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The Marine Transportation System and the Supply Chain

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Title: The Marine Transportation System and the Supply Chain


1
The Marine Transportation System and the Supply
Chain
  • MTSNAC Education Team
  • Version 5.0
  • Last Revised 1 August 2006

2
MTSNAC Education Team
  • Mission Statement
  • To study issues relevant to the nations marine
    transportation system in an effort to prepare
    briefing materials for MTSNAC members to ensure
    an appropriate knowledge base for MTSNAC
    discussion, activities, and recommendations. In
    addition, it is also the mission of the Education
    Team, when authorized by the full MTSNAC, to
    prepare materials that support MTSNAC objectives,
    as well as inform the Department of
    Transportation and the general public.

3
Proposed Web Site
4
Marine Transportation System (MTS) Overview
  • Section 1
  • Last Revised 1 August 2006

5
Marine Transportation System
  • MTS has great value
  • Economic benefit
  • Creates over 13 million jobs
  • Revenue impact exceeding 1 trillion
  • National defense
  • Supports rapid military mobilization
  • Enhances ability to sustain our military forces
  • Recreational opportunities
  • Boating, fishing, riverboat gaming and
    sightseeing, passenger cruise vessels
  • Efficient environmentally benign transportation
  • Ferry boat commuting, coastal and inland domestic
    alternatives to highway and rail freight movement.

6
Marine Transportation System
  • Job impact
  • Coastal and inland ports generate over 13 million
    jobs.
  • More jobs and commerce are generated by
  • Commercial fishers
  • Ferry commuter and passenger activity
  • Ship, barge, tug, towboat, yacht, and sailboat
    building
  • Recreational boating, sightseeing and charter
    operations
  • Cruise ship operations and passengers
  • Coastal and inland waterway security
  • Businesses that supports these activities

7
Introduction to Logistics and the Supply Chain
  • Section 2
  • Last Revised 1 August 2006

8
Topics for Discussion
  • Introduction
  • International trade
  • Supply chain components
  • Transportation industry participants

9
Introduction
  • Definitions
  • Transportation
  • Transporting something from one location to
    another
  • Logistics
  • Procurement, transport, and storage of goods --
    particularly with material flow (raw materials,
    work in progress, finished products )

10
Introduction
  • Definitions
  • Supply chain management
  • Integrated management of the flow of physical
    goods, funds and associated information, from raw
    materials sourcing to delivery of finished
    products to consumers
  • Design and management of seamless, value-added
    processes across organizational boundaries to
    fulfill customer needs

11
Introduction
  • The supply chain
  • Delivers customer and economic value through
    integrated management
  • Cost saving
  • Speed to market
  • Customization
  • Includes vendors, customers, carriers, and
    intermediaries

12
Introduction
  • Key components of the supply chain
  • Production
  • What products what quantities when needed
  • Production schedules
  • Plant or facility capacity
  • Labor availability
  • Location
  • For production, for inventory
  • Cost efficiencies
  • Inventory
  • What products need to be on hand at each link in
    the supply chain
  • A buffer against uncertainty in the supply chain

13
Introduction
  • Key components of the supply chain
  • Information
  • Data collection
  • Real-time availability (i.e., GPS and RFID)
  • The ability to track goods and equipment in
    transit electronically
  • Visibility
  • Data sharing
  • Beyond EDI (i.e., portals)
  • One to one becomes many to many
  • Collaborative processing
  • Basis for decision making
  • Extensive software (i.e., ERP, SCM, TMS, WMS)

14
Introduction
  • Economic impact to the US economy in 2005
  • Total logistics 1.2 trillion (9.5 of total
    GDP)

Billion
Source CSCMP
15
Introduction
Capacity Downsizing
Capacity Rightsizing
Capacity Constraints
Source CSCMP
16
Introduction
Source CSCMP
17
Introduction
Source CSCMP
18
Deregulation
  • Regulation
  • Cost driven pricing
  • Customer choice
  • Cost plus mentality
  • No expense control
  • Timing issue on rates
  • Excess capacity
  • Social contract
  • National emergency
  • Barrier to entry
  • Monopoly licenses
  • Deregulation
  • Price driven costing
  • Carrier choice
  • Market price
  • Expense control
  • Timing as decided
  • Necessary capacity
  • Business decision
  • Daily operation
  • No entry barriers
  • No assigned rights

Infrastructure bargain changed. Once-in-an-eternit
y free ride is over.
19
International Trade
  • Trade the business of buying and selling for
    money or credit
  • The act or business of exchanging commodities by
    barter
  • People have always been willing to trade for
    goods they did not have or otherwise produce
  • Initial model local economies
  • Local sufficiency in both manufacturing and
    agricultural production

20
International Trade
  • International Trade
  • The history of international trade,
    transportation and economic growth are
    inextricably linked

1602 Dutch East India Company
1492 Columbus
40 AD Monsoon cycle discovered
1290 Marco Polo
1944 Bretton Woods
1498 Vasco deGama
21
International Trade
  • Revised model introduction of trade
  • Competitive balance
  • Advantage for locally produced goods
  • Premium cost for goods produced elsewhere and
    transported to the consuming market
  • Market development
  • Manufacturing areas
  • Agricultural areas
  • A function of natural resources, labor
    availability, and local infrastructure,
  • Transportation service and cost

22
International Trade
  • Paradigm shift 1 -- Industrial revolution
  • Increased trade and transportation
  • Wide-scale mechanization of production
  • Economies of scale resulted in less-expensive
    goods for consumers
  • More goods available -- the greater the market
  • Production and consumption no longer local
  • Need to transport raw materials (in) and finished
    goods (out)

23
International Trade
  • Paradigm shift 2 Globalization
  • Continued restructuring of corporate ownership
    and global economics
  • International innovation and technological
    progress
  • Global economic integration through trade and
    financial flows
  • Free movement flow of across international
    borders
  • People
  • Materials
  • Knowledge

24
International Trade
  • Globalization
  • Many intellectual foundations to this trend
  • Thoughts and actions for the past 300 years

25
International Trade
  • Globalizations new model
  • International supply chain
  • Extended scope of industrial revolution
  • Production location not related to consumption
    location
  • Manufacturing not dependent on local natural
    resources
  • Food availability not dependent on local
    production
  • Low costs for production and transportation
  • Economies of scope and scale
  • Reliable transportation service essential
  • World-class manufacturing evolves to make more
    goods available world-wide creating new markets

26
International Trade
Source Global Insight
27
International Trade
Source Global Insight
28
Supply Chain Components
Producers
Distributors
Retailers
Customers
Transportation and Logistics Service Providers
29
Supply Chain Components
  • Producers
  • Provide raw materials, components, finished
    products, and services
  • Distributors
  • Receive products from producers and distribute to
    retailers
  • Retailers
  • Sell directly to customers
  • Customers
  • End consumer -- or entity that uses the material
    in the production of another product

30
Supply Chain Components
  • Service Providers
  • Services to producers, distributors, retailers,
    or customers
  • Carriers
  • Intermediaries
  • Infomediaries
  • Expertise about particular activity
  • Transportation, Freight forwarding and
    consolidation, Warehousing, Financial services,
    Market research, Advertising, Engineering, Legal,
    Information technology

31
Supply Chain Components
Changing Nature of Inventory
  • Prior to 1980
  • Stand-alone functions optimized separately
  • Vertical integration commonplace
  • Today
  • Integrated process optimized globally
  • Frequent outsourcing and reengineering

32
Supply Chain Components
Changing Nature of Marketplace
Pre-1980
1980-1995
1996-today
Inflation and Deregulation
Globalization and Reengineering
33
Transportation Industry
  • All transactions require
  • Shipperplaces the goods in transit
  • Consigneedesignated to receive the goods
  • Either the shipper or the consignee may make
    cargo transportation arrangements with the
    carrier(s)
  • Carriers can be shippers too (e.g., steamship
    lines purchase rail and truck transportation)

34
Transportation Industry
  • Goods can move from origin to destination by many
    modes
  • Water
  • Highway
  • Rail
  • Pipeline
  • Air
  • Decisions based upon cost, time, and reliability

35
Transportation Industry
  • Factors for routing decisions

Price
Time
Reliability
36
Transportation Industry
  • Marine transportation system providers
  • Vessel operator provides ocean transportation
  • Liner servicefixed routes on fixed operating
    schedules and generally refers to container cargo
  • Non-liner service (tramp service)generally
    non-container cargoes and special project cargo
  • Tanker serviceoil, ores, grain, chemicals, LPG
  • Barge lines are vessel operators on ocean and
    inland waterways

37
Transportation Industry
  • Marine transportation system providers
  • Port Authority provides infrastructure
  • Public, quasi-public, or private entity provides
    berth and pier availability
  • May act as landlord for terminal operators or may
    actually operate facilities
  • Terminal Operator operates facilities
  • Supports cargo loading and discharging
  • Stevedore provides terminal labor
  • Performs cargo loading and discharging operations
    for a terminal or vessel operator

38
Transportation Industry
Other Marine Transportation Providers
  • Carriers that transport goods to or from ports
  • Railroads
  • Motor Carriers
  • Parcel companies
  • Air freight
  • Different basis of providers
  • Financial structure
  • Asset based
  • Non-asset based
  • Integrators
  • Functional basis
  • Transportation
  • Intermediary

39
Transportation Industry
Marine Transportation Intermediaries
40
Transportation Industry
  • Non-asset based carriers and intermediaries
  • Freight Forwarder
  • Acts as agent on behalf of the shipper
  • Frequently makes the cargo booking reservation
  • NVOCC
  • Non-Vessel Operating Common Carrier
  • A non-asset based ocean carrier that provides
    carriage by purchasing capacity from vessel
    operators
  • Intermodal Marketing Company
  • Provides door-to-door intermodal services by
    purchasing transportation from a variety of asset
    and non-asset carriers

41
Transportation Industry
  • Logistics providers
  • 3PL Third-Party Logistics Provider
  • Manages inbound or outbound supply chain with its
    own resources
  • LLP Lead Logistics Provider
  • Aggregates and coordinates services of multiple
    3PL and may be a 3PL itself
  • 4PL Fourth-Party Logistics Provider
  • Assembles strategy, capabilities and technology
    to design, build and run supply chains

42
Transportation Industry
  • Assistance and technology providers
  • Steamship Agent
  • Duly authorized steamship line geographical
    representative attending to all matters on behalf
    of the lines vessels
  • Customs House Broker
  • Independent broker licensed to act for importers
    in handling Customs formalities for importers
  • ASP (Application Service Provider)
  • Distributes software systems through the internet
    to customers from a central site
  • Portal
  • Web-site providing multiple services and
    connecting multiple parties

43
Transportation Industry
Functions of Intermediaries
44
Containerization andLiner Shipping
  • Section 3
  • Last Revised 1 August 2006

45
Topics for Discussion
  • Containerization
  • Liner shipping
  • Intermodal

46
Containerization
  • Cargo previously handled many times
  • Consolidation at port of loading
  • Deconsolidation at port of discharge
  • Inland transportation distinct
  • Port calls as necessary

47
Containerization
  • The Conex Box (1946-1955)
  • Institution of unitized loading
  • Implemented by US military
  • Intact movement from origin to destination

48
Containerization
  • Commercial container shipments
  • First vessel, Ideal X, was converted tanker
  • Newark NJ to Houston TX on April 26, 1956
  • 58 thirty-five foot containers on deck
  • Competition for rail merchandise

49
Containerization
  • Specialization
  • Matson Navigation introduced the first full
    container vessel, Hawaiian Citizen, in 1960
  • Developed specialized container terminals

50
Containerization
  • The impact
  • Revolutionized how goods were shipped
  • Dramatically reduced transportation costs,
    delivery times, and inventory shrinkage
  • Required new port configurations, equipment,
    labor rules, and business practices
  • Containerization along with the diesel and jet
    engines were the transformative transportation
    technologies of the 20th century

51
Liner Shipping
  • Transport method for non-bulk cargo
  • Fixed-day-of-the-week schedule
  • Cargo conversion to containers
  • Vessel sizes continue to grow larger
  • Major tradelanes
  • Asia North America (Trans-Pacific)
  • Asia Europe
  • Intra-Asia
  • Europe North America (Trans-Atlantic)

52
Liner Shipping
  • Vessel sizes continue to grow larger
  • Lines seek linehaul economies of scale
  • Transhipment provides economies of scope

53
Intermodal
  • Railroad progression similar to ocean
  • Cargo was initially consolidated and
    deconsolidated into boxcars for movement

54
Intermodal
  • Unitization of load followed
  • Railroads settled on trailer as early industry
    standard

55
Intermodal
  • Growth of liner intermodal
  • By early 1970s increased containers moved by rail
  • Land-bridge (Substitute for closed Suez Canal)
  • Mini-landbridge (Substitute for Panama Canal
    transit)
  • Micro-landbridge (Movement to inland point)

56
Intermodal
  • The perfect storm -- 1978 to 1984
  • Intermodal use by ocean carriers exploded
  • Regulatory actions made it easier
  • Railroad deregulation
  • Shipping Act of 1984
  • Market conditions made it essential
  • APL and SeaLand intermodal success
  • Failure of US Lines Round-the-world service

57
Intermodal
  • Development of double-stack cinched intermodal
    dominance for 20 years
  • Rail cost dropped precipitously
  • Service improved and damage ceased
  • Railroads aggressively marketed to lines
  • Other than coal, intermodal became the leading
    rail commodity

58
Intermodal
1973 Containerization implemented 1978 Fewer
port calls 1983 West coast intermodal/MLB
1988 Double-stack 1993 Rail service
improvement 1998 Far East Express
59
Intermodal
  • Intermodal service components for imports
  • Origin determined by vessel arrival and discharge
  • Destination published as through schedule

OB/L Port
OB/L CY
OB/L Door
Rail
Truck
Vessel
Vessel Discharge
Customer Delivery
Gate/Train Cutoff
Grounding Availability
60
Intermodal
Transportation Transactions for Intermodal Imports
Customer Shipment
Orig
Dest
Customer pays ocean carrier
Port
Ocean carrier Provides rail delivery or on-dock
loading
Ocean carrier provides destination trucking (or
consignee picks up)
Rail Intermodal
Ramp
Ramp
Ocean carrier pays railroad
61
Intermodal
  • Intermodal service components for exports
  • Origin determined by inland cutoff
  • Destination determined by vessel sailing schedule

OB/L CY
OB/L Door
OB/L Port
Rail
Vessel
Truck
Customer Pickup
Vessel Cutoff
Gate Cutoff
Grounding Availability
62
Intermodal
Transportation Transactions for Intermodal Exports
Customer Shipment
Orig
Dest
Customer pays ocean carrier
Port
Ocean carrier Provides origin trucking
or customer delivers
Ocean carrier Provides port delivery or on-dock
unloading
Rail Intermodal
Ramp
Ramp
Ocean carrier pays railroad
63
Intermodal
800 door-to-door miles
B
A
700 ramp-to-ramp miles
1
2
Intermodal Pickup
Intermodal Delivery
600 door-to-door miles
C
D
64
Intermodal
  • Intermodal service has become problematic
  • Railroads are out of excess capacity
  • Landside infrastructure challenged
  • Growth of southern California
  • The system is no longer robust enough to absorb
    disruption

65
Intermodal
66
Import Cargo - Origin
67
Import Cargo - Destination
68
Containerization andLiner ShippingA Case Study
of Dynamic Change
  • Section 3A
  • Last Revised 1 August 2006

69
Business Decisions ThatImpact the Supply Chain
  • Location of
  • Manufacturing facilities
  • Distribution hubs and centers
  • Size of local markets
  • Transportation options
  • Rail
  • Highway
  • Water
  • The low-cost producer

70
Distribution Hubs
  • Consolidation of retail and wholesale
    distribution hubs near fewer ports.
  • Cargo from multiple sources is transloaded into
    domestic (sometimes ISO international containers)
    for further shipment to regional distribution
    centers. No warehousing.
  • Value-add also performed (repacking, display,
    assembly)
  • Domestic 53-foot containers have 60-70 more
    space than ISO 40-foot containers and are of
    significantly less weight making them more
    efficient for over-the-road use.

71
Intact Shipment
Ordered 75-100 days out
Transloaded 15-45 days out
Intact transportation from overseas to
distribution center
72
Transloaded Shipment
Loaded 25-40 days out
Premium transportation to distribution center
Transloaded 1-5 days out
Ordered 75-100 days out
73
Distribution Hubs
  • Inventory deferral
  • Deployment delay (from Asia to US discharge)
    reduces time interval for distribution to sale
    from 23 days to 6 days
  • Sales forecast errors typically grow by the
    square root of lead time
  • Inventory reduction gt20 available from using
    inventory deferral

74
Equipment Comparison
Factors Weight Width Height Door Corner castings
75
Intermodal 53-foot Equipmentas a of Domestic
Intermodal
Source IANA
76
Why Southern California?
  • Key ingredients
  • Local population base
  • Inbound domestic equipment supply
  • Railroad network capacity
  • Railroad terminal capacity
  • Traditional railroad price leader

77
Large Scale Importers
Actual Manufacturer
Footwear Company
Big Box Retailer
78
Solutions can increase Challenges
  • Alameda Corridor as example
  • Designed for intact intermodal movementdidnt
    directly address access to nearby distribution
    hubs (1990 design vs. 2005 reality)
  • Removed bottleneck from port to railhead--but
    resulted in increased rail congestion at railhead
  • Design compromise led to more local truck
    traffic--both absolute and relative
  • Economic costs and benefits not assigned directly
  • Truck lanes removed from original plan

79
Bulk and TrampShipping
  • Section 4
  • Last Revised Never

80
DomesticWaterways
  • Section 5
  • Last Revised Never

81
Ship Yards
  • Section 6
  • Last Revised Never

82
Marine Transportation System Challenges
  • Section 7
  • Last Revised 1 August 2006

83
MTS Challenges
  • Growing demand for transportation
  • Rising cargo volumes
  • More trade
  • More trans-shipment
  • Shifting user requirements
  • Larger cargo vessels
  • Fewer port calls
  • Infrastructure not keeping pace with demand
  • Security
  • National defense needs

84
MTS Challenges
  • Decreased supply of capacity
  • Limited infrastructure
  • Port facilities
  • Berth space
  • Labor
  • Intermodal connectors
  • Landside conduits to remove cargo from port
  • Rail hubs
  • Highways
  • Investment restrictions

85
How MTS ChallengesImpact the Supply Chain
  • Goal of shippers and consignees is seamless
    intermodal transportation
  • Hurdles
  • National freight policy introduced in January
    2006 but not yet fully implemented
  • Contingency plans for alternative ports and
    routes incomplete or not contemplated
  • Example Panama Canal capacity
  • Deficiencies in business forecasting models
  • Need for enhanced technology and productivity
    throughout system

86
Challenges
  • Traditional timeline has changed
  • Change is more dynamicless reaction time
  • Physical life of infrastructure often exceeds
    useful economic life
  • Removing one bottleneck may result in another
    that didnt previously show

87
Infrastructure Example
Transloading
Alameda Corridor less valuable
China ports
Hong Kong infrastructure obviated
88
Challenges
  • Traffic balance is continuing to skew
  • Range and locus of volume
  • growth is unprecedented

89
Container TEU VolumeHistorical View
90
Southern California
While overall volume continues to grow, West
coast share has remained fairly constant but
LA/LB share has grown
91
2005 Container VolumeThe Traditional View
92
2005 Container Volume A Reality Check View
Largest volume port is inland
Annually required new port capacity 10 Growth
on 26.2 million TEUs
93
Trade Flows Are Changing(More Imbalance)
Source PMA Web site
94
Trade Flows Are Changing(Less Intact Intermodal)
Source PMA Web site(Discharge) and IANA
(Intermodal)
95
Trade Flows Are Changing(Greater Empty Volumes)
Metrics compiled and computed by MTSNAC
Intermodal Team on Continental US and Canada
ports from AAPA-provided data
96
Trade Flows Are Changing(Lower Value)
Demise of high-value exports
Low-cost manufacturing from China
97
Conclusion
  • Container volume is expected to more than double
    in the next twenty years and nearly all non-bulk
    cargo will be containerized.
  • We must plan now to ensure that we have the
    people, training, technology, transportation
    assets, and the infrastructure to provide
    efficient and reliable transportation services.
  • Solutions must be flexible to accommodate changes
    that will inevitable occur.
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