Shipping Strategies in Transportation - Report Example

Shipping Strategies in Transportation Introduction In an increasing manner, shipping services is recognized as comprising a system. In order to stay ahead, the mechanics of such system must be understood along with the adoption of correct shipping strategies in ensuring that the infrastructures developed can cope with those mechanics. Hence, it is very essential to understand some of the changes that take place and the way they affect the mechanics of the shipping system for a business to be successful in the field of transportation management. This is referred to as the shipping strategy in transportation business. Literature Review Shipping was traditionally viewed as a direct service from port to port, with the misconception that direct shipping represents the most efficient mode of moving goods (Hanley 2003). But increasingly, this is not the case due to a number of converging factors. First, this has to do with the fact that in order to support traffic on a certain route, ports need to be of certain size. Moreover, with direct shipping, routes and scheduling have become very complex, and that complexity has led to inefficiencies. Ports that are able to create mechanisms to improve efficiency in this environment will gain a greater share of the market. An examination of the shipping volumes at major ports conducted by Hanley (2003) shows that a very significant proportion of the trade is handled by a small group of port operators. Lambert's (1999) study illustrates that the top ten ports (1.4 percent of ports) in the world out of a total of 700 ports surveyed handled 38 percent of the global container cargo in 1997. Should this be extended to the top 25 ports (3.6 percent), the volume handled would increase to 56 percent or over half. Shipping Strategies and the Complex Environment Formulation of shipping strategies in the complex environment is the focus of Coyle, Bardi, and Novack's (2006) study. The study provides a very useful approach to in a fast-paced and hastily changing industry. The very appropriate scenarios that these authors are focusing on are the metropolitan areas which have been the essential hubs of economic integration, fostering and benefiting from innovations in commercial, manufacturing, communications, and transportation technologies. In the twenty-first century, nevertheless, only those metropolitan areas that adapt to global economic trends and provide the infrastructure and services that support knowledge-based and technology-driven industries will stay geographic nodes of worldwide business transactions. Persistent technological innovation, particularly in globally interconnected digital communications, transportation, and logistics systems, has spawned the fast growth of service and manufacturing industries connected through virtual networks and supply chains, and is increasing the demand for rapid delivery of high quality goods, services, and information in North America, Europe, Asia, and Latin America. Globalization, the mobility of factors of production, and advances in information and transportation technology are essentially and persistently changing the economic bases of metropolitan areas and the requirements for attracting and maintaining competitive economic activities. Shipping Strategies: A Review Complexity of Direct Shipping From a global system point of view, the complexity of direct shipping is one facet that is often overlooked but is essentially critical. For instance, sustaining direct point-to-point shipping among ten ports necessitates 100 services from one region to another. Should this be doubled to 20 ports from a region to be connected to another 20 ports in another region, then it will require 400 services. The complexity in ensuring these connections is evident. What is less evident is the need for more ships and consequently, more crowded sea-lanes just to provide the necessary connections. Probably, the most significant point is the need for enough traffic to justify such services. Current trade volume in the world is basically not going to be enough to justify such complexity even with ten ports from one region to another ten ports in another region only, not to mention justifying this on a global basis. One most important consequence of persevering on direct shipping is then the provision of sub-par service, namely service by many smaller vessels running at a much lower frequency or the routing of a service through a series of ports en route to form a loop service. The complexity of providing schedules for such direct shipping services is also another difficult challenge. The net effect is that the total shipping time will increase (either waiting in storage or in transit), and not decrease, if direct shipping is insisted upon. Transhipment Hub: An Alternative In lieu of the apparent complexity of the direct shipping, transhipment hub provides complexity reduction. Clearly, transhipment provides an optimization paradigm that direct shipping cannot. Essentially, transhipment squeezes the complexity of an external distribution network into the internal operations of a hub's yard. Cargo redistribution now takes place within a smaller physical space and often within a shorter time. Add to this the ability to schedule more regular long-distance services and the efficiency of the hub-spoke system is clear. In developing the infrastructures to support such a hub service, the ability to handle the complexity of a hub's yard is now the important factor. Actual records of a typical third-generation container vessel show that in a typical operation, it will load from 51 vessels and discharge to 30 vessels. The same vessel has loaded from ships coming in from more than 20 ports and will be discharging to more than 17 ports. If the fact that berth space is expensive, and (more importantly) limited, the ability to turn around a vessel as quickly as possible has become as critical as providing the physical infrastructure. The above analysis has provided an interesting insight into the fundamental difference between a system of direct shipping and a hub-spoke system. The above analysis has shown that a hub-spoke system is more cost-effective than a direct-shipping system. Thus, purely on an analytical basis, a hub-spoke is likely to provide the optimal system solution and ensure system efficiency. However, because of a number of strategic and nationalistic reasons, it is inevitable that not all players will want to embrace such a system. Also, in such a complex situation, competition among too many carriers may not necessarily lead to a desired system-optimal solution. From the perspective of this analysis, it is also inevitable that lines have to evaluate all routes collectively as a total (global) system and work out cooperative operational and business arrangements. However, it is also clear that those who can provide an efficient hub-spoke system will also be able to derive efficiency and hence a competitive edge over those relying on direct shipping. As a result, in recent years, there has been an increase in arrangements such as strategic alliances, mergers, or consortiums to execute more efficiently the hub-spoke system and achieve a system optimal solution and, therefore, the competitive edge. Supporting the Shipping System: (Case of Singapore) Integrating Physical Infrastructures For Singapore's port to remain competitive, new infrastructures had to be developed that could support the complexity of being a hub. However, as pointed out by Lui and Tan (2001), the development of new port facilities must be integrated into Singapore's master plan to progressively shift lower-value activities to locations of lesser land value. New facilities, such as Pasir Panjang Terminal, an automated container terminal built in 1999, are designed to save land, boost productivity, and improve service. The facility can stack containers up to nine levels, the highest in the world, to save space. With this high stacking comes the complexity of transporting and repositioning all the boxes in the right sequence and to the right location and all of this must be executed within a limited space and time. Integrating Operations Using IT To handle and integrate all aspects of port operations to minimize the turnaround time of a docked ship, an information system, called the Computer Integrated Terminal Operations System (CITOS) was developed to ensure seamless operations of all the container terminals of the Port of Singapore. To handle the high volume of containers would be a logistical nightmare without such a system. This system, developed through extensive but judicious use of information technology over the years, represents one facet of the new competitive edge. This system is marked by three distinct features: - it provides a direct interface to all relevant users such as port customers, shipping lines, and freight forwarders, using an e-commerce module - it provides real-time resource allocation - it integrates and coordinates all real-time activities at a terminal. Integrating Connectivity Across Borders and Overseas Linkages Everyday, there are two sailings to the United States, five sailings to Japan, five sailings to Europe and 79 sailings to South Asia and South-east Asia. Through Singapore, there is a network of common feeder ships bringing cargo between these areas and the region. To ensure minimal time in the port terminal for the lines calling, more than 50 percent of the transhipment containers are connected in less than three days and 24 percent within 24 hours. For Singapore's hub-and-spoke system to be effective, it must be integrated across borders. Since its incorporation in 1997, port of Singapore has begun to expand to create more economic space and to leverage its experience to be able to run a first-rate port. This also permits the entire chain of ports to form a more efficient hub-spoke system. Conclusion In a global economy where many ports are competing in the global trading system, shipping strategy integration provides the answer to the challenges. As presented, that system has been demonstrated and best served by a hub-and-spoke system. Even so, for the latter type of port system to be efficient, it must have quick turnaround, highly automated operations, and an integrated information system. References Coyle, J.J., E.J. Bardi & R.A. Novack (2006). Transportation, 6th Edition. Thomson South Western College. Hanley, R.E. (ed.) (2003). Moving People, Goods, and Information: The Cutting-Edge Infrastructures of Networked Cities. London: Routledge. Lambert, M. (ed.) (1999). Containerization International Yearbook, 1999, Eastcote, U.K.: Emap Business Communications, Ltd. Lui, P.C. & T.S. Tan (2001). "Building Integrated Large-Scale Urban Infrastructures: Singapore's Experience", Journal of Urban Technology. 8(1), pp. 49-68. Read More