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The Supply Chain and Its Impact on the MTS_1_

VIEWS: 10 PAGES: 97

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

MTSNAC Education Team


Mission Statement
• To study issues relevant to the nation’s 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.

2

Proposed Web Site
http://www.mtsnac.org
MTS Overview Link to Movie Introduction to Logistics and the Global Supply Chain Containerization and Liner Shipping Case Study of Dynamic Change Bulk and Tramp Shipping Domestic Waterways Ship Yards

MTS Challenges
3

Marine Transportation System (MTS) Overview
Section #1 Last Revised: 1 August 2006

Marine Transportation System


MTS has great value
• Economic benefit
 

Creates over 13 million jobs Revenue impact exceeding $1 trillion Supports rapid military mobilization Enhances ability to sustain our military forces Boating, fishing, riverboat gaming and sightseeing, passenger cruise vessels

• National defense
 

• Recreational opportunities


• Efficient environmentally benign transportation


Ferry boat commuting, coastal and inland domestic alternatives to highway and rail freight movement.
5

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
6

Introduction to Logistics and the Supply Chain
Section #2 Last Revised: 1 August 2006

Topics for Discussion



 

Introduction International trade Supply chain components Transportation industry participants

8

Introduction


Definitions
• Transportation


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

• Logistics


9

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, valueadded processes across organizational boundaries to fulfill customer needs

10

Introduction


The supply chain
• Delivers customer and economic value through integrated management
  

Information Inventory Location Production

Cost saving Speed to market Customization

• Includes vendors, customers, carriers, and intermediaries

Transportation
11

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

12

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)
13

Introduction


Economic impact to the US economy in 2005
• Total logistics = $1.2 trillion (9.5% of total GDP)
$46 $393

$ Billion
Transportation Inventory Administration

$744

Source: CSCMP

14

Introduction
Logistics as % of US GDP
14%

Capacity Downsizing
12%

Capacity Rightsizing

Capacity Constraints

10%

8%

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

20 00

20 02

Source: CSCMP

20 04
15

Introduction
Logistics as % of US GDP Change from Previous Year
10% 5% 0%

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

20 00

20 02

-5% -10%

Source: CSCMP

20 04
16

Introduction
Transportation as % of Inventory
200% 175% 150% 125% 100%

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

20 00

20 02

Source: CSCMP

20 04
17

Deregulation


Regulation
• Cost driven pricing

  



Deregulation
• Price driven costing

  

Customer choice Cost plus mentality No expense control Timing issue on rates
Social contract National emergency Barrier to entry Monopoly licenses

Carrier choice Market price Expense control Timing as decided
Business decision Daily operation No entry barriers No assigned rights

• Excess capacity
   

• Necessary capacity
   

Infrastructure bargain changed. Once-in-an-eternity free ride is over.

18

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
19

International Trade


International Trade
• The history of international trade, transportation and economic growth are inextricably linked
40 AD Monsoon cycle discovered

1492 Columbus

1602 Dutch East India Company

1290 Marco Polo

1498 Vasco deGama

1944 Bretton Woods
20

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 Manufacturing areas Agricultural areas A function of natural resources, labor availability, and local infrastructure, Transportation service and cost
21

• Market development
  



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 Need to transport raw materials (in) and finished goods (out)
22

• Production and consumption no longer local


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
23

International Trade


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

24

International Trade


Globalization’s 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

25

International Trade
US Trade ($Million) $12,000 $10,000 $8,000 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

$6,000 $4,000 $2,000 $0
19 29 19 34 19 39 19 44 19 49 19 54 19 59 19 64 19 69 19 74 19 79 19 84 19 89 19 94 19 99 20 04

GDP

Global Trade

Source: Global Insight

Global Trade
26

GDP

International Trade
US Trade
300 30% 24% 18% 12% 6% 0%

Indexed GDP and Trade (1929 = 1.0)

240 180 120 60 0
19 29 19 34 19 39 19 44 19 49 19 54 19 59 19 64 19 69 19 74 19 79 19 84 19 89 19 94 19 99 20 04

Indexed GDP

Indexed Trade

Trade % of GDP

Source: Global Insight

Trade % of GDP
27

Supply Chain Components

Producers Distributors

Retailers

Customers

Transportation and Logistics Service Providers

28

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
29

Supply Chain Components


Service Providers
• Services to producers, distributors, retailers, or customers
  

Carriers Intermediaries Infomediaries Transportation, Freight forwarding and consolidation, Warehousing, Financial services, Market research, Advertising, Engineering, Legal, Information technology
30

• Expertise about particular activity


Supply Chain Components
Changing Nature of Inventory


Prior to 1980
• Stand-alone functions optimized separately • Vertical integration commonplace
Sales Manufacturing



Today
• Integrated process optimized globally • Frequent outsourcing and reengineering
Sales

Transportation

Manufacturing

Transportation

Inventory Inventory
31

Supply Chain Components
Changing Nature of Marketplace
Pre-1980
Physical Transportation Regulated market

1980-1995

1996-today
Supply Chain Management Global market

Evolution of Logistics Deregulated market

Cost-based pricing
Low cost of capital

Price-based costing

Financial reengineering

Awareness of high inventory Total cost of sales cost

Inventory carried to support EOQ and sales

JIT pushed carrying cost back to suppliers

Total inventory pipeline reduced

Inflation and Deregulation

Globalization and Reengineering

32

Transportation Industry


All transactions require
• Shipper—places the goods in transit • Consignee—designated 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)
33

Transportation Industry


Goods can move from origin to destination by many modes
• • • • • Water Highway Rail Pipeline Air



Decisions based upon cost, time, and reliability
34

Transportation Industry


Factors for routing decisions

Price

Time

Reliability
35

Transportation Industry


Marine transportation system providers
• Vessel operator provides ocean transportation




 

Liner service—fixed routes on fixed operating schedules and generally refers to container cargo Non-liner service (tramp service)—generally noncontainer cargoes and special project cargo Tanker service—oil, ores, grain, chemicals, LPG Barge lines are vessel operators on ocean and inland waterways

36

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 Supports cargo loading and discharging Performs cargo loading and discharging operations for a terminal or vessel operator
37

• Terminal Operator operates facilities


• Stevedore provides terminal labor


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 Transportation Intermediary

• Functional basis
 

38

Transportation Industry
Marine Transportation Intermediaries
3PL LLP 4PL Portal ASP

Types
CHB FF NVOCC
39

Agent IMC

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
40

Transportation Industry


Logistics providers
• 3PL: Third-Party Logistics Provider


Manages inbound or outbound supply chain with its own resources Aggregates and coordinates services of multiple 3PL and may be a 3PL itself

• LLP: Lead Logistics Provider


• 4PL: Fourth-Party Logistics Provider


Assembles strategy, capabilities and technology to design, build and run supply chains
41

Transportation Industry


Assistance and technology providers
• Steamship Agent


Duly authorized steamship line geographical representative attending to all matters on behalf of the line’s vessels
Independent broker licensed to act for importers in handling Customs formalities for importers Distributes software systems through the internet to customers from a central site

• Customs House Broker


• ASP (Application Service Provider)


• Portal


Web-site providing multiple services and connecting multiple parties
42

Transportation Industry
Functions of Intermediaries
Freight PaymentBrokerage Warehousing CRM Vendor Management Transportation Supply Chain Demand Management ERP

Software Security Reverse Logistics RFID

Fulfillment Inventory Load Planning Procurement

43

Containerization and Liner Shipping
Section #3 Last Revised: 1 August 2006

Topics for Discussion





Containerization Liner shipping Intermodal

45

Containerization


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

46

Containerization


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

47

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

48

Containerization


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

49

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

50

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)
51

Liner Shipping


Vessel sizes continue to grow larger
• Lines seek linehaul economies of scale • Transhipment provides economies of scope
6th (2005 -)

Vessel Generation

5th (2000 - 2005) 4th(1986 - 2000) 3rd (1980 - 1985) 2nd (1970 - 1980) 1st (1960 - 1970)

0

2,500

5,000

7,500 10,000
52

Vessel Size TEUs

Intermodal


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

53

Intermodal


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

54

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)

55

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

56

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

57

Intermodal
Transit Days: Hong Kong to New York
60 50 40 30 20 10 0 1968 1973 1978 1983 1988 1993 1998 2003 Rail Ocean

1973: Containerization implemented 1978: Fewer port calls 1983: West coast intermodal/MLB

1988: Double-stack 1993: Rail service improvement 1998: Far East Express

58

Intermodal


Intermodal service components for imports
• Origin determined by vessel arrival and discharge • Destination published as through schedule

Vessel
Vessel Discharge

OB/L Port

Rail

OB/L CY

Truck

OB/L Door

Gate/Train Cutoff

Grounding Availability

Customer Delivery
59

Intermodal
Transportation Transactions for Intermodal Imports

Orig Port

Customer Shipment [Customer pays ocean carrier]

Dest

Ocean carrier Rail Intermodal Provides rail delivery Ramp Ramp [Ocean carrier or on-dock loading pays railroad]

Ocean carrier provides destination trucking (or consignee picks up)

60

Intermodal


Intermodal service components for exports
• Origin determined by inland cutoff • Destination determined by vessel sailing schedule
OB/L Door OB/L CY OB/L Port

Truck
Customer Pickup Gate Cutoff

Rail
Grounding Availability

Vessel
Vessel Cutoff
61

Intermodal
Transportation Transactions for Intermodal Exports

Orig

Customer Shipment [Customer pays ocean carrier] Port

Dest

Ocean carrier Provides origin trucking or customer delivers

Rail Intermodal Ramp Ramp [Ocean carrier pays railroad]

Ocean carrier Provides port delivery or on-dock unloading

62

Intermodal
800 door-to-door miles

A
Intermodal Pickup

B

1
C

700 ramp-to-ramp miles 600 door-to-door miles

2
D

Intermodal Delivery

A to B
Truck cost Rail Linehaul Cost $1,200 $420

C to D
$900

Rail Terminal Cost
Drayage Cost Intermodal Cost

2 @ $75 = $150
$400 $970 $400 $970
63

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

64

Volume (000,000)
12 0 3 6 9

Intermodal

Intermodal Growth

Total % Container 45%
65

19 57 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 20 05

% Container

65%

85%

Import Cargo - Origin

Overseas Factory

Land transport

Origin Port

Ocean Carrier
Customs Broker U.S. Customs Service

•Importer/shipper •Freight forwarder •Consolidators •NVOCCs

66

Import Cargo - Destination

U.S. Port

Land Transportation Truck/rail

Warehouse Factory

Land Transportation Truck

Store

Port Authorities Terminal Operators Longshore Labor

3rd Party Logistics Providers De-consolidators

67

Containerization and Liner Shipping
A Case Study of Dynamic Change
Section #3A Last Revised: 1 August 2006

Business Decisions That Impact the Supply Chain


Location of
• • • • Manufacturing facilities Distribution hubs and centers Size of local markets Transportation options
  

Rail Highway Water



The low-cost producer
69

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.
70

Intact Shipment
Ordered 75-100 days out Transloaded 15-45 days out Intact transportation from overseas to distribution center

71

Transloaded Shipment
Loaded 25-40 days out Transloaded 1-5 days out Premium transportation to distribution center Ordered 75-100 days out

72

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 >20% available from using inventory deferral

73

Equipment Comparison
Usable Cubic Feet
4,000 3,500 3,000 2,500 2,000 1,500 1,000 Container Trailer 20-foot 40-foot 40-foot HC 45-foot 48-foot 53-foot

Factors: Weight Width Height Door Corner castings

74

Intermodal 53-foot Equipment as a % of Domestic Intermodal
65%

55% Total 45% Southern California Only

35%

25%
2000 2001 2002 2003 2004 2005

Source: IANA

75

Why Southern California?


Key ingredients
• • • • • Local population base Inbound domestic equipment supply Railroad network capacity Railroad terminal capacity Traditional railroad price leader

76

Large Scale Importers
Actual Manufacturer 1985 Manufacturing Site Load Port Ocean Freight Paid By Manufacturer Delivery Retailer Possession South China Hong Kong Manufacturer Footwear Company 1995 South China Hong Kong Footwear Company Big Box Retailer 2005 South China South China Big Box Retailer South China South China
77

US Discharge port Hong Kong (or MLB) US Distribution center US Distribution center

Solutions can increase Challenges


Alameda Corridor as example
• Designed for intact intermodal movement—didn’t 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
78

Bulk and Tramp Shipping
Section #4 Last Revised: Never

Domestic Waterways
Section #5 Last Revised: Never

Ship Yards
Section #6 Last Revised: Never

Marine Transportation System Challenges
Section #7 Last Revised: 1 August 2006

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
83

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
84

How MTS Challenges Impact 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
85

Challenges


Traditional timeline has changed
• Change is more dynamic—less reaction time • Physical life of infrastructure often exceeds useful economic life • Removing one bottleneck may result in another that didn’t previously show

86

Infrastructure Example
Import Goods Flow

2005 1995 1985
HK Consolidation Intact Intermodal

Transloading
Alameda Corridor less valuable

China ports
Hong Kong infrastructure obviated

Marine Container Transloading
87

Challenges




Traffic balance is continuing to skew Range and locus of volume
• growth is unprecedented

88

Container TEU Volume Historical View
45

TEUs (000,000)

30

15

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 East Coast Gulf Coast West Coast
89

Southern California
28

While overall volume continues to grow, West coast share has remained fairly constant – but LA/LB share has grown
75%

TEUs (000,000)

21

14 55% 7

0
1997 1998 1999 2000 2001 2002 2003 2004 2005

45% Imports Exports % West Coast % LA/LB
90

Traffic %

65%

2005 Container Volume The Traditional View
10 8 6 4 2 0
Y/ NJ LA /L B ha rle st on Se a/ Ta c N O

TEUs (000,000)

9.2

3.5

2.5

1.5

1.4
ak la nd Sa va nn

1.5
ah

1.4
ia m

1.4
i ou s H

1.3
to n

Vi rg in ia

C

M

91

2005 Container Volume A Reality Check View
12
Largest volume “port” is inland

TEUs (000,000)

8
Annually required new port capacity [10% Growth on 26.2 million TEUs]

4

0
Y/ NJ LA /L B Se a/ Ta c C ha rle st on O ak la nd Sa va nn ah Vi rg in ia hi ca go ee d ia m M C N ou s H N to n
92

ed

i

Trade Flows Are Changing (More Imbalance)
US West Coast Empties as % of All Outbound

Empties/(Empties+Exports)

70% 60% 50% 40% 30%
2000 2001 2002 2003 2004 2005

20' 40' 45'

Source: PMA Web site

93

Trade Flows Are Changing (Less Intact Intermodal)
% Intact Intermodal from USWC

75%

65% 20' 40' 45'

55%

45%

35%
2000 2001 2002 2003 2004 2005
94

Source: PMA Web site(Discharge) and IANA (Intermodal)

Trade Flows Are Changing (Greater Empty Volumes)
8

TEU Imbalance (000,000)

7 6 5 4 3 2 1 0 (1) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 East Coast Gulf Coast West Coast Grand Total

Metrics compiled and computed by MTSNAC Intermodal Team on Continental US and Canada ports from AAPA-provided data

95

Trade Flows Are Changing (Lower Value)
$Value/Ton
$7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0

Demise of high-value exports

Low-cost manufacturing from China

$2,100 $1,800 $1,500 $1,200 $900 $600 $300 $0

1998

1999

2000 Imports

2001

2002

2003

Exports
96

Exports

Imports

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.
97


								
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