Ocean and Air: Cargo Handling Ocean and Air: Cargo Handling and Containerizationand Containerization

International Logistics

Learning ObjectivesLearning Objectives

Compare Domestic with International Logistics

Provide accessible overview of Ocean and Air Cargo Handling and Containerization

“Virtual” Picture Tour of Port Operations and Containerization

Domestic Vs. International LogisticsDomestic Vs. International Logistics

Seller

TransportationCarrier

Buyer

US Bank

US GovernmentAgencies

Foreign GovernmentAgencies

Foreign Bank

US Seller

Domestic Inland Carrier

US Port of Exit

Ocean/Air Carrier

Foreign Port of Entry

Foreign Inland Carrier

Buyer

Movement of GoodsInformation Flows

Export Facilitators

Domestic Vs. International LogisticsDomestic Vs. International Logistics

Cost

Transport mode

Inventories

Agents

Financial risk

Cargo risk

About 10% of U.S. GDP today

Mainly truck and rail

Lower levels, reflecting short-order, lead-time requirements and improved transport capabilities

Modest usage, mostly in rail

Low

Low

Estimated at 16% of world GDP today

Mainly ocean and air, with significant intermodal activity

Higher levels, reflecting longer lead times and greater demand and transit uncertainty

Heavy reliance on forwarders, consolidators, and customs brokers

High, due to differences in currencies, inflation levels and little recourse for default

High, due to longer/more difficult transit, frequent cargo handling, and varying levels of infrastructure development

Domestic International

Domestic Vs. International Logistics IIDomestic Vs. International Logistics II

Government agencies

Administration

Communication

Cultural differences

Primarily for hazardous materials, weight, safety laws, and some tariff requirements

Minimal documentation involved (e.g., purchase order, bill of lading, invoice)

Voice, paper-based systems adequate, with growing usage of electronic data interchange and Internet

Relative homogeneity requires little product modification

Many agencies involved (e.g., customs, commerce, agriculture, transportation

Significant paperwork; the U.S.

Voice and paper costly and often ineffective; movement toward electronic interchange but variations in standards hinder widespread usage

Cultural differences require significant market and product adaptation

Domestic International

Complex Distances & Transportation Modes

– Ocean & Air transport more common than for domestic flows

– Shipping: 1998: 30% of U.S. exports by value, down from 40% in 1988

– Airfreight

– Governments often regulate which carriers can be used, especially for sales to the government

– Must factor-in total carrying costs including delays, port storage time, warehouse inventory and exchange rate changes

– Global Operations and Product Customization (at order /shipping point or in local environment) Complicated Logistical Systems

Features of International LogisticsFeatures of International Logistics

Brainstorming SessionBrainstorming Session

(Obvious) Differences exist between ocean and air cargo transportation. – Define the factors that characterize these differences– Identify these differences

Air Freight/CargoAir Freight/Cargo

Significant Part of Aviation Industry: Est. Revenues of $49.5bn in 2005

< 1% Domestic (By weight)

~ 2% International (By weight)

> 30% International (By value): Total value of goods = US$3.25 trillion (35.6% est).

International air freight volume growth slowed significantly in 2005, falling from 13.4% in 2004 to 3.2% in 2005

Air freight share reduced slightly in previous years: Recent strong increases in prices of commodity goods (e.g. oil) transported by surface modes

Region-specific signs of recovery: Major Asian; North American; and Large European markets

Advantages of Air Transportation for Advantages of Air Transportation for International LogisticsInternational Logistics

Speed

Wider Market Areas

Advantageous over Surface Transportation Systems (congestion, poorly developed infrastructure, etc.)

Air-appropriate goods: Define Characteristics?

Air Transportation - Conducive Business Air Transportation - Conducive Business CharacteristicsCharacteristics

High-Value, Low-Bulk Cargo

“JIT” Inventory Management Practices

Lean Production Methods

Short(er) Order Cycle times

Globalization: Impact on Sourcing, Production and Logistics Practices

Outsourcing – International Contract Manufacturing Alliances

Commercial Development of Emerging Economies

Ocean Shipping Cargo HandlingOcean Shipping Cargo Handling

Transfer of Cargo in and out of Ship’s Holds

Handling Cargo on Dock

Transfer of Cargo to Ground Transportation and Stowage

Determines vessel’s turnaround time in Port earning power

Historically Manual (Longshoremen OR Stevedores)

Today Mechanical – Optimized Cargo Stowage Programs

Cargo Handling EquipmentCargo Handling Equipment

Yard trucks (hostlers) Cranes Top and side handlers Forklifts Loaders, etc

Cargo Handling MethodsCargo Handling Methods

Crane/Conveyor Combi (Dry Bulk Cargo) Pipeline (Liquid Bulk cargo) Breakbulk Cargo

– Palletized

– LO/LO (Crane lifted)

– RO/RO (Automobiles and equipment - Driven Cargo) Containers (>54% of all cargo)

ContainerizationContainerization

Unitization/Consolidation of multiple units

System of intermodal freight/cargo transport

Standard containers can be loaded and sealed intact onto ships, railcars, planes and trucks

Improves efficiency, protects materiel, reduces handling & pilferage

Varying Sizes (ft) (Ocean):8x8x40; 8x8x20; 8x8x10; 8.5x9.5x40

Standard Conversion Units/Sizes: 20 ft (TEU) or 40 ft (FEU)

Shorter to permit multiple units on railcars

Containerization - HistoryContainerization - History

History - 26th April 1956: The ideal–X. Trucking entrepreneur Malcom McLean put 58

containers aboard a refitted tanker ship, the “Ideal-X”" and sailed them from Newark to Houston

Had watched teams of dock workers unloading goods from trucks and transferring them to ships and came up with a more efficient way

Refitted two oil tankers and designed truck containers that could be stacked on or below their decks

Significant growth during Vietnam War

Containerization - TodayContainerization - Today

No. of containers worldwide: 22 million

Number of container ships worldwide: 7,936

Container traffic: >116 million TEUs

Value of Container Shipping:>$6.5 trillion

Worldwide container traffic grows by average of ~ 13% since 2003

Infrastructure beginning to ‘creak’ under the strain

Company TEU capacity

Market Share

Number of ships

A.P. Moller-Maersk Group 1,665,272 18.2% 549

Mediterranean Shipping Co. S.A. 865,890 8.6% 299

CMA CGM 507,954 5.6% 256

Evergreen Marine Corporation 477,911 5.2% 153

Hapag-Lloyd 412,344 4.5% 140

China Shipping Container Lines 346,493 3.8% 111

American President Lines 331,437 3.6% 99

Hanjin-Senator 328,794 3.6% 145

COSCO 322,326 3.5% 118

NYK Line 302,213 3.3% 105

Top 10 container shipping companies in order of TEU capacity, 2006

““Virtual Picture” TourVirtual Picture” Tour

No substitute for the real thing – JAXPORT Tour!

Container Ship In IstanbulContainer Ship In Istanbul

Double-stack ContainerizationDouble-stack Containerization

Double-stack ContainerizationDouble-stack Containerization

Most flatcars cannot carry more than one standard 40 foot container

BUT, a well car can accept a container and still leave enough clearance for another container on top, on most North American rail routes that do not have overhead electric power

American President Lines introduced this "double stack" principle under the name of "Stacktrain" rail service in 1984

It saved shippers money and now accounts for almost 70 percent of intermodal freight transport shipments in the US

A container ship being loaded by a Portainer A container ship being loaded by a Portainer (Container Crane) in Copenhagen Harbour(Container Crane) in Copenhagen Harbour

Twistlocks: Capture and constrain containers. Twistlocks: Capture and constrain containers.

Forklifts designed to handle containers have similar Forklifts designed to handle containers have similar

devices.devices.

Shipping Containers at the terminal at Shipping Containers at the terminal at Port Elizabeth, New Jersey Port Elizabeth, New Jersey

Pier T Container Terminal in Long Beach, Ca.Pier T Container Terminal in Long Beach, Ca.

Intermodal rail in the foreground and gantry cranes behindIntermodal rail in the foreground and gantry cranes behind

Container stacks at Keppel Container Container stacks at Keppel Container Terminal in Singapore Terminal in Singapore

Container ship "Rita" being loaded at Container ship "Rita" being loaded at Copenhagen by a PortainerCopenhagen by a Portainer

Self taken picture of a Roll-On Roll-Off (RO-RO) ship with Self taken picture of a Roll-On Roll-Off (RO-RO) ship with ship's name removed to avoid any conflicts ship's name removed to avoid any conflicts

Figure 15-1:Figure 15-1:Loading a Travel Trailer Aboard a RO/RO Vessel in the Port of SeattleLoading a Travel Trailer Aboard a RO/RO Vessel in the Port of Seattle

Examples of Different ContainersExamples of Different Containers

8 X 8.5X20 ft

45 ftHigh cube

Flatrack

RefrigeratedOpen top

Container Population and CostsContainer Population and Costs

Grew from 3.5M TEU in 1983 to approx 10.5M TEU population in 1997– Growth rate of 7% compounded annually– 60% of growth due to expansion– 40% for replacement

Ocean carriers spend $1.8B/yr on new containers

20% of containers moved on ships are empty—costing ocean carriers an estimated $3B/yr in handling fees

Air Air ContainersContainers

Unit Load Devices (ULDs)Unit Load Devices (ULDs) Pallets and containers used to load luggage, freight, and mail on wide-body aircraft and

specific narrow-body aircraft

Benefits: – Fewer units to load

– Saves ground crews time and effort

– Helps prevent delayed flights

– Contents can be tracked since each ULD is manifested separately

Come in 2 Forms:– Pallets: Rugged sheets of aluminum with rims designed to lock onto cargo net lugs

– Containers:

• Also known as Cans and Pods

• Fully enclosed containers made of aluminum or combination of aluminum (frame) and plastic (walls)

• May have refrigeration units built-in depending on nature of goods inside

Aircraft loadings can be made up of all containers, all pallets, or a mix of ULD types, depending on convenience

ULD Type - Airfreight ContainerULD Type - Airfreight Container

Cargo Loading - AirCargo Loading - Air

Cargo StorageCargo Storage

Ocean Ports - ExerciseOcean Ports - Exercise

Consider the table “World Port Rankings -2002” which follows the assigned reading Chapter 13 by Thomchik.

Explain the difference between the table components “Total Cargo Volume, Metric Tons (000s)” and “Container Traffic (TEUs, 000).

Next, consider “Table 25 (Top 20 Foreign Trade Freight Gateways by Value of Shipments: 2002)” which focuses on USA gateways. Print out a USA map and plot the location of the 20 gateways on the map.

What observations can you make from the plotted map with respect to the type and mix of the modal gateways, geographic locations, economic development and impact, etc.?

Comparison of Transportation ModesComparison of Transportation Modes(US Domestic)(US Domestic)

Motor Rail Air Water Pipeline

Cost

Moderate

Low

High

Low

Low

Market coverage

Point-to-point

Terminal-to-terminal

Terminal-to-terminal

Terminal-to-terminal

Terminal-to-terminal

Number of competitors

Many Moderate Moderate Few Few

Predominant traffic

All types Low-moderate value, moderate-high- density

High value, low moderate density

Low value, high density

Low value, high density

Average length of haul

Short to long Medium to long

Medium to long

Medium to long

Medium to long

Equipment capacity (tons)

10-25 50-12,000 5-125 1,000-60,000 30,000-2,500,000

Economic CharacteristicsEconomic Characteristics

Motor Rail Air Water Pipeline

Speed

Moderate

Slow

Fast

Slow

Slow

Availability High Moderate Moderate Low Low

Consistency (delivery time variability)

High Moderate High Low-moderate

High

Loss and damage Low Moderate-high

Low Low-moderate

Low

Flexibility (adjustment to shipper’s needs)

High Moderate Low-moderate

Low Low

Comparison of Transportation ModesComparison of Transportation Modes(US Domestic)(US Domestic)

Service CharacteristicsService Characteristics

Cost Factors Often Considered inCost Factors Often Considered inMode/Carrier SelectionMode/Carrier Selection

Freight costs

Inventory carrying costs – inventory in pipeline

– cycle stock at the receiving location

– required safety stock at the receiving location

Investment cost required to produce the inventory to fill the pipeline

Service Factors Often Considered in Service Factors Often Considered in Mode/ Carrier SelectionMode/ Carrier Selection

Perceived quality of customer service

Shipment tracking and tracing capabilities

Billing/invoicing accuracy

Electronic data interchange (EDI) capabilities

Potential to develop mutually beneficial long-term partnership

Cargo capacity limitations

Ability to provide service that does not damage goods in transit

Customs clearance capabilities for international shipments

Impact on the shipper’s negotiating position/leverage on other shipping activities

Cost Structures IICost Structures II

Cost-of-Service Pricing Establishes rates at

levels that cover carriers’ fixed and variable costs + profit margin

Establishes lower limit of transportation rates (the price ‘floor’)

Value-of-Service Pricing Maximizes Carriers’

revenues

Market/Competition-driven

Establishes upper limit of transportation rates (the price ‘ceiling’)

Total Logistics Cost Analysis – Ocean vs. AirTotal Logistics Cost Analysis – Ocean vs. Air

Factors to consider (Table 11-3) The Higher the Value : Weight ratio, the more likely

justification for Air Cargo