Supply Chain Management Basics

Module Overview

• The module provides information on supply chain management basics, differences between supply chain, logistics, and transportation and how businesses are impacted.
• The SCOR model (Plan, Source, Make, Deliver) and the use of Incoterms in transportation management are introduced.
• Equipment and Nodes are explained related to origins, intermediate nodes, and destinations
• The trade-offs between different transportation modes and intermodal solutions are discussed.
• The module will explore international hubs and how they affect transportation decisions.
• Customs brokerage processes, relevance of WTO and FTA, and FTA processes are explained.
• The significance of a Control Tower and the impact of emerging technologies like IoT and Blockchain are also examined.
• The lecture will discuss the impact of effective transportation management on sustainability.
• The risk in international transport management, covering mitigation strategies will be explored.
• The different modes of transportation will be described including, ocean, air and rail.

Ocean Freight

• It offers increased capacity and value such as being able to hold the equivalent of 10,000 beer bottles per container.
• Typically slower than air freight, experiencing additional delays due to customs and port-related issues.
• Express LCL is becoming more available, guaranteeing delivery dates without much delay.
• Ocean freight provides a better carbon footprint compared to air freight when comparing per unit level.

Overcapacity and Pricing

• Overcapacity caused volatile earnings in ocean carrier earnings until 2019, as capacity exceeded demand and caused depressed pricing which has been sustained since 2008.

Carrier Alliances

• Carrier M&A intensified between 2015 and 2019, driven by a business climate with super low margins and overcapacity
• Alliances in container shipping are not new, and trace back to the 1990s.
• In 2024, the two largest container lines, MSC and Maersk, will conclude their eight-year vessel-sharing agreement due to increased competition.
• Together, MSC and Maersk control two-fifths of all seaborne freight.
• In April 2024, the top 5 carriers controlled ~65% of market share of the world liner fleet.

COVID-19 Impact

• In 2021 Volatile profitability took a turn
• Shanghai Containerized Freight Index (SCFI) highlights weekly spot rates from December 18, 2009, to July 23, 2021, for selected routes
• Container spot rates on major trades dropped below pre-pandemic levels,

Ocean Freight Pricing Components

• Ocean rates includes freight rates from port to port.
• The Bunker Adjustment Factor (BAF) is a surcharge to account for fuel price fluctuations, based on TEUs.
• A Low Sulphur Fuel Charge (LSF) or LSS is imposed on vessels in Emission Control Areas using fuel with a max of 0.1% sulphur.
• Emergency bunker surcharges (EBS) are carriers fees implemented when fuel prices rise significantly.
• A Peak Season Surcharge (PSS) is added only to imports from Asia, to help cover operational costs during peak seasons while Currency Adjustment Factor (CAF) covers currency fluctuations with Asian countries.
• Route surcharges include the Suez Canal and Gulf of Aden.

IMO 2020 and BAF

• IMO 2020 increased the BAF due to new regulations curbing greenhouse gas (GHG) emissions.
• IMO 2020 is a regulation that came into force in January 1, 2020 and the International Maritime Organisation (IMO) has standardised regulations for emission control
• By the new rule of the IMO, sulphur emissions should be cut from 3.5% to 0.5%.
• Implementation resulted in increased shipping costs- either as additional logistics tariff or increased low-sulphur fuel charges.

Suez Canal Surcharge (SCS)

• The Suez Canal Authority (SCA) announced surcharge changes that took effect on November 1, 2021.

Gulf of Aden Surcharge

• The Gulf of Aden Surcharge is an additional charge levied on shipments passing through it.
• Increase in operation, security, and insurance costs dictate the amount.
• An other name for the fee is "Piracy Risk Surcharge".

Ocean Freight Origin Charges

• Origin charges are THC (terminal handling charges) and document handling fees.
• VGM - Verified Gross Mass is the container's total weight, including its contents, per the International Convention for Safety of Life at Sea for safe loading; fees of ~$25.
• Other origin accessorial charges covering port construction fees.

Verified Gross Mass (VGM)

• Discrepancies between the declared and actual gross mass of a packed container can lead to incorrect vessel stowage decisions and consequentially major accidents.
• To ensure the safety of seafarers and shore-side workers, the 171 members States of the International Maritime Organization (IMO) will started enforcing the Safety of Life at Sea (SOLAS) amendments to require a packed container to have shipper- verified weight as a condition for loading onto a ship for export.

Ocean Freight Destination Charges

• Destination charges include THC (terminal handling charges) and document handling fees.
• The container cleaning fee is imposed when cleaning the returned empty container after delivery, however, can be wrongly charged.

Ocean Trade Lanes and Shipping Routes

• Key Ocean Tradelanes: Transpacific, Asia-Europe, Transatlantic, Intra-Asia
• Key Ocean Shipping Routes: Suez Canal, Panama Canal, Straits of Malacca

Suez Canal

• Artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea through the Isthmus of Suez, and dividing Africa and Asia that connects Europe with Asia
• Construction of the canal took place from 1859 to 1869 under the regional authority of the Ottoman Empire that officially opened on 17 November 1869.
• The Egyptian government launched construction in 2014 to expand and widen the Ballah Bypass for 35 km (22 mi) to speed up the canal's transit-time.

Alternative Trade route (article 2018)

– India, Iran, Russia

• Alternative route, of a 7,200km international North-South Transport Corridor (INSTC)
• Is a cheaper and shorter alternative to the traditional route through the Suez Canal

Transhipment

• Can be defined as the number of containers handled at a port or terminal that, after temporary storage, are transferred to another ship.
• May include only seaborne transfers or both seaborne and inland waterway ship transfers (water-to-water transhipment).

Largest Transhipment Ports

• The Port of Singapore is the busiest transshipment port in the world accounting for 20% of the globe's transshipment traffic.
• The Port of Shanghai is the largest port in the world.
• The Port of Shenzhen handled 25.77m TEU around half of which was transshipped to another port of call.
• The Port of Busan handled approximately 9 million TEU of transshipment cargo.
• The Port of Hong Kong handled approximately five million TEU of transshipped goods