Chapter 1.

1 – Maritime Shipping and International

Trade
Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom
Seaports are affected by a wide range of economic,
technological, and geopolitical developments. Shifts in global
production and international trade are affecting port activity
levels and operations. The demand for port traffic is derived
from world trade.

1. Maritime Shipping as a Driver of Globalization

Global economic integration is a key factor behind the rising significance of
international trade. Historically, trade was prevalent but set up under
constraining conditions in terms of the technical means to support it. Trading
over long distances remained slow and expensive, limiting its scale and
scope. By the early 20th century, transport technologies such as the
steamship became ubiquitous/omnipresent/ and efficient enough to support a
complex international trade system. Particularly, the steamship enabled
economies of scale that could not have been achieved beforehand. However,
it was not until the mid-20th century that the global regulatory regime became
open enough to allow an expanded form of globalization.

Global trade is impossible without transportation, making efficient transport a

key trade facilitator. By definition, almost all the cargo carried by maritime
shipping is considered to be international trade. Transport costs (both freight
costs and time costs) constitute a key component of total trade costs. These
trade costs also include other costs incurred in getting goods to final users
other than the marginal cost of producing the good itself, such as policy
barriers, information costs, legal and regulatory costs. Lower trade costs
contribute to trade growth as it has been underlined that for developing
economies, a 10% reduction in transportation costs was associated with a
20% growth in international trade. Distance has become a factor that plays a
lesser role in the intensity of maritime trade relations, making the capacity and
direct connectivity of maritime shipping networks an important factor.

Since the end of World War II, ongoing trade liberalism under the banner
‘World Peace through World Trade’, has led to the gradual removal of
political, regulatory, and cultural obstacles to trade. Integration processes took
place both at the regional level and at the global level. The collapse of the
Soviet Union and the opening up of China in the 1990s represented landmark
events that incited the entry of close to 2 billion consumers as well as the
related resources into the global economy. Regional trading blocs have been
formed with differing trade liberalization levels, such as NAFTA in North
America, the EU Single Market in Europe, ASEAN in Southeast Asia,
Mercosur in South America, and Ecowas in West Africa. An important share
of international trade occurs within economic blocs, especially the European
 Union and NAFTA, which rely more on land transport modes such as road
and rail. The European Union and NAFTA are considered the world’s most
integrated trade agreements, with 62.3% and 51.2% of their respective trade
concerning member nations. For ASEAN, 75.5% of its trade concerns nations
outside the agreement, implying a greater relative share of maritime shipping.

The globalization of production is a driver for the globalization of trade as they

are interrelated. The scale, volume, and efficiency of international trade have
continued to improve. The liberalization of global trade is supported by the
continuing evolution of the World Trade Organisation (WTO) and initiatives by
organizations such as UNCTAD or the World Bank. After World War II, a
number of international corporations sought the support of intergovernmental
organizations such as the United Nations for regulatory frameworks that
enabled the pursuit of international operations. In such an environment,
multinational corporations assumed growing importance as investors and
traders. As a result, it might be argued that the slogan ‘World Peace through
World Trade’ slowly shifted to ‘World Peace for World Trade’. At present,
inter-governmental organizations still play an essential role in shaping the
rules of the game in international competition and global trade.

2. Ongoing Growth of International Trade

World trade has experienced a significant increase since the 1950s and
represents a growing share of global economic output. In 2007, international
trade surpassed 50% of the global GDP for the first time, a share that was
conventionally in the 20% to 25% range in the first half of the 20th century. In
the 19th century, this share was around 10%. Several factors explained this
growth:

 Income growth linked with additional consumption of goods and services,

some of which are traded
 .
 Falling transport costs allowing more options and opportunities to trade.

 Trade liberalization and the associated tariff rate reductions, easing
trade transactions.

 Economic convergence of countries around trade agreements and
common commercial policies.

 Increase of intermediate goods trade in the context of global production
chains, outsourcing, and offshoring.

Between 1958 and 1988, income growth explained 67% of the real growth of
world trade, while tariff reductions accounted for about 26% and transport-
cost reductions roughly 8%. However, developed and developing economies
might face different economic characteristics, and those play a different role in
the growth of international trade. Low-income economies tend to have a high
reliance on the trade of resources and low added value goods, intermediate
 income economies are oriented around manufacturing, and high-income
economies tend to be net importers of products and services.

The ongoing growth of international trade also impacted firms, many of which
expanded to become multinational corporations. The benefits that
multinational corporations derive from trade are varied:

 Competition. Seeking new resources, markets, and processes in

international markets increases the competitiveness of corporations.

 Economies of scale. International markets allow firms to produce larger
quantities of goods, which enable lower unit costs.

 Innovation. International markets incite the development of new products
or the adaptation of existing products to different market
characteristics.

As international trade depends on the provision of distribution and

transactional services, the demand for these services has increased
substantially, leading to the growth of carriers, cargo owners, terminal
operators, third-party logistics service providers (3PL), freight forwarders, and
insurers. International transportation and transaction service providers
represent a complex ecosystem aiming at supporting international trade and
extracting added value. The providers of transportation services, like
manufacturing firms, have become large multinational corporations due to the
extensive markets they cover.

The nature of what is being traded and the main traders involved influence the
transportation modes used for international transportation. Maritime
transportation dominates, handling about 80% of the volume and 70% of the
value of international trade.

Services Supporting International Trade

Worlds Most Traded Goods and Lead Exporter 2016

3. The Containerization of Trade

A. The emergence of the container
The container and the associated maritime and inland transport systems have
proved to be instrumental to the consecutive waves of globalization and global
trade growth since the 1970s. The launching of the first containership by
Malcolm McLean in 1956, the Ideal X, marked the beginning of
containerization. The first transatlantic container service between the US East
Coast and Northern Europe in 1966 marked the start of long-distance
containerized trade. The first specialized cellular containerships were
delivered in 1968, and containerization expanded over maritime and inland
freight transport systems. Container shipping developed rapidly due to the
adoption of standard container sizes in the late 1960s. The cost savings
resulting from faster vessel turnaround times in ports, the reduction in the
level of damages and associated insurance fees, and the integration with
inland transport modes such as trucks, barges, and trains became
acknowledged as clear containerization advantages.

The container offered a standard around which physical distribution systems

could operate. Hence, emerging container shipping networks allowed
changes in the economic and transport geography as they significantly
reduced maritime costs between production and consumption centers across
the world. Container shipping also became an essential driver in reshaping
global supply chains allowing sourcing strategies of multinational enterprises
and developing global production networks. New supply chain practices
increased the requirements on container shipping in terms of frequency,
schedule reliability/integrity, global coverage of services, rate setting, and
environmental performance. The outcome has been an ongoing growth of the
global container throughput.

The container has evolved from a transport unit to a supply or commodity

chain unit. Containerization is inherently linked to the transport of load
units (containers) across several transportation modes. It is more than a box
as it acts as a vector for production and distribution. Containerization has led
to various changes in the geography of transport, trade, and distribution,
particularly in how production and physical distribution interact. The container
can be considered revolutionary, as new practices have taken place after its
introduction. It has become a ubiquitous transport product servicing mobility
requirements at almost all stages of supply and commodity chains and is able
to be carried virtually everywhere there are transport infrastructures.

B. Containerized trade networks

Before containerization, many goods subject to trade had to be handled
manually. Emerging worldwide container shipping networks allowed changes
in the economic and transport geography as they significantly shortened the
maritime cost distances between production and consumption centers around
the world. Container shipping also became an essential driver in reshaping
global supply chain practices, allowing global sourcing strategies of
multinational enterprises, pull logistics solutions, and developing global
production networks.

Containerization has been the most dynamic physical component of

globalization, far exceeding the growth of the value of exports and the GDP.
As globalization developed, each new individual, GDP, or export unit was
associated with a higher level of container flows. While up to 1980, the growth
of container port throughput went on par with the growth of the value of
exports, a divergence is noted afterward, with container flows growing faster
than trade flows. Containerization entered the acceleration phase of its
diffusion cycle as the fundamental support of export-oriented strategies
pursued by Asian economies.

The composition of international trade goods carried in containers is

impressive in its diversity. The 20 most important SITC (Standard
International Trade Classification) categories accounted for 65% of the global
containerized trade, underlining that the container has been used to carry any
possible good that could be fitted in. More than 75% of container freight flows
are related to consumer spending on retail goods. However, many of the most
significant categories of containerized trade are the outcome of comparative
advantage factors, namely labor, that can be temporary and subject to
change. If these advantages were to shift because of technological changes
(e.g. automation), then a notable share of the containerized trade could be
impacted.

About one out of every ten containers handled worldwide is handled in ports
of the Yangtze River Delta. In East Asia, export-oriented industrialization
policies undertaken by Hong Kong, Taiwan, and South Korea sustained the
strong growth in container throughput handled by these economies from the
1980s. China developed similar strategies in the late 1980s resulting in
elevated growth first in the Pearl River Delta and then in the Yangtze Delta
port system and the Bohai Bay region. In the past ten years, Shanghai,
Guangzhou, Shenzhen, Qingdao, and Ningbo joined Hong Kong, Busan, and
Singapore as the world’s busiest container ports. The Rhine-Scheldt Delta
(Belgium/the Netherlands) was the world’s number one container handling
region until the mid-1990s when South China took the lead. While the
dynamics of containerization and container flows are well-known, much less is
known about what is being carried by containers, particularly as it concerns
commodities.

World Container Throughput 1980 2021

 Global
Trade and Container Throughput 1970=100

Evol
ution of Traffic Handled by Container Ports 1980 2010

Gl
obal Merchandise Exports and Container Throughput 1980 2021
 C. Containerized growth dynamics
The conventional growth dynamics of containerization have mainly relied on
an array of drivers, which include:

 Derived Growth. Often labeled as organic growth, derived growth is an

economic development outcome with greater quantities of containerized
cargoes being traded. Globalization also implies a growth in the average
distance over which containerized freight is being carried. In both cases,
greater containerized capacities are required, average voyage days per
vessel increase, and the number of vessel roundtrips per year decreases. The
dynamics based on derived demand may have reached maturity in
containerization potential as many global supply chains are now fully
containerized.
 Substitution-based growth. Initially, substitution was the main factor behind
containerization with the gradual capture of the breakbulk cargo market. This
process has been particularly visible in many ports, as illustrated by rising
containerization degrees (the ratio between containerized throughput of the
port and the total general cargo volumes). Since almost all break-bulk cargo
that could be containerized has been containerized, this substitution process
is essentially near completion in developed economies. It is also rising rapidly
in emerging economies and developing countries. This leaves the possible
further containerization of niche markets, namely commodities and
temperature-sensitive cargo.
 Incidental growth. Production and trade imbalances in the global economy are
reflected in physical flows and transport rates and lead to specific container
repositioning strategies. Containerized flows are rarely balanced, implying that
empty containers must be repositioned to locations where export cargo is
available.
 Induced Growth. The growth of deep-sea services and the use of larger
containerships has led to the setting up of intermediary hubs connecting
different systems of circulation via transshipment. Intermediary hubs emerge
in locations offering clear advantages over direct port calls at mainland ports.
The setting up of intermediate hubs occurs around specific regions ideally
suited for maritime hub-and-spoke distribution patterns. Transshipment has
proven to be a major driver for global container port throughput, with
substantially higher growth rates than observed for gateway traffic. The
worldwide transshipment incidence has steadily increased from around 18%
in 1990 to around 35% in 2018.

In terms of the value of global trade carried in containers, if maritime shipping

accounts for 70% of the total trade and that 66% of this value is carried in
containers, this represented in 2020 about $54,000 per TEU.
Global Containerized Trade by Main Cargo Category in

TEU C
ontainerization Growth Factors
 Value of Containerized Trade 2020

4. The Shift in Global Trade Patterns

The recent decades have seen important changes in international trade flows.
A growing share of international trade occurs within regions (and particularly
economic blocs) even if long-distance trade has increased in absolute
numbers. Trade predominantly takes place within Europe, North America, and
East Asia, commonly referred to as the triad. Still, a shift in trade
relations between the northern and southern hemispheres, particularly
between developed and developing economies, has occurred. The structure
of global trade has become much more complex in its relations and diversified
in what is being traded. The pattern of trade relations is mainly explained by
the following factors:

 Geographical proximity. The intensity of trade relations is commonly a

function of proximity unless notable advantages can be found further away.
The European Union has significant trading linkages with adjacent areas in
Eastern Europe, North Africa, and the Middle East. North America also
maintains important trade linkages with Latin America, notably Mexico, as part
of the USMCA (United States-Mexico-Canada Agreement). Shorter distances
have an important impact on the modes used for trade, with maritime shipping
less suitable outside short sea shipping. Still, a key advantage of maritime
shipping is that it substantially attenuates the negative effects of long
distances on trade as the development of containerized shipping underlines.
 Resources availability. The scarcity and availability of resources have shaped
maritime networks for close to two centuries and remain the main component,
ton-wise, of maritime shipping. Energy, mineral, and agricultural trades have
 distinct shipping networks and specialized port facilities designed to handle
bulk cargoes such as petroleum, natural gas, coal, grains, alumina, and iron
ore.
 History and culture. The trade networks established during the colonial era
have endured in relations such as those between Europe and Africa or
between the United States and Latin America. China has commercial
historical ties with Central Asia and Southeast Asia, which have been
recreated and expanded in recent decades. Irrespective of the political
context, trade networks tend to endure because of the reciprocal systems of
supply and demand on which they depend.

Another characteristic of the contemporary commercial setting

concerns imbalances in trade flows. For instance, China exports more than it
imports with partners such as the United States and the European Union.
Trade imbalances directly reflect imbalances in shipping flows. For bulk trade,
such as energy and minerals, it is common that a return trip will be empty. For
containerized trade, the load factors of return trips are lower, and the share of
empty containers is higher. The imbalanced trade structure is also reflected in
the composition of container imports and exports that differs substantially.
Further, trade imbalances imply the repositioning of empty containers which
accounts for about 20% of global container moves.

Int
ernational Trade of Merchandises 2003 2013
 Changes in Global Trade Flows

World Seaborne Trade by Cargo Type 1970 2018

 America
n Foreign Trade by Maritime Containers 2017 in TEUs

Geographical and economic shifts in international trade are directly

observable in the evolution of the level of trade intensity by ocean, as the
Trans-Pacific trade has grown faster than the Trans-Atlantic trade. The most
significant trade flows are between Asia and North America (especially the
United States), between Europe and North America, and between Europe and
Asia. The associated maritime routes are the most commercially used, with
sizeable trade going through chokepoints such as the Strait of Malacca (30%
of global trade transiting), the Suez Canal (15%), the Strait of Gibraltar, and
the Panama Canal (5%). These bottlenecks allow connection between major
systems of maritime circulation where the transatlantic, the transpacific, and
the Asia-Europe routes dominate. North-south flows are complementing these
east-west routes, many of which interact at major transshipment hubs around
Singapore, Dubai, and the Caribbean (Panama, Cartagena, Kingston). The
evolution of international trade shapes the structure of maritime shipping
networks and port development as shipping lines tend to organize their
services to connect the dominant trade flows directly, and the less dominant
trade flows indirectly through transhipments.
Worlds 20 Largest Exporters and Importers of Goods and Services 2018

Trade Intensity by
Ocean 1980 2010

5. International Trade and Maritime

Shipping Services
International trade relies volume-wise for about 80% on maritime
transportation, which involves several markets such as dry bulk, roll-on/roll-
off, general cargo, and containers.
 A. Maritime services in dry bulk shipping
The maritime transport of major bulks such as iron ore and coal typically relies
on end-to-end services between a port of loading (connected by rail to mines)
and a port of discharge. Economies of scale in vessel size are significant in
dry bulk shipping, so operators will try to maximize vessel size on the end-to-
end tramp service. The nautical accessibility in the port of loading and port of
discharge, the charter price level, and the availability of vessel types play a
decisive role in vessel size choice. Inland transport costs per ton-kilometer are
typically 20 to 30 percent higher than sea transport costs per ton-kilometer.

Consequently, market players make a trade-off between, on the one hand, the
minimization of inland transport costs by routing the bulk flows via the ports
that are closest to the final destination, and on the other hand, maximizing the
scale economies in vessel size by calling at the ports that offer the best
nautical accessibility. This exercise in some cases leads to multiple calls
whereby a large Capesize vessel will first call at a deepwater port to
discharge part of the cargo and then proceed to the second port of call with a
less favorable nautical access to discharge the remainder (e.g. a call
sequence starting in Dunkirk and ending in Antwerp). Another practice
consists of lightening deepsea vessels on stream, whereby floating cranes
discharge part of the load to barges given decreasing vessel draft (e.g.
lightning operations on River Scheldt to access the Canal Ghent-Terneuzen).

The vessels deployed in the minor bulk segments (grain, fertilizers, minerals)
are generally much smaller, so that vessel operators have a much wider
range of potential ports of call at their disposal. The eventual call patterns will
be determined by factors such as proximity to the market, the specificities of
the distribution network (centralized or decentralized), the number of cargo
batches on the vessel, and the need for dedicated terminal facilities (e.g. grain
silos).

B. Maritime services in the roll-on/roll-off market

The operational characteristics of maritime services in the RORO segment
depend on the submarkets considered:

 Intra-regional RORO and ropax services are typical of the end-to-end type
with a port of call at either side of the route. The shipping services follow a
fixed schedule with medium to high frequencies (sometimes several times a
day). The ferry capacities tend to vary greatly with the cargo density on the
route and the one-way distance. For example, in Europe, large units are
deployed on the English Channel and parts of the Baltic (e.g. 120 trucks per
voyage on the Dover-Calais link and several hundreds of passengers
between Travemünde and Finland). In contrast, vessel capacities on services
in smaller markets (e.g. the Irish isles) tend to be much smaller. Trucks using
ferry services can have a long pre- and end haul by road (for instance, a truck
 driving from Dortmund to Zeebrugge to catch a ferry to Hull and onward by
road to the final destination Manchester).
 The market for unaccompanied RORO transport is based on end-to-end
services with dedicated RORO freight vessels, which often have reserve
space for containers.
 The deepsea and shortsea car carrying trade is another submarket in the
RORO market. On intercontinental routes, the operators deploy Pure Car and
Truck Carriers (PCTC) with capacities of up to 8000 CEU, resulting in
significant cost savings on the sea leg (economies of scale). The number of
ports of calls is kept to a strict minimum as shipping lines aim for a short port
time, and they face a shortfall in the number of ports that have the
infrastructure to accommodate large quantities of new cars. As a result, a
significant part of the market is concentrated in large car handling ports. The
port of Zeebrugge in Belgium is a good example, with 2.96 million units
handled in 2019. The position of the main ports is strongly entwined with their
proximity to the main buyer markets and the spatial concentration of car
assembly plants. A number of large car ports have successfully combined
deepsea services with intra-regional shortsea services. The resulting hub-
and-spoke network configuration is combined with growing local clusters of
automotive logistics companies. While road haulage is by far the dominant
mode of inland transport to/from car terminals, rail and barge play an ever
more important role in securing inland access for the larger car ports,
particularly in Belgium, the Netherlands, and the Rhine and Yangtze river
basins.

C. Maritime services in the general cargo market

The diversity in maritime service configurations is probably the highest in the
market of conventional general cargo. In contrast to the bulk cargo market,
where parcel sizes are usually big enough to fill an entire ship, the general
cargo market deals with the shipment of consignments smaller than a ship or
hold size. Given the enormous variety of different cargoes involved, there are
several ways in which breakbulk cargoes can be shipped. The most common
is the conventional liner-type concept of “weekly fixed-day services”,
characterizing the liner shipping industry, which is something the deepsea
trade of conventional cargo has never really been able to achieve. Instead,
the following service/schedule options can be distinguished in the case of
breakbulk shipping (the typology is based on Dynamar):

 Services of a specific frequency operated with dedicated ships.

 Services offering sailings within a certain period, deploying trip charters.
 Services operated on inducement but still within a more or less defined trade
lane.
 A mixture of two or three of the above options.
 “Parcelling”, such as tramping, whereby a vessel is chartered (usually on a
trip-out basis) once a specific cargo volume is available.

The conventional general cargo market includes many specialized ships

designed to carry specific cargo loads. For example, heavy-lift vessels do not
operate on fixed routes, but they are attracted to those areas where large
investments in the oil and gas industry are being made. Conventional reefer
ships mainly carry high-value foodstuffs that require refrigeration and
atmosphere control on an end-to-end service (e.g. bananas from a port of
loading in Latin America to a specialized terminal in Europe). Examples of
reefer cargoes include fresh and frozen fruit (e.g. bananas, deciduous, and
other citrus fruits), vegetables, fish, meat, poultry, and dairy products. Reefer
shipping is a prime example of a one-way (and for some products seasonal)
business with cargoes mainly exported from the southern hemisphere to the
rest of the world. The reefer shipping sector is increasingly being put under
pressure from container shipping.

D. Maritime services in container shipping

The most advanced structures in maritime services are found in container
shipping. Shipping lines design the networks they find it convenient to offer,
but at the same time, they are bound to provide the services their customers
want in terms of frequency, direct accessibility, and transit times. In the last
two decades, increased cargo availability has made carriers and alliances
reshape their liner shipping networks by introducing new types of liner
services on the main east-west trade lanes.

Observing recent developments in liner shipping, productivity has been

improved by using larger ships and devising new operational patterns and co-
operation between shipping lines. Since the 1990s, a great deal of attention
has been devoted to larger, more fuel-economical vessels, and this indeed
has produced a substantial reduction in the cost per TEU of capacity
provided. Adding post-Panamax capacity gave a short-term competitive edge
to the early mover, putting pressure on the followers in the market to upgrade
their container fleet and to avert a serious unit cost disadvantage. Alliance
structures (The Alliance, Ocean Alliance, and 2M) provide their members
easy access to more loops or services with relatively low-cost implications
and allow them to share terminals, cooperate in many areas at sea and
ashore, thereby achieving cost savings in the end. Alliances and consolidation
have created multi-string networks on the major trade routes, and both
shippers and liners have adapted. The largest ships operate on multi-port
itineraries calling at a limited number of ports. The networks are based on
traffic circulation through a network of specific hubs.
 Modal Shares of
World Trade by Volume and Value 2008


Chapter 1.2 – Ports and Maritime

Supply Chains
Author: Dr. Theo Notteboom
Seaports are functioning as platforms within global supply
chains and global production networks. These supply chains are
highly dynamic as they react to changes in global trade patterns,
consumer preferences, and advances in supply chain
management and information technology.

1. Growing Complexity in Supply

Chain Management
 Supply Chain Management (SCM) is the coordination and
management of a complex network of activities delivering a
finished product to end-users or customers. The process
includes sourcing raw materials and parts, manufacturing and
assembling products, storage, order entry and tracking,
distribution through the various channels, and finally delivery to
the customer.

Ports are a nexus in supply chains as they support the interaction between
global supply chains and regional production and consumption markets.
Global supply chains have become complex, pressuring the logistics industry
to simultaneously improve their costs, performance, and resilience to
disruptions. Logistics services that still offer value may experience a
debasement and become basic services, only generating a small margin. This
is especially the case for physical added value.

Within supply chains, corporations interact with external suppliers, internal

departments, external distributors, and customers. The successful
management of a supply chain is influenced by customer expectations,
globalization, technological innovations, government regulation, competition,
and sustainability concerns.

 Th

 e Port as a Nexus in Global Supply Chains

A. Customer expectations
 SCM models evolve continuously due to influences and factors such as
globalization and expansion into new markets, mass customization in
response to product and market segmentation, lean manufacturing practices,
and associated shifts in costs. Service expectations of customers are moving
towards a push for higher flexibility, reliability, and precision. In many
industries, product innovation has become a significant competitive factor.
This has led companies to compete to be the first to launch new products and
technologies. As a result, average product life cycles and supply chain cycles
such as lead time have decreased. These expectations can be assessed
through a series of indicators, such as the Logistics Performance
Index developed by the World Bank.

The number of products to be shipped and the shipment frequency increase,

whereas batch sizes are becoming smaller. There is a growing demand from
the customer for make-to-order or customized products, delivered at
maximum speed, with high delivery reliability, at the lowest possible cost.
While costs remain an important factor in customer satisfaction, factors
related to reliability are becoming central. The focus is on supply chain
excellence and efficient customer service.

A growing skills shortage is a distinct possibility in the logistics industry as the

labor force is challenged to provide an increasing array of complex and
diverse services. Logistics companies are trying to recruit sufficient talent to
maintain the labor force and provide ongoing training to improve their
productivity. Considering the digitalization of all parts of society, including
logistics, the requirement for new skill sets will further intensify this
shortage. Besides, the targeted labor force might be attracted by other, more
high-profile sectors. The port and logistics sectors have difficulties competing
for talent.

 Logistic
Performance Index 2016
B. Globalization
One of the main basic driving forces of change in the port industry emerges
from globalization and the structural shift from supply-driven to demand-driven
economies. The supply-driven economy was based on economies of scale in
production, standardization, and mass consumption of standard products.
This approach was scrutinized as productivity increases linked to economies
of scale met their structural boundaries and as a growing individualism began
to have an impact on consumption patterns. The outcome was a shift to a
more demand-driven economic system, combined with global production
networks on the supply side of the markets.

Multinational enterprises (MNE) are the key drivers of globalization. A shift

has taken place from capital-intensive activities – such as ownership and
management of a large number of manufacturing sites, distribution centers,
and sales outlets – towards another type of activity, which is far less capital
intensive and focuses more on developing a strong brand. Branding forms a
key concept in the new business model of MNEs. This involves a strong focus
on customers and product innovation, whereas production is outsourced to a
network of suppliers. MNEs increasingly develop long-term relationships with
a limited number of logistics suppliers based on co-makership. As such, a
large number of MNEs have adopted flexible multi-firm organization structures
on a global scale.

Many of the world’s largest MNEs manage extensive networks of globally

dispersed inputs. Global sourcing, as such, is a major driver of world trade.
However, at the customer end of the value chain, very few of the world’s
largest multinational enterprises operate globally, in the sense of having a
broad and deep penetration in foreign markets across the world. Instead, they
are regionally based on breadth and depth of market coverage, with most of
their sales situated within their home leg of the ‘triad’, namely in North
America, the European Union, or Asia. The broad geographic distribution of
sourcing and production (back end) versus less broad geographic distribution
of sales (customer end) is reflected in trade patterns, supply chain
management needs, and shipping requirements.

C. Technological innovation
The streamlining of supply chains through customization and
standardization using advances in data analytics and visibility leads to
concepts such as “plug-and-play supply chains”. These are finely-tuned, agile
supply chains consisting of core standardized, easily replicable solutions,
augmented by standardized, proven processes tailored to unique segment or
market needs. These supply chains need to be supported
by digitalization involving intelligent, data-driven decision support systems
around customers, markets, and profitability.

The focus will be on more local and sustainable supply networks in which
clean forms of transport will meet shippers’ expectations regarding cost and
efficiency performance indicators. Goods will have to be transported
economically, with limited environmental impacts, and in a sustainable
manner. To this extent, shippers will expect an orchestration function from
service providers in which operational excellence is supported by obtaining a
greater convergence between physical and data processes.

Postponed and additive manufacturing (3D printing) will challenge existing

business models. This trend will affect transport and logistics demands. More
manufacturing is likely to be regional, be it in local factories, independent
manufacturing farms, or even with a new role for logistics service providers
that will offer production services and integrate them with their transport,
storage, and distribution services.

D. Regulation and competition

Changing comparative advantages in economies like China, where costs and
inflation keep rising, and with their “China plus one” scenario in which China
will transition from an export producing towards a consumption-driven
economy, have a major impact on the complexity and challenges of current
supply chains. Combined with manufacturing risks, such as time to market or
responsiveness, import duties, the availability of skilled labor force, synergies
with ecosystems, the cost of energy, and automation, this means that more
sub-assembly and manufacturing will relocate to other regions.

More horizontal collaboration between transport companies and logistics

service providers will be needed to deal with the need for shorter, more
sustainable, and cost-efficient supply chains. This will entail its own
complexities, mainly where it concerns mutual trust concerning data-sharing
protocols and protection of one’s competitiveness.

Consolidation in the logistics sector will result in a smaller number of

companies that will empower the supply chain to support increasingly efficient
ICT systems. The data component will leverage performant and pro-active
service providers to transform into companies with a new outlook on logistics
services. Next to an increasing number of traditional activities being
outsourced, such as transport, warehousing, and various types of value-
added services, the presence of collaboration platforms will capacitate certain
service providers to develop new types of logistics services.

The security of supply will become increasingly important. The resilience of

the supply chain is becoming a crucial element in dealing with ever more
present supply chain disruptions due to local political instability, natural
disasters, acts of terrorism, etc. Supply chains will need to have redundancy
built-in. Supply chains will be designed for resilience. This will result in
increased supply chain visibility and data sharing between supply chain
stakeholders.

E. Sustainability
The systematic use of greener alternatives for logistics needs to be developed
as environmental pressures from society increase, including through more
stringent regulations and consumer behavior changes. This impacts the way
ports operate and how they are linked, which is associated with a re-
engineering of supply chains in favor of modal shift and synchromodality. This
results in the development of sustainable hubs and corridors along which new
supply chain networks need to be developed. Corporations are adapting their
business models to include sustainability criteria in their procurement and
operations, which impacts the related supply chains through the setting up of
Green Supply Chain Management strategies.

Green Supply Chain Management (GSCM) is a business model

that integrates environmental concerns into the inter-
organizational practices of SCM.

GSCM has gained increased attention within the industry as there is a

growing need for integrating environmentally sustainable choices into SCM
practices. The growing importance of GSCM goes hand in hand with
environmental issues such as climate change, the scarcity of some new-
renewable material resources, waste disposal, and increasing pollution levels
in developing economies. Adding the “green” component to supply chain
management involves addressing SCM influence and relationships to the
natural environment.

The main idea behind GSCM is to strive for a reduction in environmental

impacts by focusing on a series of supply chain strategies known as the five
‘Rs’; Reduce, Re-use, Recycle, Remanufacture, and Reverse logistics. The
fields of action in GSCM include product design, process design and
engineering, procurement and purchasing, production, energy use and mix,
and logistics (distribution and transportation).

An important part of the success of the circular economy hinges on the way
logistics will enable the transparency needed to set up efficient and integrated
fully circular supply chain networks. Next to the physical aspect of integrating
supply chain flows to maximize circular economy opportunities, end-to-end
integration of supply chain processes will be crucial. Thus, the circular
economy offers new opportunities for shipping and logistics service providers
and challenges them to collaborate with industry stakeholders.
 Sustainability Dimensions in
the Maritime Transport Industry

2. Improving Competitiveness
A. Operating margins and cost control
The developments in supply chain management are taking place in a logistics
market usually characterized by low margins. It can be characterized as a
buyers’ market, giving shippers and cargo owners an advantage over the
sellers of logistical services in price negotiations. The logistics tendering
practices of (large) shippers add to the pressure on operating margins. The
buyer’s market stems from the law of supply and demand where downward
pressure on prices is associated with supply increases amid a constant
demand. The competition in the marketplace exists between sellers (i.e. the
logistics service providers), who often must engage in a price war to entice
buyers (i.e. shippers) to use their services. The resulting low margins force
market players such as logistics service providers, terminal operators,
shipping lines, and land transport operators to focus on cost control without
yielding efficient performance and timely delivery.
 Increasing
margins through service customization and complexity

Although logistics costs differ between corporations, they generally include

transportation, labor, storage/inventory, and administrative costs. Logistics
costs largely depend on the nature of the goods. The possibility to achieve a
lower cost base can be negatively affected by a broad range of factors such
as the volatility of resource and fuel costs and delays caused by complex
regulations governing international trade, weather circumstances, or technical
problems. In general terms, cost control entails specific actions over a variety
of operational fields:

 Optimized use of resources. The underuse of key assets, such as

conveyances (ships, vehicles) or warehousing facilities, directly affects the
cost base and operating margins. By optimizing assets utilization market
players can improve their business efficiency. Efficient asset management
also includes a focus on preventative maintenance.
 An increase in fleet size and service network size to benefit from economies
of scale and scope (see container shipping market).
 Consolidated shipments and cargo bundling to reduce the cost per unit
transported.
 Using a single integrated platform, accessible to involved parties to avoid
time-consuming and inefficient duplication of activities and processes across
operations.
 Optimize outsourcing vs. vertical integration. In some cases, market players
can save costs by outsourcing a portion of their supply chain operations. In
other cases, extending the reach of activities through a vertical integration
process can bring higher margins. Logistics service providers might use
outsourcing to lower their cost base. They manage what they can control best
to keep costs down and look for low-cost outsourcing for the remaining. This
outsourcing strategy is not without risk as a corporation might outsource
activities which it failed to recognize as value-enhancing.
 Improvement in supply chain visibility can result in more efficient planning and
lower operating costs by better managing mobile and fixed logistics assets.
Although there is no way to predict or prevent disruptions in the logistics
 process, proper supply chain visibility provides insight into such issues. Using
real-time dashboards that refresh data automatically provides supply chain
managers and financial executives with the most current and relevant
information.
 Labor inputs for logistics operations. Labor Management Software systems
combined with specific labor-related Key Performance Indicators (KPIs) and
incentive-based human resources practices help corporations efficiently
manage and motivate personnel.
 For some corporations, logistics costs can be reduced by automation of
assets such as vehicles, warehouse management systems, and yard
operations. Regulating, automating, and optimizing manual processes offer
opportunities to reduce staff requirements, centralize operations to lower-cost
areas, and create a more proactive approach to ensuring customer
satisfaction.
 Collaboration and partnership with suppliers can help reduce costs by
allowing partners to focus on their respective comparative advantages over
processes and markets. Suppliers can sometimes absorb direct logistics
costs.

B. Cost leadership and differentiation strategies

At a more strategic level, logistics companies are challenged to
design business models that ensure their competitiveness and growth. In an
efficiency-oriented market environment, customers may choose to purchase
from one company rather than another because the service price is lower than
competitors, or the customer perceives the service to provide better-added
value or benefits. However, these are broad generalizations, as efficiency-
oriented companies in the logistics, port, and maritime industries aim at
achieving competitive advantage by either cost leadership or
differentiation. Cost leadership implies that market players try to achieve a
competitive advantage by becoming low-cost logistics services providers.
A differentiation strategy tries to provide specific services in market niches
distinct from those provided by competitors, offering greater value to the
client.
 Cost leadership
and differentiation

A corporation aiming to achieve competitive advantage by reducing prices is

likely to be followed by competitors, with the risk of lower margins across the
industry and an inability to reinvest to develop services for the long term.
Therefore, a low cost or cost leadership strategy requires:

1. A low-cost base that competitors cannot match.

2. A market segment in which low price is important. Sustaining a low price
advantage is challenging and cost leadership is very difficult to achieve.

Cost advantages typically emanate from specific competencies driving down

costs throughout the value chain, such as economies of scale and scope,
market power, buying power, and gaining from operational experience (curve
effects). It may be possible to substantially reduce operational costs by
outsourcing provision or by a careful examination of missing capabilities and
competencies in parts of the value chain. A large part of the logistics industry
traditionally thrived on low-cost strategies. Conventional transport operators
function as the last segments in outsourcing, delivering basic services (i.e.
trucking) with little room for service differentiation. Margins are low and fierce
competition combined with the high customer bargaining power prevents
these operators from increasing their revenue base.
 Differentiation strategies aim to achieve a higher market share than
competitors (which yield cost benefits) by offering better products or services
at the same price or enhanced margins by pricing slightly higher.
Differentiation comes in many forms:

1. Uniqueness or improvements in services through R&D or building on the

innovative capabilities of the company.
2. Marketing-based approaches to underline value to the customer of services.
3. Competency-based approaches in which the company tries to build
differentiation based on its competencies that are difficult for competitors to
imitate.

If the aim is sustainable differentiation, there is little point striving to be

different if others can imitate quickly. The most important resources and
capabilities for a company are durable, difficult to identify and understand,
imperfectly transferable, and not easy to replicate. Resources for which a
corporation possesses clear ownership and control (e.g. patents) are among
the most valuable differentiation factors.

Companies in the logistics industry can build sustainable competitive

advantage by leveraging their core competencies. The prime resources of the
company consist of physical assets such as equipment and locations, human
resources such as the workforce, management team, experience and training,
and organizational resources associated with the corporate culture. These
need to be transformed into capabilities, often through the diffusion of
corporate knowledge across offices. In time, new core competencies emerge,
representing the fundamental strengths of the corporation.

While following a differentiation strategy, high margins might be achieved by

offering tailor-made and highly complex services. However, this requires the
corporation to understand what is valued by customers and to have a better
sense and response to customer needs. As customer needs change, a
corporation following a differentiation strategy may have to review these
strategies continuously. A clear sign of an effective differentiation strategy is
the continuity of good profit margins and the difficulty competitors have in
keeping up.

A logistics company following a differentiation strategy might create an

environment in which the actual or perceived cost for a buyer of changing the
source of supply of a service is high. In these circumstances, the customer
might depend on the supplier for particular services, or the benefits of
switching to another supplier might not be worth the cost or risk. A port or
maritime shipping company that offers unique and integrated tailor-made
services to its customers has more chances of limiting the footloose behavior
of that customer and, as such, increases customer loyalty. If a company
succeeds in becoming an industry standard, other businesses typically have
to conform to that standard to remain competitive.
 In following a differentiation strategy, corporations have to choose between a
broad differentiation strategy across a specific market or a focused strategy.
New ventures often start in a very focused market. Maintaining a highly
focused strategy might not be feasible in the long run, as customers might not
be willing to pay a higher price. Therefore, corporations might opt at a specific
moment to lower the price while maintaining differentiating features (i.e. a
move towards a ‘normal’ differentiation strategy).

A hybrid approach might be advantageous as an entry strategy in a market

with established competitors. The aim is then to acquire a market share and
establish a foothold from which to move further. A hybrid strategy often is of a
temporary nature as many corporations shift to a follow-through strategy after
some time to increase margins.

3. The Role of Third-Party Logistics

Services
Innovative corporations are taking a broader view of their business segments
they seek to control and manage. As the ambition of global corporations often
exceeds their capability and resources, outsourcing of logistics functions can
be an important strategic option. Outsourcing enables a producer to transform
fixed costs into variable costs, freeing internal resources for investments in
core activities. Four basic forms of outsourcing can be distinguished
concerning supply chain management:

 The outsourcing of the production of components. Large production units are

replaced by a network of suppliers organized on a global or local scale (global
sourcing and local sourcing). Global corporations increasingly develop long-
term relationships with a limited number of suppliers on the basis of mutual
trust (co-makership).
 The outsourcing of Value-Added Logistics (VAL). VAL implies that the
production and distribution parts of a supply chain become truly integrated
into one. For example, production companies in the high-tech industry
increasingly outsource logistics manipulations to their products towards the
distribution centers located near the consumer markets. As such, a large part
of the value creation in the supply chain is transferred to logistics service
providers. VAL might even include secondary manufacturing activities like
systems assembly, testing, and software installation.
 The outsourcing of transportation, warehousing, and distribution. Third-party
transportation is already widespread, but warehousing and distribution
activities have also become key outsourcing businesses. The observed
outsourcing trend encourages logistics service providers to engage in supply
chain management.
 The re-engineering of supply chain processes (including customer order
management, procurement, production planning, and distribution) to enhance
performance typically results in collaborative networks with logistics partners.
Increasing customer demands drive the 3PL service industry (Third Party
Logistics) forward.

A 3PL is an asset-based company that offers logistics and

supply chain management services to its customers
(manufacturers and retailers). It commonly owns assets such as
distribution centers and transport modes.

The need for a wider array of global services and integrated services and
capabilities (design, build and operate) triggered a shift from transportation-
based 3PLs to warehousing and distribution providers. At the same time, this
trend opened the market to innovative forms of non-asset-based logistics
service providers, leading to the development of 4PL (Fourth Party Logistics).

A 4PL is a supply chain integrator that assembles and manages

the resources, capabilities, and technology of its organization
with complementary service providers to deliver a
comprehensive supply chain solution. The competence of 4PLs
lies in selecting, linking, and bundling service providers and
aligning all concerned stakeholders in the supply chain.

Whereas a 3PL service provider typically invests in warehouses and transport

assets, a 4PL service provider restricts its scope to IT-based supply chain
design. Consultants and IT firms help 3PLs and 4PLs expand into new
markets and to become full-service logistics providers. Notwithstanding the
emergence of non-asset-based 4PLs, the role of 3PLs in logistics markets
remains strong. Hence, asset-based full-service providers increasingly
develop their own IT control systems. Moreover, many logistics users prefer to
keep control of the design of the supply chain in-house instead of being
dependent on 4PLs, mainly for the purpose of maintaining their added value.
 Layers to
Maritime Logistics Services

4. Functional Integration in the

Logistics Industry
The logistics industry is subject to integration forms, aiming to improve its
scale, scope, and market reach. Functional integration involves horizontal
consolidation and vertical integration strategies creating a logistics market
consisting of a wide variety of service providers ranging from megacarriers to
local niche operators. Not only does the geographic coverage of the players
differ (from global to local), but major differences can also be observed
in focus (generalist versus specialist), the service offering (from single service
to one-stop-shop), and asset-orientation (asset-based versus non-asset-
based).

A. Vertical integration
Globalization and outsourcing open new windows of opportunities for shipping
lines, forwarders, terminal operators, and other logistics service providers and
transport operators. Manufacturers are looking for global logistics packages
rather than just shipping or forwarding. Global logistics is the dominant
paradigm where most transport chains have responded by providing new
value-added services in an integrated package through a vertical integration
along supply chains.

The level of vertical integration has increased in the past decades. In a

conventional situation, the majority of logistics activities were performed by
different entities ranging from maritime shipping lines, shipping and customs
agents, freight forwarders, and rail and trucking companies. Regulations often
prevented multimodal ownership, leaving the system fragmented. With an
increasing level of functional integration, many intermediate steps in the
transport chain have been removed. Mergers and acquisitions among
companies performing specific functions in the supply chains have permitted
the emergence of large logistics operators that control many segments of the
supply chain. The term megacarrier refers to a highly integrated logistics
service provider, such as a 3PL or 4PL. These corporations can, in principle,
meet the requirements of many shippers to have a single contact point on a
regional or even global level, known as a one-stop-shop.

Technology has also played an important role in this process, namely in IT

(control of the process), intermodal integration, and synchromodality (control
of the flows). Vertical integration increases competition between corporations
with different core businesses. For example, a railway company getting
involved in global logistics (e.g. DB Schenker) becomes a competitor of
established logistics service providers. A shipping line entering the terminal
operator business engages in a competitive relationship with independent
terminal operators unless some form of partnership is formed. As such,
vertical integration leads to overlaps in the activity portfolio of corporations,
particularly when they share the ambition to become ‘one-stop shops’ in
global logistics. While vertical integration serves as a business model in the
logistics and transport market, external economic shocks and poor market
conditions can swing the pendulum towards de-integration. For example, the
financial-economic crisis of 2008-2009 forced several corporations to
reassess their vertical integration strategies in order to secure enough liquidity
for their core activities. In some cases, this led to divestment and a re-focus
on core activities.

B. Horizontal integration
Mergers and acquisitions (M&A) shape the contemporary business
environment, not only between different types of corporations (vertical
integration) but also between corporations involved in the same type of
activity or core business (horizontal integration). Several waves of horizontal
integration activity have resulted in a high market consolidation level in the
logistics industry. Many of the top 3PL companies were involved in large-scale
M&A activities.
 M&A activity is not only driven by corporations searching for take-over
candidates and the necessity to improve competitiveness and long-term
survival. In addition, corporations that have decided to divest aspects of their
portfolio are, as a consequence, looking for buyers. The logistics challenges
emerging from mergers and acquisitions include the proliferation of customer
service policies to multiple, overlapping distribution networks and
infrastructure overcapacity.

 Func
tional Integration of Maritime Supply Chains
 Worlds
Largest Third Party Logistics Providers 2019

 Ver
tical and Horizontal Integration in Port Development
C. E-fulfilment and E-commerce
The rise of 4PLs and related online players triggered a whole range of e-
market business models with proper functionalities, often with mixed success.
Acquiring critical mass seems to be the main obstacle. The e-business
environment creates new distribution requirements in terms of e-fulfillment.
The growth of e-fulfillment and e-commerce affected B2B (business to
business) activity and boosted the online transactions at the levels of B2C
(business-to-consumer), C2B, and C2C. E-commerce increasingly shapes
how people shop for goods. It has become an important tool for small and
large businesses worldwide, not only to sell to customers but also to engage
them with efficient delivery services. Information system quality, service
quality, and users’ satisfaction are key in this respect. E-commerce offers
more opportunities to reach out to customers worldwide and cut down
unnecessary intermediate links, reducing the cost price. The vast amount of
customer-related data allows e-commerce firms to achieve a high degree of
personal customization and targeted marketing. Data integrity and
(cyber)security are pressing issues for the e-commerce market.

The growth of e-fulfillment and e-commerce activity has large implications for
supply chain management practices. Online markets and retailers have new
strategies and distribution channels to fill orders and deliver products using
specific distribution centers and networks that differ from traditional
distribution channels and systems. Small companies usually control their
logistic operation because they do not have the ability to hire a third party.
Most large corporations hire a fulfillment service that takes care of their
logistic requirements. However, in recent years large e-commerce firms, such
as Amazon and Alibaba, have developed a keen interest in controlling e-
commerce logistics. The volume they command is starting to have notable
impacts on port-centric logistics systems.
 Amazon and
Alibaba in logistics

5. Information Technologies and Digital

Transformation
Outsourcing logistics activities in a wide variety of economic sectors has led to
a surge in 3PL and the creation of very large logistics groups. Supply chains
need to be supported by a wide range of advanced communication tools and
robust, reliable, and cost-effective transportation networks to be set up and
operated by IT-supported logistics service providers. Competition between
logistics service providers is no longer focused only on services to the cargo
flows. Advanced services in the management of information flows are key to
gaining a competitive advantage. These advanced services are increasingly
aimed at offering supply chain visibility to customers in terms of reliability
through advanced tracking and tracing, environmental impact measurement
(e.g. carbon footprint calculator), security risks, and related event
management. In particular, modern IT systems are geared towards improving
channel visibility in three core areas:

 Improved product flow visibility is achieved through real-time information

presented based on user needs with the ability to re-plan and re-direct
product flows.
 Event management forecasts events, has real-time information on actual
events, and generates proactive notifications of failures.
 Performance management is supported by quantitative carrier and asset
performance data, performance accountability, and continuous performance
improvement opportunities.

Supply chains are evolving towards an open global logistic system founded on
physical, digital, and operational interconnectivity through encapsulation,
interfaces, and protocol design. It aims to move, store, realize, supply, and
use physical objects throughout the world in an economically,
environmentally, socially efficient, and sustainable manner. It will require
the standardization of internationally recognized consignment codes to
communicate throughout the physical reality of the chain. The various
transport systems and IT platforms are beginning to integrate horizontally and
vertically to become an open IT infrastructure for the logistics sector. In other
words, the globally independently developed logistics networks will have to be
connected, enabling shippers to have an overall view.

The streamlining of supply chains and the advances in data analytics put
increasing pressures on traditional freight forwarders. New technology can
place freight forwarders at the risk of obsolescence as forwarding can rapidly
go digital in its transactional form, with online sales, instant orders, and
automated processes. This is particularly the case for the spot business and
basic port-to-port transport, which are entry points for e-forwarding. At the
same time, shippers get better information using Big Data solutions and e-
marketplaces. This will result in higher rate transparency and better visibility of
liner service schedules, shipment service attributes, overall performances,
and equipment availability.

Intermediary forwarding agents are the most at risk from new technology
providers or business models unless they adapt, such as in offering supply
chain visibility. Differentiation and cost optimization can be achieved
through improved online customer experience and automation. Major freight
forwarders and third-party logistics providers thus have the responsibility to
develop innovative new booking and logistics platforms in order to mitigate
potential threats coming from within or outside the logistics sector. New
technology-driven companies, particularly those within the e-commerce
space, are likely to enter or have already entered the transport and logistics
arena, giving them a competitive edge or a chance to see a competitive
opportunity to bring new models to the market.

Forwarders are challenged to opt for collaborative technology-driven

networks, and freight forwarders need to recruit new talent outside of the
logistics sector, including from IT-driven potential disruptors. Integrating new
business approaches and models in the relatively conservative freight
forwarding businesses requires new perspectives.

The small and mid-size shipper, spot shipment, and LCL (less than container
load) segment will move online extensively through web-based forwarding
services (from instant quote and booking, up to payment) as well as online
sales platforms that dynamically push public and customer-specific rates.
These platforms may only target and penetrate specific markets where a
certain degree of automation can be achieved. Customer profiling and market
segmentation will be at the core of the business model of these online sales
channels. Large shippers will have access to more procurement options,
benchmarking, and insight capabilities. Large exporters and importers will
continue to tender their sea-freight (port-to-port or port-to-rail ramp) and land
transport, directly with their core carriers and with their forwarders for some
part of their volumes. This practice will be available to many at a lower
transactional cost with more flexibility using tailored e-tools. E-forwarding and
spot procurement will complement traditional contract-based procurement
channels.

Chapter 1.3 – Ports and Container

Shipping
Author: Dr. Theo Notteboom
Maritime services vary with the commodities carried. In liner
shipping, individual maritime services are combined to form
extensive shipping networks in which seaports play a pivotal role
as high connectivity hubs.

1. An Asset-Based Industry
The container shipping industry consists of shipping companies transporting
containerized goods overseas via regular liner services as their core activity.
Container liner services are focused explicitly on transporting a limited range
of standardized load units, mainly the twenty-foot dry cargo container or TEU
of 20 feet long and the 40-foot dry cargo container or FEU (40′ long). High-
cube containers are similar in structure to standard containers but one foot
taller. In contrast to standard containers with a maximum height of 8’6″, high-
cube containers are 9’6″ tall. For the most part, high-cube containers are 40
feet long but are sometimes made as 45-foot containers. Occasionally, slightly
diverging container units are also loaded on container vessels such as tank,
open-top, and flat rack containers. The diversity in unit loads in the container
shipping industry is low due to uniformity when stacking containers below and
on the deck of specialized container vessels (cellular containerships where
each cell is designed to store a container).

A liner service is a fleet of ships, with common ownership or

management, which provide a fixed service, at regular intervals,
between designated ports, and offer transport to any goods in
the hinterland served by those ports and ready for transit by
their sailing dates (Stopford, 1997).
 Container shipping is a highly capital-intensive industry where some assets
are owned, others are leased, and where there exists a wide variability in cost
bases. While it only contributes to about 16% of the volumes carried by
maritime shipping, it accounts for more than half of the value carried. Asset
management is a key component of the operational and commercial success
of container shipping lines since they are primarily asset-based. Common
asset management decisions for shipping lines include equipment
management to reduce downtime and operating costs, increase the useful
service life and the residual value of vessels, increase equipment safety,
reduce potential liabilities, and reduce costs through better capacity
management.

Container shipping lines are particularly challenged in developing an

effective asset management program for the fleet they own or operate:

 Vessel lifecycle management includes the procurement, acquisition,

deployment, and disposal of container vessels.
 Fleet capacity management is complex given the inflexible nature of vessel
capacity in the short run due to fixed timetables, the seasonality effects in the
shipping business, and cargo imbalances on trade routes.

Shipping lines seek gains in market share with capacity usually added as
additional loops (in large segments) to existing services, which incur high
fixed costs. For example, 10 to 11 ships are needed to operate one regular
liner service on the Europe-Far East trade. Each of the post-Panamax
container vessels has a typical newbuilding price ranging from USD 100 to
150 million depending on the unit capacity of the ship and the market situation
in the shipbuilding industry at the time of the vessel order. On average,
container shipping lines charter about half of the vessels from third-party ship
owners. Ship chartering is a particularly common practice for mid-size
containerships in the range of 1,000 to 3,000 TEU.

Container shipping lines also face large investments in their container fleets.
For example, a container carrier operating regular service on the Asia-Europe
trade with ten vessels of 18,000 TEU needs a container fleet of at least
360,000 TEU to support the service. Container shipping lines and other
transport operators typically own 55% to 60% of the total global container
equipment assets, while the remainder is leased from specialized companies.

Despite sustained growth brought by containerization, container carriers tend

to underperform financially compared to other logistics sectors. This weaker
performance is linked to the combination of capital-intensive operations and
high risks associated with revenues. The large investments in assets and the
fixed nature of the liner service schedules, even if cargo volumes are too low
to fill the vessel, lie at the core of the risk profile in the container liner shipping
industry. High commercial and operational risks are associated with deploying
a fixed fleet capacity within a fixed schedule between a set of ports of call at
both ends of a trade route. Unused capacity cannot be stored and represents
missed revenue opportunities. Once large and expensive liner services are
set up, the pressure is to fill the ships with cargo. When there is an oversupply
of vessels in the market, the high fixed costs and product perishability give
shipping lines an incentive to fill vessels at a marginal cost, often leading to
downward freight rates in the market and direct operational losses on the
trades considered. Since the financial crisis of 2008-09, the shipping industry
has undertaken strategies aiming at increasing operating margins, mainly
through alliances and capacity management.

Asset management in container shipping

Ave
rage Operating Margins of Main Carriers by Quarter 2008 2021
Trends in Containership Deployment 2006 2020
Worlds Major Container Ports 2016

2. Freight Rates and Surcharges

The revenue base of container shipping lines consists of freight
rates collected from the shippers or their representatives for the maritime
transport of containerized cargo. It is mostly complemented by a set
of surcharges. All-in ocean freight rates have fluctuated significantly since
2009, as exemplified by the Shanghai Containerized Freight Index and other
similar indices such as the World Container Index (WCI) or the China
Containerized Freight Index (CCFI). Also, contract container freight rates are
influenced by the balance of power between shippers and shipping lines in
rate negotiations. Customers generating large cargo volumes tend to have
better leverage.

Freight rates can vary greatly depending on the economic characteristics (e.g.
cargo availability, imbalances, the competitive situation among shipping lines)
and technological characteristics (e.g. maximum allowable vessel size) of the
trade route concerned. The existence of large cargo imbalances on a number
 of trade routes has a significant impact on pricing. Trade imbalances also
affect shippers in their ability to access equipment. In order to guarantee
space, shippers may double book their container loads, leading to missed
bookings for shipping lines. Container liner companies can react by imposing
surcharges in the form of a ‘no show’ fee.

Base freight rates or Freight All Kinds (FAK) rates are applicable in most
trades. These freight rates are lump sum rates for a container on a specific
origin-destination pair, irrespective of its contents and irrespective of the
quantity of cargo stuffed into the box by the shipper. On top of these base
freight rates, liner companies charge separately for additional items through
various surcharges. Still, some (larger) customers receive all-in prices.
The most common surcharges include:

 Fuel surcharges (Bunker Adjustment Factor or BAF, but other terms are also
used).
 Surcharges related to the exchange rate risk (Currency Adjustment Factor or
CAF).
 Terminal handling charges (THC).
 Port congestion surcharges.
 Piracy surcharge.
 Surcharge for dangerous cargo.
 Various container equipment-related surcharges, such as demurrage charges,
detention charges, equipment handover charges, equipment imbalance
surcharges, special equipment for open-top containers, and heavy lifts.

Most carriers have developed a broad array of possible mandatory and

optional charges and surcharges. In order to improve transparency and
facilitate the ease of doing business, shipping lines have made efforts to
simplify surcharge systems, as exemplified by the steps taken by Maersk Line
in 2013. Despite these efforts, the list of possible surcharges remains rather long.

Fuel surcharges aim to pass (part of) the fuel costs on to the
customer through variable charges.

Initially, fuel surcharges or BAFs were a percentage of the base freight rate levied only when
the bunker price per ton was above a certain threshold value. In October 2008, after the lifting
by the European Commission of the Block Exemption on anti-cartel rules for liner
conferences, each shipping line had to set its fuel surcharges based on its own formula. Fuel
surcharges tend to fluctuate greatly depending on bunker prices and the pricing strategy of
the shipping line. In the second half of 2018, container shipping lines started to adjust fuel
surcharges on a trade-by-trade basis ahead of the IMO deadline for introducing low-sulfur fuel
rules. As of 2020, a global sulfur cap of 0.5% was imposed on ship fuel.

Currency Adjustment Factor (CAF, also known as the Currency

Adjustment Charge or the Currency Surcharge) is usually a
percentage of the basic freight rate applied to take into
consideration the volatility of currencies between the point of
loading and unloading.
When the USD started to become more volatile in the 1960s and 1970s, liner
conferences came up with tariff surcharges to ensure that they would continue
to enjoy a more or less stable income in the currency of their own country. A
similar situation applied after 2005 when the Bank of China decided to allow
the renminbi the fluctuation in relation to other currencies, particularly the
USD. CAF and BAF have been contested by some shippers on the ground
that the costs covered by these surcharges belong to the commercial risk of
the entrepreneurial shipping line and should thus be included in the freight
rate.

Terminal Handling Charges (THC) are a tariff charged by the

shipping line to the shipper and which (should) cover (part or all
of) the terminal handling costs, which the shipping line pays to
the terminal operator.

THC vary per shipping line and per country and are a negotiable item for large
customers. The party who pays the THC at the port of loading and/or the port
of discharge depends on the Incoterms used. The Incoterms 2020 have been
developed by the International Chamber of Commerce and are the world’s
essential terms of trade for the sale of goods. They include EXW (Ex Works),
FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance
Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), DDP
(Delivered Duty Paid), FAS (Free Alongside Ship), FOB (Free On Board),
CFR (Cost and Freight) and CIF (Cost Insurance and Freight). These terms
all have exact meanings for the sale of goods worldwide.

THC for exports are usually collected by shipping lines while releasing the Bill
of Lading after completing export customs clearance procedures. Shipping
lines usually collect the import THC at the time of issuing the delivery order to
the consignee to take delivery of goods. THC may recover a major share of
actual costs in some ports of call. In other ports, the applicable THC are
higher than the actual container handling rates charged by the terminal
operators, and thus a revenue-making instrument for the
carriers. Shippers might argue that THC are arbitrarily fixed and used as a
revenue-making instrument, particularly when base freight rates are
low. Carriers typically argue that THC are aimed at cost recovery and are not
a profit center.
Shanghai Containerized Freight Index comprehensive

Conferences versus Alliances in Maritime Shipping

Reduction of number of surcharges by Maersk Line

3. Scale Enlargement in Vessel Size

The growing demand for maritime container transport has been met via vessel
upscaling. The mid-1970s brought the first ships of over 2,000 TEU capacity.
The Panamax vessel of 4,000 to 5,000 TEU (maximum dimensions for transit
through the old Panama Canal locks) was introduced in the early 1990s. In
1988, APL was the first shipping line to deploy a post-Panamax vessel. In
1996, Maersk Line introduced the ‘Regina Maersk’ with a nominal vessel
capacity of about 7,400 TEU. Consecutive rounds of scale increase led to the
introduction of the ‘Emma Maersk’ in 2006, a containership that can hold more
than 15,000 TEU and measured 397 m in length overall, with a beam of 56 m,
and a commercial draft of 15.5 m. Since 2010, vessel capacity has been
pushed beyond the 20,000 TEU mark. The introduction of ever-larger
container vessels has resulted in an overall upscaling across the main east-
west trade routes, with large vessels cascading to north-south routes.
The Largest Available Containership 1970 2021 in TEUs

Maximum Containership size calling per region 2006 2020

Maximum Container Vessel Size calling Port 2020

Large vessels come with operational challenges related to port calls, terminal
operations, and hinterland transport. Port and terminal-related factors are the
main impediments to scale increases, such as terminal productivity, port
congestion, nautical accessibility, berth length, and turning circles. In the past
decades, ports, terminals, and entire transport systems have been expanded
and upgraded to accommodate increased ship size. Even large upstream
seaports such as Antwerp and Hamburg adapted to the new imperatives
brought by mega container vessels by expanding their terminal facilities. The
revealed adaptive capacity of the port and terminal industry in terms of
investments and productivity gains typically did not result in the penalization of
larger vessels through port and terminal pricing. Simultaneously, advances in
port productivity have resulted in disproportionately lower growth of port
turnaround time as a function of vessel size. In other words, port authorities,
terminal operators, and other actors in the chain have fully or partially
absorbed the potential diseconomies of scale linked to larger vessels, thereby
enabling shipping companies to pursue consecutive rounds of scale increases
in vessel size.
 T
he optimal size of a container ship

Th
e Disadvantages of Scale in Maritime Shipping
Largest container vessels in January 2020
 Madri
d Maersk 20568 TEU LOA 399 beam 586m

In recent years, attention has been paid to emission reductions and energy
savings associated with ship size. Scale increases in vessel size combined
with advances in ship technology and slow steaming can decrease the annual
CO2 emissions of the world containership fleet. Container shipping is
increasingly confronted with stronger environmental considerations and
stricter regulatory frameworks on ship emissions and energy efficiencies.
These include MARPOL Annex VI (Regulations for the Prevention of Air
Pollution from Ships) and MRV (Monitoring, Reporting, and Verification),
the Emission Control Areas (ECAs) with a sulfur cap of 0.1%, the global sulfur
cap of 0.5% (applicable since 1st January 2020), and the Energy Efficiency
Design Index (EEDI), mandatory for new ships since 2013. Hence, emission
control and energy efficiency have become the main concerns in newbuilding
decision-making. Container carrier CMA CGM was the first to order ULCSs
with engines using LNG, which began operations in 2020.
Emission Control Areas for Maritime Shipping

LNG
powered container ship CMA CGM Jacques Saadé leaving the port of
Singapore

The focus of container carriers on larger vessels does not necessarily lead to
a more stable market environment. Consecutive rounds of scale
enlargements in vessel size have reduced container trade slot costs, but
carriers have not always reaped the full benefits of economies of scale at sea.
The volatility of business cycles has more than once resulted in unstable
cargo demand for shipping lines. Adding post-Panamax capacity can give
a short-term competitive edge to the early mover, putting pressure on
competing lines to upgrade their container fleet to avoid a unit cost
disadvantage. A boomerang effect can result in overcapacity, impacting the
margins of the industry, including the carrier who started the vessel scaling-up
round. Vessel lay-ups, order cancellations, slow steaming, and service
suspensions are the primary tools used by shipping lines in an attempt to
absorb overcapacity when it occurs.

Supporting movies on container vessels

4. Horizontal Integration: Operational

Agreements and M&A
Shipping lines view cooperation as one of the most effective ways of coping with a trade
environment characterized by intense pricing pressure. Trade agreements such as liner
conferences were prevalent until the European Commission outlawed this type of cooperation
in October 2008. At present, the horizontal integration dynamics in the container shipping
industry are based on mergers and acquisitions (M&A) and operational cooperation in many
forms ranging from slot-chartering and vessel-sharing agreements to strategic alliances.

A slot chartering agreement (SCA) is a contract between

partners who buy and sell a defined allocation (space, weight)
on a vessel in general on a ‘used’ or ‘unused’ basis at an agreed
 price and for a minimum defined time period. In some cases,
shipping lines engage in a slot exchange agreement.
A vessel sharing agreement (VSA) involves a limited number of
shipping companies agreeing to operate a liner service along a
specified route using a specified number of vessels. The
partners do not necessarily each have an equal number of
vessels. The capacity that each partner gets may vary from port
to port and could depend on the number of vessels operated by
the different partners.

A vessel sharing agreement for one regular liner service is slightly different
from that of an alliance. A vessel sharing agreement is usually dedicated to a
particular trade route with terms and conditions specific to that route. In
contrast, an alliance is more global and could include many different trade
routes, usually under the same terms.

In general terms, an alliance is an operating agreement between

two or more carriers about joint fleet capacity management on a
number of trade routes (typically the major East-West trade
routes). The alliance members retain their commercial
independence.

The first alliances among shipping lines date back to the mid-1990s, which
coincided with the introduction of the first vessels above 6,000 TEU on the
Europe-Far East trade route. In 1997, about 70% of the services on the main
East-West trades were supplied by the four main strategic alliances. In 2022,
three alliances were operational in the market: 2M, Ocean Alliance, and THE
Alliance. This represented an evolution from just seven years earlier when
four alliances were still active: 2M, Ocean Three, CKYHE, and G6. Alliance
partnerships evolved due to mergers and acquisitions. Alliances can also be
affected by the exit of carriers. For example, Malaysian carrier MISC left the
Grand Alliance in the late 2000s, and Hanjin became the first large carrier to
go bankrupt due to weak market conditions. The January 2023 announcement
that the 2M alliance (MSC and Maersk) will be discontinued after January
2025 shows that alliance formation is heavily affected by changing strategic,
operational, and market conditions.

The main incentives for alliance formation relate to achieving a critical mass in
the scale of operation, exploring new markets, enhancing global reach,
improving fleet deployment, and spreading risks associated with investments
in large container vessels. Strategic alliances provide their members with
easy access to more loops or services with relatively low-cost implications
and allow them to share terminals to cooperate in many areas at sea and
ashore, thereby achieving cost savings. Alliances also come with
some impediments for members, particularly at the level of a loss of
operational and strategic independence and regulatory headaches.
Alliances in container shipping
Carrier competition within alliances

Main Incentives for Carriers to be Involved in Alliances

Main Impediments for Carriers to be Involved in Alliances

Mer
gers and Acquisitions in the Container Shipping Industry since 2014
 Worlds
Largest Maritime Container Shipping Operators January 2023

The shipping business has been subject to several waves of mergers and
acquisitions (M&A). The number of acquisitions rose from three cases in 1993
to 13 in 1998 before peaking at 18 in 2006. The main M&A events included
the merger between P&O Container Line and Nedlloyd in 1997, the merger
between CMA and CGM in 1999, and the take-over by Maersk of Sea-Land in
1999 and P&O Nedlloyd in 2005. The economic crisis of late 2008 had an
impact on the market structure. There was no major M&A activity in liner
shipping between October 2008 and early 2014, but a new wave of
acquisitions and mergers appeared inevitable in the medium term. The most
recent wave in carrier consolidation started in the mid-2010s.

Shipping lines opt for mergers and acquisitions to obtain a larger size, secure
growth, and benefit from scale advantages. Other motives relate to gaining
instant access to markets and distribution networks, obtaining access to new
technologies, or diversifying the asset base. Acquisitions typically feature
some pitfalls associated with the internationalization of the maritime industry:
cultural differences, overestimated synergies, and high expenses concerning
the integration of departments. Still, acquisitions make sense in liner shipping
as the maritime industry is mature because entry barriers are relatively
high due to the investment required and the development of the customer
base. For example, through a series of major acquisitions (Sea-Land, P&O
Nedlloyd, Safmarine, Hamburg-Sud, etc.), Maersk increased its market share
substantially and made strategic adjustments to secure its competitive
advantage on key trade routes. In contrast to Maersk Line, MSC reached the
number one position in the world ranking of container lines based on organic
or internal growth.

The liner shipping industry has witnessed a concentration trend in slot

capacity control, mainly due to M&A activity. The top 20 carriers controlled
89.7% of the world’s container vessel capacity in April 2019. This figure
amounted to about 83% in late 2009, 56% in 1990, and only 26% in 1980.
The consolidation trend has raised concerns about an overly concentrated
market and the potential oligopolistic behavior of the large carriers and their
alliances. Therefore, M&A activity and alliance formation in liner shipping are
under scrutiny by competition authorities worldwide. Alliances and carrier
consolidation have their full impact on inter-port competition, given the large
container volumes and associated bargaining power.

5. Vertical Integration: Extending the

Scope of Operations
In response to low margins in shipping and customer demand for door-to-door
and one-stop shopping logistics services, shipping lines may extend the reach
of their activities to other parts of the supply chain. Over the recent decades,
the largest container lines have shown a keen interest in developing
dedicated terminal capacity to control costs and operational performance,
improve profitability, and as a measure to cope with poor vessel schedule
integrity. For example, Maersk Line’s parent company, AP Moller-Maersk,
operates many container terminals through its subsidiary APM Terminals.
CMA CGM, MSC, Evergreen, and Cosco are among the shipping lines fully or
partly controlling terminal capacity worldwide. Independent global terminal
operators such as Hutchison Ports, PSA, and DP World are increasingly
hedging risks by setting up dedicated terminal joint ventures in cooperation
with shipping lines and strategic alliances. The above developments have
given rise to growing complexity in terminal ownership structures and
partnership arrangements.

The scope of extension of several shipping lines goes beyond terminal

operations to include inland transport and logistics. Many shipping lines
are developing door-to-door services based on the principle of carrier
haulage to get a stronger grip on the routing of inland container flows. Some
shipping lines enhance network integration through structural or ad hoc
coordination with independent inland transport operators and logistics service
providers. They do not own inland transport equipment. Instead, they use the
services of reliable, independent inland carriers on a (long-term) contract
base. Other shipping lines combine a strategy of selective investment in key
supporting activities (e.g. agency services or distribution centers) with sub-
contracting of less critical services. With a few exceptions (e.g. CEVA
Logistics as part of CMA CGM, Medlog as part of MSC, and Damco now fully
integrated with Maersk Line), the management of pure logistics services is
done by subsidiaries that share the same mother company as the shipping
line but operate independently of liner shipping operations. Another group of
shipping lines is increasingly active in managing hinterland flows. The focus is
now on the efficient synchronization of inland distribution capacities with port
capacities.

COVID-19 has accelerated the logistics integration strategies of some major

container carriers. High freight rates have resulted in record profitability in
container shipping and deep pockets of carriers. Helped by historically high
operating margins, a number of carriers, such as Maersk Line, CMA CGM, or
MSC, embarked on a take-over spree in the air freight business, e-commerce,
and last-mile logistics, digital platforms, and forwarding activities. Examples
include the take-over by Maersk of Senator International (air freight
forwarding) and e-commerce firms HUUB (fashion industry), B2C Europe
Holding, Visible SCM (US), and Pilot Freight Services; or the take-over by
CMA-CGM of Ingram Micro’s Commerce & Lifecycle Services (CLS) in
November 2021 to boost its e-commerce expertise and the preliminary
agreement to acquire a 51% stake in the Colis Privé Group (e-commerce
services & last-mile logistics, February 2022).

However, not all carriers are walking the path of logistics integration. For
example, there is currently no indication from ONE, Evergreen, or Hapag-
Lloyd of a large investment ramp-up in logistics companies. This can be partly
explained by the presence of a logistics company in the shareholding of these
carriers (e.g., the Kühne family as one of the main shareholders of Hapag-
Lloyd while also being active in global 3PL company Kühne & Nagel) or by the
fact that these carriers belong to larger conglomerates somewhat already
active in the logistics sector (e.g. the Japanese NYK group as an active
shareholder of carrier ONE while also having its own logistics division Yusen
Logistics).

The level of consolidation in liner shipping combined with very high freight
rates in the period late 2020 to 2022 gave new entrants, such as large e-
commerce players and logistics service providers, incentives to consider a
direct involvement in container shipping. In other words, while some carriers
were vertically integrating in view of offering global logistics solutions, other
market players (might) enter the container shipping business, although on a
small and rather fragmented scale for now. For example, faced with the
challenge of keeping stores stocked amid a global supply chain crisis, e-
commerce giants such as Amazon, as well as large retailers like Walmart and
Costco, went so far as to charter their own container ships, typically calling at
smaller container ports.
Vertical Integration for Selected Major Container Shipping Lines
Strategic transformation of Maersk

Typology of Global Port Operators

 The evolving role of shipping lines in the hinterland

Shipping lines face important challenges to improve inland logistics further.

Competition with the merchant haulage option remains fierce since they have
a broader and more established market base on which to offer their services.
The logistics requirements of customers (e.g. late bookings, peaks in
equipment demand) typically lead to peak activity levels and high inland
logistics costs. Given the mounting challenges in inland logistics, shipping
lines that succeed in achieving better management of inland logistics can
secure an important cost advantage compared to rivals.

Many shipping lines are also heavily focusing on digital transformation.

Through investments and initiatives in digital infrastructure and services,
shipping lines are aiming for the creation of value-adding activities in the
following areas:

 The optimization of operations by using data for the real-time network leads to
bunker fuel cost savings. Other forms of operational optimization include
automated vessel stowage planning, the planning of container repairs, the
repositioning of empty containers, and the predictive maintenance of vessels,
containers, and other shipping assets.
 The development of advanced commercial decision-making instruments by
using data to target customers and optimize the cargo mix within restrictions
(e.g. dangerous goods), generate transparency in the supply chains of the
customers and develop intelligent pricing engines.
 The development of new services that can generate new revenue streams.
Examples include consultancy and advisory services related to logistics
 chains, the aggregation, and selling of trade data, or the commercialization of
weather data collected by vessels navigating the open seas.

Technology is thus playing a particular role in the vertical integration process

namely in terms of IT (control of the process) and intermodal integration
(control of the flows). Shipping lines are setting up cooperation schemes to
support digital transformation. For example, Maersk, MSC, Hapag-Lloyd, and
ONE launched a digital container platform in 2019. This Digital Container
Shipping Association (DCSA), whose members are currently responsible for
70% of global container trade, has been established to set standards for the
digitalization of container shipping to overcome the lack of a common
foundation for technical interfaces and data. The neutral and non-profit
association is open to all ocean carriers who wish to join. DSCA interacts with
other associations and organizations such as the United Nations (i.e. Rules
for Electronic Data Interchange for Administration, Commerce and Transport
or UN/EDIFACT), the International Organization for Standardization (ISO), the
Blockchain in Transport Alliance (BITA), and OpenShipping.org, which offers
an open-source standard for global shipping. In late 2020, DSCA published its
new data and process standards for the creation and use of electronic bills of
lading (eBL). This is the first step in a multi-year eDocumentation initiative to
deliver standards to enable the digitalization of end-to-end container shipping
documentation.

6. Container Services and Networks

A. Container service network patterns
When designing their networks, shipping lines implicitly have to make a trade-
off between the requirements of the customers and operational cost
considerations. Higher demand for service segmentation adds to the growing
complexity of the networks. Shippers demand direct services between their
preferred ports of loading and discharge. The demand side thus exerts strong
pressure on the service schedules, port rotations, and feeder connections.
However, shipping lines have to design their liner services and networks to
optimize ship utilization and benefit from scale economies in vessel size. Their
objective is to optimize their shipping networks by rationalizing the coverage
of ports, shipping routes, and transit time according to direct routes and
strategic passages.

Shipping lines may direct flows along paths optimal for the system, with the
lowest cost for the entire network being achieved by indirect routing via hubs
and the amalgamation of flows. However, the more efficient the network from
the carrier’s point of view, the less convenient that network could be for the
shippers’ needs. Bundling is one of the key drivers of container service
network dynamics and can occur at two levels:

1. Bundling within an individual liner service.

2. Bundling by combining two or more liner services.
The objective of bundling within an individual liner service is to collect
container cargo by calling at various ports along the route instead of focusing
on an end-to-end service. Such a line bundling service is conceived as a set
of x roundtrips of y vessels, each with a similar calling pattern in terms of the
order of port calls and time intervals (i.e. frequency) between two consecutive
port calls. By overlaying these x roundtrips, shipping lines can offer the
desired calling frequency in each of the ports of call of the loop. Line bundling
operations can be symmetrical (i.e. same ports of call for both sailing
directions) or asymmetrical (i.e. different ports of call on the way back). Most
liner services are line bundling itineraries connecting two and five ports of call
scheduled in each of the main markets. The trade between Europe and the
Far East provides a good example. Most mainline operators and alliances
running services from the Far East to North Europe stick to line bundling
itineraries with direct calls scheduled in each of the main markets.

Main Maritime
Shipping Routes
 Three
Major Inter Range Routes Serviced by Maersk

Types
of Inter Range Maritime Routes
 AMA
X Round the World Route 2005 2007

Notwithstanding diversity in calling patterns on the observed routes, carriers

select up to five regional ports of call per loop. Shipping lines have
significantly increased average vessel sizes deployed on routes. In October
2019, the average container vessel on the Asia – North Europe trade had a
capacity of 16,100 TEU compared to 11,711 TEU in 2015, 9,444 TEU in 2012,
6,164 TEU in 2006, and 4,250 TEU in 2002. These scale increases in vessel
size have put downward pressure on the average number of European port
calls per loop on the Far East-North Europe trade: 4.9 ports of call in 1989,
3.84 in 1998, 3.77 in October 2000, 3.68 in February 2006, 3.35 in December
2009 and 3.48 in April 2012. However, in recent years, the number of port
calls has slightly increased, mainly driven by the carriers’ focus on increasing
vessel utilization. As a result, the average number of European port calls per
loop on the Far East-North Europe trade reached 4.52 in July 2015, 4.59 in
April 2017, and 4.11 in June 2019. Two extreme forms of line bundling
are round-the-world services and pendulum services.

The second possibility is bundling container cargo by combining two or more

liner services. The three main cargo bundling options include a hub-and-
spoke network (hub/feeder), interlining/intersection, and relay. The
establishment of global networks has given rise to hub port development at
the crossing points of trade lanes. Intermediate hubs have emerged since the
mid-1990s within many global port systems: Freeport (Bahamas), Salalah
(Oman), Tanjung Pelepas (Malaysia), Gioia Tauro, Algeciras, Taranto,
Cagliari, Damietta, Tanger Med, and Malta in the Mediterranean, to name but
a few. Hubs have a range of common characteristics in terms of nautical
accessibility, proximity to main shipping lanes, and ownership, in whole or in
part, by carriers or multinational terminal operators. Transshipments are
growing as a share of maritime containerized traffic, from around 11% in
1980, 19% in 1990, 26% in 2000 to about 29% in 2010, and 28% in 2012.

Selection Factors for a Transshipment Hub

 The
Insertion and Location of Transshipment Hubs

Levels of Transshipment Incidence

Worlds Main Intermediate Hubs and Markets 2008 14

Most intermediate hubs are located along the global beltway or equatorial
round-the-world route (i.e. the Caribbean, Southeast and East Asia, the
Middle East, and the Mediterranean). These nodes multiply shipping options
and improve connectivity within the network through their pivotal role in
regional hub-and-spoke networks and cargo relay and interlining operations
between the carriers’ east-west services and other inter and intra-regional
services. Container ports in Northern Europe, North America, and mainland
China mainly act as gateways to the respective hinterlands and do not
account for significant transshipment volumes.

Two developments undermine the position of pure transshipment/interlining

hubs. First, the insertion of hubs often represents a temporary phase in
connecting a region to global shipping networks. Hub-and-spoke networks
allow considerable economies of scale of equipment. Still, the cost-efficiency
of larger ships might not be sufficient to offset the extra feeder costs and
container lift charges involved. Once traffic volumes for the gateway ports are
sufficient, hubs are bypassed and become redundant. Second, transshipment
cargo can easily be moved to new hub terminals that emerge along the long-
distance shipping lanes, implying a volatile market condition for transshipment
hubs. Seaports that can combine a transshipment function with gateway
cargo having a less vulnerable and, thus, more sustainable position in
shipping networks.
Transshipment Patterns

Container Port Traffic and Transshipment Traffic around the Caribbean Basin
2015

In channeling gateway and transshipment flows through their shipping

networks, container carriers aim to control key terminals in the network.
Decisions on the desired port hierarchy are guided by strategic, commercial,
and operational considerations. Shipping lines rarely opt for the same port
hierarchy because a terminal can be a regional hub for one shipping line and
a secondary feeder port for another operator.

The liner service configurations are often combined to form complex multi-
layer networks. The advantages of complex bundling are higher load factors
and the use of larger vessels in terms of TEU capacity, higher service
frequencies, and more destinations served. Container service operators have
to make a trade-off between frequency and volume on the trunk lines. Smaller
vessels allow for meeting the shippers’ demand for high frequencies and
lower transit times, while larger units allow operators to benefit from vessel
scale economies. The main disadvantages of complex bundling networks are
the need for extra container handling at intermediate terminals and longer
transport times and distances. Both elements incur additional costs and could
counterbalance the cost advantages linked to higher load factors or the use of
larger unit capacities. Some containers in such a system undergo as many as
four transhipments before reaching the final discharge port. The global
container shipping grid allows shipping lines to cope with the changes in trade
flows as it combines a large number of potential routes in a network.

Existing liner shipping networks feature substantial diversity in the types of

liner services and great complexity in the way end-to-end services, line
bundling services, and transshipment (including relay and interlining)
operations are connected to form extensive shipping networks. Maersk Line,
MSC, Cosco, and CMA-CGM operate truly global liner service networks, with
a strong presence on secondary routes. This is particularly the case for
Maersk Line, which has created a balanced global coverage of liner services.
The networks of CMA-CGM and MSC differ from the general scheme of traffic
circulation through a network of specific hubs (many of these hubs are not
among the world’s biggest container ports) and a more selective serving of
secondary markets such as Africa (strong presence by MSC), the Caribbean
and the East Mediterranean.

Notwithstanding the demand-pull for global services, a large number of

individual carriers remain regionally based. Asian carriers such as the
Japanese carrier ONE (Ocean Network Express) and the South Korean
carrier HMM mainly focus on intra-Asian trade, transpacific trade, and the
Europe – Far East route. This is partly because of their huge dependence on
export flows generated by the respective Asian home bases. Evergreen and
Cosco Shipping are among the exceptions frequenting secondary routes such
as Africa and South America. Profound differences exist in service network
design among shipping lines. Some carriers have clearly opted for truly global
coverage. Others are somewhat stuck in a triad-based service network,
forcing them to develop a strong focus on cost bases. Alliance structures (cf.
THE Alliance, Ocean Alliance, and 2M) provide members with access to more
loops or services with relatively low-cost implications and allow them to share
terminals.
 B. The design of container liner services
Before an operator can start with regular container service design, the targeted trade
route(s) need to be analyzed. The analysis should include elements related to the supply,
demand, and market profile of the trade route. On the supply side, key considerations include
vessel capacity deployment and utilization, vessel size distribution, the configuration of
existing liner services, the existing market structure, and the port call patterns of existing
operators. On the demand side, container lines focus on the
characteristics of the market to be served, the geographical cargo
distribution, seasonality, and cargo imbalances. The interaction
between demand and supply on the trade route considered for
liner services results in seasonal freight rate fluctuations and
reflects its earning potential.

The ultimate goal of market analysis is not only to estimate the

potential cargo demand for a new liner service but also to estimate
the volatility, geographical dispersion, and seasonality of such
demand. These factors will eventually affect the earning potential
of the new service. Once the market potential for new services has
been determined, the service planners need to decide on several
inter-related core design variables that mainly concern:

 The liner service type.

 The number and order of port calls in combination with the actual
port selection process.
 The vessel speed.
 The frequency.
 The vessel size and fleet mix.
 The array of liner service types and bundling options available to
shipping lines (see the previous section).

Limiting the number of port calls shortens round voyage time and
increases the number of round trips per year, minimizing the
number of vessels required for that specific liner service. However,
fewer port calls mean poorer access to cargo catchment areas.
Adding port calls can generate additional revenue if the additional
costs from added calls are offset by revenue growth. The
actual selection of ports is a complex issue. Traffic flows through
ports are a physical outcome of route and port selection by the
relevant actors in the chain. Port choice has increasingly become a
function of the overall network cost and performance. Human
behavioral aspects might impede carriers from achieving an
optimal network configuration. Incorrect or incomplete information
results in bounded rationality in carriers’ network design, leading to
 sub-optimal decisions. Shippers sometimes impose bounded
rational behavior on shipping lines where the shipper asks to call
at a specific port. The selection of the ports of call by a shipping
line can also be influenced by market structures and the behavior
of market players. For example:

 Important shippers or logistics service providers might impose a

certain port of call on a shipping line leading to bounded rationality
in port choice.
 If a shipping line is part of a strategic alliance, the port choice is
subject to negotiations among the alliance members. The
collective choice can differ from the choice of an individual
member.
 A shipping line might possess a dedicated terminal facility in a port
of a multi-port gateway region and might be urged to send more
ships to that facility in view of optimal terminal use.
 Carriers might stick to a specific port as they assume that the
decision-making efforts and costs linked to changes in the network
design will not outweigh the costs associated with the current non-
optimal solution.

Next to the number of port calls, the call order is of importance. If

the port of loading is the last port of call on the maritime line-
bundling service and the port of discharge is the first port of call,
then transit time is minimized. A port regularly acting as the last
port of loading or first port of discharge in a liner service schedule,
in principle, has more chance of achieving a higher deepsea call
efficiency ratio (i.e. the ratio between the total TEU discharged and
loaded in the port and the two-way vessel capacity) compared to
rival ports which are in different segments of the loop. In practice,
shipping lines’ decisions on the number and order of ports of call
are influenced by many commercial and operational determinants,
including the cargo generating effect of the port (i.e. the availability
of export cargo), the distribution of container origins and
destinations over the hinterland, the berth allocation profile of a
port, the nautical access, the time constraints of the round voyages
and so on.

The choice of vessel speed is mainly affected by the technical

specifications of the vessel deployed (i.e. the design speed),
bunker fuel prices, environmental considerations (e.g. reduction of
CO2 through slow steaming), and the capacity situation in the
market (i.e. slow steaming can absorb some of the vessel
overcapacity in the market). Since 2008, slow steaming and super
slow steaming have gradually become common in the container
shipping market.

The number and order of port calls, the total two-way sailing
distance, and the vessel speed are the main determinants of the
total vessel roundtrip time. The theoretical roundtrip time will not
always be achieved in practice due to delays along the route and
in ports giving rise to schedule reliability problems. Low schedule
integrity can have many causes ranging from weather conditions,
delays in port access (pilotage, towage, locks, tides) to port
terminal congestion, or even security considerations. To cope with
the chance of delays, a shipping line can insert time buffers in the
liner service, which reduces schedule unreliability but increase the
vessel roundtrip time.

When it comes to service frequency, carriers typically aim for a

weekly service. The service frequency and the total vessel
roundtrip time determine the number of vessels required for the
liner service. Carriers have to secure enough vessels to guarantee
the desired frequency. Given the number of vessels needed and
the anticipated cargo volume for the liner service, the shipping line
can then decide on the optimal vessel size and fleet mix. As vessel
size economies are more significant over longer distances, the
biggest vessels are typically deployed on long, cargo-intensive
routes.

Decisions on all of the above key design variables will lead to a

specific slot capacity offered by the new liner service. It should
align with the actual demand to maximize average vessel
utilization (given expected traffic imbalances, cargo dispersion
patterns, and cargo seasonality and volatility).
Maritime Deviation

Deviation from the Main Shipping Route of Mediterranean Container Ports

 Port
choice by container shipping lines

7. The Connectivity of Container Ports

in Maritime Networks
The liner service networks of shipping lines revolve around a set of strategic
hubs. Each hub has high connectivity (in terms of frequency and range of
ports served) to secondary ports in the network and major inland markets. A
few important points need to be made in this respect:

 Container shipping lines have been very active in securing dedicated terminal
capacity in the strategic locations within their liner service networks. A
substantial number of container terminals worldwide feature a shipping line
among their shareholders, mostly through their terminal sister companies.
Examples include Terminal Link of CMA CGM (51% shareholding), Cosco
Shipping Ports of the Cosco group (100%), TIL of MSC (60%), and APM
Terminals of the AP Moller group (100%).
 Shipping lines do not necessarily opt for the same hubs but have similar
transshipment areas (e.g. Southeast Asia, the Middle East, or the Caribbean).
 There is an upper limit to the concentration of flows in only a few hubs. For
instance, Maersk Line did not opt for one European turntable, but several
major hubs. The optimal number of hub ports in the network depends on
various factors, including the cost trade-off between the hub-feeder option
versus the direct call option. Also, shipping lines can have commercial
reasons for not bundling all their cargo in one port, such as diversification and
resilience strategies.

The maritime connectivity of a container port can be measured in different

ways:

 UNCTAD publishes the Liner Shipping Connectivity Index (LSCI) for countries
and individual ports as an aggregation of five statistics: number of liner
services calling, number of liner companies providing those services, number
of ships in those services, combined container capacity of those ships (in
TEUs), and capacity of the largest ship calling.
 The measurement of the centrality of ports in the network. The centrality of
ports in the network can be approached at the local and global levels. Degree
centrality is a local level measure counting for each port the number of
connections to other ports. Betweenness centrality is a global level measure
summing for each port the number of its positions on the shortest possible
paths within the entire network. Degree centrality is a measure of connectivity,
while betweenness centrality can be regarded as a measure of accessibility.
Hub ports typically have a high degree of centrality and a high betweenness
centrality due to their role as inter-regional pivots in the global network.

Empirical work on the centrality of ports in the global container shipping

network shows that the Asia-Pacific network is centered on the Singapore-
Busan axis and Europe–Atlantic with the Le Havre-Hamburg range. Due to
their lack of hub and feeder activities, large North American and Japanese
ports are poorly represented despite their traffic volume. Singapore is the
most central port of the global system, mainly associated with its position in
the Strait of Malacca. The very high centrality of the Suez and Panama canals
underlines the strong vulnerability of the global network. In East Asia and the
Mediterranean, an increasing number of ports have high connectivity (for
example, Port Klang, Xiamen, and Shenzhen in Asia; Marsaxlokk, Piraeus,
and Tanger Med in the Mediterranean).
 C
ountry and Port Level Liner Shipping Connectivity Index
Emerging Global Maritime Transport System

In the future, shipping lines will continue to mix liner services to create a
network best fitting for carriers’ requirements. Increasing volumes would lead
to an increasing segmentation in liner service networks and a hierarchy in
hubs. Hub-and-spoke systems are just a part of the overall scene. There
remains no “one size fits all” approach to the future design of liner service
networks. The port hierarchy is determined by the decisions of individual
container shipping lines (operating as independent carriers or in groupings),
thereby guided by strategic, commercial, and operational considerations. The
decisions of these lines regarding the hierarchy of the ports of call are rarely
identical. Hence, a port may function as a regional hub for one liner operator
and a feeder port for another.

A major threat to the future of complex liner service networks lies in

decreased schedule reliability. Low schedule integrity can have many causes,
ranging from weather conditions, delays in the access to ports (pilotage,
towage, locks, tides), port terminal congestion, or even security
considerations. Given the nature of many liner services (more than one port of
call, weekly service, hub-and-spoke configurations, etc..), which are closely
integrated, delays in one port cascade throughout the whole liner service and,
therefore, also affect other ports of call (even those ports which initially had no
delays). Moreover, vessel delays compound delays in inland freight
distribution.

Chapter 1.4 – Ports and Distribution

Networks
Authors: Dr. Theo Notteboom and Dr. Jean-Paul Rodrigue
Ports are nodes within distribution networks that include
warehouses and fulfillment centers and provide the
management of freight flows.

1. Ports as Locations for Distribution

Centers
The dynamics in distribution networks are affected by the large-scale
development of inland ports. The functions of inland logistics centers are
wide-ranging from simple cargo consolidation to advanced logistics services.
Many inland locations with multimodal access have become broader logistics
zones and have assumed a significant number of traditional cargo handling
functions and services. They have also attracted many related services,
among other distribution centers, shipping agents, trucking companies,
forwarders, container repair facilities, and packing firms. Quite a few of these
logistics zones are competing with seaports for the location of warehousing
and distribution facilities. Shortage of industrial premises, high land prices,
congestion problems, the inland location of markets, and severe
environmental restrictions are some of the well-known arguments for
companies not to locate in a seaport.

Notwithstanding the rise of inland ports and inland logistics platforms in many
parts of the world, seaports typically remain key constituents of many supply
chains. Several ports have actively stimulated logistics polarization in port
areas by enhancing flexible labor conditions, smooth customs formalities
(combined with freeport status), and powerful information systems. Logistics
activities can take place at the terminal, in a logistics park where several
logistics activities are concentrated, or, in the case of industrial
subcontracting, on the site of an industrial company. While there is a clear
tendency in the container sector to move away from the terminal, an
 expansion of logistics on the terminals can be witnessed in other cargo
categories. As such, a mix of pure stevedoring and logistics activities occurs.

An array of port-centric logistics activities are performed at terminals, mainly

around two tiers. The first tier covers the activities directly related to the cargo,
while the second tier concerns freight distribution. Concerning the second tier,
many seaports have created logistics parks inside the port area or in the
immediate vicinity of the port. Three basic types of port-centric logistics parks
in seaport areas can be distinguished:

 Traditional seaport-based logistics park. This type of logistics park is

associated with the pre-container area in seaports. It is mainly associated with
manufacturing and heavy industry having a high material input carried by
maritime transportation. Others were created to convey the benefits of free
trade zones outside specified custom regulations.
 Container-oriented logistics parks. This is the dominant type with a number of
large warehouses in proximity to or co-located with the container terminal
locations and intermodal terminal facilities. A core element is the container
freight station (CFS), a facility where cargo is consolidated into containers
(stuffing) for exports or deconsolidated (destuffing) into domestic cargo loads
for inland distribution.
 Specialized seaport-based logistics parks. These covers a variety of
functions, often closely related to the characteristics of the seaport. The park
may focus on the storage of liquid bulk (chemicals), on trade in which a
combination of warehousing and office space is offered to several import-
export companies, or on high-value office-related employment such as Fourth
Party Logistics Service Providers, logistics software firms, and financial
service providers.
 Port Centric Logistics

 Functional Types of
Port Centric Logistics

Logistics parks also have a functional orientation depending on the general

directions of the flows, with export, intermediate, and import focuses. A non-
 exhaustive list of logistics activities that typically opt for a location in a port
includes:

 Logistics activities involving large volumes of bulk cargoes, suitable for inland
navigation and rail.
 Logistics activities directly related to companies that have a production site in
the port area.
 Logistics activities related to cargo that needing flexible storage to create a
buffer (products subject to seasonality or irregular supply).
 Logistics activities with a high dependency on short sea shipping.

Moreover, ports are competitive areas for distribution centers in a multiple

import structure and as consolidation centers for export cargo. The decision to
locate a distribution center inside a port implies advantages and
disadvantages that include:

 Good integration and cooperation between terminal operations and

distribution center activities.
 Possibility to re-export from the port to other markets.
 Reducing local traffic congestion and pollution when operating distribution
activities inside the port area.
 Port real estate tends to be more expensive than the surrounding areas. The
market price of port real estate is often higher, particularly because it is
scarcer and located in high accessibility and connectivity areas. Port
managers want to avoid facing opportunity costs linked to the sub-optimal use
of prime locations in the port area. Still, port managers cannot price the port
real estate too high as they have to consider the competitive setting in
attracting logistics operations.
 Port real estate tends to be priced differently. Very often, the logistics service
provider cannot buy the land as most ports are landlords whereby the port
authority gives the port real estate as a concession to the private port or
warehouse operator for a specific term.
 Manufacturers have less flexibility because of the constraint to call the port
where the distribution center is located, giving fewer routing options. A
distribution center located at an intermediate location can have more options
and benefit from inter-port competition.
 Logistics service providers might decide not to locate a distribution center in a
port partly because of the complexity of the dock labor system. This can
involve a lack of experience with the existing social dialog patterns in that
port, such as labor unions.
 In some cases, the port is located far away from the final destination of goods
and offers a locational disadvantage.

2. Warehousing Activities in Supply

Chains
A. Warehouses and fulfillment centers
Warehousing involves the administrative and physical actions required to
store and distribute goods and materials located at the beginning, middle, and
end of the supply chain or near production and industrial facilities.
Warehousing facilities act as important nodes in logistics networks and have
become key components of informational flow management. The
terms warehouse and fulfillment center are often used interchangeably but
can have very different connotations. Both are large buildings that hold
inventory. However, the use of cases and services provided are often quite
different.

A warehouse is a facility designed to store goods for longer

periods of time. Goods stored in a warehouse have usually not
yet been sold and are held in inventory until a buyer is found. A
warehouse is driven by the supply of manufacturers and
wholesalers.

There are warehousing providers geared toward businesses that primarily do wholesale or
B2B orders in large quantities. Some major retailers will have their own warehouse(s) to store
excess inventory, while others rent warehousing space in conjunction with other businesses.

A distribution center (or fulfillment center) is a facility that

performs consolidation, warehousing, packaging,
decomposition, and other functions linked with handling freight.
Orders are received, processed, and filled. Their main purpose
is to provide value-added services to freight, which is stored for
relatively short time periods (days or weeks). Goods stored in a
distribution center have usually been sold and are in transit to
their destination. They can also perform light manufacturing
activities such as assembly and labeling. A distribution center
tends to focus on the demand of customers.

Thus, a fulfillment center is focused on getting orders to customers in a timely

fashion and can relieve companies of managing this process when a 3PL is
used. Orders are increasingly processed through online platforms linking
demand with available inventory, which is stored strategically in preparation
for fulfilling customer orders. Once an order has been placed, inventory is
picked (i.e. order picking process), and boxes are packed, then labeled, and,
if needed, consolidated for shipment. Fulfillment centers can process both
B2B orders, typically a high volume of goods sent to a large customer such as
a retailer, as well as B2C orders. Fulfillment companies work with cut-off times
for orders to be placed. For example, customer orders placed by noon local
time will be processed in the fulfillment center and shipped out the same day.

In contrast to a warehouse, fulfillment centers turn inventory over quickly. The

challenge is to make sure there is enough inventory on hand before shipment.
Unlike warehouses that are more static or inactive, fulfillment centers thus
have continuous movement in a more complex operational setting. Typical
fulfillment services include receiving inventory, order picking, kitting and
packing items, labeling shipments, and managing returns. The equipment
used in distribution centers and (rapid) fulfillment centers include forklifts,
(automated) stacking cranes, shelves, cargo consolidation and
deconsolidation infrastructure (such as conveyor belt systems), a cargo
management system, scanning devices (barcode, QR-scanner, or a system of
radio frequency identification tags – RFID) and loading bays for trucks (and
occasionally also rail). Contemporary fulfillment companies depend highly on
technology for delivering fulfillment services. Every step of the fulfillment
process is automatically documented in real-time.

Like most segments of the supply chain, warehousing has gone through
several evolutionary stages. Initially, warehouses were used in proximity to
manufacturing facilities as a primary means to store materials needed to
produce finished goods waiting to be transported to the customer. Since most
production facilities were located close to ports and major access points, the
need for inland or part-way warehouses was rather limited. Except for the
production and sales storage areas, where buffer and cargo bundling
activities surrounding ports and major transport nodes took place, little or no
warehousing activity was present. This changed with the onset of
globalization, containerization, and the emergence of more complex and
global supply chains. Warehousing slowly evolved from a purely industrial
derived activity to a more defined and specialized industry. It is still part of the
production process and takes a more prominent role in the logistics and
transport industry by offering rapid fulfillment and added value activities.

Activities linked to warehousing are limited to the basic storage of goods

within a covered storage space and the activities like receipt, identification,
verification (customs), and retrieval. The term warehousing is, therefore, a
universal connotation. Still, the types of specific warehousing facilities differ
greatly depending on the stage within the supply chain (distance to consumer)
and the level of specialization of the product. As a rule of thumb, the closer
warehousing is to the consumer and the more specialized the product, the
more complex are the required storage facilities and related activities.
 Wareho
uses and Distribution Centers

 A Typology of Warehousing

B. Main trends in the warehousing sector

 The main economic and logistics trends impacting the warehousing sector are
roughly the same as the trends impacting the logistics industry. Globalization,
just-in-time supply chains, mass customization, and increased sustainability
all play their role. The resulting landscape is increasingly complex in its
geography, the supply chains involved, the distribution networks, and its
technologies. Continuous innovation and efficiency improvements are key to
keeping a competitive edge in this rapidly evolving market. The warehousing
sector has been subjected to several specific trends:

 Lean warehousing. The lean principles were originally created in the

automotive industry in order to reduce waste in terms of time and inventory.
The strategy is also used in the logistics and warehousing sector, resulting in
cost reduction, customer satisfaction, and production efficiency. The lean
warehousing philosophy aims to reduce activities that do not generate added
value for the customer. By reducing various types of waste in the process,
such as too much inventory, or too many movements (no optimized
workspace distribution), the lean principles impact the core of the
warehousing.
 Green and sustainable warehouses. The warehousing sector is undergoing a
green wave and an improved sustainable footprint by specializing and
optimizing the warehouse and transporting goods in an environment-friendly
fashion. Several principles enable large-scale environmental impact
reductions, such as the use of sustainable construction materials, energy
efficiency, and the use of electric equipment.
 Collaborative warehousing. A group of warehouse managers can share
warehousing space according to their respective availability and locations.
The underlying operating model requires high levels of trust and data sharing
using advanced IT management systems.
 TMS and WMS alignment. A TMS (Transportation Management System) is
software used to plan freight operations with a given allocation of supply and
demand, such as finding carriers and rates, the routing, and related
transactions (bill of lading, receivables). A Warehouse Management System
(WMS) is software used to manage all warehousing operations, from
inventory to shipping and receiving. Advanced capabilities like directed put
away, cycle counting, and master schedules allow users to track and control
everything happening in a warehouse using real-time information, which is
constantly at their disposal. WMS and TMS integration may lead to optimized
operation solutions by creating better planning, accurate delivery times, and
faster processes while increasing visibility throughout the supply chain. The
main benefits linked to such integration include improved visibility (transparent
supply chain), operational synchronization (shelf distribution and truck
distribution alignment), pick efficiency improvements (batch sizes linked to
transport mode), and improved customer service.
 Labor management software gives the ability to track the productivity of
warehouse employees. For example, it allows comparing the time it takes an
employee to finish a task to a pre-defined standard. The data collected helps
avoid bottlenecks in the order fulfillment process before they occur, thereby
indirectly improving lead times. This technology also allows for easier
decision-making and increased labor productivity and accuracy.
 Voice-enabled technology complements classic input options for warehousing
activities. The devices allow employees to interact with software applications
through microphones and headphones. This creates a hands-free work
environment and facilitates their jobs to a great extent. The picking process is
made easier since users are now directed to pick designated items for an
order. Information on location, quantity, and other useful items are given
directly through the headphones.


Green and Sustainable Warehouses

3. Regional Distribution Networks

Many warehousing facilities have evolved or have been specifically designed
to act as distribution centers as part of an extensive regional distribution
network. The decoupling of orders and delivery encourages
the reconfiguration of distribution networks. The trend towards the decoupling
of orders and deliveries is reinforced by the rise of digital ordering platforms
and the associated rise of e-fulfillment and e-commerce. Therefore,
distribution networks have to adapt to new requirements. When it comes to
the regional distribution of goods, corporations are challenged to find optimal
solutions at various levels:

1. The choice of the distribution system.

2. The location of distribution centers.
3. The location of value-added logistics services (VALS).
 The
reconfiguration of logistics networks The de coupling of order and delivery

Key decision levels in the development of a regional distribution network



European Logistics Campus ELC of Nike

A. Choice of distribution system

A general distribution structure does not exist as corporations have
a multiplicity of options. They can opt for direct delivery without going through
a distribution center, distribution through the main distribution center (MDC),
distribution through a group of national distribution centers (NDCs) or regional
distribution centers (RDCs), or a tiered structure in which one or a few MDCs
and several NDCs and RDCs are combined to form a distribution network.
These decisions are based on the characteristics of the respective supply
chains, the type of products, and the demand level.

Multiple determinants exist when choosing between a centralized distribution

center in comparison with several decentralized distribution centers. On the
one hand, the number of distribution centers serving regional markets is
growing, favoring inland locations close to markets. On the other hand, the
number of centers serving global markets is also growing, favoring locations
close to large international seaports or airports. The choice between the
various distribution channels depends on the type of product (consumer
 goods, semi-finished products, and foodstuffs) and the frequency of
deliveries. For example, in the fresh food industry, main distribution centers
are unusual because perishability dictates a local distribution structure. In the
pharmaceutical industry, main distribution centers are common. Regional or
local distribution centers are still not present because the pharmaceutical
products are often manufactured in one central plant and delivery times are
not critical (hospitals often have their own inventories). However, in the high-
tech spare parts industry, all of the distribution center functions can be
present because spare parts need to be delivered within a few hours. High-
tech spare parts are usually costly, which encourages the use of centralized
distribution structures).

Corporations often opt for a hybrid distribution structure of centralized and

local distribution facilities. For instance, they use an MDC for medium- and
slow-moving products and RDCs for fast-moving products. These RDCs
typically function as fulfillment centers rather than holding inventories. The
conventional or multi-country distribution structures are being replaced by
merge-in-transit, cross-docking, or other fluid logistics structures. The cross-
docking principle means that the products are almost immediately transferred
from the discharge area to the load area with no or limited storage.

Cost-service trade-offs also have an impact on the choice between a

centralized or decentralized distribution network configuration. On the one
hand, the centralization of inventories offers an opportunity to reduce costs.
On the other hand, storing products close to the final consumers could help
increase customer responsiveness. Europe and North America are illustrative
of these complex distribution dynamics.

 Distri
bution Network Configurations for Containerized Import Cargo
 The reconfiguration
of logistics networks to logistics chains

 Di
stribution Network Configurations for Containerized Import Cargo in Europe
 Dis
tribution Network Configurations for Containerized Import Cargo in North
America

B. Location selection for distribution centers

A second key decision level in developing a regional distribution network
concerns decisions on the locations of the distribution centers once the
distribution system has been chosen. When referring to distribution centers,
the terms warehouse and fulfillment center are often used interchangeably but
can have very different connotations.

Distribution center location analysis has received considerable attention. The

optimal distribution location decisions involve careful attention to inherent
trade-offs between facility costs, inventory costs, transportation costs, and
customer responsiveness. Also, they are influenced by the inventory stocking
policy of the corporation. The variables that affect site selection are numerous
and quite diverse and can be quantitative or qualitative. Of particular
relevance are centrality, accessibility, market size, firm’s reputation and
experience, land and its attributes, labor (costs, quality, productivity), capital
(investment climate, bank environment), government policy and planning
(subsidies, taxes), and personal factors and amenities.

Conventional location selection criteria have emphasized cost-related

variables such as economies of scale and transportation costs. They include
major factors that may strongly influence international location decisions, such
as the costs of the factors of production (land, labor), infrastructure, labor
characteristics, political factors, and economic factors. Nowadays,
however, non-cost-based variables, such as infrastructure support, local labor
market characteristics, and institutional factors also play an important role
when selecting the location of distribution centers.

Location Criteria for Distribution Centers

C. Value-added logistics services

The third key decision level in developing a regional distribution network
refers to deciding where to add value to products. Many products need to be
made country or customer-specific (labeling, kitting, adding manuals in local
languages) before they can be delivered to the customer. Historically these
country or customer-specific activities were mostly done in the factory, leading
to high inventory levels. Due to the increasing variety of products and shorter
product life cycles, many companies have chosen to move their country and
customer-specific kitting or assembly operations as close to the customer as
possible. This implied that the traditional storage and distribution functions of
many distribution centers are supplemented by light manufacturing activities
such as customizing and localizing products, adding components or manuals,
product testing, quality control, or even final assembly.

Value-added logistics services (VALS). Activities integrating the

production and distribution segments of a supply chain. They
range from low-end activities that add little value to the goods,
mostly transport and storage, to high-end activities such as
postponed manufacturing, including systems assembly, testing,
and software installation.

VALS connect production and transport chains in areas where international

inflows and outflows of goods can be linked to regional flows. Logistics
platforms incorporate additional functions such as back-office activities, like
managing goods and information flows, inventory management, tracking and
tracing of goods, and fulfilling customs documentation and other formalities.
 While setting up their logistics platforms, logistics service providers favor
locations that combine a central location, such as proximity to the consumers
market, with an intermodal gateway function. Seaports and sites along
hinterland corridors typically meet these requirements.

VALS are a prime source for revenue generation and value-added in

distribution centers and warehousing facilities. A key issue for logistics service
providers is to decide on where to perform these value-added logistics
services. These activities can be performed at the source in the country of
export (e.g. in a Chinese warehouse), an intermediate location (e.g. a
distribution center near a major port), or somewhere close to the consumer
markets (e.g. close to an inland logistics platform). Even if VALS often take
place in distribution centers and warehouses, the factors influencing the
location decision for distribution centers are not necessarily identical to the
determinants that guide the location of VALS. A complex interaction between
selection factors determines where to perform value-added logistics activities
at the level of the choice of the distribution system, the location of distribution
centers, and the logistical characteristics of the product concerned.

Thus, the diversity of VALS indicates where to perform these activities.

The logistics characteristics of different products also play a key role in
making the location decision. These characteristics will impact operational
decisions related to shipment scale, frequency and velocity, and the
associated infrastructural level. For instance, fashion goods and commodities
have different logistics factors which require different supply chain strategies.
Fashion goods have a relatively high product shelf value and profit margin, a
short product life cycle, high demand variability and seasonality, a distribution
focus measured in service requirements instead of costs, and high
requirements in terms of market response flexibility. On the other hand,
commodities have a relatively low product shelf value and profit margin, a
long product life cycle, low demand variability, a distribution focus measured
in costs rather than service level, and low market response flexibility
requirements.

When considering VALS, the most relevant logistics characteristics of

products include:

 Distribution focus measurements. For most labor-intensive activities, the lower

costs may outweigh the associated higher costs of transport and the longer
lead times. As a result, these activities are performed in a warehouse at the
source or a centralized distribution center. In contrast, service-
oriented activities that imply quick responses typically operated near the final
market within several decentralized distribution centers. The higher the
service requirement, the closer to the final market the VALS are positioned,
and the more relevant are decentralized distribution center.
 Intensity of distribution and economies of scale. The delivery frequency is
expected to increase as manufacturers and retailers seek to achieve even
greater economies linked with low levels of inventory as well as time-based
distribution. This is the paradox of pressures toward economies of scale and
high-frequency delivery. While centralized distribution systems are sensitive to
 large economies of scale and low delivery frequency, lower economies of
scale and a high delivery frequency push logistics services in the opposite
direction.
 Replenishment lead time and demand uncertainty. Replenishment lead time is
the time that elapses once an order has been placed until it is physically on
the shelf and available for consumption. Generally, the longer the
replenishment lead time, the more safety stock needs to be kept, and the
more relevant is keeping the inventory in a centralized distribution center
structure. The demand variability of the product is also a major element
affecting logistics decisions. Stable and predictable demand would lead to a
location closer to low-cost sites and centralized distribution. Unstable and
unpredictable demand requires a quicker response and a higher service level,
resulting in locations closer to the final market and the decentralization of
distribution.
 Ratio of transportation costs over total costs. A high ratio of transportation
costs as part of total costs implies longer transport distances within supply
chains and energy costs. The share of transportation costs in total costs is
determined by factors such as the future balance between global sourcing
strategies and more local sourcing and the continued attractiveness of low-
cost countries in global supply chains. In other words, a high share of
transportation costs in total costs might motivate logistics service providers to
move their activities closer to the customers.
 Product life cycle. Longer life cycles are typical for standard products, such as
canned soup, which have relatively stable customer demand, lower market
requirements, and a lower profit margin. This kind of product is more
appropriate to operate at a centralized low-cost site. VALS on products with a
shorter life cycle would be better performed closer to the final markets.
 Market response flexibility. If the products are needed to respond quickly to
any changes in the market, it would be better to position the VALS near the
customer base.
 Product profit margin. A low-profit margin product will have to reduce costs
and be better served via a more centralized distribution concept. High-profit
margin products generally demand a closer link with the customers to
increase the service level.
 Country-specific products or packaging requirements. For example, if
packaging requirements result in product volume increasing significantly, it
would be better to perform this activity close to the final market to reduce
shipping volume and transportation costs. However, power supply
customization can easily be implemented in product manufacturing to meet
regional standards.

When deciding where to operate VALS, distribution systems are first selected,
followed by a specific location for the distribution center(s), and then the kind
of VALS to be performed at each of the distribution centers. However, VALS
can also have a significant impact on the choices regarding the structure of
distribution systems and the location of distribution centers. This is due to
differences in logistics characteristics and requirements for each product
category. The mix of structural logistics factors related to products will have a
significant impact on determining which distribution network structure will be
adopted, and where to locate distribution centers, as well as where to operate
VALS.

It is also important to notice that once a VALS location has been selected,
the situation does not remain unchanged. At a moment, the factors behind the
selection of a specific VALS location may change, requiring an adjustment.
This can take from a few weeks to a few months, depending on the scale of
the inventory and the availability of new facilities on the leasing market.
Relocating a distribution center takes much longer. Once a distribution center
has been set up, the logistics service provider typically operates the facility for
at least five to ten years, mainly because of the sunk costs. A complete
change in the choice of the distribution system will be even more complex and
time-consuming. By redistributing the location of VALS within existing nodes,
a short-term impact on the quality and service attributes within the distribution
network can be experienced without having to change the distribution
structure or facility location.

Chapter 2.4 – The Digital

Transformation of Ports
Authors: Dr. Jean-Paul Rodrigue, Dr. Theo Notteboom & Dr. Athanasios Pallis
Digital transformation (or digitalization) is the integration of
information technologies into business processes, changing how
they operate and deliver value to their customers.

1. The Digital Transformation of Ports

Like several sectors of the economy, the port and maritime industries have
been impacted by digital transformation. Technology is used to improve, at
times substantially, the performance or reach of organizations, including
their management, operations, and assets. Information technologies,
combined with leadership, can turn technology into transformations. Digital
transformation implies a cultural change that requires organizations to
continually challenge the status quo and incorporate technology. Still, digital
transformation has been an ongoing process since the 1990s with the
massive diffusion of personal computers in organizations, a process
expanded by networking in the early 2000s. By 2010, a critical mass of
storage and processing capabilities embedded in ubiquitous and large-scale
information networks allowed new forms of digital transformation to occur.

Digital transformation challenges organizations to adopt a set of key notions

that have an impact on their governance and organization, including which
strategies and business models should be implemented. These generic
corporate challenges can also be found in the logistics industry, shipping, and
 ports. For example, port and logistics companies take on a customer-centric
approach by adjusting objectives to include key performance indicators and
metrics that measure customer satisfaction and, if necessary, overhauling the
business processes that are seen as less efficient. Service reliability in a
digital era implies that a company can deliver a service and that it should do
so efficiently, conveniently, and consistently, a concept associated with the
ease of doing business.

Another key to competitiveness relates to cooperation between supply chain

partners and digital and integrated data solutions. Horizontal collaboration
between transport companies and logistics service providers underlines the
need for shorter, convenient, more sustainable, and cost-efficient supply
chains. This entails additional complexities, mainly where it concerns mutual
trust concerning data-sharing protocols and protecting respective
competitiveness. Thus, cooperation is typically associated with new
governance models to build trust among the parties involved and achieve a
fair distribution of costs, efforts, revenues, and returns. However, there are
several concerns to be addressed when developing cooperation initiatives
and introducing performance measurement tools and systems across supply
chains:

 Lack of trust. Organizations are reluctant to share their internal data. Trust in
data sharing, acquisition, and monitoring needs to be built as most of the data
can be perceived as market sensitive.
 Lack of understanding. Many managers focus on internal systems, so moving
to an inter-organizational scale often demands the development of a deeper
understanding of what matters when cooperating with other parties in the
chain.
 Lack of control. Managers and organizations are often focused on initiatives
and measures they can fully control. Inter-organizational measures are
challenging to manage and thus control.
 Different goals and objectives. The cooperation between organizations might
lead to a confrontation between different goals and differing views on
achieving these goals.
 Information systems. Information systems often have to be adapted to include
non-traditional information relating to (green) supply chain performance. Also,
information exchanges between organizations might be complicated by a lack
of standards (in terms of units to use, structure, and format) and harmonized
protocols and procedures.
 Difficulty in linking to customer value. Not all organizations see the corporate
and stakeholder value of cooperating with other organizations. They may
have difficulties identifying and measuring possible value.
 Deciding where to begin. Organizations might face challenges when starting
to develop supply chain-wide practices and related performance
measurements.

Service providers in logistics, shipping, and ports improve supply chains with
the support of IT systems that are increasingly performant. The data
component leverages performant and proactive service providers to transform
into organizations with a new outlook on logistics services. Next to an
increasing number of traditional activities being outsourced, such as transport,
warehousing, and various types of value-added services, the presence of
collaborative platforms enables service providers to develop new types of
logistics services.

Further, logistics, shipping, and port companies are rethinking their hiring
strategies as the nature of jobs transforms with technology. Service providers
invest in self-service systems to internally replace operational staff and
improve the ease of doing business for customers. For example, advances
have been made in cargo booking systems, cargo tracking systems, and
invoicing, which have become paperless and available online. The ultimate
objective behind these digital systems is to have staff perform only the tasks
that the systems cannot do, such as exceptions. This implies staff moves
towards new managerial, commercial, and programming roles as basic
logistics tasks are automated.

Digital Transformation and Expected Implications

2. Disruptive ICT Innovations for Ports

A. Automation and innovation
The port and logistics sector is implementing technology and digital
transformation strategies to a certain extent. Some innovations are particularly
relevant and will affect almost all aspects of the transportation process. There
are four categories of automation:
 Robotics encompasses the use of robotics in container handling equipment
such as automated mooring systems and automated ship-to-shore cranes.
With automated ship-to-shore cranes, over 90% of the work duties are
performed autonomously, with the final movement of the spread guided by an
operator from a remote control room. Most container ports that have
employed a significant form of robotics-based automation within the terminal
have similarly incorporated automation into process-based and decision-
based elements of the terminal operations.
 Process automation involves the use of technology to automate processes
external to cargo handling. These include gate processes in which a
combination of hardware and software is used to minimize human
involvement through appointment systems, vehicle and container identification
detection, radiation scanning, driver identification, and routing within the
terminal. It typically involves gate systems in which optical character
recognition (OCR) and radio frequency identification (RFID) automate the
inspection, clearance, and tracking of people and equipment moving into, out
of, and within a terminal, with supervision and exceptions handled from a
control room.
 Decision-making automation involves using technology to guide and optimize
decisions related to stowage and yard planning, container positioning, and
vehicle and equipment scheduling. It involves intelligent terminal operating
systems (TOS) technology to optimize planning, monitoring asset utilization,
and administrative tasks.
 Digitalization involves applying digital technologies to commercial operations,
planning, and support functions, emphasizing data aggregation, analytics, and
network optimization.

Technologies such as the Internet of Things (IoT), Big Data, and Artificial
Intelligence (AI) and their predictive capabilities have all, in one way or
another, allowed for smarter and more efficient supply chains. Smart
warehousing, real-time tracking, and supply chain visibility, including
transportation assets, have become widespread in the industry. Blockchains
were designed with the stated goal of adding a new layer of transparency and
credence between supply chain players.
Main Technologies and Focus on Digital Transformation in Logistics and Ports
 Digita
l Twin PNIT Busan New Port

B. Automation and robotics

Automation can be implemented at the level of processes, infrastructure, and
mobile assets. Process automation can play a key role in the transformation
of logistics service providers. For example, technological advances make it
increasingly possible to dynamically integrate pricing, schedules, bookings,
shipment visibility with customers, carriers, and marketplaces in real time.
Rate automation and shipment visibility technology facilitate online sales. This
can create new opportunities for service providers, as these decision tools
enable deeper integration with carriers, further facilitating shipment and asset
allocation optimization.

Asset and infrastructure automation and the use of robots are not new to the
logistics industry. For example, automated stacking systems in warehouses
have been in place since the early 1990s. The world’s first container terminal
using automated stacking cranes and automated guided vehicles (AGV)
became operational in Rotterdam in 1990. Driven by cost control (such as
labor and land) and efficiency, automation in warehouses and terminals has
firmly progressed in recent years. The extent of automation ranges from
remotely controlled operations under safe and efficient conditions to fully
autonomous operations with limited oversight.

Since the 2010s, automation has started to move beyond the warehouse and
terminal. When opting for automation in terminals or warehouses, market
actors can fully control the working conditions for automated vehicles or
equipment. Enclosed entities offer a controlled environment for automation
that is less subject to random disruptions. However, outside these controlled
environments, automated vehicles are subject to many influencing factors that
cannot be controlled, such as the weather, traffic conditions, and topological
conditions (turn priorities, one-ways). Moreover, using automated vehicles in
the public domain (sea, land, and air) requires legislative and regulatory
actions. A broad range of autonomous or remotely-controlled vehicles is being
developed, from small last-mile solutions (e.g. drones) to full-sized
autonomous sea-going vessels. The development and implementation of
these robots will entail their own threats and opportunities that may lead to
setbacks, unintended consequences, and new market opportunities.

The development of driverless trucks is in full swing. Because autonomous

trucks will still be required to carry drivers (to handle exceptional conditions)
for the foreseeable future, advanced levels of autonomous driving are still
some time away. The immediate impact on logistics and port operations will
most likely consist of increased efficiency because of assisted maneuvering,
improved planning, and synchronized timing, allowing for increased terminal
and truck operator efficiency. In a similar vein, drones are already being used
for security surveillance and inventory checks in warehouses and some ports
(such as Abu Dhabi’s Khalifa Port). They could also have a role in monitoring
other logistics operations and detecting problems requiring maintenance. The
main barriers to using drones are regulatory, but that may be only a short-
term obstacle.

The first serious initiative for a crewless ship was unveiled in 2014 by Rolls
Royce. The main challenges for having crewless ships are regulatory,
considering international maritime conventions have clear specifications on
minimum crew requirements. Another challenge is safety concerns, especially
weather, obstacles, and in-trip repair requirements. This includes the
uncertainty about how such autonomous or remotely operated ships would
cope with unforeseen or irregular events. The main advantages include a
reduction in fuel consumption, and, therefore, emissions. Even though safety
is currently considered a concern, overcoming the challenges effectively
would mean that maritime safety could be improved, as most shipping
accidents result from human error, often related to fatigue. The debate
focuses mainly on the projected costs. One concerns reduced operational
costs, where the absence of a crew can be seen as a liability in case of the
need for repairs or problem-solving, resulting in higher operating costs.
Another concern is reduced construction costs because crewless ships do not
require crew facilities such as cabins and galleys.
C. The Internet of Things (IoT) and big data
analytics
The IoT refers to a wide and increasingly large range of physical objects
(“things”) connected to a network and able to send and receive data. This
effectively means all such items can be tracked and that any activity such an
item is engaged in, or any circumstances it is exposed to, can be monitored
and measured. The IoT is a development that is rapidly taking place across all
industries and throughout society. Such a network of communicating units
opens up a large array of possibilities for logistics. These sensor-driven items
will allow all assets, including autonomous and robotized vehicles and
equipment, port equipment, and infrastructure, as well as the goods
themselves, to become connected. This will result in massive amounts of data
being produced and made available for analysis. This offers a large array of
possibilities for logistics and port operators and stakeholders to optimize and
automate processes and gather an ever more precise and real-time insight
into their operations.

To effectively and successfully implement applications built on the IoT, robust

communications systems need to be in place. Ports, with containers and
equipment interfering with signals, and warehouses with attenuated and
scattered signals, are notoriously difficult environments. Even though many
ports and warehouses have network infrastructure available, it is often not
suited to IoT requirements of high bandwidth and secure protocols. The
possibilities are vast, and the evolution of IoT and the use of big data create
prospects for logistics to become a data-centric industry where information
takes precedence in the value proposition of logistics services over the actual
ability to move cargo.

D. Simulation and virtual reality

Big data applications allow logistics service providers and port operators to
fully exploit the advantages of simulation software. Operations can be
modeled to analyze operational flows, pinpoint possible bottlenecks, define
enhancements, and simulate and assess a variety of design and throughput
scenarios. This can be done for existing or newly planned facilities and
networks. An additional benefit is that such simulation software can also be
used to train staff in a realistic environment and allows for the simulation of a
variety of events to be problem solved.

Virtual reality (VR), defined as the expansion of physical reality by adding

layers of computer-generated information to the real environment, will further
support such simulations. In a logistics environment, one can envision
enhanced feeds from infrastructure, equipment, automated vehicles, and
various drones. It is to be envisaged that VR will have a wide field of
applications ranging from operational support of how to execute specific
processes to active safety or security interventions. VR allows the filtering of
complex visual environments and highlights important elements such as an
individual vehicle or container. Further, the generation of ‘digital twins‘ allows
for an exact virtual replica of the port facility, its vehicles, and ships that can
be used for operations, including ship berthing.

3. Port Community Systems and

Digital Ledger Technologies
Automation relies on complex information systems supporting transactions
and operations related to ports and maritime shipping. This strategy is often
referred to as digitalization, for which port community systems and digital
ledger technologies such as blockchains are salient examples.

Port Community Systems (PCS) are an information entity that

makes available logistical information to the actors involved in
port-related freight distribution, including freight forwarders that
act as intermediaries for importers (consignees) or exporters
(consignors), terminal operators that are the interface between
the port foreland and hinterland, customs, ocean carriers, inland
carriers and the port authority itself.
Blockchains are distributed electronic ledgers shared across a
network of servers that records transactions in cryptographic
units that are called blocks in a permanent and verifiable
manner. They are often referred to as digital ledger
technologies (DLT).

The digital transformation of terminals is integrated into information systems

and ledger technologies, such as blockchains, that link together a wide variety
of port and intermodal stakeholders such as customs, freight forwarders, and
carriers. The purpose of digitalization is not necessarily to create new
information systems to manage freight activities but to effectively link existing
databases and management systems through a portal, particularly through
the conversion of different formats and the adoption of information exchange
standards.

While DLTs focus on transactions and asset tracking, PCS focus

on stakeholder interactions. Portals are particularly suitable as an interface as
 web access is close to ubiquitous and supported by portable devices such as
smartphones. The outcome is an improvement in transactional efficiency
along the logistical chain and, correspondingly, the efficiency of the regional
freight distribution system. Thus, there are opportunities to improve
performance (costs and reliability) that the users can use as marketing
strategies. It is important to underline that digitalization can take different
forms for each port region due to various physical, modal, jurisdictional, and
operational characteristics. Conventionally, the transactional relations
between these actors were very complex, with some being unilateral and
proprietary.

Digitalization is a process that takes place sequentially. Depending on the

current level of information technology usage, some steps may not be
required, with the setting up becoming a matter of portal development and
data interoperability. Therefore, freight digitalization can be developed over
three major phases:

 Development of key channels. The first fundamental step in digitalization

concerns the setting up of channels with key port users exchanging digital
information they need for their operations. This included cargo manifest,
customs declaration, vessel call requests, and the reporting of dangerous
goods. Carriers are the main drivers in implementing digital ledger
technologies because they are commonly the key support of the intermodal
transport chain, which becomes a channel that can be integrated. Still, DLTs
are complex to implement. In 2018, Maersk, the world’s largest shipping line,
initiated the development of a blockchain platform called TradeLens in
collaboration with IBM. However, even if fully operational, the system was
judged not to be commercially viable and was discontinued in early 2023. A
collaborative framework allowing actors to track and trade shipments, handle
documentation such as bills of lading, and eventually settle
transactions through letters of credit, remains a challenge.
 Regional digital freight platforms. Once key channels have been created, then
the setting up of an operational port community system becomes possible,
particularly by focusing on maritime shipping and inland freight distribution
information channels within an area where a port authority acts as a key
driver. Additional actors are brought in, notably freight forwarders and inland
transport firms, which creates a freight market. The purpose is to build a
continuous information chain within the port region that includes the majority
of the steps from the ship access to the port facility to the delivery of a
container at an inland freight distribution center. Among the world’s major
ports, different port community systems have been designed.
 Global digital freight systems. Once digitalization has been established and
has effectively been adopted by ports and cargo users, the next step is to
establish additional multiplying effects and quality improvements. This implies
the further promotion of automation, such as RFID usage, to favor the
seamless movement of cargo and a complete digitalization of documents so
that all transactions take place in a paperless environment. This also implies
the diffusion of best practices with other ports (and inland ports) with their
eventual integration into a wider system. This could eventually lead to
a comprehensive integration of information flows along supply chains through
widely available blockchains, from the factory door to the distribution center of
an overseas consignee.

Port Community System

S
elected Port Community Systems
Blockchains and Intermodal Transportation

One of the key challenges in digitalization concerns creating a consensus

among port users that are traditionally disconnected and often in competition
for a market share. Since many ports already have various IT strategies,
digitalization does not mean using the same template, as substantial efforts
need to be made to adapt to the cultural and operational reality of the locale.
The development of web-based applications and wireless networks has made
digitalization such as PCS an operational reality. The issue is to assess the
extent to which digital transformations generate added value to the port
community through improvements in supply chain productivity, efficiency, and
reliability. As an asset-based industry, ports remain cautious about adopting
technologies, including digital means. On the positive side, once a technology
has shown clear outcomes, the potential for its adoption, diffusion, and
scalability is high.

4. Digitalization in Cruise Ports

Digitalization is a process that is transforming cruise ports as well. While
digitalization in the maritime freight sector focuses on operations and
integration between stakeholders, digitalization in the cruise industry focuses
on improving customer satisfaction. The evolution of the check-in processes is
an illustrative example. Guests complete their online check-in at home, which
is verified by the cruise line. Passengers can then print their tickets or save
them to their smartphones. The identification and ticket authentication occur
at the port through check-in agents with scanning devices or self-service
check-in kiosks. Cruisers receive their room key and RFID wristband and
proceed to the cruise ship. The industry is considering online visa processing,
but differing national regulations impede its development.

Digitalization has multiple impacts on cruise terminal operations. Ports and

cruise terminal operators, or any other responsible stakeholders,
might redesign the terminal as the process provides them with more flexibility
due to a reduced number of check-in desks. A further redesign relates to
security arrangements, with potentially more X-ray machines and security
lanes required to avoid guest congestion. The technology used at the cruise
terminal is also upgraded with the need to use high-speed broadband wi-fi to
support a large number of mobile devices.

A further implication is less in-port shopping due to less pre-cruise shopping

due to expedited ship access. Combining this with the increased amenities
and shopping facilities that cruise ships offer onboard, the presence of
shopping malls as cruise port selection criteria declines. Ground handlers that
provide services at the cruise terminal are assigned with reduced
documentation checks, and pier staff with a greater focus on customer
service, guest flow planning, and transfer through manual check-in, which is
required for guests who have forgotten documentation. As a mitigation
strategy for digital services, a backup plan is required if the system goes
down. For example, deployable check-in desks and staff on standby are
essential for dealing with any unexpected event.

Cruise lines can benefit from efficient port operations, safeguarding real-time
digital updates for the boarding process, and increasing comfort for guests
during check-in with less paperwork and reduced shoreside staffing. Cruise
passengers benefit from a seamless and simpler process, involving fewer
documents, fewer queues, or even no queues, and a quicker journey to the
cruise ship.

Digitalization leads to a number of additional innovations, such as the

presence of holograms throughout the port directing guests to the terminal
and the ship. Cruise line apps provide guests with information such as
boarding procedures, onboard entertainment, luggage tracking, tour transfers,
and last-minute shore excursion offers. Ground Handling Operation Support
Systems are also upgraded due to digitalization. For instance, smart staffing
systems facilitate scheduling, training needs, invoicing, and related
operations. Another example is operation report applications, which provide
reports generated after an operation which are then shared with all
stakeholders to further improve future services to cruise passengers and
shipping.

5. Cybersecurity and Ports

The diffusion of information technologies for communication, managerial and
operational considerations has been enduring across the maritime industry.
The benefits of digitalization are far-reaching, but characteristics inherent to
information technologies, such as digital network access and connectivity,
have opened the door to a new range of vulnerabilities and risks. The growing
level of digitization and reliance on information systems open opportunities for
cyber-related disruptions at ports. Cybersecurity has wide ramifications on
supply chains and has mobilized market players to increase protective and
mitigating measures.
 Cybersecurity is the protection of information technology
systems (hardware and software) and their infrastructure from
unauthorized access, misuse, and damage.

Data integrity and privacy challenges and risks have soared with the rise of
digitalization, the amount of information processed and stored, and
interconnected information networks. The logistics, shipping, and port industry
is challenged to safeguard the data being communicated across players since
data sharing is at the core of digitalization. Failure to protect data hampers the
digital revolution as this represents a risk not only for the end customers but
also for the suppliers. There are three main dimensions of data cybersecurity:

 Confidentiality. Information technologies, including the data they contain,

should be accessible only to authorized personnel. There are different layers
to confidentiality, ranging from public access (such as a company
informational web page) to restricted information (such as financial accounts)
only available to key employees in upper management.
 Integrity. The information stored and distributed through information systems
must be protected from any unauthorized modification or deletion. This
implies data version monitoring and backup systems allowing the information
to be reverted.
 Availability. The information must be made available to its users at the
moment they need to access it. Telecommunication systems, such as Wi-Fi,
can be compromised and disrupted, impairing operations. Network
redundancy allows for mitigating potential disruptions.

If information confidentiality, integrity, and availability are secured against

cyberattacks, a level of cyber resilience can be achieved. Ports and the
maritime industry are being increasingly targeted, with cyberattack growth
rates in triple digits since 2017. The causes of cybersecurity breaches can be
intentional or unintentional, such as an employee error (losing a laptop or a
storage device that can be retrieved by others). The consequences are
multidimensional, ranging from data theft to operational disruptions that
impact carriers and cargo owners. The cyber resilience of a number of ports is
perceived to be in question for three main reasons:

 Labor and skill issues. The port and maritime industries are competing for IT
talent with other industries. Since this sector is less known than other high-
visibility sectors, such as finance, recruitment is more challenging. Further, as
port terminals are converting to digital technologies, the operational and
managerial workforce needs to be trained with new sets of skills.
 Software development. Several information technologies in the port and
maritime sector rely on software and technologies that can be considered
“legacy” and not designed in circumstances where cybersecurity was an
issue. Some terminals use in-house software that is particularly prone to
vulnerabilities.
 Terminal infrastructure. A port terminal, particularly a container terminal, is
composed of a multiplicity of information technologies, automated assets, and
telecommunication networks that each represent a potential point of entry for
a cyberattack.

In recent years, several market players have been confronted with large-scale
cyberattacks. For example, in 2017, a ransomware cyber-attack infected
Maersk Line and its sister terminal company, APM Terminals. In the same
year, the “WannaCry” ransomware attack caused gridlock at FedEx, a major
logistics services provider, as the contents of thousands of its networked
computers were encrypted. In 2020, the Port of Shahid Rajaee (Iran) was the
victim of a cyberattack that resulted in the shutdown of the computer
infrastructure controlling cargo, vessels, and vehicle movements in the port.
Cybersecurity issues have become central to the resilience of contemporary
ports as they represent an entirely new set of risks.

Cyber Resiliency Measures for Information Technologies

Petya Ransomware Cyber Attack on Maersk

Chapter 2.5 – Green Shipping and

Supply Chain Management
Author: Dr. Theo Noteboom
Green shipping integrates environmental concerns into
organizational and operational practices, with ports as key
nodes in environmental strategies.

1. The Greening of Supply Chains

Green shipping and supply chain management (GSCM) has gained increased
attention within the maritime industry as there is a growing need for
integrating sound environmental choices into supply chain management
(SCM) practices. The growing importance of GSCM goes hand in hand
with environmental concerns such as the scarcity of some resources, the
footprint of human activities on ecosystems, waste disposal, and the emission
of pollutants, including carbon emissions. Adding green components to supply
chain management involves addressing the influence and relationships of
supply chain management with the natural environment.

During the 1960s and 1970s, both economists and environmentalists started
to underline the role of industrial activities, their outputs and implications on
the environment. In the 1980s, industrial ecology and life cycle
assessment concepts were conceived to better assess and quantify
environmental impacts. The pursuit of environmental standards in product
development, process design, operations, logistics, regulatory compliance,
and waste management was spread over a large number of organizational
units within corporations. This led to a multitude of uncoordinated mitigation
attempts, which started to change with the SCM revolution of the 1990s as
environmental management became more integrated with operations.

Environmental practices for gaining competitive advantage and economic

benefits became a formal field of investigation with the formalization of
strategies. Investments in greening can be resource-saving, waste
eliminating, and productivity improving. Thus, the greening of supply chains
does not have to be just a cost center but could constitute a potential source
of competitive advantage. These ideas further developed in the early 2000s
with a shift from environmentally friendly approaches to integrating green
initiatives to achieve good business sense and higher profits. The industry
started to show a growing awareness that GSCM could constitute a business
value driver, not just a cost center.

The main idea behind GSCM is to strive for a reduction in environmental

impacts by focusing on a series of strategies throughout the supply chain.
They include Reduce, Re-use, Recycle, Remanufacture, also known as the
four “Rs” that comprise reverse logistics. GSCM is often linked to life-cycle
assessment (LCA), a process for assessing and evaluating the environmental,
occupational health, and resource-related consequences of a product or
service through all the phases of its life cycle. This includes extracting and
processing raw materials, production, transportation and distribution, use,
remanufacturing, recycling, and final disposal. The scope of LCA involves
tracking all the material and energy flows of a product, from the extraction of
its raw materials to its disposal. The fields of action in GSCM include product
design, process design and engineering, procurement and purchasing,
production, energy use and mix, and logistics (including distribution and
transportation).
 Functional Model of an
Organizational Green Supply Chain

2. Green Design, Procurement and

Manufacturing
A. Eco-design and green process engineering
Part of the environmental impact of a resource, good, or even service is
determined in its design phase when materials and processes are selected.
For example, effective reverse logistics practices largely depend on an eco-
design focused on design for disassembly, design for recycling, and design
for other reverse logistics practices.

Eco-design, also called design for environment (DfE) or environmentally

conscious design (ECD), helps improve environmental performance by
addressing product functionality while simultaneously minimizing the life-cycle
environmental impacts of their supply chains. One of the key aspects of eco-
design is facilitating reuse, recycling, and recovery through designs such as
easy disassembly of used products. Eco-design also involves other fields for
action, such as the design of products for reduced consumption of material or
energy, or the design of products to avoid or reduce the use of hazardous
goods and their manufacturing process. For example, a company might
decide to replace a potentially hazardous material or process with one that
appears less harmful, thereby taking into account potential impacts on the
depletion of a scarce resource or increased extraction of other
environmentally harmful materials.
The roles of eco-design and environmental processes change with the stage
in the product life cycle. When a new product is introduced, the eco-design of
the product is a crucial aspect. In the more mature and declining stages of the
product life cycle, more focus will be on improving processes and having an
efficient reverse logistics system in place. Eco-design is an important GSCM
practice aimed at combining product or service functionality to minimize
environmental impacts. Successful eco-design typically requires internal
cooperation within the company and external cooperation with other partners
throughout the supply chain.

B. Green procurement and purchasing

Organizations have established global networks of suppliers that take
advantage of country-specific characteristics. Key factors for green
purchasing include providing design specifications to suppliers that include
environmental requirements for purchased items, cooperation with suppliers
for their environmental objectives, environmental audits, and internal
management and ISO 14001 certification. Companies can encourage or even
require their suppliers to develop environmental management systems in
compliance with ISO 14001, or their suppliers to be certified with ISO
14001. Procurement or purchasing decisions will impact the green supply
chain through purchase of materials that are either recyclable or reusable or
have already been recycled.

Many large customers, such as multinational enterprises, have exerted

pressure on their suppliers for better environmental performance, which
results in greater incentive for suppliers to cooperate with customers for
environmental objectives. Also, the pressure of the final customer is a primary
driver for enterprises to improve their environmental image and practices.

Green procurement strategies are typically supported by national or

supranational regulations. For example, the European Community Directives
on Waste Electrical and Electronic Equipment (WEEE) and Registration,
Evaluation and Authorization of Chemicals (REACH) have led many
European and non-European suppliers to increase organizational efforts for
product recovery. Environmental compliance is increasingly becoming a criterion for
accessing a specific market.

C. Green production and remanufacturing

Green production complements eco-design, green purchasing, and green
logistics. Cooperation with suppliers and customers is indispensable for
moving towards cleaner and greener production processes. Green production
has often been associated with the concept of industrial ecology, which views
the industrial world as a system that is part of local ecosystems and the global
biosphere. In practice, green production mainly focuses on:
 Techniques for minimum energy and resource consumption in order to reduce
the use of new materials.
 A shift towards a more sustainable energy input with fewer environmental and
carbon emissions.
 Techniques of product recovery, often considered within a circular economy.
 Waste management to minimize the environmental footprint of waste
disposal.

Product recovery refers to the broad set of activities designed to reclaim

value from a product at the end of its life cycle in order to reuse products and
materials. This can be achieved through recycling, remanufacturing, repair, or
refurbishment. Recycling is performed to retrieve the material content of used
and non-functioning products and is often driven by regulatory and economic
factors. Remanufacturing is recycling-integrated manufacturing that implies a
thorough rethinking of traditional production planning and scheduling
methods. Industries that apply remanufacturing typically include automobiles,
electronics, and tires. The purpose of repair is to return used products to
working order. The purpose of refurbishing is to bring used products up to a
specified quality standard allowing their sale on second-hand markets.
Remanufacturing and the associated recycling activities typically involve
disassembly to separate a product into its constituent parts, components,
subassemblies, or other groupings.

Cleaner production requires effective waste management for products and

materials that cannot be reused. The supply chains of non-reusable waste
involve waste collection, transportation, incineration, composting, and
disposal. The general idea of cleaner production is to prevent pollution at the
source. Thus, cleaner production initiatives are also focused on preventing
waste creation rather than its post-generation management.

3. Energy and Transportation

Efficiency
A. Energy efficiency in supply chain management
Supply chains require energy to fuel production and logistics processes. The
world’s energy needs continue to grow, with a 30% rise in global energy
demand expected by 2040. Still, higher energy efficiency and the growing use
of cleaner energy sources worldwide should help to curb energy-related
carbon emissions. The majority of the required energy has conventionally
been derived from fossil fuels. However, a shift is taking place with a growing
share of renewable energy sources. Changing towards a greener energy mix
is a key field of action in GSCM. Efficiency gains from more stringent energy
performance standards play an important role in the evolution of energy
demand.
 The share of electricity in global final energy consumption is approaching 20%
and is set to rise further. Electricity is increasingly used in economies focused
on lighter industrial sectors, services, and digital technologies. In advanced
economies, electricity demand growth is modest, but the investment
requirement is massive as electrical generation and distribution infrastructures
are upgraded. A common issue with electrification, which has a much lower
environmental footprint, is how electricity is generated. The usage of fossil
fuels to generate electricity upstream in energy supply chains undermines its
environmental benefits downstream.

Renewable energy is expected to see the fastest growth, with natural gas
expected to have the strongest growth among fossil fuels, with consumption
rising by 50% by 2040. Coal use has seen strong growth in recent years, but
consumption levels are expected to stabilize and decline, as is already the
case in Europe and North America. Growth in oil demand is expected to peak
by 2030, and a shift in the balance of energy consumption is taking place
between developing and advanced economies. By the mid-2030s developing
economies in Asia are expected to consume more oil than Europe and the
United States.

International agreements concerning the environmental footprint of climate

change have been implemented with mitigated outcomes. For instance, the
objectives of the Paris Agreement on climate change, which entered into force
in November 2016, are related to transformative changes that take place in
the energy sector. Countries are generally on track to achieve, and even
exceed in some instances, many of the targets set in their Paris Agreement.
While these efforts may be sufficient to slow the projected rise in global
energy-related CO2 emissions, they may be insufficient to limit warming below
an additional 2 °C. Therefore, five-year review mechanisms, built into the
Paris Agreement, underline the importance of reviewing pledged
commitments. This should include actions such as:

 The acceleration of the deployment of renewables, nuclear power, and carbon

capture and storage.
 Greater electrification and efficiency across all end-uses.
 Clean energy research and development effort by governments and
companies.

By 2040, about 60% of all new power generation capacity is expected to be

derived from renewables, with the majority of renewables-based generation
being competitive without relying on subsidies. Therefore, it is expected that
by the 2030s, global subsidies to renewables will start declining. However,
there is a risk that cost reductions for renewables could be insufficient to
decarbonize electric power generation systems. Structural changes to the
design and operation of the energy grid are needed to ensure adequate
incentives for investment and to allow for a higher contribution of wind and
solar power.
 The rise of solar power and wind power gives unprecedented importance to
the flexible operation of power systems in order to secure enough energy at
all times. The cost of battery storage is declining fast, and batteries
increasingly compete with gas-fired peaking plants to manage short-run
fluctuations in supply and demand. However, conventional power plants
remain the primary source of system flexibility, supported by new
interconnections, storage, and demand-side response. The European Union
aims to create an “Energy Union” to deal with imbalances in demand and
supply between different member states, replicating the existing electric grid
exchange systems in North America.

Despite expectations on renewables, fossil fuels such as natural gas and oil
will continue to form the backbone of the global energy system for many
decades to come. By 2040 oil demand is expected to drop to levels similar to
the 1990s, while coal use will move to levels last seen in the mid-1980s. Only
gas will see an increase relative to the current consumption level. Based on
an increase in oil prices in the long-term, the trend for exploring fossil energy
sources will continue to offshore locations, including deeper waters and
harsher environments. More complex energy sources such as tar sands or
methane hydrates are also being exploited. Energy production on offshore
wind farms will significantly increase, and other water-based energy
production devices using wave and tidal current energy will have a broader
market. These developments will lead to a massive increase in renewable
energy, particularly in Europe. They will also result in a significant increase in
the production and transport of cleaner fuels such as LNG, shale gas, and
hydrogen.

B. Green logistics, distribution and transportation

The implementation of GSCM has a large impact on how goods move across
supply chains. GSCM implies a green logistics approach to reconcile
environmental concerns with transportation, warehousing, and distribution
activities. Green logistics ties environmental and economic efficiency into
logistics by reducing the impact of the sector on the environment. Logistics
service providers are challenged to be eco-conscious, comply with existing
environmental regulations, and prepare for upcoming regulations while
performing their activities at the lowest possible cost.

Logistics service providers have to focus on supply networks in which clean

forms of transport meet shippers’ expectations regarding cost and
efficiency. Goods are increasingly transported in an economical,
environmental, and sustainable manner. To this extent, shippers expect
coordination from service providers in which operational excellence is
supported by obtaining a greater convergence between physical and data
processes. The main fields of actions in green logistics are related to:

 Eco-friendly packaging. Packaging characteristics such as size, shape, and

materials impact distribution due to their effect on the transport characteristics
of the goods. Better packaging, along with rearranged loading patterns, can
 reduce materials usage, increase space utilization in the warehouse and the
transport modes, and reduce the amount of handling required. For instance,
having strong and sturdy pallets ensure their long-term use. Systems that
encourage and adopt returnable packaging require a strong customer-supplier
relationship and an effective reverse logistics channel. Efficiencies in
packaging directly affect the environment. In many countries, take-back
legislation on the packaging has made packaging operation and planning a
critical environmental logistics consideration.
 Eco-friendly transport mode choice and synchromodality. Environmental
pressure from the customer base, society, and legislation forces companies to
use greener alternatives for logistics. Advancing GSCM requires a massive
re-engineering of supply chains in favor of a modal shift to environmental-
friendly transport modes and synchromodality. Modal shift and co-modality
policies have been implemented to incite the use of barges, rail, and shortsea
shipping. Modal shift and co-modality have been expanded to include the
notion of synchromodality, which is defined as “the optimally flexible and
sustainable deployment of different modes of transport in a network under the
direction of a logistics service provider so that the customer (shipper or
forwarder) is offered an integrated solution for his (inland) transport”.
Implementing a synchromodal solution requires the involvement of several
actors. Shipping lines, terminal operators, inland terminals, inland transport
operators, 3PL companies, shippers, and public authorities all play a role in
developing synchromodal solutions. A synchromodal approach assumes that
the shipper books without specifying the mode, thereby leaving modal
decisions to logistics service providers. This renders the whole transport
system more flexible in terms of modal choice. Synchromodal transport is
particularly effective for corridors and regions where sufficient volumes are
present, allowing for economies of scale supported by modes such as rail and
barge.
 Load and route optimization. One example of load optimization can be to send
a truck only as a full truckload (FTL). Route optimization is about reducing
transport costs, time or distance. By choosing the best route, it is possible to
save fuel and reduce emissions. Synchromodality allows for the consolidation
of cargo consignments and finds the optimal route, thus achieving additional
efficiency benefits.
 Green distribution networks and distribution hubs. GSCM incites logistics
service providers to include green considerations in the design and
implementation of distribution networks and the location choice and
operational modalities of their distribution hubs and warehousing facilities.
The type of product mainly influences these choices and the frequency of
delivery, but green considerations are increasingly considered when making
such decisions. For example, distribution network configurations might involve
internalizing the environmental costs of transport and distribution, such as
through environmental taxes such as a CO2 tax. The future configuration of
distribution systems has an impact on cargo routing patterns.

3. Drivers of GSCM and Corporate

Strategy
A. Green supply chains and Environmental
Management Systems
An Environmental Management System (EMS) consists of a collection of
internal policies, assessments, plans, and implementation actions affecting
the entire organization and its relationships with the environment. In practice,
an EMS is a strategic management approach that defines how an
organization will address its environmental impacts. An EMS typically includes
establishing an environmental policy or plan and performing internal
assessments of the organization’s environmental impacts. This includes the
quantification of environmental impacts, how they change over time, and how
to create mitigation strategies, provide resources, train workers, monitor
implementation progress, and undertake corrective actions if goals are not
met. An EMS can be regarded as a valuable element in improving
environmental and business performance. Once an organization implements
an EMS, it may elect for its certification to the ISO 14001 standard.
Organizations that develop an EMS typically show higher regulatory
compliance, enhancing their corporate image and increasing profits.

There are different views on the relations between EMS and GSCM. One of
the limitations of an EMS is that it mainly focuses on enhancing the
environmental performance of an organization and not on extending this
strategy throughout the supply chain. A corporation with an EMS may have
little incentive to green its supply chains since it can market itself as being
environmentally focused without undertaking additional efforts. However, by
developing an EMS, a company develops skills and insights, helping develop
more comprehensive GSCM initiatives. Therefore, organizations that adopt an
EMS may have a stronger focus on implementing GSCM practices as well.

B. GSCM and corporate profitability

There is a growing need to integrate sustainability principles into supply chain
management. There are pressures to consider environmental issues when
pursuing portability within supply chains, which is a demand-pull.
Simultaneously, government regulations increasingly force companies to
become more environmentally friendly, which is a regulatory push. Thus,
organizations might initiate several environmental practices due to drivers
such as sales to customers, and legislative and stakeholder institutional
pressures. Even though GSCM has significant environmental motivations,
regulatory, competitive, and economic pressures also play roles in its
adoption across industries.

When focusing on the corporate context, there are clear signs that not opting
for green supply chains can negatively affect cost base and profitability. A
focus on GSCM may help secure revenue growth, achieve cost reductions,
develop brand value, and mitigate risks, resulting in increasing revenue by a
factor of 20% and reducing carbon emissions by 20%. Furthermore, a focus
on the environment has a positive impact on brand value. However,
corporations cannot roll out green initiatives as part of GSCM without due
consideration.

Logistics and supply chain managers have to balance efforts to reduce costs,
improve service quality, increase flexibility, and innovate while maintaining
environmental performance. When deciding on green initiatives, corporations
consider strategic performance requirements, which may not be
environmentally based, such as cost, return on investment (ROI), service
quality, and flexibility. Green initiatives should not only support green supply
chains but also make business sense. Otherwise, the competitive and
financial position of the organization may be negatively affected.

Investment recovery is often cited as a critical aspect of GSCM, typically at

the back end of the supply chain cycle. Financial incentives or penalties are
available from public authorities, such as subsidies and tax breaks for green
investments or penalties for non-compliance, or by private service providers,
such as a commercial bank providing favorable loan conditions for green
investments, which are often very important in investment or divestment
decisions and to achieve investment recovery.

C. Incentives for GSCM

Financial incentives and penalties are just one way for governments and
public entities to support the greening of supply chains. Whatever
governments and public entities do in terms of environmental policy
development, the business world is very sensitive to coherence and continuity
in existing policies, the legal coherence of implemented policies, and the
enforcement of policies through inspection and control. As many investment
decisions have a medium to long-term amortization, any changes in
government policy, such as abolishing subsidy schemes for certain green
investments, can have large ramifications on the soundness of the initial
corporate decision related to a green initiative. Thus, government policies and
regulations typically significantly impact green strategies, investments, and
GSCM initiatives pursued by corporations, but should provide legal and
investment stability to the affected companies.

There is a growing awareness that GSCM can be an important business value

driver and a source of competitive advantage. However, this does not imply
that all organizations follow the same approach when dealing with GSCM
challenges. Corporate attitudes towards GSCM can range from reactive
monitoring of the general environment management programs to
more proactive practices implemented through the various Rs (Reduce,
Reuse, Recycle, Remanufacture, Reverse logistics).

Internal environmental management is central to improving corporate

environmental performance. A supporting managerial structure is necessary
and, often, a key driver for successfully adopting and implementing most
innovations, technology, programs, and activities in GSCM. Successful GSCM
initiatives often involve several departments (at times several corporations),
and such cooperation and communication is essential to successful
environmental practices. Sharing responsibility inter-organizationally for
various aspects of environmental performance is the key to successful
GSCM.

It is not solely individual companies that can opt for cooperation on a bilateral
or multilateral basis. Industry and branch organizations often play an essential
role in coordinating several organizations to take joint initiatives in GSCM. In
other cases, private companies, sometimes with different backgrounds, and
organizations such as public entities form coalitions to advance the design
and implementation of GSCM solutions.

4. GSCM and Ports

Seaports are active environments for multiplying the scale and scope of
initiatives to improve green supply chain management. Five fields of
action can be distinguished to pursue GSCM objectives; green
shipping, green port development and operations, green inland
logistics, circular economy, and knowledge exchange and development. A
broad array of market players and public entities have a role to play in each of
these fields.

Range of actions for Green Supply Chain Management in ports

 A. Green shipping
Ships are major contributors to emissions in ports, even when they are idling
or berthed. Next to shipowners, ship operators, and supranational
organizations such as the International Maritime Organization (IMO), ports
play a role in reducing ship emissions. The main fields of actions include:

 Reduce ship emissions in ports by decreasing waiting times and the

turnaround time of vessels, such as by synchronizing and integrating the
nautical chain through optimized vessel traffic management systems.
 Implement green port dues and voluntary green shipping schemes to
incentivize operators to improve the environmental performance of their ships.
The Environmental Ship Index (ESI) initiated by the International Association
of Ports and Harbours (IAPH) is a certification scheme that ranks a ship’s
environmental performance, which is correlated with port dues. Shipping
companies can register their ships for this index on a website. Based on the
data entered, such as fuel consumption and emissions, each ship has a given
score from 0 to 100 (from highly polluting to emission-free). The ports
themselves decide what advantages to offer participating ships, but they
mostly involves a rebate in port dues. While ports or other public authorities
could, in principle, also decide to implement strict regulation on emission
criteria for ships entering the port (i.e. dirty ships are not granted access),
such access restrictions have only been implemented in a few ports around
the world.
 Implement Cold Ironing, Shore Power Supply, or Alternate Marine Power
(AMP) whereby seagoing vessels and barges at berth use shore power for
auxiliary engines instead of bunker fuel. At present, cold ironing is most
widespread in the cruise shipping market and ferry business. There are
challenges related to the investment cost (terminal and ship), the division of
these costs between different stakeholders, and the break-even cost
compared to bunker fuel.
 Support the transition to LNG as a ship fuel. In past years, investments in
LNG bunkering infrastructure in ports have taken off. Several public port
authorities play a proactive role in facilitating LNG as a marine fuel, often in
close partnership with industrial actors.
The Environmental Ship Index program

On shore power supply at the cruise port of Vancouver

 L
NG as a ship fuel

B. Green port development and operations

Green port development is about actions that make the port and its
environment greener and more sustainable. Multiple instruments and
concepts of green port development and operations exist, including:

 Develop a green concession and lease policy by implementing green

elements in terminal concession, lease procedures, and contracts. This
involves the setting of standards such as for emissions and waste
management.
 Maximize the ecologies of scale and industrial symbiosis in industrial clusters
or ecosystems. Environmental zoning and co-location can help to achieve
these effects.
 Develop green zones and buffers in the port area, with nature forming a shield
between heavy port industry and residential areas. This can also involve the
restoration of marine ecosystems.
 Develop wind and solar parks and wave energy, combined with port energy
management.
 Implement Carbon Capture and Storage (CCS) and fume return systems.
Carbon can also be used as a base for other products, such as Carbon
Capture and Utilization (CCU).
 Support the production of biofuels and bio-based chemicals.
 Facilitate the use of low-emission or zero-emission quay and yard
equipment on terminals, particularly through electrification.
 Reduce idling of ships and inland transport modes and waiting times at
terminals through information sharing via data platforms.
 Develop green warehousing and distribution activities in ports through optimal
location choice, optimal distribution system design, sustainable warehouse
design (LED lighting and smart cooling and heating systems), energy, and
material recycling.

Examples of windfarms and gas terminals in ports

 Carbon
capture utilisation and storage

To
wards green concession agreements and processes
 C. Green inland logistics, modal shift and inland
terminals
Inland logistics comprises the transportation of goods from the hinterland to
the port or from the port to the hinterland via barge, rail, truck, or pipeline. Port
authorities can play a role in the following GSCM areas:

 Stimulate a modal shift and implement multimodal transport solutions through

pricing (taxes and incentives), regulation on emission standards, information
provision to users, a liberalization of freight markets, and infrastructure
investments to make specific transport modes more attractive.
 Optimize the use of each modality by reducing empty kilometers, the
improvement of vehicle utilization rates, and scale increases in transport
modes (vessel scale, train length, and tonnage, truck platooning).
 Implement smart planning by bundling cargo within a company or between
companies.
 Support the transition to a greener energy input for transport by imposing
minimum emissions standards on vehicles entering the port area (e.g. the
Clean Truck Program, part of the San Pedro Bay Ports Clean Air Action Plan)
and giving incentives for the use of non-fossil fuels.
 Promote the role of inland terminals and dry ports and port-hinterland
concepts in GSCM, for example, by incorporating inland terminals
as extended gates to seaport terminals.
 Develop advanced and integrated traffic management systems for rail, barge,
and truck;
 Implement pricing mechanisms and other instruments to make fleets greener
or to spread traffic in time and space. These include appointment systems,
peak pricing, or extended (night) opening hours of terminals.
 Develop pipeline networks (intra-port, inter-port, and port-hinterland) to
transport liquids over short and long distances.
The Extended Gate Concept

Cargo Bundling Options in Hinterland Transportation

D. Seaports and the circular economy

 There are three circular scales in which ports and maritime shipping are embedded. At the
largest scale, the circular economy is all about restructuring industrial systems to support
ecosystems by adopting methods to maximize the efficient use of resources by recycling and
minimizing emissions and waste. In a port context, the main fields of action at that scale are:

 Promote industrial ecology to optimize waste management through interactions between

stakeholders within the same geographical area, such as exchanging materials, water, and
by-products.
 Develop seaports as hubs for recycling flows where flows are delivered, transformed into new
products, and re-exported worldwide.
 Use renewable energy sources through hydro and offshore power installations.

The second scale concerns the circular processes directly related to shipping and port
operations and their supply chains. The third is related to the specialized container
market with circular processes involving the repair, repositioning, and recycling of discarded
containers. By design, containers are circular goods that can be constantly reused and
exchanged on transport markets.

The Circular Economy in Ports and Maritime Shipping

A circular system is not necessarily sustainable as reusing or recycling costs

may exceed linear procurement costs. For instance, recycling goods such as
waste paper and some plastics is more expensive than sourcing from new
resources. Under such circumstances, circularity becomes a political or
societal choice requiring regulations and subsidies, which results in higher
costs and potential disruptions related to the availability of resources.

E. Knowledge development
The last possible field of action for GSCM in ports includes measures
that facilitate knowledge development, information sharing, and exchange of
best practices. A non-exhaustive list of some areas for initiatives include:
 Develop interactive environmental and energy information and management
systems that enrich business processes with new knowledge about energy
consumption and emissions. This can help set up benchmarks and standards.
 Cooperate in the framework of port-related associations, such as WPSP
(World Port Sustainability Program) and Ecoports, that provide a forum to
discuss strategies and best practices.
 Develop sustainability and CSR programs to improve the social and
environmental performance of the port cluster and to improve communication
and exchanges with a broad range of stakeholders.
 Implement sustainability reporting at the corporate, port authority, or port
industry level. Larger port authorities are the main actors that have started
producing sustainability reports.
 Develop the local knowledge base on GSCM in ports by setting up incubators
and smart-labs for start-ups and scale-ups, Hackathon events, and creating a
good business environment for R&D-focused firms, research centers,
consultancy firms, and start-ups.

Chapter 8.4 – Containers

Authors: Dr. Theo Notteboom and Dr. Jean-Paul Rodrigue
Containerization allows for cargo distribution in a unitized form,
permitting an intermodal transport system allowing a
combination of rail, road, canal, and maritime transport. The
provision and management of containers are assumed by
shipping lines and container leasing companies, with the
repositioning of empty containers mainly the outcome of
imbalances in trade flows.

1. The Box Market

The growth in global trade and freight distribution has led to the ongoing
demand for new containers. Each year, about 1.5 to 2.5 million TEUs worth of
containers are manufactured, the vast majority in China, taking advantage of
its containerized export surplus. At the onset of the Covid-19 pandemic,
container production reached a peak of about 5.2 million TEUs, due to
substantial commercial demands and port congestion, creating a temporary
container shortage on global markets. Even if containers are standard load
units, they can be segmented into three main markets:

 Dry containers. The most important market where standard containers are
used to carry general cargo that does not require any particular condition
outside of being protected from the weather.
 Refrigerated containers (reefers). A niche market using specially insulated
containers to transport temperature-sensitive goods by keeping the
 temperature constant, such as below freezing. (See this section focusing
on reefers and the cold chain).
 Tank containers. A niche market using specially designed containers to carry
food-grade liquids such as wine, vegetable oil, and juice, or chemicals.

The global inventory of containers was estimated to be around 37.6 million

TEUs as of 2015. This implies approximately three TEUs of containers for
every TEU of maritime containership capacity. The container manufacturing
market is highly volatile. For example, at the start of the COVID-19 Pandemic
in March 2020, there was a massive surplus of boxes, including 3 million
empty TEUs available at Chinese ports plus another 1.2 million TEUs in
storage at container manufacturers. Orders for new boxes plummeted due to
this surplus, combined with the expectation that trade would collapse as
COVID-19 spread globally. However, the situation reversed in mid-2020 due
to a demand surge in North America and Europe. The resulting rise in exports
from China led to a flood of orders for new containers, in some cases doubling
the price for a standard 20-foot box. Global container production rose to
440,000 in January 2021, far above the average monthly output of 150,000 to
250,000 containers.

China accounts for about 90 to 95% of the global production of containers,

which is the outcome of several factors, particularly its export-oriented
economy and lower labor costs. Top container manufacturers include China
International Marine Container Group (CIMC; the world’s largest shipping
container manufacturer with an annual capacity of 2 million containers),
Singamas Container Holdings, CXIC Group Containers (CXIC), China Eastern
Containers (CEC), and China COSCO Shipping. Considering that China has a positive trade
balance, notably in the manufacturing sector, which highly depends on
containerization, it is a logical strategy to have containers manufactured at
that location. This enables free movement since, once produced, a new
container is immediately moved to a nearby export activity (factory or
distribution center), then loaded and brought to a container port. Therefore, a
long-distance empty repositioning is not required for the newly manufactured
container. Every container utilization strategy must thus take into account
production and location costs. As container availability has become of
strategic importance to trade, several governments, such as the Ministry of
Ports, Shipping, and Waterways in India, have initiated steps for increasing
the domestic production of containers, thereby reducing their dependence on
Chinese manufacturers.

A 20-foot container costs $1.70 per cubic foot to manufacture. In contrast, a

40-foot container costs $0.80, which underlines the preference for larger
volumes as a more effective usage of assets. Even so, the 20-foot container
remains a prime transport unit, particularly for the shipping of commodities
such as grain, where it represents an optimal size taking account of weight
per unit of volume capacity of containers, around 28 metric tons.

The great majority of containers are owned either by maritime shipping

companies or container leasing companies. With the beginning of
containerization in the 1970s, a container leasing industry emerged to offer
 flexibility in managing containerized assets, enabling shipping companies to
cope with temporal and geographical fluctuations in demand. Following a
period of growth correlated with the ebbs and flows of global trade, the leasing
industry went through a period of consolidation in the 1990s, like the container
shipping industry. Container ownership is now roughly divided equally
between container leasing and maritime shipping companies, where the share
of shipping lines reached 59.8% in 2008 but declined to 48% in 2021. This
ownership of containers by shipping lines can be explained by the following:

 Containers allow for clear brand recognition, particularly for shipping lines.
 Containers are an asset that maritime shipping companies make available to
service their customers. Providing containers helps increase the utilization
rate of containerships.
 A growing level of intermodal integration and control in which maritime
shippers interact with port terminal operators (some directly operate port
terminals such as APM) as well as with inland transport systems such as
railways and inland ports. In such a context, controlling container assets
enables more efficient use of the transport chain.
 The rising cost of new containers, the repositioning of empties, and
systematically low freight rates along several trade routes have made
the container leasing business less profitable. Ocean carriers also have a
greater ability to reposition empty containers since they control a fleet and can
reposition their empty containers when capacity is available. It is also not
uncommon for a whole containership to be chartered to reposition empties.

Main Physical Characteristics of ISO Containers

Composition of the Global Fleet of Containers 2012

Container
Usage during its Life Span
 At the beginning of the 2020s, about 60% of the equipment available for
location is controlled by five leasing companies having fleets exceeding 1
million TEU. If the 13 largest leasing companies are considered, they account
for 90% of the global container leasing market and controlled the equivalent of
10.7 million TEU. Shipping and leasing companies often have contradictory
strategies in the usage of their container assets. From the point of view of
shipping companies, their containers are secondary assets enabling more
efficient utilization of their ships through a higher level of cargo control. They
consequently maximize their ship usage, which is their primary asset, and a
container is a tool for this purpose.

For leasing companies, containers are their main assets, and the goal is to
amortize their investments through leasing arrangements. These
arrangements come into three major categories that differ in terms of the
length of the lease and who is responsible for the repositioning of empty
containers. In the past, maritime shippers relied extensively on leasing. Still,
recent trends underline their more active role in managing container assets,
particularly because a container spends a large share of its life span idle or
being repositioned.

2. The Chassis Market

Chassis fleets are also an important element of the container market as they
are necessary to carry containers by road and sometimes within terminals.
Chassis are designed to be interoperable as they are designed to carry any
ISO container, although some chassis may be restricted to specific container
lengths, such as 20 feet. Some chassis are adjustable to carry containers
between 20 and 40 feet, while others can be adjusted to handle less common
container sizes such as 53 feet (domestic containers). Even if containers are
international transport units either owned by ocean carriers or leased by
container leasing companies, their transport between international markets
relies on separate regional chassis provision segments. The ownership of
containers and chassis is usually separate as each carrier within an
intermodal transportation chain controls its own equipment and relies on
different chassis provision markets.

In addition to its transport function, a chassis can also be used to store

containers at terminals and at distribution centers.

 Transport units. Chassis are used to move containers from container yards to
distribution centers and to carry moves such as empty container repositioning.
 Storage units. Chassis can be used at terminals and distribution centers to
store containers for a period of time. At terminals, the usage of chassis for
storage is called wheeled operations.

A common chassis provision business model is for the motor carriers or

logistics service providers to own the chassis they use, which is particularly
the case in Europe and Asia. Near major intermodal terminals, chassis pools
 support drayage operations by allowing motor carriers to access equipment
and return it. This business model is prevalent in North America.

The chassis market is a derived demand of a derived demand. It exists to

support container movements, which are supporting trade and commercial
flows. The demand for chassis depends on the demand for container
shipping, which, in turn, depends on the demand for goods shipped across
long distances, especially by sea. Therefore, the chassis market is prone to
lag effects and adjustments, as chassis providers seek to match chassis
fleets, commonly organized into regional pools, with regional container
movements. The chassis market can be considered from a supply and
demand perspective:

 Chassis supply. The provision of chassis to a regional drayage market.

Chassis are either owned by carriers (motor carriers, ocean carriers, rail
carriers) or organized as pools by Intermodal Equipment Providers, which
lease chassis through daily (spot) rates or through long-term contracts.
 Chassis demand. The use of chassis for drayage by motor carriers or for
terminal operations at port and rail terminals. For motor carriers, the demand
is delimited to a regional area that represents the usual distance the
containers are carried from intermodal terminals to cargo owners.

Chassis
Operations
Major Types of Chassis Pools

The Container and the Chassis Markets

3. Empty Container Flows

A container is a transport as well as a production unit that moves as
an export, import, or repositioning flow. Once a container has been unloaded,
another transport leg must be found, as moving an empty container is almost
 as costly as moving a full container. Irrespective of whether it is loaded or not,
a container consumes the same amount of space and therefore requires the
same transport capacity. Shipping companies need containers to maintain
their operations and level of service along the port network they call.
Containers arriving in a market as imports must eventually leave, either empty
or full. The longer the delay, the higher the cost.

In an ideal situation, an inbound container would find an outbound load

nearby once it has been unloaded. Repositioning thus begins after a container
has been unloaded, and it involves costs that the shippers must assume. This
cost is thus reflected in the costs paid by producers and consumers. Also,
empty containers represent development opportunities for export markets as
every disequilibrium tends to impose a readjustment of transport rates and
can act as an indirect export subsidy. Firms taking advantage of this may
reduce, likely temporarily, their transport costs.

An increasing number of containers are repositioned empty because cargo

cannot be found for a return leg. The outcome has been a growth in the
repositioning costs as shippers attempt to manage the level of utilization of
their containerized assets. The positioning of empty containers is one of the
most complex problems concerning global freight distribution. A highlighted
issue is that, under normal circumstances, about 2.5 million TEUs of
containers are being stored empty, waiting to be used. Empties thus account
for about 10% of existing container assets and 20.5% of global port handling.
The major causes of this problem include:

 Trade imbalances. They are probably the most important source of

the accumulation of empty containers in the global economy. A region that
imports more than it exports will face the systematic accumulation of empty
containers. In contrast, a region that exports more than it imports will face a
shortage of containers. If this situation endures, a repositioning of large
amounts of containers will be required between the two trade partners,
involving higher transportation costs and tying up existing distribution
capacities.
 Repositioning costs. They include a combination of inland transport and
international transport costs. If they are low enough, a trade imbalance could
endure without much impact as containers get repositioned without much of a
burden on the shipping industry. Repositioning costs can also get lower if
imbalances are acute, as carriers (and possibly terminal operators) will offer
discounts for flows in the reverse direction of dominant flows. However, if
costs are high, particularly for repositioning containers inland, shortages of
containers may appear in export markets.
 Revenue generation. Shipowners allocate their containers to maximize their
revenue, not necessarily the economic opportunities of their customers. Given
trade imbalances and the higher container rates they impose on the inbound
trip for transpacific pendulum routes, shipowners often opt to reposition their
containers back to Asian export markets instead of waiting for the availability
of an export load. For instance, while a container could spend three to four
weeks in the hinterland being loaded and brought back to the port, earning an
income of about $800, the same time can be used to reposition the container
 across the Pacific to generate a return income of $3,000. The latter figure
could be much higher in case of peak demand.
 Manufacturing and leasing costs. If the costs of manufacturing new
containers, or leasing existing units, are cheaper than repositioning them,
which is possible over long distances, an accumulation can happen.
Conversely, higher manufacturing or leasing costs may favor the repositioning
of empty containers. Such a condition tends to be temporary as leasing costs
and imbalances are correlated.
 Usage preferences. A large number of shipping lines use containers to brand
the company name and offer readily available capacity to their customers.
This, combined with the reluctance of shipping lines and leasing companies to
share market information on container positions and quantities for competitive
reasons, makes it very difficult to establish container pools or introduce the
‘grey box’ concept. Still, as demonstrated by the North American rail system
(TTX rail equipment pool), it is possible for transport companies to distinctly
separate container assets from modal assets so that efficiency (such as the
turnover rate) can be improved.
 Slow steaming. Excess capacity and rising bunker fuel prices have incited
maritime shipping companies to reduce the operational speed of their
containerships from 21 knots to 19 knots, a practice known as slow steaming.
The resulting longer transoceanic journeys tie more container inventory in
transit, promote transloading in the proximity of port terminals and reduce the
availability of containers inland.

Types of Container Flows

 Cargo Rotation

4. Repositioning Scales and Strategies

Container repositioning can occur at three major scales, depending on the
nature of the container flow imbalances. Each of these scales involves
specific repositioning strategies:

 Local (empty interchange). Occurs regularly as containers are reshuffled

between locations where they are emptied to those where they are filled. They
are of short duration with limited use of storage facilities since containers are
simply in a queue at the consignee or the consigner, especially if the same
freight distributor manages them. The availability of chassis compounds this
problem.
 Regional (intermodal repositioning). Involves industrial and consumption
regions where there are imbalances, often the outcome of economic
specialization. For instance, a metropolitan area having a marked service
function may be a net importer of containers. In contrast, a nearby area may
have a manufacturing specialization, implying a status of a net exporter. The
matter then becomes the repositioning of the surplus containers from one part
of the region to the other. This may involve a longer time period due to the
scale and scope of repositioning and often requires specialized storage
facilities. This scale offers freight forwarders opportunities to establish
strategies such as dedicated empty container flows and storage depots (or
inland ports) at suitable locations. However, locating empty depots near port
facilities consumes valuable real estate.
 International (overseas repositioning). Is the outcome of systematic
macroeconomic imbalances between trade partners, as exemplified by China
and the United States. Such a repositioning scale is the most costly and time-
consuming as it ties up substantial storage capacity in proportion to the trade
imbalance. Significant inland freight distribution capacities are also wasted
since long-distance trade, especially concerning manufactured goods, tends
to involve a wide array of destinations in a national economy. This is
paradoxical as maritime container shipping capacity will be readily available
for global repositioning. Still, high inland freight transport costs could limit the
number of empty containers reaching the vicinity of a container port. It may
even force an oversupply of containers as the trade partner having a net
deficit of containers (exporter) may find it more convenient to manufacture
new containers than to reposition existing units, which disrupts the container
leasing market.

Geographical Levels of Empty Container Repositioning

 Inland Containerized Flows and Inland Ports

Empty container repositioning costs are multiple and include handling and
transshipping at the terminal, chassis location for drayage, empty
warehousing while waiting to be repositioned, inland repositioning by rail or
trucking toward a maritime terminal, and maritime repositioning. An empty
container takes the same amount of space in a truck, railcar, or containership
slot as a full container. Shipping companies spend, on average, $110 billion
per year in the management of their container assets (purchase,
maintenance, repairs), of which $16 billion is for the repositioning of empties.
This means that repositioning accounts for 15% of the operational costs
related to container assets. To cover these costs, shipping companies charge
higher freight rates on the ‘full’ leg and lower rates on the backhaul. These
freight rate practices are thus an important factor in the shipping costs toward
developing countries in Africa, Asia, and the Caribbean. The outcome is
higher costs for imported goods, which is economically damaging for low-
income countries.

Within large commercial gateways, containerized distribution, and empty

repositioning are facing numerous challenges:

 Transport companies must cope with access and storing charges at terminals
as well as wear and tear on equipment.
 Truck drivers are losing hours waiting to access terminal gates and
distribution centers to return empty containers and chassis.
 Terminal operators lose productivity because of congestion and face
pressures from localities to reduce the number of idle trucks at their gates.
 The fundamental reason behind the repositioning of a container is the search
for cargo to ensure the continuity of paid movements. A container is an asset
whose usage level is linked with profit, and it must continuously be in
circulation. Its velocity involves higher turnover rates, and three main options
are available to promote this velocity:

 If there are few opportunities to load empty containers on the backhaul trip,
an efficient repositioning system must be in place to ensure the overall
productivity of the distribution system. Transloading is part of such a strategy
as it frees maritime containers by moving loads into domestic containers so
that there are fewer risks that shipping companies will impose surcharges
because of imbalanced containerized flows.
 Improve the efficiency of existing cargo rotation with a better link between
import and export activities by synchronizing flows. Instead of returning
directly to the rail or maritime terminal, an empty container can be brought
immediately to an export location to be loaded. However,
an asymmetry between import and export-based logistics makes this a difficult
proposition.
 Develop an export market taking advantage of filling empty containers with
new cargo, notably commodities. This can imply various strategies such as
substitution from bulk to containers or the setting up of consolidation centers
enabling the regrouping of small cargo batches into container loads. This
particularly benefits small companies and enables them to access new global
markets.

The case of the United States is particularly telling. For 100 containers
entering the country, half will be repositioned empty to foreign markets. Of the
50 that remain, most return empty to port terminals awaiting for export cargo
to become available. The empty container is picked up from the port terminal
and taken to a distribution center to return to the terminal once loaded. Only 5
of the 50 containers will be loaded with export cargo shortly after being
unloaded of import cargo without coming back empty first to the maritime
terminal. Cargo rotation appears as a simple repositioning strategy but
requires fairly complex coordination. It can take place if import and export
activities are located nearby and thus enable a quick rotation. Otherwise, an
intermediary stage implying the usage of an empty container depot is
required. Thus, cargo rotation is an operational process for repositioning that
can be supported by empty container depots, which are physical
infrastructures. Those two elements require a management system where
actors involved in supply chains interact to combine mobility needs and the
availability of containers.
Container Transloading

Advant
ages and Disadvantages of Container Transloading
 A
symmetries between Import and Export Based Containerized Logistics

Container Repositioning using an Empty Container Depot

 5. The Digitalization of Containers
Like other elements of the transport sector, containers are being transformed
by information technologies. The container is the object of digitalization and
the diffusion of smart containers that allow for additional information to be
made available to carriers, terminal operators, and cargo owners. This
information is related to the identification of the container, its location, and its
physical characteristics. In particular:

 The locational coordinates of the container can be used to calculate the

estimated time of arrival along the transport chain.
 Temperature, humidity, and air pressure information are particularly relevant
for reefers and cold chain logistics.
 Geofencing information can trigger notifications when a container has entered
an area (e.g. a terminal) and assess any locational security breach.
 Shock detection assesses if the container was subject to stress levels beyond
a defined threshold, particularly if the cargo carried is fragile.
 Information about the container doors and locks, may include details of
whether doors were opened during transit.

The goal is to provide a better level of control over the transport chain, which
leads to derived benefits for supply chains. It also enables a clearer
identification of the liability if theft, damage, or a breach in the container
integrity took place.

Concepts have been brought forward to help connect the various commercial
needs (imports and exports) with the availability of containers, such as freight
platforms and the virtual container yard. These systems imply an online
market where information about container availability is displayed without the
necessity for the container to be in a physical storage depot. The container
can be in circulation or at a distribution center, but the important point is that
its availability, both geographically and temporarily, for a new load is known.
The main goals of a virtual container yard are:

 Display status information about containers, such as their characteristics,

location, and availability.
 Improve information exchange between actors involved in supply chain
management, such as trucking companies, shipping companies, distribution
centers, and equipment leasing companies.
 Transfer the container lease and the related documentation without bringing
the container back to the depot or the terminal.
 Assist the actors in supply chain management in their decision-making
process concerning the usage of container assets, namely returns, and
exchanges.

Therefore, a virtual container yard is a clearinghouse where detailed

information is made available to the involved actors. Small and medium-sized
firms are the most likely to use a virtual container yard as they generally have
less logistical expertise and available resources to manage containerized
assets. Large logistics firms and maritime shipping companies are less likely
to use such a system since they already have substantial expertise and their
own management systems. An emerging strategy to involve all the actors in a
platform enabling a market for the exchange of empties. Thus, repositioning
strategies are important in managing containerized assets, but effectiveness
is difficult to achieve.

Understanding Logistics, Supply Chain,

Shipping, Maritime & Freight Business

Dear Readers;
For the sake of us all starting on the same line, in this article I will start by
defining the most commonly used terms, businesses, industries used in this
business.
Logistics
With its origin from the military, it was used to refer to movement of troops,
food supplies and equipment from the military bases to various operations.
Logistics will entail all that makes it possible to receive goods at the buyers,
importers warehouse from the seller, manufacture, and exporter. Mostly, in
the business, we mostly mention shipping of goods from exporter to importer
via the shipping line -a stakeholder in the maritime business.
Logistics is always initiated at the point where a potential buyer engages a
seller; to place an order, discuss and also negotiate a possible sale. Part of
the buyer-seller discussion will involve;
1. Mode of Transport; the best way to move the goods, which can either
be air, road or sea.
2. The service provider; the transporter or forwarder settled on should be
reliable, and have the expertise.

Supply Chain
SC is the whole process involving all aspects of a product cycle.
1. Product development
2. Sourcing
3. Production
4. Logistics and delivery.

SC may also be defined as a network of suppliers, warehouses, distribution

centers, shipping lines, customs clearance agents, etc. SC goes handy in
handy with Supply Chain Management, the management of SC activities in
developing and implementing SC effectively.
Shipping Business
In college, we were all told that shipping is the act of carrying goods from
point A to point B using a ship. That still stands. Shipping business is wide,
considering different types of ships in the industry. Ships may be categorized
as;
1. Container ships
2. Dry bulk carriers
3. General cargo carriers
4. RO-RO ships
5. Passenger/cruise ships
6. Gas carriers
7. Oil tankers
8. Chemical carriers, etc

We will be discussing the above ships in our next article.

Most of the ships are owned and operated by the shipping lines, as liner
services like for the most common container ships. Shipping lines may
include; APM Maersk, Mediterranean Shipping Co., CMA CGM, Evergreen
etc
Shipping basically involves below functions among others carried out by the
shipping lines.
1. Booking cargo/goods on vessels
2. Planning cargo on the intended vessels
3. Making sure planned cargo is shipped.
4. Understanding stowage planning for maximum space utilization on the
vessel.
5. Ensuring safe loading at the port of origin and safe offloading at the
port of discharge.
6. Issuing the bill of lading and other documentation for the loaded cargo,

Maritime Business
With its origin from the Greeks, Egyptians, Romans, Arabs, Indians and
Chinese, Maritime transport is the backbone of international business. The
main stakeholder in the maritime industry is the shipping agent offering
movement of cargo from point A to point B by use of a ship.
The industry is dominated by the container ships, general cargo carriers, oil
tankers, dry bulk carriers, cruise ships, etc.
Freight Business
Freight has three main definitions;
1. Money, Shipping Charges; refers to a charge paid for carriage of goods
from Point A to point B by air, land and sea.
2. Goods, cargo, load, haul, shipment, consignment, freightage,
merchandise; refers to goods transported in bulk by truck, train, ship or
aircraft.
3. Physical process of transporting commodities and merchandise, goods,
cargo from point A to point B by air, land and sea.