Ocean Container Transport Logistics:
Making Global Supply Chain Effective
Chung-Yee Lee
Logistics and Supply Chain Management Institute
Dept. of Industrial Engineering & Logistics Management
Hong Kong University of Science & Technology
IFSPA 2014
May 19, 2014
Why is ocean container transport important?
Global supply chain outsourced and move offshore.
Transportation ocean transport  containerized
World container traffic has been growing at almost 3 times world GDP
growth* (since 1990s)
Air cargo: (3.1% in 2000  1.7 % in 2013) ** (modal shift to sea and
surface transport)
In the Chinese export supply chain only, we estimate that at least $85B is
caught up in inventory during container transport from China to
destinations abroad***.
(This is more than total inventory in all US department stores)
*UN-ESCAP 2005
**: International Air Transport Association
***:http://www.funggroup.com/eng/knowledge/research/ChinaTradeQuarterly1Q13.pdf
2
An Understudied Area in OR/MS
• Maritime Economics (Theo Notteboom …)
• OR/MS: container terminal operations
management
Steenken et al. 2004, Stahlbock et al., 2008,
Günther and Kim, 2006, and others.
Contract, variability, capacity, pricing, reliability,
disruption, …., ---- extremely important problems
in ocean container transport.
Fransoo and Lee(2013)
3
• Current Status and Trends of Ocean
Container Transport
• Challenges and Opportunities:
Research Issues
4
Containerization:
Revolutionizes Ocean
Shipping
Marc Levinson,
The Box: How the Shipping
Container Made the World
Smaller and the World
Economy Bigger, Princeton
University Press, 2006, New
Jersey, U.S.
5
Bill Gates’ Top 7 Books In 2013
Box is the top one
Gates says: “You might think you don’t want to read a
whole book about shipping containers… But he makes
a good case that the move to containerized shipping
had an enormous impact on the global economy and
changed the way the world does business. And he turns
it into a very readable narrative. I won’t look at a cargo
ship in quite the same way again.”
6
Source: http://www.buzzfeed.com/mattlynley/bill-gates-top-7-books-in-2013
Consignee
Factory
FF(W/H)
FF(W/H)
Inland Delivery
Inland delivery
Vessel
Container
terminal A
7
Container
terminal B
Container Shipping Industry Value Chain
and Segment
2007
Segment
Percentage
1
Shipment and capacity
procurement
$32B
16%
2
Provide containers
$8B
4%
3
Provide and operate
vessels
$102B
50%
4
Terminal operation
$35B
17%
5
Inland Delivery
$28B
13%
*: source: Merge Global (2007)
8
Revenue
Top 10 Carriers (May 17, 2014)
Rank
Liner
Mkt share
1
A.P. Möller-Maersk (DK)
2,682,386
14.8%
2
Mediterranean Shg Co (IT)
2,439,358
13.5%
3
CMA CGM Group (FR)
1,528,052
8.4%
4
Evergreen Group (TW)
893,818
4.9%
5
COSCO Container (CN)
789,245
4.4%
6
Hapag-Lloyd (DE)
772,410
4.3%
7
CSCL (CN)
618,583
3.4%
8
APL (Singapore)
617,841
3.4%
9
MOL (Japan)
592,725
3.3%
10
Hanjin (KR)
583,717
3.2%
OOCL: # 12 (2.7%)
9
LTEU
Top 20 Carriers
Total (MTEU)
Percentage
Year
-----------------------------------------------------2
54%
1995
4
71%
2001
11.7
82%
2010
14.9
85%
2013
2014/5;
10
Top 5:
Top 10:
Top 20:
46.0%
63.2%
84.3%
10
Vessel Size
Main vessel sizes
– Under-Panamax (< 3000 TEU)
– Panamax (3000 – 6000 TEU)
– Post-Panamax (Over 6000 TEU)
– (Emma Maersk 2006): 15200 TEU/vessel
• Triple E Class (2013): 18,000TEU
11
Characteristics of Shipping Line Industry
Capital Intense
High Fixed Cost
Limited Differentiation in Service
Low Demand Elasticity
Volatility of Freight Price
12
Pricing Issues
Shipping line industry lost $15B in 2009,
earned 14B in 2010.
Spot rates from Hong Kong to Los Angeles
• $871 per FEU (July: Lowest in 2009)
• $2,838 per FEU (August 2010)
(225.7% increase): high volatility
•
13
Drewry Shipper Consultants’ Container Rate Benchmark,March 31, 2011
2013 Result
In US$
Revenue
Op. Profit Margin
Maersk
CMACGM
Wan Hai
Hapag-Lloyd
OOCL
K Line
26,196
15,902
2,006
8,718
6,205
6,116
1,524
756
75
89
57
29
5.8%
4.8%
3.7%
1.0%
0.9%
0.5%
Source: Alphaliner Weekly Newsletter (2014, Issue 14)
14
14
NYK
CCNI
MOL
COSCON
APL
HMM
EMC
Zim
Hanjin Shg
RCL
CSCL
CSAV
Yang Ming
15
5,807
841
7,061
7,795
7,329
4,632
4,679
3,682
7,695
427
5,472
3,206
3,995
-29
-8
-124
-159
-231
-156
-172
-139
-290
-23
-387
-238
-327
-0.5%
-1.0%
-1.8%
-2.0%
-3.2%
-3.4%
-3.7%
-3.8%
-3.8%
-5.3%
-7.1%
-7.4%
-8.2%
15
Alliance
Grand + New world + CKYH

G6 (Grand Alliance + New World Alliance) (18.5%)
Grand Alliance: Hapag-Lloyd, NYK and OOCL (9.7%)
New World Alliance: APL, MOL, HMM (8.8%)
Maserk, CMA-CGM and MSC (36.7%): VSA (Vessel Sharing
Agreement) (P3 Network: Asia-NA; Asia-Europe; NA-Europe)
CKYHE Alliance (Green Alliance) : COSCO, K-Line, Yang Ming,
Hanjin + Evergreen (start from April 2014) (16.6%)
Total: 71.8%
16
Top 10 World Container Terminals: 1995-2004
000 TEUS
Order
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Hong Kong
19 144
Hong
Kong
20 449
Hong Kong
21 984
1
HongKong
12 550
HongKong
13 460
HongKong
14 567
Singapore
15 100
HongKong
16 211
Hong Kong
18 098
Hong
Kong
17 826
2
Singapore
11 846
Singapore
12 944
Singapore
14 140
HongKong
14 582
Singapore
15 945
Singapore
17 087
Singapore
15 571
Singapore
16 941
Singapore
18 411
Singapore
21 329
3
Kaohsiung
4 900
Kaohsiung
5 063
Kaohsiung
5 693
Kaohsiung
6 271
Kaohsiun
6 985
Pusan
7 540
Pusan
8 073
Pusan
9 453
Shanghai
11 280
Shanghai
14 557
4
Rotterdam
4 787
Rotterdam
5 007
Rotterdam
5 340
Rotterdam
6 011
Pusan
6 440
Kaohsiung
7 426
Kaohsiung
7 541
Shanghai
8 610
Shenzhen
10 650
Shenzhen
13 626
5
Pusan
4 503
Pusan
4 684
Pusan
5 234
Pusan
5 946
Rotterdam
6 400
Rotterdam
6 275
Shanghai
6 340
Kaohsiung
8 493
Pusan
10 408
Pusan
11 442
6
Hamburg
2 890
Hamburg
3 054
Long Beach
3 505
Long
Beach
4 098
Long
Beach
4 408
Shanghai
5 612
Rotterdam
6 096
Shenzhen
7 614
Kaohsiun
g
8 843
Kaohsiung
9 714
Long
Beach
2 844
Long
Beach
3 007
Hamburg
3 337
Hamburg
3 550
Shanghai
4 210
Los
Angeles
4 879
Los
Angeles
5 184
Rotterdam
6 506
Los
Angeles
7 179
Rotterdam
8 281
Yokohama
2 757
Los
Angeles
2 683
Anterwp
2 969
Los
Angeles
3 378
Los
Angeles
3 829
Long
Beach
4 601
Shenzhen
5 043
Los Angeles
6 106
Rotterda
m
7 107
Los Angeles
7 321
Los
Angeles
2 555
Anterwp
2 620
Los Angeles
2 960
Anterwp
3 266
Hamburg
3 750
Hamburg
4 248
Hamburg
4 689
Hamburg
5 374
Hamburg
6 138
Hamburg
7 003
Anterwp
2 329
Yokohama
2 400
Dubai
2 600
Shanghai
3 066
Anterwp
3 614
Anterwp
4 082
Long
Beach
4 463
Anterwp
4 777
Anterwp
5 445
17Dubai
7
8
9
10
Source : Marine Department, Port and Maritime Statistics
6 429
Top 10 World Container Terminals: 2005-2012
Rank
1
2
3
4
5
6
7
8
9
2005
2006
2007
2008
2009
2010
2011
2012
Singapore
Singapore
Singapore
Singapore
Singapore
Shanghai
23.2
24.8
27.9
29.9
25.9
29.1
Shanghai
31.7
Shanghai
32.6
Hong Kong
Hong Kong
Shanghai
Shanghai
Shanghai
Singapore
Singapore
Singapore
22.3
23.2
26.1
28.0
25.0
28.4
29.9
31.7
Shanghai
Shanghai
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
18.1
21.7
24.0
24.5
21.0
23.7
24.4
23.1
Shenzhen
Shenzhen
Shenzhen
Shenzhen
Shenzhen
Shenzhen
Shenzhen
Shenzhen
16.2
18.5
21.1
21.4
18.3
22.5
22.6
23.0
Pusan
Pusan
Pusan
Busan
Busan
Busan
Busan
Busan
11.8
12.0
13.3
13.4
11.9
14.2
16.2
17.0
Kaohsiung
Kaohsiung
Rotterdam
Dubai
LA/LB
LA/LB
Ningbo
Ningbo
9.5
9.8
10.8
11.8
11.8
14.1
14.7
16.8
Rotterdam
Rotterdam
Dubai
Guangzhou
Dubai
Ningbo
Guangzhou
Guangzhou
9.3
9.7
10.6
11.0
11.1
13.1
14.4
14.7
Hamburg
Dubai
Kaoshsiung
Ningb
Guangzhou
Guangzhou
8.1
8.9
10.3
10.9
11.0
12.6
LA/LB
14.0
Qingdao
14.5
Dubai
Hamburg
Hamburg
Rotterdam
Ningbo
7.6
8.8
9.9
10.8
10.5
Qingdao
12.0
Qingdao
13.0
LA/LB
14.
Los Angeles
8.5
Qingdao
9.5
Qingdao
10.3
Qingdao
10.3
Dubai
11.6
Rotterdam
Dubai
11.9
13.3
18 Los Angeles
10
7.5
Remark on Throughput
The worldwide containerized trade*:
126 M TEU (2009)
Worldwide container throughput:
450M TEU (2009)**
Transit: In and out
Transshipment, Empty container, Barge ….
•
•
19
*: Source : Ding, D. and C.-P. Teo, 2009. World Container Port Throughput Follows Lognormal
Distribution,
**: Source: http://www.xpgco.com.cn/web/newsdetail.aspx?id=7761
Nonvessel-operating Common Carrier (NVOCC)
Serves primarily as wholesales of ocean
vessel capacity
Booking large blocks of container space
Selling these out in small quantities to
shippers.
20
Direct Customer vs. Freight Forwarder
Freight Forwarder:
Nonvessel-operating common carrier (NVOCC)
Shipper Type
Asia /Europe trade: 70% Freight Forwarder
(DHL, Kuehne + Nagel and Schenker are strongest
in Asia/Europe sale)
Transpacific: 70% Direct Customer
21
*: source: http://en.wikipedia.org/wiki/Shipbuilding#cite_note-11
Top Three Ship Builders
Hyundai Heavy Industries,
Samsung Heavy Industries,
Daewoo Shipbuilding & Marine Engineering,
all in Korea.
World shipbuilding production by countries (2013)
China: 45%
Korea: 29%
Japan: 18%
22
*: source: http://en.wikipedia.org/wiki/Shipbuilding#cite_note-11
Container Manufacturers
China is the world leading container manufacturer.
The biggest container manufacturer is
China International Marine Containers Ltd. (CIMC) .
23
*: source: http://en.wikipedia.org/wiki/Shipbuilding#cite_note-11
• Current Status and Trends of Ocean
Container Transport
• Challenges and Opportunities:
Research Issues
24
Theme-Based Research Project:
Transforming Hong Kong’s Ocean Container Transport
Logistics Network
Project Coordinator: Chung-Yee Lee (HKUST)
Co-PIs:
Albert Ha, Jeff Hong, Qian Liu, Ho-Yin Mak, Xiangtong Qi,
Hongtao Zhang, Jiheng Zhang, Rachel Zhang (IELM & ISOM at HKUST),
James Wang (Geography at HKU)
Houmin Yan (School of Business at City U)
Collaborators:
Jan Fransoo (Eindhoven U of Tech, Netherlands)
Kap Hwan Kim (Pusan Univ. Korea)
Zhou Xu (HK Poly-U)
… NUS, UK,………….
Project Management
Regular seminar every two months
Management team meeting semi-annually
Project Coordinator
(Chung-Yee Lee)
Tactical Planning
Area Coordinator:
(Chung-Yee Lee)
Strategic Planning
Area Coordinator:
(Albert Ha)
Strategic Future
Direction
Area Coordinator:
(James Wang)
Industry
Advisory Board
Integrated Decision
Support System
Area Coordinator:
(Houmin Yan)
2
Research Issues
• Container port productivity improvement
• Empty container
• Pricing
• Slow streaming
• Competition between ports, carriers and container
terminals
• Safety and disruption management
27
Container Port Productivity Improvement
Motivation:
Port congestion contributed to 65.5% of the schedule
unreliability. (Notteboom 2006)
“Bigger ships and tighter supply chains shine a new
light on port productivity and its importance to
shippers”. (JOC July 22, 2013)
Terminal Operation System
Steenken et al. 2004
29
Terminal Operation Systems
•
•
•
•
•
•
•
30
Berth allocation
Quay crane operation
Shuttle carrier operation
Seaside operation
Reshuffle and housekeeping
Landside operation
External trucks operation
Key Performance Index (KPI)
Throughput:
Quay Crane Productivity:
31
Quay side operation and multi-lift QC
32
www.zpmc.com
Research Progress
Yard Operations:
Yu and Qi, (2012);Akyuz and Lee (2013)
Berth Allocation:
Xu and Lee (2013)
(New lower bound: 10 times better )
(Heuristic: 20-40% better)
(Exact: 25% larger problem with only 25% time)
Quay Crane Double-Cycling With Hatch Covers:
Lee, Liu and Chu (2013)
(The first optimal algorithm in polynomial time)
33
Research Issues
• Container port productivity improvement
• Empty container repositioning
34
Major Causes of Empty Container Imbalance
• Trade imbalances
• Repositioning costs vs. container
manufacturing and leasing costs
• Usage preferences
(i. Companies use containers to promote name-brand,
ii. Lack of shared information on container positions and
numbers.)
An extremely challenging issue, and a very
important and emerging research topic for the
supply chain community
35
Our Works
Many papers have been published in this area.
Zhou and Lee (2009)
Chen, Chang and Lee (2013)
Tsang and Mak (2013)
Xie and Yan (2013)
* Gao, Lee and Mak (2013)
Chen, Chang and Lee (2014)
……..
The empty container management is an extremely
challenging issue, and a very important and
emerging research topic for the supply chain
36
community.
Trade lane
• In the prevalent
organization of a shipping
line:
– trade lanes
independently manage
business between
market sectors
– headquarters control
high-level repositioning
• Order acceptance
affects empty container
repositioning
Asia
Europe
N.
America
Research Issues
• Container port productivity improvement
• Empty container repositioning
• Pricing
38
Pricing Issues
Shipping line industry lost $15B in 2009,
earned 14B in 2010.
Spot rates from Hong Kong to Los Angeles
• $871 per FEU (July: Lowest in 2009)
• $2,838 per FEU (August 2010)
(225.7% increase): high volatility
•
39
Drewry Shipper Consultants’ Container Rate Benchmark,March 31, 2011
Pricing Issue
NVOCC vs. BCO
Nonvessel-operating common carrier (NVOCC)
Beneficial container owner (BCO):Direct customer
Spot price vs. Fixed price
40
Contract Systems
Long term contract
(BCO)
3PL
(NVOCC)
Carrier
Spot
market
Long term contract
(BCO)
Shipper
Spot
market
Long term contract
(BCO)
Spot
market
Pricing Issues
Freight forwarders may not make binding
commitments to a contract price when the spot
market price is lower
42
Research Question:
Knowing that freight forwarders may not credibly
commit to freight services they may have
contracted for, how should a carrier set
negotiated prices and allocate capacity when
designing service contracts with different types
of shippers?
Contract Theory, Pricing policy…..
43
Research Progress
(Revenue Management)
An, Lee and Tang (2013)
(Fractional Price Matching Policies)
Lee, Liu and Zheng (2013)
(Dynamic Contract Design)
….
44
Research Issues
• Container port productivity improvement
• Empty container repositioning
• Pricing
• Slow streaming
45
Slow Steaming Issues
2009:
Reduce the capacity by idling vessels
Decrease the vessel speed (Slow Steaming):
to absorb capacity and cut costs.
46
Idle aircraft parked in the desert at Victorville
47
SOURCE: Airliners.net
Idling Vessels Outside Singapore
48
SOURCE: “Ghost Fleet of Recession”, Daily Mail, Sept13, 2009
Slow Steaming
1 Knot = 1.852 km/h =1.151 mph
23-25
20-22
17-19
14-16
49
Full Speed Steaming
Slow Steaming
Extra Slow Steaming
Super Slow Steaming
Fuel consumption cost per container per nautical mile, indexed
(18 knots and 5,000 TEU vessel =100), (Fransoo and Lee 2009)
50
Slow Steaming:
Slow Steaming:
• Introduced during the recession to absorb
capacity and cut costs.
• Slow steaming still prevalent because it
i) reduces fuel costs,
ii) reduces the carriers' carbon footprint, and
iii) improves scheduled reliability??
51
Impact
Concern:
(Slow Steaming: Challenges of Supply Chain
Sustainability; Globalization or localization?)
52
Literature
• Qi and Song (2012)
• Lee, Lee and Zhang (2012)
……..
53
OOCL Optimal Schedule
Planning
Data, Computing and Service
Research Issues
• Container port productivity improvement
• Empty container
• Slow steaming issues
• Pricing
• The coordination of container shipments across
the container supply chain
56
Coordination Issues
operation:
contract:
FF (W/H)
FF(W/H)
Inland delivery
Inland delivery
Vessel
57
Container
terminal A
Container
terminal B
Research Question:
To coordinate a container supply chain, it is
necessary to consider contracting at multiple
levels that involve several agents.
How to coordinate inland delivery and terminal
operator?
Should the LSP or the ocean carrier takes the
lead in coordinating the supply chain?
What is the value of information sharing?
58
Our Works
Yu, Kim and Lee (2013)
(Free Time Limit vs. Free Space Limit)
Xiao and Ha (2013)
(Unloading and Storage Pricing Strategies)
Zhang and Lee (2013) :
(The Value of Information Sharing)
Lu, Fransoo and Lee (2013)
(Carrier Portfolio Management: Shipper’s Viewpoint)
Wang, Meng and Lee(2013)
(Liner Container Assignment Model: Carrier’s Viewpoint)
59
Research Issues
• Container port efficiency improvement
• Empty container
• Slow Steaming
• Pricing
• The coordination of container shipments across
the container supply chain
• Competition between ports, carriers and
60
container terminals
Port Competition:
Who selects the port/terminal?
HK: origin-destination flow  transshipment flow
Time
Service
Quality
Cost
…
61
World Bank Global Logistics Performance
Ranking (2012)
1.Customs
2.Infrastructure
3.International Shipment
Singapore:
1
Hong Kong:
2
Finland :
3
Germany :
4
Netherland:
5
Taiwan:
19
China:
26
4.Logistics Quality and Competence
5.Tracking and Tracing
6.Timeliness
…
http://siteresources.worldbank.org/TRADE/Resources/2390701336654966193/LPI_2012_final.pdf
62
Country
World Bank Global Logistics
Performance Ranking(2010)
Rank
Score
France
17
3.84
Portugal
34
3.34
Germany
1
4.11
Australia
18
3.84
Thailand
35
3.29
Singapore
2
4.09
Austria
19
3.76
Kuwait
36
3.28
Sweden
3
4.08
Taiwan
20
3.71
Latvia
37
3.25
Netherlands
4
4.07
New Zealand
21
3.65
Slovak Republic
38
3.24
Luxembourg
5
3.98
Italy
22
3.64
Turkey
39
3.22
Switzerland
6
3.97
Korea
23
3.64
Saudi Arabia
40
3.22
Japan
7
3.97
United Arab
24
3.63
Brazil
41
3.20
United Kingdom
8
3.95
Spain
25
3.63
Iceland
42
3.20
Belgium
9
3.94
Czech Republic
26
3.51
Estonia
43
3.16
Norway
10
3.93
China
27
3.49
Philippines
44
3.14
Ireland
11
3.89
South Africa
28
3.46
Lithuania
45
3.13
Finland
12
3.89
Malaysia
29
3.44
Cyprus
46
3.13
Hong Kong
13
3.88
Poland
30
3.44
India
47
3.12
Canada
14
3.87
Israel
31
3.41
Argentina
48
3.10
United States
15
3.86
Bahrain
32
3.37
Chile
49
3.00
Denmark
16
3.85
Lebanon
33
3.34
Mexico
50
3.05
Source : www.worldbank.org/lpi
63
World Bank Global Logistics
Performance Ranking(2007)
Country
Rank
Score
Australia
17
3.79
Turkey
34
3.15
Singapore
1
4.19
France
18
3.76
Hungary
35
3.15
Netherlands
2
4.18
New Zealand
19
3.75
Bahrain
36
3.15
Germany
3
4.10
United Arab
Emirates
20
3.73
Slovenia
37
3.14
Sweden
4
4.08
Taiwan, China
21
3.64
Crech Republic
38
3.13
Austria
5
4.06
Italy
22
3.58
India
39
3.07
Japan
6
4.02
Luxembourg
23
3.54
Poland
40
3.04
Switzerland
7
4.02
South Africa
24
3.53
South Arabia
41
3.02
Hong Kong,
China
8
4.00
Korea, Rep.
25
3.52
Latvia
42
3.02
United
Kingdom
9
3.99
Spain
26
3.52
Indonesia
43
3.01
Canada
10
3.92
Malaysia
27
3.48
Kuwait
44
2.99
Ireland
11
3.91
Portugal
28
3.38
Argentina
45
2.98
Belgium
12
3.89
Greece
29
3.36
Qatar
46
2.98
Denmark
13
3.86
China
30
3.32
Estonia
47
2.96
United States
14
3.84
Thailand
31
3.31
Oman
48
2.92
Finland
15
3.82
Chile
32
3.25
Cyprus
49
64
2.92
Norway
16
3.81
Israel
33
3.21
Source : www.worldbank.org/lpi
Slovakia Republic
50
2.92
Port Competition:
Lee and Wang (2006)
Li and Zhang (2013)
Yu, Lee and Wang (2013)
Shan, Yu and Lee (2013)
65
Research Issues
•
•
•
•
Container port productivity improvement
Empty container
Pricing and capacity
The coordination of container shipments across
the container supply chain
• Competition between ports, carriers and
container terminals
• Safety and disruption management
66
Piracy
Where does it take place ?
Policy:
Hire security guard from India
Changing its route and speeding up
(Wang and Qi)
69
Policy
 “Britney Spears songs used to scare off
pirates in Somalia” (METRO: 27 Oct 2013)
Invoice?
70
Disruption Management
Disruptions:
weather,
terminal congestion, … etc.
Strategies:
speed up, change route, skip a port,…etc.
Li, Qi and Lee(2013)
LI, Qi and Song (2014)
Research Issues
•
•
•
•
Container port productivity improvement
Empty container
Pricing and capacity
The coordination of container shipments across
the container supply chain
• Competition between ports, carriers and
container terminals
• Safety and disruption management
• Hinterland transport (Europe: Demurrage and
Detention)
72
Challenges and Opportunities
Logistics Industry:
(Land, Labor, Competition, overcapacity… etc.)
Academic Research:
(Domain Knowledge, Cross-disciplinary Areas,
Industry Application/Government Policy…etc.)
Book: (Lee and Meng): Springer 2015
Ocean Container Transport Logistics:
Making Global Supply Chain Effective
73
Acknowledgement:
RGC, OOCL, HIT, PHILIPS, HK Shippers’
Council, APL, DHL, IDS, China Merchants
Group,…
Thank You !!!
74