Supply networks typically develop over time. Each new supplier or location may add new transport routes and ports of shipment to the network, which grows without any underlying logic. There may be sound reasons for using several ports in a region such as security against industrial action, or to maintain options in areas where infrastructure is undeveloped or unreliable, for instance. But often there is scope for considerable gains in cost and efficiency by analysing the network and concentrating traffic on one or a few ports.
Advantages of port rationalization
Concentrating on limited shipping ports can offer benefits both to the shipper and the logistics provider. The latter can achieve more efficient utilisation of assets, both physical and human. There are fewer different sets of procedures and partners, from stevedores to Customs officials, to manage and maintain a relationship with. What’s more, larger scale may not only attract more favourable rates for shipping and services, but also increased influence that may be important at those times when port capacity is strained!
One of the most compelling arguments for rationalising onto limited shipping ports, though, is the opportunity it affords for load consolidation. Often the effect of shipping from different suppliers through different ports is an excessive proportion of shipments in less efficient 20 foot containers, and indeed of less than container load (LCL) shipments. The ability to consolidate a customer’s shipments from different suppliers into full 40 foot containerloads can yield very considerable savings.
Where to consolidate
The choice of port on which to rationalise operations depends on a number of factors. Obviously the port needs to have liner services to the required range of destinations. If time is of the essence, the need to use lines with fewer ports of call and faster transit times may be paramount, and confine choice to the largest ports. On the other hand the choice will also be affected by the characteristics of the inland transport from supplier to port, congestion issues, the availability of space in which to carry out consolidation activities, efficiency of port operations, and the relative costs of facilities and services. Often, the largest ports will be the most attractive, but this is not automatically the case.
Realising real savings
A recent example where an optimisation study has shown that concentration on limited shipping ports could yield very significant savings is that of a major UK-based retailer. This company sources most of its 40,000 products from China, shipping around 255,000 cubic metres a year through a number of Chinese ports.
A benchmarking study showed that, compared to its peers, this company was using a high number of ports. Furthermore, a fifth of product was shipping in 20 foot containers, and 7.5% was LCL – a level of container utilisation below comparable industry averages.
By concentrating the traffic on a single port, in this case Shanghai, the study showed that it would be possible to introduce flexible CFS and CY programmes based on weekly volumes, increase the use of 40 foot rather than 20 foot containers, and significantly reduce LCL traffic as well as increasing shipping options. The estimated saving to the customer will be around $700,000 a year, or almost $3 per cubic metre.
Transport and shipping arrangements tend to develop as an accidental result of supply choices, but there is no reason why shippers should be locked in to historically high costs and inefficiencies. A considered look at asset utilisation and port rationalisation can often reveal scope for truly significant efficiencies and savings.