Port-Focal Logistics and Global Supply Chains

A. Ng, John Liu

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137273697
• Topic: Business
• Subtopic: Management
• Index: Business

This book investigates the trends and challenges that ports, logistics and supply chains have tackled in recent decades and the way forward. A new concept, port focal logistics is introduced which appreciates the efforts by previous studies in this field, but simultaneously recognize the limitations, and the need for further improvements.

1

Introduction

1.1 Setting the scene

Significant economic and policy changes have occurred within the global arena. The scale of the downturn resulting from the global economic crisis in 2008 is substantial, with its destructive force arguably even stronger and more widespread than that of the Asian financial crisis towards the end of the last century. It has not only affected the financial sector, but also international trade and the transport and logistics industries. Indeed, the maritime, transport and logistics sectors are closely knit with the well-being of the global economy – are indeed the artery of the global economy, carrying more than 80 percent of the world’s cargoes (Ng and Liu, 2010) – and it is an opportune moment to investigate the way forward for these sectors, and to thrash out appropriate strategies. As noted by Liu (2009), such a challenge has prompted the industries to increase calls for resilient and disruption-robust port, logistics and supply chains. Transportation and logistics were traditionally separate, and segregated, economic activities; nowadays, following the inevitable trends of globalization, they have evolved into an integrated service profession. Nevertheless, mainstream supply chain research has hitherto been based on the theory of the firm as a production function. For instance, a supplier is often modeled as a function that generates specific outputs using certain input possibilities as independent variables. As production and supply chain operation are going global, two transactional characteristics can no longer be ignored, namely transaction costs and bi-direction production flows. Complementary to the model of the firm as a production function, a port-focal model allows a firm to be viewed as a governance structure, so as to attain organizational efficiency through, for example, the minimization of transaction costs through vertical integration.

Under this development direction, ports, being the nodal points, will play pivotal roles in determining the success and well-being of global supply chains; thus, the establishment of effective port-integrated logistical systems will become strategically important. How to achieve that, however, is a subject for discussion. For instance, towards the end of the last century, Slack (1999) proposed the establishment of ‘satellite terminals’ to allow ports to penetrate into inland areas. His idea was later elaborated by Notteboom and Rodrigue’s (2005) ‘port regionalization’ concept. In this regard, dry ports, or ‘inland terminals’, are understood as inland settings with cargo-handling facilities, so as to facilitate various logistical functions, e.g. freight consolidation and distribution, temporary (in-transit) storage of cargoes, customs clearance, deferment of duty payment for imports stored in bonded warehouses, advance issue of bills of lading, transfer between different transport modes, relief of congestion in gateway ports, inventory management, and agglomeration of institutions (both private and public) within specific locations to facilitate interactions between stakeholders along the supply chains (Meersman et al., 2005). In this sense, they conduct many functions which complement port operations. There are alternative views that logistical, and indeed value-added, activities should remain within the port arena, conventionally termed ‘port-centric logistics.’ The idea is that cargoes (often containers) should be loaded and unloaded inside ports (or at very proximate locations) and the contents then carried inland in various forms (e.g. as palletized cargoes). According to Mangan et al. (2008), under this system, ports should not simply act as freight distribution trans-shipment points, but also play a pivotal role in catalyzing the establishment of efficient supply chains. In this regard, they offer benefits, but simultaneously pose considerable planning and management challenges, e.g. increases in cargo storage, stevedoring activities and congestion within port areas. On the other hand, the greater flexibility in distributing goods can lead to savings in the relatively costly inland transport section of supply chains. Hence, it is clear that port-centric logistics and dry ports/inland terminals are fundamental in enabling cargoes to enter or exit port areas more effectively and, as noted in an Inter-American Development Bank’s (IDB) report, in improving hinterland transportation accessibility for both inbound and outbound supply chains (IDB, 2013).

Nevertheless, there are several issues on whether the adoption of port-centric logistics is sufficient to address the aforementioned challenges. The first questions are: under what circumstances will dry port/inland terminals and port-centric logistics work? For port-centric logistics, much of its ideas focus on imports, but how about exports? Simply put, this idea states that containers should be unpacked in the ports. However, in many developing countries, like India and Brazil, shippers mainly consist of small and medium-sized firms (see Chapters 7 and 8), and their cargoes may not fill even one container. Thus, the inland transport cost may simply become too high for them to move their (non-containerized) cargoes to ports. In this case, they need to rely on dry ports/inland terminals to insert their goods (together with other cargoes) into containers, and later transport them to ports, thus saving them costs. However, this involves the interactive dynamics between ports, cities and surrounding regions under diversified, and uncertain, environments in different parts of the world (Ducruet and Lugo, 2013; Fujita and Mori, 1996). In this regard, Ng and Gujar (2009a) provide a good illustration of the potential difficulties of the export of tea leaves from Northeast India to the international market without dry ports – and consequently of the competitiveness of that product. On the other hand, Monios and Wilmsmeier (2012) highlight the limitations of the use of port-centric logistics and dry ports in overcoming ‘double peripherality’ in relatively isolated regions like Scotland, whose challenges are largely due to current transport policy and settings, which limit Scotland’s maritime access points to major English ports (e.g. Felixstowe, Southampton and Tilbury). In such cases, how can exporters reduce their costs?

The above leads to further questions: is port-centric logistics an alternative to dry port/inland terminals, or are they actually complementary and should they therefore work with each other? Dry port/inland terminal facilities will exist, but at the same time ports may construct new, and maybe largely similar, facilities. Will such a development direction lead to a waste of resources, and the risk of creating numerous duplicated facilities? If this happens, will these duplicated facilities (and thus ports and dry ports/inland terminals) compete fiercely with each other for cargoes and business? As illustrated in Chapter 8, this situation has already arisen in Brazil, and may become even more explicit if ports and dry ports are governed by different administrative authorities. In this case, can both ports and dry ports/inland terminals appreciate, and think from, a ‘chain’ perspective and develop hand in hand effective supply chains that can benefit all supply chain stakeholders? Or, on the contrary, will the bullwhip effect¹ be exaggerated, where stakeholders think only about their own business as an individual entity, and even treat their counterparts along the supply chain as competitors? In this regard, for countries with a huge landmass, like India and Brazil, going from inland production plants/markets to ports (and the other way round) often involves cross-border movements between states and provinces, and it is difficult to deny the possibility that coastal and inland states will compete with each other for resources and incomes. If this takes place, they will stimulate substantial political, institutional and administrative controversies. For instance, if port-centric logistics is fully put into practice, it means that all the goods will go to the ports and be put into containers. It also means that customs clearance will be done in the ports. Is this a phenomenon that inland (landlocked) states will be ready to accept (as this implies that they may lose their customs earnings)? As will be discussed in Chapter 7, in India, shippers often prefer to deal with ‘local’ customs officers (those based in the same state) so as to minimize uncertainties during the customs clearance process. Will they be ready to go to ports located in other states and deal with non-local customs officers?

All the above questions clearly indicate that, as supported by Majumdar (2012), port-centric logistics, and dry ports/inland terminals, may not be everybody’s cup of tea, and that certain conditions must be achieved for dry ports/inland terminals and port-centric logistics to be implemented successfully. First, as mentioned earlier, both ports and other stakeholders along the supply chains need to think from a ‘chain’ perspective, where destructive inter-regional (e.g. between states/provinces) and inter-sectoral (e.g. between ports and dry ports) competition should be averted whenever possible. Also, there is a need to develop effective ways of minimizing, if not avoiding, the duplication of (capital-intensive) facilities and the application of different concepts in different countries and regions with diversified economic settings, given the fact that many emerging economies nowadays, notably China, India and Brazil, are export-led economies with ever-increasing domestic markets. Scholars, policymakers, members of think tanks and industrial practitioners must find effective ways to solve these problems.

1.2 Objectives and contributions

This book addresses the trends and challenges that the maritime, transport and logistics industries have tackled in recent decades, and the way forward for the development of efficient logistics and supply chains. It provides scholars, policymakers, members of think tanks, industrial practitioners and students with a comprehensive view and understanding of a growing, but also rapidly changing, sector, especially in developing economies. When writing this book, the authors recognized the limitations of both the development of dry ports/inland terminals and port-centric logistics, and thus a new concept – port-focal logistics – will be proposed and its implications on ports, logistics and supply chains assessed. They appreciate the valuable efforts provided by previous researchers in the study of the development of port, logistics and supply chains, but simultaneously recognize their limitations – due largely to the research trends of logistics and supply chain management being dominated by an emphasis on optimization rooted in the operations management and management science disciplines – which imply the need for further improvements and fine-tuning of these concepts in a world of globalization.

To achieve this requires efficient linkages between knowledge in different time periods (past, present and future) and sectors (academic, governmental and industrial). This book reviews the fundamental elements of port and logistics management, as well as the impacts of contemporary shipping development on ports, logistics and supply chains around the world. In this regard, the authors strongly believe that ports are excellent sites to interrogate the wider applicability of institutional analysis in explaining the change and evolution of logistics and supply chains, especially given their fundamental transformation in the past few decades. This transformation has created substantial pressure to re-invent the nature and philosophy of port governance through diversified means. Specifically, the book focuses on how the governance of ports in different corners of the globe is embedded within the higher levels of political and institutional structures. In turn, it investigates how institutional legacies contribute to diversified outcomes in diversified economic, social and political contexts. Indeed, all subsequent chapters will circulate around, and provide sound justification for, the main idea and revelation that this book will bring to readers: the development of port-focal logistics is the appropriate direction for future global supply chains.

It is noted that much of this book focuses on developing economies located in Asia and Latin America. A substantial amount of unpublished, and much confidential, information was collected during a number of research field trips in the past several years, during which more than 70 semi-structured, in-depth interviews with relevant personnel within the port, logistics and supply chain sectors in different countries and regions was conducted. As a result, this book provides first-hand insight into what strategies developing economies should (or should not) adopt when developing their ports, logistics and supply chains under diversified, often uncertain, circumstances. Until now, there has been very little research (especially in English) specifically focusing on the development of ports, logistics and supply chains in these parts of the world. Also, by analyzing the issue from many different geographical, sectoral and disciplinary angles, the book will give readers not only an alternative view but, more importantly, the rare opportunity of an epistemological reflection on the true evolution and development of ports, logistics and supply chains in this ever-changing world, and will equip them with the wisdom and knowledge necessary to the development of effective solutions to the stated challenges.

1.3 Structure of this book

The rest of this chapter will introduce the structure of this book. Chapter 2 will start with a brief history of the evolution of shipping, notably the factors that have stimulated the development of shipping and its myriad manifestations. It will provide a brief history of shipping until the 1950s, followed by an account of the development of shipping since then. The impacts of this development on ports will then be illustrated. This will offer readers an important background to the major topic of this book, as contemporary international trade, and indeed the development of logistics and supply chains, is closely linked with international shipping. Simultaneously, as an inevitable result of globalization, supply chains and logistics have gone global. In the light of this, Chapter 3 reviews the mainstream supply chain and logistics studies, which are mainly firm-focal. After that, the chapter investigates the operations management of global supply chains, together with global outsourcing as an operational driver towards port-focal supply chains and trade logistics. This chapter also studies the operations management of port-focal supply chains and trade logistics themselves.

Indeed, containerization affects not only the development of shipping, but also other components of the transportation and logistical systems, including ports and inland transportation. Hence, Chapter 4 will focus on the interaction between shipping, ports, logistics and supply chain development. It will discuss how containerization, the restructuring of shipping and the development of global supply chains have shaped the evolution and development of ports. It will start by providing an assessment of ports as the key components in logistics facilitation. This will be followed by an explanation of how their development, together with the popularity of neoliberal ideology in economic policy development in recent decades, has prompted ports to undergo management and governance reforms, aim for hinterland access and establish logistics hubs. In this regard, the effectiveness of port-integrated logistical systems will surely depend on the productivity and efficiency of ports, other components of the supply chains and trade industrial organization, and Chapter 5 will address this issue. First, port and supply chain productivity and efficiency will be investigated, since they serve as key performance measures of port-focal supply chain management. However, compared with the firm-focal supply chain, the port-focal supply chain contains ports that are not only production facilities, but also transactional ones. Hence, it will continue to study the transaction cost economics of port, transport and international trade, pertinent to organizational dynamics of port-focal supply chain and logistics. At the end of the chapter, port efficiency and performance assessment will be investigated, with an empirical case relating to global performance benchmarking of container ports. In this exercise, the authors identify environment heterogeneity, notably policies and institutional factors, as a critical factor often overlooked by researchers when studying the evolution and development of ports, logistics and supply chains, duly supported by the experiences of governance in the ports of Singapore and Hong Kong. Indeed, this is especially true in developing economies, where the influence of institutional agents is usually very significant, if not pivotal.

This issue of environment heterogeneity, and its impacts on ports, will be further addressed in Chapter 6. It starts with a discussion on the evolution of port systems and continues with a detailed theoretical discussion on the roles of institutions in changing the nature, philosophy and implementation of economic activities. After that, it will provide two case studies on how institutions have affected the governance structure of two major ports in Asia and Europe, namely Busan (South Korea) and Rotterdam (Netherlands) by corporatizing their (initially public) port authorities. To elaborate on this topic, the influence of institutions on the development of ports, logistics and supply chains will be further discussed in Chapters 7 and 8, using case studies from two of the world’s major developing economies, namely India and Brazil. They focus on how policies and the embedded institutional systems of both countries have restricted the integration of ports into their respective supply chains, and how ports and dry ports are unable to achieve their objectives of providing effective logistical functions to shippers and other logistical stakeholders. This issue has rarely been investigated in detail in developing economies, and the inclusion of experiences from two of the world’s most important developing economies will greatly strengthen the value of this book. In these chapters, the authors will also question whether so-called Western solutions can be directly applied to developing economies: if so, how, and if not, why. At the end of the chapter, they will further investigate the relationship between institutions and the effective development of port-integrated logistical systems.

Chapter 9 will summarize the major findings, and will provide sound justification for the main idea and revelation that this book formulates: the development of port-focal logistics as the appropriate direction for future global supply chains. To this end, it will consist of a discussion on the pioneer observation on the ‘repulsive’ nature of the bullwhip effects on supply chains located in countries or regions with strong influences from environment heterogeneity, notably institutional factors, and how such repulsion may trigger the self-destruction of supply chains by supply chain stakeholders. In turn, it also highlights the inadequacies of existing theories on port evolution and development, as well as the continual emphasis on firm-focal supply chains by mainstream supply chain researchers.

1.4 Acknowledgment of previous publications

Some of the contents of this book exist in different forms published in ...

Table of contents

• Cover
• Title
• 1 Introduction
• 2 Contemporary Development of Shipping and Impacts on Ports
• 3 Global Supply Chains and Trade Logistics: From Firm-Focal to Port-Focal
• 4 Logistics, Supply Chain and Port Evolution
• 5 Port and Trade Industrial Organization
• 6 Government Policies and the Role of Institutions
• 7 Case Study – India
• 8 Case Study – Brazil
• 9 Port-Focal Logistics: The Ideal for Future Global Supply Chains?
• Notes
• References
• Index