Global Logistics Infrastructure Handout - Week 3 PDF

WEEK 3 GLOBAL LOGISTICS INFRASTRUCTURE Overview of International Trade (physical goods) International trade encompasses a diverse range of goods. Two primary categories Natural resource-based goods: raw materials Agricultural products, while not falling under the natural-resource definition, are inc...

WEEK 3 GLOBAL LOGISTICS INFRASTRUCTURE Overview of International Trade (physical goods) International trade encompasses a diverse range of goods. Two primary categories Natural resource-based goods: raw materials Agricultural products, while not falling under the natural-resource definition, are included under the category of primary materials. Manufactured products: industrial goods (machines) and consumer goods (clothes, furniture, etc). Trade Composition More than two-thirds of seaborne trade by volume consists of raw materials. More than two-thirds of seaborne trade by value is represented by manufactured goods, comprising the largest share in international trade. Natural resources Natural resources It refers to scarce and valuable natural materials used in production, either raw or minimally processed (WTO 2020) e.g., crude oil for petrochemicals, iron ore for steel, coal for power, logs for paper and furniture, rubber for automotive etc. Types of natural resources Liquid resources (liquid cargos) These are resources that are in a liquid state, like crude oil, gasoline, LNG, chemicals, or vegetable oils. They are often transported in tanks or (sometimes) special containers designed for liquids like tank container Dry resources (dry cargos) Goods and materials that are in a solid or dry state. Examples include coal, iron ore, bauxite, grains. Dry cargo is often transported in bulk carriers Natural resources - characteristics High cargo volume & homogeneous nature Cargo in significant volume, consisting of uniform natural resources. Large volume requires extensive transportation capacity with sizable ships. Homogeneous nature enables loose, bulk transportation, facilitated by specialized cargo handling equipment. Low unit value & transport cost Natural resources generally have a low market value. Abundant supply leads to low material value, and transport costs constitute a significant proportion of the cargo's total value. Low unit value justifies slower transport speeds to reduce costs, even at the expense of longer transit times. Natural resources - characteristics Concentrated & stable export sources Natural resource disposition is not directly linked to economic development levels and factors. Export sources remain relatively few and stable, determined by fixed factors such as natural distribution. For example, leading exporters are like Brazil, Australia for iron ore, Saudi Arabia, and Venezuela for oil. Volatile volume & price fluctuations Natural resource trade depends on the importing nations' economies and global economic conditions. Economic fluctuations can lead to variations in trade volume For instance, a slowdown in the Chinese economy in 2015 impacted iron ore imports and freight rates. Weather conditions also influence trade levels For instance, grain imports being affected by weather conditions, and the need for coal fluctuating based on winter temperatures. Natural resources characteristics - continued A dry-bulk carrier with hatches open, loading coal in Australia Carrier: A firm which transports goods or people via land, sea or air. Sometimes a ship. https://www.marineinsight.com/know-more/10-largest-container-shipping-companies-in- the-world/ Manufactured goods Manufacturing Process Involves the transformation of raw materials using man, machines, or chemical processing, typically on a large scale. This process distinguishes manufactures, also known as industrial goods producers. Types of Manufactured Goods: Consumer goods/home products: Items like electronic products, clothes, furniture, and other daily-life essentials purchased from shops. Capital goods: Designed for production rather than final consumption, such as machinery, office equipment, airplanes, ships, etc. Maritime Transport In maritime transport, manufactured products are commonly referred to as general cargo. Cargo General cargo General cargo consists of those products or commodities such as timber, structural steel, rolled newsprint, concrete forms, agricultural equipment that are not conducive to packaging or unitization. Break Bulk – Goods that are carried in unitized form. A cargo that is carried in drums, bags, pallets, or boxes. Neo Bulk - A cargo where each pre-packaged unit is accountable such as lumber (bundles), paper (rolls), steel, and vehicles. Containerized cargo - The growth of container shipping required creating a new general cargo category where the cargo is being carried in container load units. Unit load - Packages loaded on a pallet, in a crate or any other way that enables them to be handled as a unit. Bulk cargo vs. General cargo Roll On/Roll Off (RO/RO) Vessel Ships that are specially designed to carry wheeled containers trailers, or wheeled cargo. LO-LO (LIFT-ON LIFT-OFF) Loading/unloading by the vessel’s own or by-shore cranes Manufactured goods characteristics High value Manufactured goods represent the largest portion of international trade in value, with about 68% of world merchandise exports in 2018. High growth rate The trade volume of manufactured goods has grown 80-fold since 1950, with an average annual growth rate of 7%, outpacing that of fuel, mining products, and agricultural goods. Industrialized exporting countries Countries like Japan export mainly manufactured products due to limited natural resources Countries like Brazil and South Africa import more manufactured goods. New trend 1 – From product based to process based Historical Perspective Traditionally, countries specialized in producing entire products. International trade was based on exchanging finished goods. Transformation Global Supply Chain shifted toward a process-based approach. Countries now specialize in specific tasks within the production process. Trade involves the exchange of tasks (semi-finished goods) rather than complete products. New trend 1 – From product based to process based Distinct Features Concentration of production is observed Stages of design, development, manufacturing, sales, and distribution are now separate. Activities occur across national borders based on comparative advantage. Value-Added Each stage contributes varying value to the final product. Manufacturing and assembling often have the lowest value-added. Assembling iPhones, for instance, adds minimal value to the total product. New trend 1 – From product based to process based Value added and cargo volume generated by production stages along the supply chain New trend 2 – relocation of production facilities Relocation Manufacturing activities often relocate between countries or shift production centers due to evolving comparative advantages. Result: Changes in the most attractive location for production. Observation: Asia witnessed significant shifts of Japan → Korea → Malaysia → Thailand → China → Vietnam → Indonesia. China as the "Factory of the World" China earned the title due to its massive size, absorbing a substantial portion of the global manufacturing sector, catering to both international markets and domestic consumers. Anticipated Shifts China's role as the "factory of the world" is expected to change as its labor force becomes scarcer and more expensive. Container The usage of containers shows the complementarity between freight transportation modes by offering a higher liquidity to movements and a standardization of loads. Standard 20 Foot Containers The reference size is the 20-foot box of 20 feet long, 8’6″ feet high and 8 feet wide, or 1 Twenty-foot Equivalent Unit (TEU) Carry heavier goods. Running out on weight before run out of volume. 40 Foot Containers Majority of containers are now forty feet long, the term Forty-foot Equivalent Unit (FEU) Carry more volume then weight 40 Foot High Cube “Hi cube” containers are also common, and they are one foot higher (9’6″) than the standard. Containers used in global fleet, 2019 The Emma Mærsk officially carries 11,000 TEU 40 foot vs. 40 foot HI CUBE Advantages of Containerization Standardization Standard transport unit that can be handled anywhere in the world Each container has a unique identification number and a size type code https://www.bic-code.org/ Length Height Type 2 20 feet 2 8 feet 6 inches G1 General purpose container 4 40 feet 5 9 feet 6 inches R1 Refrigerated container L 45 feet “High cube” U1 Open top container P1 Platform container T1 Tank container M 48 feet Advantages of Containerization Owner code Consisting of three capital letters that identify the owner of the container. An international agency (Bureau International des Containers et du Transport Intermodal) issues owner codes on behalf of ISO In the previous case, the container belongs to the American company Textainer, the world’s largest container leasing company. Product group code Appears right after the owner code and consists of one capital letter J refers to equipment can be attached to a container, such as a power unit. Z refers to a trailer used to carry a container. U refers to a general use container. Registration Number (or Serial Number) A sequence of 6 digits where each container belonging to an owner has a unique value. Therefore, each owner code can have up to 1 million containers. Advantages of Containerization Check digit This single digit is used to cross-verify if the identification sequence is accurate. A numerical operation is performed on the container identification sequence (owner code, product group code, and registration number) which results in a single-digit number, which is the check digit. https://www.gs1.org/services/check-digit-calculator Size and type code The first character is related to the length of the container while the second character is relative to its height. The first two numbers 45 indicate that the container is a 40 footer (4; commonly the length of the container) of 9 feet 6 inches in height (5; high cube). G1 indicate that it is a general-purpose container Advantages of Containerization Velocity Transshipment operations are minimal and rapid and port turnaround times have been reduced from 3 weeks to about 24 hours. Warehousing The container is its own warehouse, protecting the cargo it contains. Simpler and less expensive packaging for containerized cargoes, particularly consumption goods. The stacking capacity on ships, trains (double-stacking), and on the ground (container yards, cy) is a net advantage Security and safety The contents of the container are unknown to carriers since it can only be opened at the origin (seller/shipper), at customs and at the destination (buyer). Disadvantages of Containerization Site constraints Containers are a large consumer of terminal space Many intermodal terminals have been relocated to the urban periphery Capital intensiveness Container handling infrastructures and equipment requires capital investments The push towards automation is increasing the capital intensiveness of intermodal terminals. Repositioning There are 2.2 times as many containers moving from Asia to the United States (17.9 million TEUs in 2017) than vice-versa 9.7 million TEUs had to be repositioned across the Pacific More than half the slots of containerships leaving the United States are for empties, particularly for major container ports such as Los Angeles. This is a challenge for carriers as they have to match inbound freight capacity with outbound freight capacity as possible. Disadvantages of Containerization Theft and losses High-value goods can forcefully be opened or carried away (on a truck) About 1,500 containers are lost at sea each year mainly because of bad weather. Illicit trade The container is an instrument used in the illicit trade of goods, drugs, and weapons, as well as for illegal immigration (rare). Vessels Volume (in millions of tons) of ocean transport, by type of cargo. Vessels Multiple categories of vessels Panamax A ship of the maximum size that can enter the locks of the Panama Canal. The locks are 110 feet wide, 1000 feet long. Neo-Panamax A ship of the maximum size that can enter the newer locks of the Panama Canal. The locks are 180 feet wide, 1,400 feet long. Post-Panamax A ship that is too large to enter the locks of the Panama Canal. Handy Size term commonly used in the dry-bulk trade that refers to ships in the 10,000 to 50,000 deadweight ton range. Such ships tend to be used for tramp service Vessels Suez-Max A ship roughly 150,000 dead-weight tons, the maximum size that can fit through the Suez Canal. The size changes as the canal is expanded regularly (In 1996, the Suez Canal was deepened and widened) Cape-Size A large dry-bulk carriers of a capacity greater than 80,000 dead-weight tons. The term relates to the ships that originally could not fit through the Suez Canal and had to go around Africa by way of the Cape of Good Hope. Vessels A Post-Panamax containership with 24 containers abreast, the HMM Algeciras A critical point – Economies of scale Try to interpret this figure. Is a large ship better for your company? What are the considerations in this decision making process? Operating Costs of Panamax and Post-panamax Containerships (in USD) A critical point – Economies of scale A standard Panamax containership has operational costs of about $9million per year. The most significant expenses are related to fuel (46%) and port charges (21%), which are variable costs. This is transcribed in annual operating costs of about $2,314 per TEU. The incentive to use larger containerships is quite clear from the perspective of maritime shippers, which led to a new generation of 10,000 TEU containerships being introduced in 2007. In this case, fuel and port charges account respectively for 50% and 21% of their annual operating costs, while manning costs remain constant. However, annual operating costs per TEU drop by more than one half to $1,449. The principle of economies of scale is thus a strong factor in containerized maritime shipping. Containerships in Operation 2019 * Panamax and Neo-Panamax in bold § Containerships on order 2019 * Panamax and Neo-Panamax in bold