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Role of efficient port operations in the enhancement of maritime supply chains

  1. In what way is the efficient integration of shipping into intermodal supply chains important for its further employment in intra-regional trade? 
  2. What is the role of efficient port operations in the enhancement of maritime supply chains?

Introduction

Container shipping is the backbone of intercontinental trade in manufactured and semi-manufactured goods. The integration of shipping into intra-regional supply chains has been a challenge, although it has been widely stated as a transport policy aim during recent decades owing to the supreme sustainability performance of maritime transport compared to road and, in some respects, rail transport. Despite a wide range of initiatives taken by different stakeholders, the level of integration of intra-regional shipping transport chains has been quite slow, and the desired environmental results have not been achieved. The identification of crucial operational and managerial parameters to enable the development of maritime transport routes is quite important for shippers and supply chain managers.

The cooperation between a major forest company in Sweden and Finland and a shipping company is analyzed in this case study, providing a real-life example of successfully integrating shipping into supply chains and giving some insight into the factors that contribute to the effective operations of these maritime supply chains. The case will describe the unique intermodal logistics system developed by the forest company for the transport of its products using an innovative cargo unit, which can be transported by Roll-on/Roll-off (RoRo) ships and trains in countries with a generous rail loading gauge, such as Sweden. Apart from the SECU (Stora Enso Cargo Unit) innovation, the case illustrates the operations of these RoRo shipping services chartered by the company, whose demand has a great impact on service design, potentially affecting the frequency of departures and even stipulating the use of specific vessels.

The two companies cooperate in two ways. The first concerns ship management, that is, the operations management of vessels, while the second is related to selling the excess freight capacity available on board the vessels and in SECUs to third-party shippers. The case study will shed light on these different types of cooperation – operational and commercial – and highlight the benefits for both firms.

This real-life example of maritime supply chains may enable the supply chain actors to discover and understand the real-life phenomenon of successfully integrating shipping into intra-regional supply chains on mid-distance routes and recognize the potential benefits from developing these logistics systems.

The forest company

This is a world-leading Swedish-Finnish forest company that produces paper and packaging products, biomaterials and wooden construction materials and exports them all over the world. The Swedish component started as a copper mine in the 7th century, and a share certificate dated 1288 makes it the world’s oldest limited company still in business. It merged with the Finnish forest industry in 1998. The company employs around 26,000 people in more than 35 countries and had a turnover of €10 billion in 2017. Sea transport is the main traffic mode employed by the company, accounting for approximately 89 per cent of the transport work, followed by road (9 per cent) and rail (2 per cent) transport. They have developed a unique intermodal transport system, using SECUs moved in a combination of ships and trains on Swedish tracks. SECUs are large intermodal containers, with dimensions of 13.8 m × 3.6 m × 3.6 m and a cargo capacity of 80 tones, compared to the ISO container’s 26.5 tones. Although SECUs are innovative cargo units for multimodal transport, their employment is quite restricted owing to the special equipment that is required for their transshipment (eg special translifters), and their use is mainly located in Finnish, Swedish, Belgian, British and German ports, where the main production and consumption centers are located.

Cooperation scheme

The company has developed a short sea shipping (SSS) network of services for the transport of its products to consumers that includes three main routes: the Gothenburg–Zeebrügge route, the North Finland routes from Kemi/Oulo and the South Finland routes from Kotka. Compared to container vessels, the high frequency of departures of RoRo vessels, in addition to the fast cargo-handling (the cargo is horizontally loaded onto the vessel, towed into the vessel or brought in on wheeled vehicles), enhances their competitive advantage and facilitates their integration in intermodal transport chains.

Since 2009, the company has outsourced the operations of the eight RoRo vessels that were employed in its SSS network, as ship ownership and ship operations management are not the company’s main activities and could be better performed by a shipping company. The company assigned ship management of its SSS system to the shipping company Transatlantic, but a carrier has gradually taken over the traffic since 2014. To manage the company engagement, the carrier founded a single-purpose company (SNES) that acts exclusively on behalf of the shipper, being the long-term charterer of the vessels. Some of SNES’s operations on behalf of the company include the operation and maintenance of the vessels, the instruction of master mariners on board, and the scheduling and booking of the cargo to their contracted shippers.

Apart from this type of cooperation, in 2015 the carrier was selected by the shipper as the ‘sales agent’ for the excess freight capacity, either the empty space on board or the empty space inside the northbound SECUs, for external customers on the Gothenburg–Zeebrügge route. The same year, the company restructured its SSS transport network by replacing the Port of Gothenburg with the Port of Zeebrügge in Belgium as the hub of its logistics system. About 1.5 million tones of cargo per year were shifted from Gothenburg, significantly increasing the logistics system’s efficiency, as the cargo from the paper mills in Kemi and Oulu in Northern Finland was directly transferred to Zeebrügge. Despite this shift, the role of the Port of Gothenburg is still crucial for the flows from the company’s four mills in Sweden, all located rather far from the coast.

In Sweden, the forest company employs the SECU rail system for the transport of its products from the inland mills to the Port of Gothenburg, where the cargo is transshipped to RoRo vessels. Although this rail system is owned and operated by the state-owned rail operator Green Cargo, they have certain control of the 190 wagons deployed in the SECU rail system and they are responsible for the rail operations to the port. Every day, three trains carrying their cargo reach the Port of Gothenburg. The efficient transhipment of cargo flows from trains to RoRo vessels at the port is achieved in close cooperation between the carrier and the shipper and with the continuous exchange of information about the cargo flows. While enhanced transshipment efficiency from rail to RoRo vessels at the port has been accomplished, the cost of port operations is extremely high, accounting for 60 per cent of the company’s total shipment cost.

The Gothenburg–Zeebrügge connection is the backbone of the company’s SSS network, offering frequent RoRo services vital for the transport of the company’s products to continental Europe and major consumer countries. Two chartered RoRo vessels, which were purpose built for their cargo, operate between Gothenburg and Zeebrügge and execute two round trips per week. These vessels have two levels of loading ramp, a technical feature that enables reduced time of vessels at ports and allows them to run at 15 knots, compared to some 18 knots by other RoRo vessels on the route. The vessel speed reduction offers both financial and environmental benefits, as it implies a dramatic decrease in fuel consumption and reduced harmful emissions from vessel operations. The size of the vessels is 2,600 lane metres, and ISO containers on cassettes can be double stacked. There has been a significant expansion of the Gothenburg–Zeebrügge line over the years, owing to a modal shift from land-based modes of transport to sea and the adjustments in the production patterns of many companies that transferred their operations around Gothenburg and increased their shipments in this line.

Under the cooperation scheme between the carrier and the forest company on the Gothenburg–Zeebrügge route, the carrier is responsible for third-party sales and receives a commission, but the full commercial risk of utilizing the vessels is borne by the forest company. Freight forwarders and road haulage firms are the main external customers on the Gothenburg–Zeebrügge route, as they occupy the third-party freight capacity on board, load semi-trailers or fill the empty space inside the SECUs. The allocation of both the case company and third parties’ cargo depends on the agreed capacity and the current demand. The case company, for example, has reserved an agreed freight capacity of 260 SECUs per week on vessels operating on the Gothenburg–Zeebrügge route, and the carrier is not obliged to transfer any excess cargo volumes, especially when demand from external customers is high. Third-party forwarders are usually given priority over the case company, as the carrier does not want to risk losing these external customers. In these cases of capacity shortage, despite the additional transport cost, the case company either stores SECUs in Gothenburg to fill up empty capacity in a stand-by consignment scheme or moves or reroutes a vessel from North Finland to satisfy its customers’ urgent needs.

This commercial cooperation between the case company and SOL developed quickly, resulting in the carrier selling the RoRo capacity for nearly 100,000 third-party cargo units on the Gothenburg–Zeebrügge route in 2017. Another interesting feature of these RoRo operations is that their utilization rate reaches about 95 per cent in both directions, which is rare for the RoRo industry, although many SECUs are empty on the northbound leg. This high utilization rate can be reached owing to the high flexibility of vessels’ operations, with the final load plan made half an hour before the vessels’ departure. Apart from these successful third-party sales, this commercial cooperation resulted in another beneficial outcome. The case company’s SSS network was expanded with other partners – P&O operations in the North and Mediterranean seas and the carrier in Scandinavian regions – with a significant increase in the cargo volumes of their chartered vessels.

The short stay of SECUs at the port – a few days, maximum – before their shipment is achieved owing to the flexible allocation system with external customers that enables the utilization of the excess capacity by third parties. To arrive on time to the right customer and at the right place, SECUs are given a date based on the cargo unit that has the earliest arrival time in the destination port, and then they are put in lanes with dates. Apart from their function as loading units, SECUs sometimes act as warehouses when the case company needs to produce earlier to satisfy the client’s required delivery time; in this case, the cargo is produced, directly loaded on SECUs and shipped. However, SECUs never reach the customer, as the cargo is always reloaded to semi-trailers and the last leg of the ‘trip’ includes road transport.

At this point, it is important to again highlight the fact that the case company and the carrier share two different cooperation types, operational and commercial. The operational cooperation concerns the operation management of vessels by SNES on behalf of the case company acting as the long-time charterer of the vessels, while the commercial cooperation is related to SOL acting as the ‘sales agent’ for the excess freight capacity to third-party shippers. These different types of cooperation are quite distinct, and the benefits they offer for both companies present great differentiations.

Learning outcomes

This case study provides a real-life example of effective maritime supply chains and brings new insights for the shippers and supply chain managers, highlighting the importance of cooperation and shared planning with other transport modes for the establishment of efficient maritime supply chains. The development of a management ‘culture’ that promotes the complementarity of inland and maritime carrier operations and relies on carrier–shipper relationships can have a significant impact on the further employment of RoRo shipping services, as these services usually do not offer door-to-door transport but are the core parts of an intermodal transport chain.

Successful integration of shipping into supply chains implies efficient port operations with low cargo-handling costs and short times in ports. As shown in this case study, the efficient transshipment of cargo flows from trains to RoRo vessels at the port is achieved by the continuous exchange of information about the cargo flows and close cooperation between the carrier and the shipper.

The potential benefits from the development of maritime supply chains are apparent in this case study. Apart from the successful management operations of the vessels, the commercial cooperation between the shipper and the carrier resulted in increased sales of shipping services for third-party units and the utilization rate of these services reaching about 95 per cent. Another beneficial outcome from this cooperation is the expansion of the shipper’s SSS network with other partners in different regions, significantly increasing the cargo volumes of their chartered vessels.

The adoption of a different management approach that relies on a carrier–shipper relationship and the consideration of the transport chain as a ‘whole’, giving particular emphasis to the ports – the ‘nodes’ of the maritime supply chains – could enable the integration of shipping into intermodal transport chains, enhance the whole system’s efficiency and sustainability and lead to reduced lead-times, emissions and costs for all the collaborating parties. Sailing at reduced speed, thus decreasing bunker consumption and emissions, is a major benefit of the short turnaround time in port.

Last Updated on August 3, 2022

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