Impact Of Shipping Innovations On Global Supply Chain Economics Essay

New logistic constructs such as globalisation, Just-In-Time ( JIT ) and outsourcing have created the demand for the constitution of a complex international distribution concatenation. Its ultimate end is to let shippers to put the right merchandise on the fabrication or retail floor anyplace in the universe at the right clip and the right monetary value. As a consequence, the planetary transportation industry is driven by inventions which impact the development of the planetary supply concatenation in order to drive costs down every bit good as to run into clients ‘ demands. [ ]

Invention is the successful use of a new merchandise, market, service, pattern or system, making commercial benefits. An innovation or something new as such is non a end, but a means to make benefits. It follows that invention can merely be identified, after a successful execution. [ ]

This assignment will analyze four ( 4 ) key transporting inventions: ( a ) “ Containerization ” , ( B ) “ Ships ‘ sizes ” , ( degree Celsius ) “ Transshipment hubs ” , and ( vitamin D ) “ Slow steaming ” and their impact on the on the planetary supply concatenation.


Containerization has become one of the biggest inventions that changed non merely commercial transportation but on a larger graduated table, the universe economic system.

Container ships have played a “ critical function in leting the universe ‘s economic system to presume planetary dimensions ” . [ ] Before containerization, costs for ( a ) cargo, ( B ) port operations and ( degree Celsius ) lading managing were the highest disbursal. About 60-75 % of the cost of transporting lading by sea was made up of portside costs, while survey of a specific ship ocean trip proved cargo handling disbursals were approximately 37 % of entire costs. [ ] Shipments consisted of different types of tare including palettes, wooden crates and others that required particular hoisting and were labour intensifier at both terminals of the supply concatenation ; trade goods were handled many times before making the terminal client and exposed to different hazards including larceny.

Marc Levinson sates that in 1961, ocean cargo costs accounted for 12 % of the value of U.S. exports and 10 % of the value of U.S imports. [ ] This state of affairs was a existent show stopper for the development of universe economic system and international trade, particularly in fabricating industries since logistics costs were excessively high. World fabrication industries concentrated in North America and Europe were selling their merchandises locally and propinquity to the markets was one of the chief factors. This prevailed until 1955 when Malcom McLean, showed that single pieces of lading should be handled merely twice at their beginning and at their finish, accommodating ships operated by Sea-Land company to transport truck dawdlers. [ ] In 1966 his company made the first international ocean trip to Europe and began the containerization of international trade.

Container transportation became an independent transportation market like oilers or dry majority. Introduction of intermodal transportation containers and coming of container ships required radical ascent of the whole logistics substructure including ports, railroad terminuss, etc.

Containerization eliminated many operations that were needed in the yesteryear, ensuing in enormous beads in the figure of dock workers on the U.S. East Coast falling by over two-thirds from 1952 to 1972, and the United Kingdom falling from over 70,000 to under 10,000 between the early 1960s and the late eightiess. [ ]

Containerization caused a existent encouragement in the universe fabrication industries and became one of the engines of globalisation. Emerging economic systems enjoyed the consequences of the coming made by McLean in the mid 1950ss of the last century ; their resources and competitory advantage in labour and production costs became available for the international trade names. The function of transit constituent in planetary supply concatenation is increasing. Inclinations for outsourcing and resettlement of fiction activities make the container conveyance truly critical for the universe economic system. Between 1990 and 2008, container traffic has grown from 28.7 million TEU to 152.0 million TEU, an addition by about 430 % . [ ]

Figure. Global production of nautical containers ( 000 ‘s TEU ) .

Figure. Annual Increase in planetary ship capacity ( million TEU-slots )

However, the general decision is that universe trade is turning at more than double the growing addition of the universe economic system, that trade utilizing containers is turning at approximately ternary the addition of universe GDP growing. [ ]

Figure. Largest container line drive companies in the universe ( in 1,000 TEU ) .

Like any invention i.e. merchandise or service, containerization can be described from a Merchandise ‘s Life Cycle ( PLC ) position point. Container trade is the youngest invention in the transportation market ; hence periods can change even in researches of the same writers. Professor Rodrigue provides the following PLC phases for containerization:

Introduction ( 1958-1970 )

Adoption ( 1970-1990 )

Growth ( 1990-2008 ) .

Maturity ( 2008- ) . [ ]

Another survey undertaken by Rodrigue and Notteboom provides another version of PLC of containerization. The S-curve in includes the peak growing in 2002-2010. It besides reflects a great uncertainness of the hereafter of the adulthood stage of PLC. [ ]

Figure. World Container Traffic 1980-2008 ( Drewry, 2007 ) and Projections to 2015.

Peak growing relates to the encouragement triggered by the “ Chinese factor ” in 2002-2010. The adulthood stage to a great extent depends on macroeconomic issues i.e. universe economic system crises and transporting rhythms. and reflect the container transporting market tendencies in 2006-2010.

Figure. Global loaded container traffic ( % alteration ) .

Figure. Container transporting market tendencies.

Drewry experts believe that Global container traffic bounced back in 2010 and will go on to increase by 8 % to 9 % in the following few old ages. [ ]

Currently containerization has two chief tendencies: economic systems of graduated table i.e. bigger container ships and terminuss ; and consolidation i.e. the top-10 companies together have more than 50 % market portion.

Ships Sizes

In the last 50 old ages seaborne trade has grown steadily at 2-3 % per twelvemonth. Whilst majority trade has grown at merely 1-2 % per twelvemonth, container concern has been far more dynamic and container motions have expanded at 6-8 % per annum. To cut down operating costs by accomplishing economic systems of graduated table, bearers have increased their vas sizes.

The outgrowth of large-sized ships has two of import effects on international transportation ; ship size non merely determines competitory power in the transportation industry, but besides becomes a major standard in finding the size of a port. Therefore, the issue of ship size has of import deductions for both transportation and ports, and therefore for international logistics as a whole. [ ]

Additions in the size of the ships leads to intense competition and economic systems of graduated table, particularly container fleet. The capital cost per container slot falls as vas size additions, while the ratio of crew to transporting capacity and the ingestion of fuel per unit of lading carried besides decline as vas size additions.

Stopford suggests that although the kind of “ size weirdo ” is a permeant portion of transporting economic sciences, it can take many signifiers. The mean size tendencies for oilers, majority bearers and gas oilers show some different forms ; the mean size of rough oil oilers shot up in the 1970s, but is smaller today than it was 20 five old ages ago. The same applies to gas oilers, the ground being the alterations of the commercial environment.

Bulk bearers behaved rather otherwise from oilers. There was no dramatic addition in size. Rather the mean size crept steadily upwards, increasing by 60 % between 1975 and 2002, an norm of 2.2 % per annum. Today the standard Capesize bulker, the biggest vas, is 175,000 – 180,000 dwt, compared with 120,000 dwt thirty old ages ago, a 46 % addition. There are a smattering of 300,000 dwt bulk bearers but these are used in specialist trades. [ ]

Until terminal of twentieth century the container ship fleet followed a really similar form to majority bearers. However in the last 10-15 old ages the container ship size index has drawn in front of the majority bearer index.

The inclination for ship size to increase re-emerged in the mid 1990s, several proprietors taking to order vass that were excessively big to pass through the Panama Canal, therefore giving operational flexibleness. Hundreds of these ships are now being delivered or are on order for every major container transporting line. [ ]

The attractive force for transporting lines, is a lower cost per container to transport lading on big vass, if they are moderately full. That logic has seen a duplicating in the size of the largest container ships since 1988, when the first post-Panamax container ship, a ship excessively big for the Panama Canal came into service.

But such ships pose challenges for container ports ‘ organisation and for the supply concatenation that will transport the containers. The new, larger ships load and unload larger lading volumes in ports at one clip, seting excess strain on storage countries, doing lading screening more complex and seting excess burden on truck, rail and waterway systems that transfer the lading onwards. Vessels ‘ forms of port calls and paths besides change radically.

Serving mega-size container ships presents several jobs for ports including ensuring: equal deep H2O ( including environmental concerns related to required dredging ) , wider channels, deeper positions, suited high-velocity cargo-handling equipment ( including longer out-reach post-Panamax sized, quay-side gauntry Cranes ) , a extremely productive and moderately priced labor supply, suited positions for coastal feeder vass, and good route and rail intermodal connexions to inland finishs.

Intense competition has compelled ship proprietors to follow advanced, productivity-enhancing and cost film editing schemes. Successively larger vass have been employed on mainline East-West Northern Hemisphere trades. In their hunt for cost decrease and faster theodolite times, lines have reduced the figure of port calls, taking to the growing of ‘hubs ‘ or ‘load centres ‘ and the development of feeder webs.

Large ships are intriguing, particularly truly large ships like the Malacca-Maxes. But we need to maintain a sense of balance. Stopford in his research discover following five points. First, economic systems of scale diminish, beyond 3000 TEU and over 8000 TEU the nest eggs become immeasurably little. Second, there are important diseconomies due to the cost of dredging, congestion, administering lading from hubs and associated logistic troubles. Third, there are monolithic economic systems to be made by upgrading ship sizes in the little and mid size trades. Fourthly, the trading universe is broadening and this will prefer mid size ships. Fifthly, a concern dominated by logistics operators is likely to value the flexibleness offered by smaller ships. [ ]

Transshipment Hubs

The supply concatenation of nautical transit has experienced of import alterations during the last 25 old ages and several ports have specialized in the concentration of transshipment activities. Ocean traveling containers guarantee flexibleness of cargos and several ports are consolidating their position as hub centres. [ ] Opportunity exists to make regional logistics hubs to better connectivity entree to planetary supply concatenation, make value added export that could cut down the instability between import and export spread. [ ]

The construction of the planetary market place requires that goods and stuffs be delivered non merely to the exact geographical location where they are required ( in consequence, using the “ door-to-door ” system ) but besides within a really precise clip frame. Today, goods in theodolite are carefully factored into the supply concatenation, a development that underpins the importance of transshipment hubs runing to really high criterions of efficiency and effectivity. [ ]

From beginning to concluding finish, goods may frequently hold to be transshipped ( on assorted manners ) 5 or 6 times. Recent statistics show that about one one-fourth of containerized traffic in port relates to transshipment ( Peters, 2000 ) . [ ]

Further research besides shows that although sea-leg costs may hold been traveling down in existent footings as a consequence of economic systems of graduated table in line drive transportation, door-to-door costs have been increasing. And this without taking into history the external costs of route conveyance every bit good as of the fact that the usage of route capacity is inexpensive in so far as it does non as yet allow the recovery of substructure investing costs. It therefore becomes progressively clear that economic systems of graduated table in transporting are countered by increasing diseconomies in footings of door-to-door costs. [ ]

Transshipment services are now widely used on major trade paths. Harmonizing to transporting industry statistics, approximately 23 % of all larboard container managing motions in 2001 came from transshipment, compared to 7 merely 12 % in 1980 ( Damas ) .

This is chiefly due to the undermentioned ground ( Baird ) : the addition in ship size has forced bearers to seek higher degrees of return from their assets, particularly so for the mega container ships of 6,000 TEUs or higher. This has led to the terminal of calls to ports with a lower trade lading volume, warranting the demand for transshipment services.

Indeed, in the instance of Singapore which is already a major transshipment node, PSA Singapore develops 5 new positions with bill of exchanges of 15m at her Pasir Panjang Terminal. The new positions will add to PSA Singapore ‘s bing 37 container positions, an addition of 13.5 % in position capacity, and are expected to hike current one-year box managing capacity by 20 % from 20 million TEUs to 24 million TEUs. Frankel has besides commented that the aims of transshipment are non merely restricted to entire cost decrease, but besides to better the just-in-time bringing of lading, cut down in-transit stock list, and do the entire origin-to-destination motion of containerized lading more seamless. Transshipment is therefore non merely a logistics convenience step, but besides an chance to add value to the goods transshipped.

PSA Singapore, for case, has recognized the importance of the value-added proposition of the transshipment hub. It launched a new service called N2N Mobile Hub that allows shippers to utilize the PSA container yard as a impermanent storage infinite for their containers. This helps to extinguish unneeded conveyance costs and clip holds incurred in draying containers off from the hub to external paces or warehouses. Containers under the N2N hub construct arrive at the PSA ‘s pace with no onward bearer campaigners and no set finish. Customers are allowed to route the containers to concluding finishs based on existent demand demands. This reaps important advantages in the hazard pooling of stock list, as the lading ‘s concluding finish can be delayed until the containers reach the PSA port. [ ]

The tendency toward larger container ships besides makes it more hard to take between hub port and feeder port schemes. This tendency is driven by the continued growing in container transportation and increased deployment of mega-ships on major trade paths. The time-sensitive operating patterns of such mega-ships mean that they require full burden capacity so that they can expeditiously name at major hub ports with minimum home clip. [ ]

However, increased port costs and heavier trust on feeders could gnaw the operating cost nest eggs because bigger vass must pass more clip at ports, but do fewer calls because of the bill of exchange restraints at many ports. For ports to successfully run into the challenges stemming from bigger vass, they must put a great trade in the betterment of terminus installations and landside intermodal entree. In add-on, to accomplish more eating to function regional trades from a hub and besides to convey in containers to make full mega vass, vass have to be passing more clip and money at port and incurring more selling costs. [ ]

The value of the transshipment hub operation is mostly determined by the tradeoffs of three factors:

the cost of loading/unloading operation at the hub

the cost of confining goods at the hub, and

the cost of material/inventory in theodolite. [ ]

Therefore we can reason that the use of the transshipment system is justified from the position of cost effectivity when the in-transit stock list cost dominates the entire cost.

Slow Steamering

For the past decennaries fuel ingestion and emanations from the transportation industry have increased drastically as shown in below, with fuel ingestion changing with the velocity a ship is going. Put into simple footings, the faster a ship goes the more fuel it burns with those last excess knots of top velocity achieved. Ship-owners are presently confronting a quandary with the detonation in fuel monetary values increasing annually. Transporting companies could seek conveying this addition to their clients, but the latter would be sensitive to surcharges. [ ]

Figure. Fuel ingestion 1950 – 2001 [ ]

Figure. Ship emanations 1950 – 2001 [ ]

A solution to less fuel ingestion and less CO2 emanations would be slow steaming – at lower velocities a ship encounters less opposition and therefore moves with less attempt. Maersk Line began introducing in slow steaming manner back in 2007 with a mark to cut down CO2 emanations by 12.5 % by terminal 2009. [ ] This company managed to cut down them by about 7 % between mid 2008 and stop 2009. [ ] Slow steaming saves money, C emanations and can give clients a more dependable day of the month of reaching. [ ]

A decrease in a ship ‘s velocity by 20 % will intend that the ship moves between 20 to 22 knots alternatively of the normal velocity of 25 knots which will utilize 40 % less fuel and cut down CO2 emanations. To counterbalance the lessening in velocity, excess vass are added to each path and although the figure of vass is increased it still gives a decrease of emanation by about 7 % per container moved, therefore diminishing the stat mis travelled in a twelvemonth for these vass ensuing in a longer lifetime of the vass ‘ machinery. [ ]

In mid 2009 Maersk proved that the two-stroke engines on its container vass were able to run continuously at low tonss guaranting a more flexible and energy efficient vas operation ensuing in 10 to 30 per centum decrease in fuel and CO2. This leads to an one-year economy of about $ 1 million for a post-Panamax Container vas while cut downing CO2 by 10,000 dozenss and fuel by 3,500 dozenss. [ ] Reducing fuel cost would connote lower transportation rates, but transporting lines are loath to minimise these nest eggs and afford them to their clients.

Conveyance rates are non needfully the largest cost. Reducing the conveyance rates can hold a negative impact on the supply concatenation. A decrease in cargo rates can increase the cost for distribution, for illustration, lower cargo rates might affect feeder vass, therefore cut downing trucking to the most efficient port. Feeder vass are cheaper but increase the theodolite clip and therefore the nest eggs from cargo rates is offset by keeping the stock list in-transit thirster ensuing in higher stock list cost. This besides affects hard currency flow, that is, a longer theodolite clip consequence in ulterior bringing and therefore the later the shipper gets paid. Cash is a limited resource and is a shipper ‘s chief concern activity. [ ]

NITL claimed that slow steaming had a negatively affected supply concatenation. As theodolite clip is longer the vas capacity have lessening, there is deficit in containers and equipment and meeting clients ‘ demands is more hard. They besides claimed that a cardinal facet of supply concatenation is that theodolite clip ‘s affects stock list. At the get downing slow steaming quickly reduced stock list, therefore shipper found it hard to make full up their empty shops and harder for makers ‘ production lines to run into the demand in a timely mode. [ ]

Transportation system of goods is repeated many times throughout the supply concatenation by different parties from natural stuff to the consumer. Thus shippers look at slow steaming as an inducement to travel their containerized ladings. [ ]

Manufacturers depend on inbound transit to present natural stuffs for production, in peculiar when goods are in a Just-In-Time environment. Delivery of goods in clip is important to avoid unneeded production costs. Delivery clip normally is between 4 to 6 hebdomads and it ‘s non ever possible to do advanced planning. Transit times could increase by another hebdomad with slow steaming and therefore doing it more hard for production planning. This will ensue in holds of the merchandises and could disorder fabrication, stoping really dearly-won. On certain merchandises this can be avoided by constructing stock list, however a maker would incur an stock list keeping cost. [ ]


Containerization is an invention that triggered the procedures that led to wholly new logistics procedures. The coming of containerization is chiefly due to the demand for a tool that could cut down logistics costs which led to the reverberation in handling/transportation portion of the planetary supply concatenation. The debut of container vass meant larger lading volumes per port call and shorter managing times per ton. [ ]

The ability of exporters and importers to efficaciously link with international markets depends partially on the public presentation of the full supply concatenation in footings of cost, clip, and above all, dependability and predictability. The debut of bigger ships could cut down the C footmark of transporting exports and imports. Maersk Line, has ordered 10s of the universe ‘s largest and most efficient ships and bringing is scheduled for between 2013 and 2015, which will alter wholly the transportation industry ‘s apprehension of size and efficiency. They are called the ‘Triple-E ‘ category for the three chief intents: economic system of graduated table, energy efficiency and environmentally improved. Besides puting a new benchmark for size, they will besides excel the current industry records for fuel efficiency and CO2 emanations per container moved by bring forthing 50 % less CO2 per container moved [ ] . This is being acclaimed across the transportation industry as it sets new criterions in fuel efficiency and decreased environmental impact.

Transshipment in container transportation logistics offers greater flexibleness, possible cost nest eggs, every bit good as less clip from origin-to-destination. But to be effectual, transshipment must be efficaciously designed. Most significantly, it must be extremely efficient. In many instances the cost of transshipment is non justified by nest eggs in transportation costs.

Institutions and corporations have invested and researched the economic and environmental impacts of slow steaming. Maersk and COSCO have proved that slow steaming does salvage fuel and cut down nursery gas emanation and besides salvage money. It is besides a turnaround for the planetary fuel crisis, laid up ships and glut of tunnage worldwide. [ ]

Group Assessment

The digest of this assignment has been achieved with the equal part of all four ( 4 ) group members. Each one of our group members contributed based on Module acquisition and sharing personal experience interchanging a different manner of believing to choose the cardinal inventions.

To choose the cardinal inventions we put the undermentioned inquiries:

How planetary supply concatenation was before the selected key inventions?

To what extent these inventions impact the development of the planetary supply concatenation?

What are the cardinal advantages of these inventions?

To accomplish assignment demands we placed deadlines for the digest of assignment on clip every bit good as we provided each other utile links and beginnings concern the selected cardinal inventions impact the planetary supply concatenation.

Furthermore in order to accomplish a most accurate rating of our beginnings, we exchanged thoughts and proposals, we made corrections and amendments on each single piece of work.

Finally all together we contributed to finalise the formal version of our assignment after reexamining several bill of exchange versions and doing several corrections.

All group members expeditiously contributed as a squad.