Globalisation and consolidation of containerport operations: assessment of channel structure using s

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Globalisation and consolidation of container-port
operations assessment of channel structure using
structural equation modelling.
Khalid Bichou Mike G.H Bell Melbourne, July
2006
P O R T e C
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Globalisation and consolidation of container-port
operations Plan

• Consolidation and integration strategies in
  shipping and ports
• Global players in the port industry a taxonomy
• Channel structures and relationships
• A study of the impacts of port consolidation on
  channel structures Research questions
• Methodology Introduction to SEM
• Empirical analysis and Results
• Conclusion and further discussion

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Channel structures and integration strategies in
global shipping and port operations
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Global players in the port industry Definition
and taxonomy
Global port operators (GPOs) can be defined as
those actors that extend their activities to
international port operations with a view of
establishing global spanning network services.
Four current types of market players can be
listed under the GPOs umbrella

• Terminal operating shippers (TOS)
• Terminal operating shipping lines (TOSL)
• Terminal operating port authorities (TOPA)
• Terminal operating companies (TOC)

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Global players in the port industry TOS
Terminal operating shippers (TOS)
Shippers involved directly, or through
subsidiaries, in the management of terminals
mainly for non-containerised cargo operations
such as for handling oil and car shipments.
Global firms such as Shell, Cargill and Hyundai
own their own fleet of vessels (industrial
shipping) or operate them through long-term lease
(bareboat chartering), and so is the case for
dedicated terminals, warehousing and retail
outlets.
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Global players in the port industry TOSL

• Terminal operating shipping lines (TOSL)
• Ocean carriers operating a range of port
  facilities (predominantly container terminals)
  either through single or joint long-term lease
  and concession agreements.
• Depending on the nature of the agreement,
  terminals are operated either on a dedicated or
  common-user basis although variations to these
  arrangements exist, for instance when a dedicated
  terminal provides services to other members of
  the shipping alliance the terminal operating
  carrier belongs to.
• The management of such terminals is usually
  separated from that of the shipping line (COSCO
  Terminals) and is sometimes undertaken by
  established subsidiaries, e.g. APM Terminals, PO
  Ports (now part of DPW), and APL Eagle Marines.

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Global players in the port industry TOPA
Terminal operating port authorities (TOPA)
Service operating port authorities such as
Singapore and Dubai ports expanding their
activities, usually through new organisational
entities (PSI and DPW respectively) to ports and
terminals beyond their initial spatial bases.
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Global players in the port industry TOC
Terminal operating companies (TOC)
Firms, other than shippers, ocean carriers or
port authorities, whose origins are in logistics
operations, property development or any other
related business venture but have expanded their
activities into international port operations and
management. Firms such as HPH, Eurogate,
SSA Marine, ICTSI, ABP and the former CSXWT (part
of DPW) belong to this category.
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Global players in the port industry The big 10
container terminal operators

• HPH (Hong Kong)
• PSA (Singapore)
• APMT (The Netherlands/ Demark)
• DPW (Dubai)
• Eurogate (Germany)
• Cosco (China)
• Hanjin (South Korea)
• SSA (USA)
• Evergeen (Taiwan, PRC)
• APL (USA/ Singapore- NOL)

Between them, they Control over 56 of world
container throughput in TEUs (2005 figures)
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Global players in the port industry Sample
locations of the big 5 (Jan 2006)
DPW including PO Ports
HPH
APMT
PSA
Eurogate
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Channel relationships Introduction to channel
management

• A channel is loosely as a set of
  organisations that have banded together for
  trade, distribution and/or marketing purposes.
• In logistics management, channels are often
  reduced to the physical routes taken by goods as
  they move from producers to customers.
• In marketing, a channel is defined as the
  network of organisational contacts a firm
  operates to achieve its distribution objectives.
  
• Two distinctive features of the marketing
  channel approach are worth underlining (a) its
  focus on channel control and (b) the appreciation
  of conflict between organisations.
• Such features differentiate the marketing
  channel approach from the supply chain approach,
  the latter requiring co-operative relationships
  and integration of organisational supply.
• Both approaches deal however with channel
  relationships between independent entities and
  must not be confused with strategies of vertical
  or horizontal integration, which are a common
  practice in international shipping and logistics.

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Channel relationships- Channel conflict
Channel conflict occurs when one member of the
channel interferes with another members
objective with the purpose of bringing harm or
achieving gains at the latters expense.
Sources of channel conflict include

• Goal incompabilities, e.g. ports seeking higher
  profit from longer ships stay in port versus
  shipping lines in quest of the shortest time in
  port.

• Resource scarcities, e.g. when dedicated
  terminals are allocated to a single shipping
  line, hence pushing other carriers to operate via
  ports elsewhere. Similar footloose mobility
  occurs opposite situations such as when lines
  desert a port because they could not have
  dedicated berths there.

• Role incongruities, e.g. a transhipment port may
  consider regular customers (carriers, freight
  forwarders, shippers, etc.) as partners while
  they may view the role of the port as being
  similar to that of any other stopover point.

• Perceptual differences, e.g. when a port
  displays generous pricing promotional tools in an
  attempt to attract more lines but fails to
  appreciate that such discounts are seen by
  shipping lines as a small fraction of the total
  cost incurred by them, including for the
  time-in-port cost.

• Expectational differences, e.g. when a port sets
  specific operational arrangements and targets
  (number of cranes per vessel, average crane move
  per hour, minimum reporting-time-to-gate,
  holidays and working time pattern, etc.) that are
  not approved of by ocean carriers.

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Channel relationships- Channel power
Channel power is closely associated with conflict
since it can be either the cause of or the
solution to it, and sometimes both. Channel power
is defined as the ability of one party to impact,
control or change market behaviour and objectives
of another party.
Examples of channel power frequently performed in
shipping and ports include

• Coercive and reward powers denote opposite
  ability of channel behaviour towards other
  members, respectively by punishing or rewarding
  them. Channel members that have extensive
  coercive and reward power are global shippers,
  but for long they have instead chosen to focus on
  their core businesses and outsource key transport
  and logistics operations to global shipping and
  logistics providers.

• Expert power stems from the degree of expertise
  and specialisation held by a channel member, e.g.
  NVOCCs.

• Legitimacy is another source of power usually
  held by Governments, for instance the decision of
  the U.S legislative authorities to block DPW from
  operating U.S ports as a result of its takeover
  of PO Ports.

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A study of the impacts of port consolidation on
channel structures Research questions

• We want to analyse and test relationships between
  channel factors (conflict, power), consolidation
  practices and the risk of footloose relocations
  (mobility) in the global container-port business
• However conflict, control, power, etc. are
  abstract concepts (constructs).
• Neither these factors nor the links between them
  are directly measurable!

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Methodology Structural Equation Modelling (SEM)

• The field of channel management (e.g. logistics,
  marketing and SCM) involves many abstract
  concepts such as integration, collaboration,
  co-ordination, conflict, competitive advantage
  and many others, which might be related among
  them.
• Since these concepts are not directly observable
  or measurable, it is necessary to have a set of
  measures (or indicators) to account for them
• SEM is a statistical technique that combines the
  structural model (regression analysis) and the
  measurement model (confirmatory factor analysis)
  into a simultaneous statistical test (Byrne,
  2001)
• SEM requires researchers to consider an
  underlying model that links construct structural
  parameters (latent variables) with observed data
  items (measurable variables) to test hypotheses
  about those parameters.
• The fact that SEM can analyse structural and
  measurement models simultaneously makes it
  especially valuable to researchers in logistics
  and SCM.
• There are many choices of statistical software
  that make SEM easy to specify and estimate

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SEM process
Model
Theory/ Expert judgement
Model
1
1
Theory
Specification
Specification
Sample and
Sample and
2
2
Measures
Measures
3
3
Estimation
Estimation
Model
Assessment
Model
Assessment
4
4
Modification
of
Fit
Modification
of
Fit
Interpretation
Interpretation
5
5
and discussion
and discussion
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SEM stage 1 Theory and model specification
Research hypotheses
Initial (measurement)model
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SEM stage 2 sample and measures

• In-house database of more than 2000 container and
  multipurpose terminals worldwide
• Container terminals operated partially or wholly
  by one or a combination of GPOs 50,000 TEUs
  were selected to make up a sample (428 terminals)
• First half of 2005, questionnaires sent to
  Marketing Operations managers (N 856)
• 108 ( 24) respondents returned the questionnaire
  (15 response rate)
• Analysis of non-response bias

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SEM stages 3/4 Estimation and assessment of fit
Measurement scales Likert scale 1 to 7
Testing maximum likelihood and normal theory
Validity (CFA)
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SEM stage 5 structural model, results and
interpretation

• Significant covariance relationship between power
  and conflict
• Minor direct effect of power on consolidation
  strategies!
• Power has no influence on mobility, although an
  indirect low effect exists!
• Low negative impact of the level of consolidation
  on mobility (footloose) decisions!

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Discussion and further research

• SEM is a powerful statistical technique, but it
  has to be used to test theoretical models, not to
  build them !!!
• The emergence of TOSL does not necessarily
  underline a commitment in port operations from
  the part of shipping lines !
• Footloose arrangements may be explained by other
  factors than just the level of consolidation

• Expand the analysis to include channel
  relationships between individual GPOs categories,
  e.g. TOSL vs. TOPA
• Possibilities to combine SEM with other modelling
  techniques, e.g. game theory, multi-inventory
  modelling systems