Shipping and Logistics Management

The shipping business is essential to the development of economic activities as international trade needs ships to transport cargoes from places of production to places of consumption. In this chapter we discuss several fundamental questions in the shipping business. These questions include the following: Why is there demand for shipping? What is a shipping system? Who are the actors in shipping? Broadly speaking, sea transport can be divided into tramp and liner shipping. The purpose of tramp shipping is to provide convenient and economical transport for bulk cargoes that require cross-ocean movement. Bulk cargoes can be classified into dry bulk and liquid bulk. The demand for the transport of liquid bulk by sea is served mainly by the sector of tanker shipping. The main function of liner shipping is to satisfy the demand for regular cargo transport. Shipping and international trade are interrelated. This chapter also examines fundamental topics in the shipping business such as the sea transport system, international trade patterns, and international maritime passages.

This chapter analyses the freight rate mechanism in the shipping market. Sea transport is a derived demand where shipping demand occurs as a result of seaborne trade. The demand determinants affecting sea transport include government and political factors, the world economy, seaborne commodity trade, average haul, and transport costs. On the other hand, determinants for shipping supply are fleet size and operational efficiency. The shipping supply function shows the quantity of shipping services by sea transport carriers that would be offered at each level of the freight rate, whereas the shipping demand function shows how shippers adjust their demand requirements to changes in freight rates. In the shipping market, the supply and demand curves intersect at the equilibrium price, where both carriers and shippers have reached a mutually acceptable freight rate. Furthermore, the concept of the “shipping cycle” is introduced in this chapter. A shipping cycle starts with a shortage of ships and increases in freight rates, which in turn stimulates excessive ordering of new ships. The delivery of new ships leads to more supply in shipping capacity. The shipping cycle is a competitive process in which supply and demand interact to determine freight rates.

There are four separate but interrelated markets in shipping, namely, the freight market, which trades sea transport, the second-hand market, which trades used ships, the new building market, which trades new ships, and the demolition market, which deals with scrap ships. These four shipping markets are closely interrelated. This chapter aims to provide insights into the four shipping markets and explain how these separate markets interact to affect one another. We discuss an empirical study which shows that seaborne trade significantly affects fleet size and the freight rate. On the other hand, fleet size is affected by the freight rate, and the latter has a significant impact on vessel prices.

To fully understand the container shipping industry, it is imperative to identify the factors that influence the capacity of the industry, explain how these factors affect the container shipping market, and empirically test their relationships grounded in a sound theoretical framework. This chapter presents such a study built on the industrial organization paradigm that “industry structure determines the conduct of firms whose joint conduct then determines the collective performance of the firms in the marketplace”. In this chapter we interpret a firm’s conduct as its organizational choices on key decision variables such as capacity. On that basis, we identify the factors that affect total fleet size and develop an empirical model of container shipping to explain the relationships among these factors and evaluate their effects on the container shipping market.

Strategy is important in shipping because it facilitates the identification of business opportunities, gives an objective view to solve business problems, provides a framework to improve internal and external collaboration, assists in controlling business activities, minimizes negative effects when threats arise, helps make better decisions, guides effective allocation of resources, provides methods to manage changes, and nurtures consistency in the management of the shipping business. Shipping firms have a hierarchy of interrelated strategies, each formulated at a different level, which can be classified as corporate strategy, business strategy, and functional strategy. Formulating and implementing shipping strategies involve answering many interrelated decisions: What to do? When to do it? How to do it? The development of shipping strategies involves the process of strategic analysis, formulating strategies, and implementation and control of strategies. To seek business opportunities, a shipping firm needs to answer the question of how to structure the organization to sustain growth. The structural options for shipping firms include organic growth, acquisitions, joint ventures, alliances, and networks.

There are two key functions in managing business operations, namely, the exchange and value-added functions. The exchange function coordinates input, whereas value is added by the firm engaged in a series of transformations. The combination of the exchange and value-added functions determines a firm’s performance. Another important factor affecting firm performance is the growth of the firm. This chapter provides empirical evidence to examine the exchange and value-added functions in the container shipping industry. The findings imply that the price on the product market (i.e., freight rate) is positively related to the total production capacity of the industry, but the price on the factor market (i.e., price of ships) is not a significant factor influencing the decision of container shipping firms to adjust their fleet size.

Carrying capacity is a critical resource in container shipping, Although it is beneficial for carriers to deploy mega ships to achieve cost-efficiency, a balance between ship size and the scope of service is required when they determine their fleet mix. This chapter provides empirical evidence to support the proposal that the carrying capacity of the shipping firm positively affects the firm’s performance. As fleet mix is concerned with the number of ships and the size of ships, this chapter also examines the impact of the number of ships and the average ship size on firm performance. In comparing the magnitudes of the effects, the number of ships has a stronger impact on firm performance than ship size. In addition, we present the SCOPE framework, which consists of the dimensions of service frequency, customer value, optimal vessel size, ports of call, and extensive market coverage, as a useful reference for shipping managers to determine the fleet mix for providing their shipping services.

A liner shipping network is a form of collaboration in the liner shipping industry where actors such as intermodal service providers, container management service providers, and container terminal operators share resources and assets to develop mutually beneficial strategies to seek operational performance gains. This chapter examines the liner shipping industry from the network perspective with a focus on developing an analytical framework for the development and operations of liner shipping networks. To achieve this objective, we use a case study to establish the framework for the reference of liner shipping companies and their business partners to operate and manage their networks competently. To understand the participation of liner shipping companies in liner shipping networks, we also explore the driving forces for development and operation of the networks. The findings provide a useful framework for liner shipping companies and their business partners to evaluate their operations for cost and service improvements in managing liner shipping networks.

Container transport involves door-to-door services encompassing ocean-going and land-based transport services. Containers move along a network of shipping nodes and links. The nodes are physical locations such as container terminals where containers are handled or stored, whereas the links between nodes are served by transport modes such as ships, trucks, and trains. The container transport chain is characterized by interactions among a number of actors. To understand container transport, it is necessary to know who the actors are. In general, the key actors in the container transport chain include primary customers, transport facilitators, and transport operators. The primary customers in the container transport chain are buyers and sellers. Shippers may handle their export and import processes and transport activities themselves. Otherwise, they may outsource the jobs to intermediaries. An intermediary can be a transport facilitator as a third party in providing linkages between shippers and carriers. Transport operators include road operators, rail operators, inland waterway operators, and ocean container carriers. Each transport mode has its own characteristics. The decision on mode choice is complex. Transport cost is important for carrier selection. Other service factors to consider include transit time and reliability, inventory and stockout, capability and accessibility, and security.

Intermodal transport combines the accessibility of inland transport modes with the long-haul capabilities of ocean shipping. Intermodal transport can be defined as the movement of goods in one and the same loading unit that uses successively several modes of transport without handling the goods themselves in changing transport modes. The rise of intermodal transport has resulted in dramatic changes in the pattern of freight transport. There is a contrast between the standardization of ocean transport services and that established on land. Regional differences characterizing Asia, Europe, and North America include geographical differences, differences in economic development, and differences in transport infrastructure. As an integrated transport system, intermodal freight transport consists of various elements. This chapter uses Hong Kong as a case to illustrate the INTERMODAL model to identify the elements of an intermodal transport system. The key elements of an intermodal transport system include infrastructure, new technology, transport operators, the external business environment, regional location, management of containers, operations of container terminals, deregulation, availability of logistics services, and logistics security.

Container cost is one of the most important items of a container shipping company’s total costs. The basic elements of container cost include long-term capital investment and the day-to-day operations cost. Equipment supply is necessary for liner shipping companies to secure cargoes. Carriers must supply the right containers at the right time and in right place to shippers. To manage empty containers, it is necessary to have an understanding of the operations cost involved. The cost of maintaining containers includes equipment cost, storage cost, movement cost, and administrative cost. Managing empty containers efficiently is the goal for all the parties involved in the container transport chain. In this chapter we discuss a model for empty container management with four major dimensions: strategic planning, procurement of empty containers, movement of empty containers, and technical efficiency.

In the container shipping industry, the importance of adopting technology for enhancing transport security has been well acknowledged. Institutional pressures can be a key driver of change for firms in a container transport chain and these firms include shippers, consignees, freight forwarders, transport operators, maritime carriers, container terminal operators, customs authorities, and government agencies. Technological devices such as radio-frequency identification, the smart box initiative, and non-intrusive inspection are adopted to enhance container transport security. This chapter discusses the implications of the different types of institutional isomorphism from the perspectives of container transport operators that have taken the initiative to adopt technology for container transport security enhancement and those that have followed other firms to adopt technology. The possible impacts of the different types of institutional isomorphism, namely, coercion, mimesis, and norms, elaborated in this study can help shipping and logistics managers better understand the institutional pressures that are put on them, and the institutional pressures that drive them to adopt technologies in the container transport chain.

Ports are places where there are facilities for berthing or anchoring ships and where there is cargo handling equipment to process cargoes from ships to shore, shore to ships, or ships to ships. There are different roles of ports, including

1. ports as places;

2. ports as operating systems;

3. ports as economic units; and

4. ports as administrative units.

The main facilities in container terminals include the quay, the container yard, the container freight station, the interchange area, the gate facility, and the railhead. The process at container terminals can be divided into subprocesses: arrival of the ship, cargo unloading and loading, transport of containers from the ship to stack, stacking of containers, and interterminal transport and other modes of transport. As containers move along the container transport chain, they can have a different status, including empty container, full container load, and less than container load. Generally, the network of nodes and links involved in the container transport chain can be classified into four principal functions, i.e., consignment assembly, consignment consolidation, carriage, and port handling.

This chapter starts with a discussion of the development of global container terminal operators and the interorganizational interaction model to analyse the container terminal community. We then use data envelopment analysis as a quantitative analytical tool to measure and evaluate the efficiency of global container terminal operations. In addition, we use regression modelling to formulate two regression equations as a reference for performance evaluation of container terminal operators. The findings indicate that efficient global terminal operators are global stevedores. In this chapter we introduce a PROFIT framework as a useful reference for container terminal operators to manage their terminal operations and development.

Ports are a critical part of the logistics system along a supply chain, which needs to be responsive to customers’ demand. Port efficiency is an important factor that affects the intention of users to use a port. Inefficient port operations incur additional costs for shippers, increase operating costs for transport operators, and reduce the profitability of the port. Hence, there is a need for ports to operate as an “agile port” to cope with the uncertain operating environment. This chapter discusses the characteristics of the agile port. To facilitate the implementation of the concept of agility in ports, we present a ten-step implementation framework. This structured ten-step approach is a useful road map for the port industry to adopt an agile port system.

This chapter begins with a discussion of the operating environment of container shipping by introducing the concept of the 4C forces, i.e., containerization, concentration, collaboration, and competition. In container transport, the port is a vital part of the transport chain. The Anyport model, which identifies port development as having phases of setting, expansion, and specialization, is useful to explain the evolution of a port. In addition to sea-based operations, land-based operations have become an important dimension in international shipping. With growing complexity in shipping services, there is a trend in the shipping industry to use the hub-and-spoke approach. In the shipping hub, firms involved in upstream and downstream activities operate together and their collective economic actions lead to the emergence of a transport complex economy.