The Challenges of Freighting the Freight – Where to from here considering the encroachment of Globalisation & Technology – LogiSYM March 2018

LogiSYM Supply Chain Magazine - March 2018 Edition

The Challenges of Freighting the Freight – Where to from here considering the encroachment of Globalisation & Technology – LogiSYM March 2018

Topic: Examining the challenges concerning Sea side and Landside freight movements, and some of the responses of international companies in meeting global demand.

Diagram Source: https://toplinkweforum.org

Since the mid 1950’s when Malcolm P. Mclean from Nth Carolina first started his new business model by shipping freight in truck trailers and transferring the trailers straight from the truck to the sea freighter, this lead to the development of modern day containerisation of freight and the standard 20 and 40 foot shipping container. Mr McLean’s ideas and new processes caused significant discussion and angst among his peers. Some thought he was brilliant and others were not so sure, and his detractors outnumbered his supporters. New thinking and innovative approaches often follow this path, but as a human race, innovate we do because to stand still is to go backwards. His modified operations lead to efficiencies and a huge step forward in the area of multi-modalism in freight transport and has transformed the landside and sea port landscape entirely.

The Logistics and freight transport industry has been grappling with new ideas, methodologies and technologies ever since; in finding the means toward efficiency and higher levels of production as it now needs to cope with demand that requires in excess of 1.7 Billion metric tonnes of freight per annum.

These challenges and major hurdles are a constant part of our industrial landscape, because of the existence of rapid change due to the pressures of globalisation, environment change, and recovery from the world financial crisis, a change in the fuel mix availability, and developments in information technology, and new ship building designs. As we move into the fourth Industrial Revolution, our Industry leaders are faced with the need to develop multi-faceted strategic plans to cover a wide variety of complex scenarios that will eventuate over time.

According to; World Economic Outlook Update, January 2018, “The cyclical upswing underway since mid-2016 has continued to strengthen. Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010”. “Among advanced economies, growth in the third quarter of 2017 was higher than projected; notably Germany, Japan, Korea, and the United States. Key emerging market and developing economies, including Brazil, China, and South Africa, also posted third-quarter growth stronger than the fall forecasts.” This continued upswing shows conditions in International Trade are looking very positive in the short term but there are “Risks to the global growth forecast that appear broadly balanced in the near term, but remain skewed to the downside over the medium term”[1], so investment decisions need to be tempered with a level of caution because of uncertainty on the horizon. Geo-political change throughout South East Asia, the rise of discussions about reintroducing tariffs and protectionist policies in the US and Europe and trade and political turmoil among some nations can and probably will cause a cautious response to a perceived increase in risk. Some of this risk can be countermanded by the recent US tax reduction to local businesses and this is expected to stimulate the local US economy and this will have flow on effects internationally.

Looking forward to 2050 and beyond, the face of globalisation will modify and change with current developed nations in the western world still experiencing a leading position in the world, but with an overall decline in world GDP contribution and share with an expected increase in world GPD share from emerging nations. Contributors to this include changing investment patterns with a continuation of outsourcing of production capacity and requirements from the western world to more developing nations such as Brazil, China, India, and Africa.

The closing of the gap in economic development and performance has led to an unparralled growth in the development of the middle class and upper class demand within many economies and the Logistics Industry is making plans to meet the demand, so to maintain and grow market share, minimise trade elasticities and balancing trade intensity with satisfying demand whilst trying to reduce the overall transport miles and subsequent transport cost. Oligopolies exist at an increasing rate due to globalisation and especially since; China gained access to the World Trade Organisation in 2001: where the recent past accomplishments and future plans will change the face of production and trade globally.

To accommodate forecast increases in the sea freight trade, there is significant port development throughout the world, both in the area of sustainability, with various energy sources and efficiencies being built into modern automated equipment to reduce overall operational costs as well as productivity enhancements. For example: The Port of Rotterdam Authority is working with a joint venture, “which has invested €9 million in the project so far, which aims to promote new mechanisms and the scale-up of new technologies to stimulate the transition to a low-carbon economy”. The basis of this project is to turn “360,000 tonnes of waste into 220,000 tonnes or 270 million litres of ‘green’ methanol.” This “reduces CO2 emissions by approximately 300,000 tonnes”, and will form a world leading operation in sustainability and waste conversion.[2]

It is reported on the Greenport.com website that the “World Ports Sustainability Program (WPSP)” charter will be signed in Antwerp on 22 March 2018, where sustainable ports around the world will set out the guidelines for their commitment to achieving the 17 UN Sustainable Development Goals.” This only enhances the reputation of the shipping industry as being environmentally responsible but also is taking real and present action to reduce the C0² emissions associated within the shipping industry. These capacity enhancements need to be balanced with use of higher capacity ships in excess of 13,000 TEU and the operational and building cost of the equipment suitable to handle such ships. Focussing on the importance of budgetary requirements, ships in excess of 13,000 TEU capacity will require infrastructural enhancements such as dredging to allow for deeper draughts, quay size, port facility, and landside logistics operations to cope with such ships. The demand is there currently, and is forecast to rise in the future, but landside logistics operations need to be developed to match the capability of higher TEU deliveries and handling. As sea freight volumes rise and ships with mixed capacities; some up to and over 14,000 TEU’s arriving at our port facilities, we need to ensure that investment in port infrastructure priorities remain a high item on the political agenda. Maximising sea freighter capacity to generate economies of scale per container and service capacity to the customer, is an expensive business and this can be undone by not having sufficient landside logistics, relationships, and collaborative working arrangements in place to remove bottlenecks and congestive work practices or restrictions in and around our ports.

As freight volumes increase in order to satisfy Industrial and Domestic demand, the development of rail and road freight options are becoming more and more urgent. With the growing trend of port privatisation and business conglomerates purchasing or leasing ports in their entirety, funding models are changing and occasionally become incongruous with government initiatives. Infrastructure investment needs to remain a core focus, otherwise we will suffer the negative effects of bottlenecks, supply shock, delays and sustainability issues caused by an imbalance between the two capabilities, between sea side and from landside operations.

Increased carrying capacity of multi-modal transport options require robust road and bridge systems to carry the loads, and as we progress the logistics industry into the fourth industrial revolution, we are finding that older infrastructure cannot meet modern day requirements. This is a challenge for us all and there are no easy or cheap answers. An example of this is in Melbourne Australia where the two main arterial roadways and bridges have a carrying capacity of 68 tonnes per heavy vehicle but to meet the demands of high productivity vehicles; 109 tonnes capacity is required. There are calls locally to strengthen the local bridges to the required capacity, but trying to re-engineer existing infrastructure is expensive and very disruptive to already high levels of utilisation. This requires us to look toward alternatives such as multi-modal operations, hub and spoke developments and moving freight away from our sea ports, quickly and efficiently. Short haul rail services are well purposed and designed to perform this vital task, as rail offers the carrying capacity, efficiency and flexibility to move freight to alternate hubs within the network. In Melbourne Australia, the federal and state governments combined have committed $AU 58 Million to develop rail shuttle initiatives between existing infrastructure and connections with major freight hubs and businesses. The Port of Melbourne consortium (Lonsdale Consortium) has leased the Port operation for 50 years for an investment value of $AU9.7 Billion, and has been in consultation with government groups in regards to what is required to maximise the ports’ output of up to “12 to 15 million containers, up from an average of 2.4 million TEU currently”. The situation in Melbourne is that there are problems associated with the close proximity of the port to the city and local residential environment. Port productivity plans and local residential committees have concerns with road traffic congestion, road traffic noise, particulate matter from truck exhaust and local road infrastructure, that all challenge the overall operation of the Port.  A rail infrastructure project should alleviate a lot of these issues and support the urban development requirements and lifestyle goals for the local population, as well as provide a solution to the task of moving high volume freight through our urban environment. [3]

In the UK, “Network Rail” [4] is obtaining more funding as well, as it sets new strategic plans for further improvement as well as supporting existing programs. In both cases, moving freight by rail allows for cleaner and quicker transportation, provides an opportunity to reduce the reliance on road transport and therefore trucks, congestion and the potential for delays, Supply shock and lead time variation as well as road and traffic related accidents.

In conclusion, a fully integrated system with suitable capacities need to be developed by private consortia and government entities, so that the current and future needs are met. A balance between production requirements / outputs and sustainable business practices and the reduction of CO² emissions and environmental protections need to be a high priority. Infrastructure development requires capital investment between governments and private business working in collaboration to ensure that investments are strategically allocated to ensure maximum values are attained and a long term view toward the future requirements should ensure an efficient whole of supply chain view. If these are possible, then a flexible and sustainable value chain operation should be possible whether the business plan is either business to business or business to customer. Port and landside access needs to be possible to provide seamless transfer of freight, and developing nations are at an advantage here, because developed nations have existing development and infrastructure to contend with whereas developing nations have more of a clean slate. A blend and appropriate design of multi-modal transport solutions combined with the utilisation of various energy and fuel types across supply chains should lead to an overall improvement in supply chain efficiencies and operations as well as substantially attaining sustainability goals.

 

[1] https://www.imf.org/en/Publications/WEO/Issues/2018/01/11/world-economic-outlook-update-january-2018

[2] http://www.greenport.com/news101/europe/rotterdam-embarks-on-sustainable-waste-recycling

[3] https://www.theage.com.au/national/victoria/scrap-truck-curfews-build-east-west-link-to-help-us-grow-says-port-of-melbourne-20170411-gvit2v.html

[4] Value and Importance of Rail Freight – https://cdn.networkrail.co.uk/wp-content/uploads/2016/11/The-Value-and-Importance-of-rail-Freight-summary-report.pdf

Ian L. Burns

Ian has engaged businesses throughout Australia in the areas of Logistics, Lean, Retail, Light and Heavy Manufacturing and Supply Chain. Ian now works at RMIT University as well as other Education facilitators, using his skills to education future leaders in the field.
IanBurns

Dr Ferry Jie

Dr Jie is an Associate Professor at School of Business and Law, Edith Cowan University. Dr Jie has maintained a high quality of research in the areas of supply chain management and logistics.
FerryJie

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LogiSYM Supply Chain Magazine - March 2018 Edition
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