of coordination; accelerates customs clearance; and helps in controlling costs (Sudalaimuthu & Raj, 2009). As it has been observed “while there is significant agreement between shippers and 3PLs on critical issues, 3PLs generally have a more positive view of relationship success than shippers and have lower awareness about potential problems” (Capgemini, Georgia Institute of Technology, Oracle and Panalpina, 2009), it is justifiable for transport organisations to focus on integrating these services into their core business framework albeit the costs may go up drastically. However, 3PLs may position themselves in the run as indispensable service providers provided they resolve issues pertaining to the orchestration of supply chain, and bridges the gap in terms of Information Technology (IT) capabilities. Literature review reveals that “In order to achieve a more strategic shipper-3PL relationship, shippers want to see 3PLs investing in enhancing their regional and vertical expertise to better understand their particular business. Shipper respondents will also need to be more forthcoming with their data and be willing to team with 3PLs to re-engineer business processes” (Capgemini, Georgia Institute of Technology, Oracle and Panalpina, 2009). The degree to which integrated door to door logistics services has been gaining popularity as a sustainable business avenue may be understood from the service features of FreightMinds® International Logistics Maritime (FILM) that include “Complete door to door ocean freight services Worldwide coverage, extensive network of offices FCL and LCL ocean freight handling Effective and efficient coordination of service Customs clearance process Sea, Air or Ground multimodal services Single carrier responsibility Complete integrated services Door to Door or Port to Port services Ocean Freight Insurance” (FreightMinds International, n.d.). The company further augments its service propositions by claiming “Our customers receive a single point of contact for all their ocean freight requirements and our experienced staff is available worldwide in order to promote and operate a seamless and accessible network. Our company is well capable of delivering World Class Quality Service to and from any country around the world.” (FreightMinds International, n.d.), and justifies its success by adding that “since its beginning, our company has been able to adapt and cope with changing market conditions and with all these changes, we’ve been able to maintain a flexible service environment geared to satisfy the most demanding needs and requests for service from all of our customers” (FreightMinds International, n.d.). Hence, it becomes increasingly apparent that integrated door to door logistics services are a prospective area of global transport business. It requires to be focussed upon in order to tap the potentials of the highly rewarding maritime industry by substantially reducing the risks. Shortsea shipping which means “door-to-door intermodal cargo transport between European countries usually made in containers or trailers in which a large part of the trip is made by sea” (Verlaat, 2008), also makes use of integrated services owing to cost efficiency, reliability, environmental sustainability, guaranteed transit times, and the need for a single manager. Thus, integrated door to door logistics services are a dependable tool to enhance the overall business excellence in the global maritime industry. 2.2. Factors Influencing the Efficiency and Effectiveness Integrated logistics is a broad concept. It covers large number of activities. There is a long chain of activities. This chain starts when sender sends the goods and it ends when receiver receives the goods. In between these two activities there are several activities. Goods, after being sent from the one party, get transported to the port. In the port goods are loaded in the containers which are then get shipped to the port that is nearest to the destination. Once the ship reaches to this port, goods are unloaded from the containers. Finally these goods reach to the end receiver through logistics companies. Each and every actor in this entire chain play important role. In fact they are important players in the global supply chain. The entire chain and activities are seen as huge opportunities by the logistics companies as well as container shipping companies. It is found that container carriers are taking the entire logistics system seriously. They are taking several important steps with the objective of transforming themselves integrated logistics service providers. Currently most of them work as pure carriers that are just involved in providing port to port services. It is observed that these service providers have started to believe that they can take control of global supply chain by expanding their services. Companies like Maersk, NYK, APL, Cosco, etc. are trying to gain competitive advantages by providing integrated logistics services. These companies compete with both pure logistics service providers that work as third party and global terminals operators (Maritime Economics, n.d.). There are several factors that influence the integrated logistics service providers as well as the entire chain of logistics activities. It is very difficult to categorize these factors as there are several players. Important factors are transportation system, costs, people, state of terminals, nature of goods, overall infrastructure etc. The system of transportation plays very important role in the integrated logistics system that includes door to door logistics activities. Huge amount of money is being spent by the organizations. It is found that almost two third or one third total logistics related expenses take place during the process of transportation of the goods. According to the research of National Council of Physical Distribution Management (NCPDM), the cost of transportation accounted for 44% of logistics costs and 6.5% of market revenue (Tseng, Yue & Taylor, 2005). Transportation cost is found to be the highest cost in the entire logistics system. Transportation is one of the most important parts of the system because it acts as a connector among several steps. The role of transportation starts from sending the goods for shipment. In this step goods are transported to the terminals or ports. Generally there are organizations that take the goods to the port. These logistics companies work as third party. However in case integrated logistics system shipping companies provide this service. Goods can be transported through railways, roadways, waterways or airways. In most of the cases roadways are used. This is mainly because other three ways involve more costs. Once goods reach to the port, they will be transported through container ships. After reaching to the destination port, these goods are again transferred to the customers through the roadways. The quality of overall integrated door to door logistics service depends on the transportation system. The service provider has to make sure that the goods reach the port at the right the time at the right condition. Unprofessionally managed transportation system may cause delay and damage of goods. Any sort of delay or damage is likely to affect the image of the service provider. Generally customers measure the performance of the service providers on these two parameters. A proper transportation system must have back-up so if any accidents occur, situation can be managed properly. Cost is another important factor that heavily influences the integrated door to door logistics service. Costs are mainly involved with transportation of goods, maintaining inventory, packing, warehousing etc. Among these, transportation involve maximum amount of cost. Service providers always try to improve the effectiveness and efficiency of the entire operation with the objective of minimizing the cost. Transportation cost takes into account the cost related to corridors, pallets, containers etc. Service providers charge price according to the cost of all the activities. They try to minimize the cost so that minimum possible price can be charged from the customers. However it is often predicted that lower price signifies lower quality services. This is simply because of the fact that the company reducing its cost of operation by compromising on quality of the service. In such situation chances of damage or lose of goods are found to be high. ‘People’ is another crucial factor that influences the efficiency and effectiveness of the integrated door to door logistics service. It is the people who collect the goods from the sender and it is the people who give final delivery of the goods to the customers. The efficiency and effectiveness of the entire process depend on the efficiency and effectiveness of the people associated with the process. Each and every person must be efficient in order to make the process efficient. The person that collects the goods from the sender must be efficient enough to send that to the desired place at the right time at the right condition. The person who is driving the giant container carrying truck must be conscious that there is accident. His responsibility is to bring the goods or containers from one place to another within the specific time and without damaging the goods. Efficiency of workforce is an important factor during the loading or unloading of goods into the containers. This is the time when most of the goods either get damaged or lost. Equipment handling is also very crucial. In most of the large companies workers undergo heavy training in order to make sure that goods are loaded properly. The final delivery of the goods to the customers’ door is also very important. This is the last step and here a direct interaction takes place between the customer and service provider. There are logistics companies that used to provide this service. However, today in the age of integrated door to door logistics system, most of the container carriers have involved themselves into this service. They have either started to provide this service by their own or have formed strategic partnerships with some of the logistics service provider companies. Efficiency of the service is measured by the speed and accuracy with which goods are transported to the final customer by the service provider. Communication among different units of the service provider has to be perfect. There should not be any communication gap between people who are handling containers at the port and the people who are finally delivering the goods to its destination. Another important factor is nature goods that are being transported. If finished goods are transported, more care should be taken in order to avoid any damage, whereas if the goods are semi-finished in nature, they need to be transported fast as an entire production process will be remained halt if these semi-finished goods do not reach at the right time. Time required to load or unload goods depend on the nature of goods. Efficiency of this entire operation is heavily dependent on the infrastructure. It is very important have proper infrastructure in place in order to provide the best possible service to the customers. Proper infrastructure is required in warehouses and ports. Advanced equipments required in order to properly handle the goods. There are advanced software that makes the entire operation easier to handle than it was ever before. New technologies that are found to be heavily used include RFID tracking technology and tamper-proof containers etc. RFID technology helps organizations to manage their inventory in a more organized way. It reduces theft and pilferage (Kleindorfer, Wind & Gunther, 2009). Weather is found to be another crucial factor that influences the integrated logistics system. Weather greatly influence the routes of the ships and hence the total time taken for transporting the goods. Moreover weather can influence the condition of the goods; they may even be damaged due to bad weather. So, it can be said that weather can influence the total cost of the process. Conclusion Logistics is referred to the practice of scheduling, executing and controlling the cost effective flow as well as storage of raw material, inventory and finished products. The overall process of logistics involves a chain of interrelated activities that have to be sequentially performed in order to align the operations with the organisational value chain as well as customer expectations. Integrated Door to Door Logistics services arises from international transport on which the development of a competent international logistics strategy is centred. Apart from the international conventions that are associated with the various transport modes it is equally important for the organisations to understand their economic aspects. Different experts have different opinions regarding these. Authors like Branch have opined, “Global logistics usually embraces combined transport or multi-modalism such as road/sea/rail, road/air/road, rail/sea/rail, which form the supply chain in transport terms on a door-to-door basis” (Branch, 2008). Today, maritime transport is not limited in ports. Its network has reached to individuals’ and organizations’ doors. The various factors that can be considered as the main reasons behind such evolution are technological advancements in the areas of containerization, and Information and Communication Technologies (ICT), globalization of manufacturing and production processes, and modernization of infrastructure. Integrated logistics service has become an important part of global supply chain. Large number of activities takes place in the integrated logistics system. There are several factors that influence the system of integrated logistics system as number of actors involved in the process. Transportation system has a major role to play. In fact transportation is the main part of the system as goods are actually ‘transported’ from one place to another. Total cost of transportation also influences the efficiency of the system. Moreover there are large number people who actually make the entire system running. As a result the efficiency of the process greatly depends on the efficiency of each and every person who is involved. Infrastructural facilities those are present in the system play vital role in determining the efficiency and effectiveness of the system. The speed at which goods are moved and tracked is entirely dependent on the infrastructure. Along with these factors there is weather that plays crucial role by influencing the efficiency and effectiveness of the system. References 1. Ailawadi, C. S. & Singh, R. 2005. Logistics Management. PHI Learning Pvt. Ltd. 2. Bloomberg, J. D., LeMary, A. S. & Hanna, B. J. 2004. Logistics. Pearson Education, Inc. 3. Branch, E. A. 2008. Global Supply Chain Management and International Logistics. Taylor & Francis. 4. Capgemini, Georgia Institute of Technology, Oracle & Panalpina. September 21, 2009. New Study Highlights Role of Third-Party Logistics Providers in Helping Shippers Adapt to Economic Challenges. Fourteenth Annual Third-Party Logistics Study from Capgemini, Georgia Institute of Technology, Oracle and Panalpina examines global market for shippers and logistics providers. [Pdf]. Available at: http://www.oracle.com/us/industries/travel-transportation/3rd-party-logistics-provider-pr-067311.pdf [Accessed on April 22, 2010]. 5. FreightMinds International. No Date. An Integrated Support Provider to the Global Logistics Market. FreightMinds® International Logistics. [Pdf]. Available at: http://www.freightminds.com/fm_eng/htms/linkd_down/downloads/FM_Logistics_Brochure.pdf [Accessed on April 22, 2010]. 6. Green, B. F., Turner, W., Roberts, S., Nagendra, A. & Wininger, E. June 2008. A Practitioner’s Perspective on the Role of a Third-Party Logistics Provider. Journal of Business & Economics Research. Vol. 6. No. 6. [Pdf]. Available at: http://www.cluteinstitute-onlinejournals.com/PDFs/954.pdf [Accessed on April 22, 2010]. 7. Kleindorfer, P. R. Wind, Y. & Gunther, R. E. 2009. The Network Challenge: Strategy, Profit, and Risk in an Interlinked World. Wharton School Publishing. 8. Maritime Economics. No Date. Maritime Logistics. [Online]. Available at: http://www.maritimeeconomics.com/mc_cc_ml.htm [Accessed on April 22, 2010]. 9. Rushton, A., Croucher, P. & Baker, P. 2006. The Handbook of Logistics and Distribution Management. 3rd ed. Kogan Page Publishers. 10. Sudalaimuthu, S. & Raj, A. S. 2009. Logistics Management for International Business. PHI Learning Pvt. Ltd. 11. Tseng, Y, Yue, L. W. & Taylor, P. A. M. 2005. The Role of Transportation in Logistics Chain. Proceedings of the Eastern Asia Society for Transportation Studies. Vol. 5. [Pdf]. Available at: http://www.siam.org/journals/plagiary/1657.pdf [Accessed on April 21, 2010]. 12. Verlaat, V. S. June 10, 2008. Development of Integrated Door to Door Shortsea Services. Shortsea Development Centre Holland. [Pdf]. 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