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Port integration in global supply chains

For the last decade the pattern of transport demand in the EU countries was changed due the changing of the overall socio-economic and policy environment in one hand and changing in the transport sector as whole on the other hand. Mentioned changes induced other changes in planning policy and practice in transport infrastructure development at national and EU levels. The requirements for more efficient and more environmentally friendly transport systems, able to connect modal infrastructure and the nodes of national and European network economy one the other, have been strengthened. In this context, the concept of integrated transport system promise to fulfill the requirements.

Horizontal and vertical integration represents base of integrated transport system . Horizontal integration , that could be considered as a precondition for successful vertical integration , is considered as result of intermodality together with its complements , interconnectivity and interoperability . The vertical integration strategy represents running “demand-led” logistics chains where cost-efficient and high quality door-to-door intermodal transport services are offered to end user .

Integrated transport systems have to improve overall utilization of transport infrastructure and equipments and to transform the system from an extremely passive to o high value-added entity.

The literature well established the importance of seaports for national and international economies. Traditionally, port has role of facilitator oriented on offering of infrastructure for ship operations: loading / discharging, temporary storage and intra-port operations. Current port management trend transformed the port into important player involved in bringing value to end user.

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Literature review

Defining the new core business of the ports in order to indentify an appropriate strategic intent ( Hamel and Prahalad , 1994 ) and to specify relevant core and threshold competencies are main responsibilities for ports management and port authorities for ports positioning and growing .

The availability of alternate logistics systems induces competitive environments for port activities. Port authorities have to respond by including the harmonization of policies based on economic principles, and focus on activities with economies of scale and scope and perhaps inter-port cooperation ( Heaver ,1995 ).

Notteboom and Winkelmans ( 2001) propose that port networking ( not only inter-port cooperation ) constitutes probably the most important future role for port authorities. The authors raised the question of the role of port authorities in the context of changes logistics operations and have hypothesized:” a successful port must be prepared to constantly adopt new roles in order to cope with the challenging market environment “.

Ports could be define only as places, but places characterized by the essential function of exchanging cargo between ship and shore. The new trading environment induced a new paradigm for ports. Ports should be considered as elements embedded in value-driven chain system or in value chain constellations. During the delivering value for shippers and other third party service providers in the value-driven chain, ports segment their customers in terms of value proposition and capture value for them and for the chain in which they are embedded.

Robinson (1992) argued that port’s advantage was in fact a “derived“advantage. Shippers and related service providers derived value from moving cargo through the port. The port’s derived advantages come from advantages created for shippers and third party service providers involved in the door-to-door movement of cargo.

Slack and Fremont (2005) identified two types of port terminal operations: the multi-user terminal management company and dedicated berth managed by shipping line, that represent outcomes of different economic processes. The recent ports major transformation have important theoretical and practical implication induced by fundamental contrast

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between the transnational terminal operators which operate terminals for multiple clients and the dedicated terminals controlled by one shipping line.

Important questions arise out about the economic efficiency of dedicated terminals vs. common user facilities. Some research suggests that dedicated facilities achieve higher levels of performance ( Carriou, 2003 ) while other studies claim higher throughputs for multi-user facilities ( Turner, 2000) . Slack and Fremont (2005) suggests that cost differentials are not the only determinant. The authors recommend considering other factors as governance, institutional relationships and spatial competition, factors that are regionally differentiated.

Current developments in maritime transport and logistics suggests that ports have to play an important strategic role as a member of a supply chain that involves sea and inland transportation

Song and Panayides (2008) defines ports as the springboards for economic development of the hinterland due ability of ports to carry out their functions of accommodating ships and other modes of transport effectively and efficiently. The ability of ports to fulfill a new role in the logistics era in the context of operating as parts of integrated global supply chain system represent main contemporary concern of ports manger.

Supply chain management has been defined as the systematic, strategic co-ordination of the traditional business functions and tactics across these business functions first within particular organization and second across business within the supply chain . The purposes are improving the long-term performance of the individual organizations and the supply chain as a whole.

De Souza et al. (2003) emphasize that, nowadays, ports play an important role as members of a supply chain. Hence ports bring value to the final consumers acting as part of a cluster of organizations in which different logistics and transport operators are involved. A higher degree of co-ordination and co-operation is requested for being successful.

Carter and Ferrin ( 1995 ) advocate that supply chain management induce the principle of logistics integration to all companies in the supply chain through strategic partnership and co-operation arrangement and the next challenge of supply chain management is to manage “pliant flows” in order to ensure that all parties of the chain “oscillate together “ in a holistic fashion ( Sheffy and Klaus , 1997 ).

Narasimhan and Kim (2002) found three level of integration: a company’s integration with suppliers, internal integration across the supply chain and integration with customers . Some researches acknowledges that the higher the degree of integration across the supply

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chain the better a firm performs ( Narasimhan and Jayaram , 1998 ; Johnson , 1999) and underline the dangers if suppliers and customers are not fully integrated in terms of their business processes (Frohlich and Westbrook , 2001 ; Armistead and Mapes , 1993 )

In the context of supply chain integration customer and supplier relationship have to be main concern. Supplier involvement in product design or acquiring access to superior supplier technological capabilities ( Narasimhan and Das , 1999 ) are manifestations of suppliers treating as strategic collaborator . On the other hand closer customer relationships involve proactively acquiring information from downstream customers about their needs and becoming responsive serving them.

Measures of supply chain integration have been conceptualize and test by recent studies (Vickery et al. , 2003) . The practices that strengthen linkages between companies and integrative information technologies occupy different positions in the supply chain (vertical linkages as in supplier partnering and closer customer relationship and horizontal linkages as in forming intra-firm linkages using cross-functional teams)

Bowersox and Daugherty (1995) and Lewis and Talalayevsky (1997) argued that key for increasing of the flow of relevant information among process participants able to facilitate the integration of processes that transcend functional and firm boundaries is the presence of integrative information technologies .

The determination of the parameters that encompass the extent of integration of ports / terminals in global supply chain has become of greater importance. But, ports are very dissimilar and even within a single port the current or potential activities can be broad in scope and nature. In this case the choice of an appropriate tool of analysis is difficult. The dissimilarity constitutes a serious limitation to enquiry, not only concerning what to measure but also how to measure. More than that the concept of integration is vague and proves difficult to apply in a typical port organization extending across production, trading and service industry.

Usual port activities are measured by cargo output or through production functions. In case of using cargo output for measure port activity the assessment of efficiency is based on the contribution of a single factor productivity to port throughput such as output per worker or per wharf ( Frankel , 1991) or on the measurement of total cargo handling productivity (Bendall and Stent , 1987 ; Talley , 1998) . On the other hand Kim and Sachish (1986 ) and De Neuville and Tsunokawa (1981) recommend performance evaluation through equating port operations to the production function .

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Recent literature advocating nodal role of ports as logistics centers in the changing patterns of maritime and intermodal transport (e.g. hub and spoke system) overlook logistics integration of the various activities performed within the own port organization . Different aspects of port management (cost-analysis, marketing, strategic planning) are highlighted, but without incorporating them into an integrated logistics framework of customer service total costs or trade-off analysis. The question of the total cost that cargo bears throughout different port operations up to the final customer or the competitive benchmarking between the management of seaports and that of other entities with similar operational features ( airports or regional distribution centers ) does not appear to have been discussed in the academic literature ( Rushton et al , 2000 ; Haralambides et al. , 2002)

Recently Paixao and Marlow ( 2003 ) and Marlow and Paixao ( 2003 ) emphasize that port performance depends to a large extent on logistics measures of cost and responsiveness and therefore introduce the logistics concept of “ lean” and “ agile “ operations as key factors in the measurement of port performance. In order to direct port strategy towards relevant value-added logistics activities it is compulsory to adopt a logistics approach to the measurement of port performance. ( Bichou and Gray , 2004)

Song and Panayides (2008) defined six parameters conceptualized to account for most of the variation in the degree of seaport integration in logistics and supply chain management : adoption of information and communication technologies, relationship with shipping lines , value-added services , inter-connectivity / inter-operability with inland modes of transport , relationships with inland transport praetors and channel integration practices and performances .

Sometimes it may be difficult for members of international logistics channel to integrate considering that organizational integration are in era of substantial restructuring of the logistics channel ( Notteboom and Winkelmans , 2001). Integration between shipping lines and ports is difficult to implement if both parties try to optimize the use of their respective assets (ships vs. berths or warehouse) by transferring cost to each other. Literature identified that types of international logistics channel conflict may be also between freight forwarders and ports or between freight forwarders and shipping line. Logistics channel of bulk commodities are more likely to be controlled by shipper or their agents, whereas ocean carriers are indicated as the most dominant in the current organization of international logistics channel for container and intermodal transport. (Taylor and Jackson, 2000).

Ports should be seen as key elements in value-driven chain systems contributing to supply chains through the creation of competitive advantage and value-added delivery. In this sense , despite channel conflicts , ports could be more proactive in the supply chain .

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A model of the port value chain limited only to the logistics channel was issued by Robinson (2002). The model define various flows and relationships in typical port organization and range completely fragmented system of customs agent, inland transport, stevedore , shipping agent , shipping line to a fully functionally integrated system controlled by “mega-carriers” .

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Grain logistics integration in port of Constanta

Grains traders have to mitigate the risks by adopting the strategies to coordinate the flow of grains through supply chain. Ballou (1992) define logistical strategy as aim to getting “the right goods or services to the right place at right time “.

In port of Constanta, grains traders use two prominent mechanisms in grain transportation: forward contracts and demurrage. The mechanisms have profound effects on logistical strategies of grains industry stakeholders.

Logistics management in grains industry is known as managing the pipeline. All functions, from originating grain at the producer level to selling grain to domestic or international customers are involved on logistics management in this industry.

Many factors affect organizational integration on grains business in port of Constanta. One of the most important is the timing of modal arrivals (railcars, barges, vessels, etc. ) which are typically designated in a window specified in days , rather than specific date . Other factors include demand timing of prospective sales and uncertainty in transit times. All of these negatively affect international logistics channel conflicts. As a result we have an impact on the marginal cost of exporting due the demurrage and other forms of penalties throughout the system.

Most used type of penalties is demurrage defined as a monetary penalty imposed on a shipper for holding a carrier’s equipment longer than agreed. Demurrage is result of opportunity costs for carriers and owner of equipment. For equipment sitting idle at grain shipping facilities while waiting to load and discharge carriers use demurrage policies comprising a system of penalties to encourage efficient use of equipment by shipper.

Last changes in grain shipping, along with the innovative shipping mechanisms, have made logistics management an important source of opportunity and risk for grain shippers. Wilson et al. (2004) developed a model to evaluate tradeoff and effects of key variables on logistical costs in grain supply chain. They found out that average demurrage for the supply chain could be up to 0,7 USD / tones with highest demurrage costs for sea vessels and lowest for railcars . Sea vessels demurrage is the largest component accounting for 41% of total demurrage , followed by barges demurrage with 37% and railcars with 22% .

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Demurrage policies could vary across modes and carriers. Demurrage can affect mode selection, timing of transportation ordering and shipments as well, as storage as important element for managing a grain supply chain ( Wilson et al. , 2004) .

New storage facilities build during last decade in port of Constanta attenuate logistics channel conflicts. In following picture is presented the newest storage facilities build by United Shipping Agency in 2009, situated on berth no. 31-33 with total capacity of 200,000 tones heavy grains. The grains terminal could accommodate sea vessels PANAMAX type with transport capacity up to 65 000 TDW. United Shipping Agency grains terminal is a intermodal facility. The grain could come from hinterland by barges, railcars and trucks into storage facility. The sea vessel could be loaded simultaneous with two ship loaders with 3,000 tones / hour loading capacity. Terminal could transfer, also, the grains from sea vessel to land legs by barges, railcars and trucks.

In port of Constanta, the phenomenon of storage at an apparent opportunity cost can rise because these activities are more inflexible in the short run that in long run.

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Other reason for storage is that grains business is unusually costly in the short run. Grain stocks are held because of the inconvenience of transforming them into the commodity for which there is a premium for immediate delivery. Storage is not used to face of spreads below full carrying charges because of the convenience of having them in that location or in that form.

Storage occurs, also, because of the distortions in commodity markets, such as export subsidies or the strategic reserve, which could change the relationship between the amount stored and the backwardation.

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Conclusions

This paper has provided an overview of some research in the field of integrated transport system underlying ports role in this matter .

The general and common definition of integrated transport system din not existed. The term of “intermodal “and term “integrated “transport were used to define the transport system that could provide door-to-door transport services for end customer using different transport modes .

Literature review induces a possible need for re-define of what constitutes port performance and how port should be evaluated and assessed. The traditional performance measure of throughput should be linked with performance measure related to responsiveness and reliability. The throughput as method for terminal efficiency may not be sufficient to measure aspects relevant to port performance in the global supply chain management.

Ports have to position themselves in the new business environment defined within a paradigm of ports as elements in value-driven chain systems.

Overview logistics chain through port of Constanta demonstrates costs and risks of logistical strategy of a typical grain supply chain. Shipping costs are strongly affected by demurrage levels. Demurrage is result of failure of supply chain integration in grain business and is incurred by every transport mode.

The paper open the way for further researches that could be directed towards the improvements of intermodal-integrated infrastructure, development of more sophisticated and user-friendly software supporting integrated transport services and setting up efficient and competitive costing and pricing system of integrated transport services.

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