Service, cost, frequency key to a port’s success

Dr. John Taylor is Associate Professor of Supply Chain Management and Chairman of the Department of Marketing and Supply Chain Management at Wayne State University in Detroit. His areas of expertise include supply chain management, trade and transportation policy, and international logistics.  PortInfo magazine spoke to Dr. Taylor about the importance of port and carrier selection.

 

What are the principal factors that influence a shipper when choosing a container carrier and a port?

Dr. Taylor: At the end of the day it boils down to dimensions of service and, of course, total landed costs for the importer or exporter.

Beyond certain transportation costs, shippers and consignees are looking at issues such as the cost related to expediting, and the cost related to duties and taxes.

Frequency of service is a critical factor for a port. Companies want small, frequent and fast shipments of their exports and receipt of their imports. Waiting for a week or more for a 13,000-TEU (20-foot equivalent unit container) ship to show up can be an issue for higher-value products that are more time sensitive.  Importers want frequent shipments of small quantities because it leads to lower inventory levels. Inventory costs are a big part of the calculation of total landed costs.

In terms of port selection, one of the big issues for imports is local market size. An advantage for U.S. West Coast ports is that a significant percentage of goods from Asia can be trucked to local markets. For U.S. East Coast ports, a very significant portion of imported goods from Asia and even Europe can be shipped to local markets with a very short truck day. Montreal has that advantage in that there’s a significant Canadian market and U.S. market within truck range. Other ports don’t necessarily have that benefit. This is a very important factor in port selection for the consignee/importer and, therefore, for the ocean carriers in trying to serve their customers.

Clearly, having more than one railroad serving a port is a big advantage. Having only one railroad serving a port is a very significant problem in that long term there are risks in terms of costs and service.

Has the order of importance of these criteria changed over the years?

If we go back 10, 15 or 20 years, there tended to be more of a focus on just transportation costs. We didn’t really look at total landed costs and at inventory cost implications and service implications in choosing a port.

Increasingly today there is a more holistic view where we look at total landed costs. There is more of a view of the whole supply chain as a flowing chain and less of product going into inventory and into storage.

Service issues have become more important in terms of reliability of rail service, and the ability to quickly turn around vessels and get containers off the port and on their way to their destinations.

You want to have full visibility and the ability to do something when there is a problem. For high-value products that have a little bit more erratic demand, frequent service and the ability to get into a container early and rearrange the destination has become very important.

 

What do container ports need to do in order to continue to grow?

Ports need to have close relationships with their ocean carriers and they need to have frequency of service from those carriers. Nobody wants his or her container to have to wait for a vessel to show up. I continue to believe that having frequent schedules of smaller ships may be potentially more important than having a mega-ship call once every so often.

Ports also need to have frequent service from their key origin markets or to their key destination markets. In terms of one through move, if it can be one railroad providing the service from origin or to destination, all the better.

The ability to have quick turnarounds at a port is very important. The efficiency of the port in terms of getting containers off of ships and onto chassis or off of chassis and onto ships has to be first rate. 

Having available land – having space to grow – is a big issue. There needs to be governmental partnerships that allow ports to expand their footprint and plan for the future.

How will the Panama Canal expansion program impact ports?

There is a raging debate about whether the East Coast is going to gain market share or whether the West Coast will keep its market share of Asian traffic to the Midwest.

Some people believe that most of the shift that will happen already has happened because U.S. retailers began diversifying six and seven years ago and started using more East Coast services. I think most of the changes have happened in terms of traffic being diverted from the West Coast, at least as far as the Panama Canal goes.

I tend to believe that any changes, whether Suez growth or Panama Canal growth, are going to be very incremental and over many years and that we’re not going to see change overnight, certainly not as it relates to the Panama Canal.

West Coast ports are not going to give up their volume easily. The unions involved are not going to give up their volume easily. The railroads have a lot of pricing flexibility to adjust their prices as necessary to keep their market share.

A huge factor is going to be the degree to which volumes increase in Southeast Asian countries as they become a bigger supplier of goods. The long-term future there, I think, is in question, depending on how infrastructure is dealt with in India. Obviously, the Suez may become a little bit of a bigger factor.   

Clearly Montreal has picked up Southeast Asia traffic. It is also handling a much greater amount of Canadian volume than has traditionally been the case. There has been some shift towards Suez volume coming in and I think that’s more likely to develop than Panama Canal volume, but we’ll see. The jury is still out.