Logistics and Global Supply Chains: The Integration of Ports and Liner Shipping Networks

In 2006, container shipping celebrated its 50th anniversary as an innovation that had a tremendous impact on the geography of production and distribution. Production became globalised by a better usage of comparative advantages while distribution systems were able to interact more efficiently. This paper analyses the mounting pressures on box logistics in light of global supply chains. It will be demonstrated that the basic principle of containerisation remained the same notwithstanding scale increases in vessels and terminals and a clear productivity increase in container handling. Although the container was an innovation initially applied for maritime transportation, the emergence of global supply chains has placed intense pressures to implement containerisation over inland freight distribution systems. Box – containerised – logistics is increasingly challenged to deal with the ever-increasing time, reliability and costs requirements of global supply chains. Imbalances in trade flows and accessibility and capacity constraints are among some of the developments that are making it increasingly difficult to reap the full benefits of containerisation.

Looking back at 50 years of containerisation

In 2006, container shipping celebrated its 50th anniversary as an innovation that had a tremendous impact on production and distribution (Levinson, 2006). It is only with containerisation that production could become globalised by a better usage of comparative advantages while distribution systems were able to interact more efficiently, reconciling spatially diverse supply and demand relationships. Yet, even after half a century, the role of containers in global trade, production and distribution has not been much acknowledged outside groups of academics and practitioners closely related to maritime shipping, rail freight, terminals and logistics.

Container volumes around the world have witnessed tremendous growth in the last 50 years, with an accelerated growth since the mid-1990s. According to UNESCAP (2005), the total number of full containers shipped on worldwide trade routes (excluding transhipment) amounted to 77.8 million TEU for the year 2002, compared to just 28.7 million TEU in 1990. In 2015, the volume is expected to reach 177.6 million TEU. Volumes on the east–west trades (ie Transpacific, Transatlantic and Asia/Europe) and north–south trades are expected to increase at an average rate of around 6% per year. Intra-regional trades, however, are expected to show a significantly higher growth of around 7.5%, mainly as a result of booming intra-Asian trades, but also because of the setting of hub ports acting as points of transhipment for regional markets. Drewry Shipping Consultants (2006) estimates that the total throughput handled by the world's container ports (not to be confounded with the trade route volumes mentioned above) increased from about 236 million TEU in 2000 to an estimated 399 million TEU in 2005 (including empties and transhipment), representing an average annual growth rate of 11%. Transhipment traffic has been the driving force behind growth in container handling in the last decade. In 1980, total container throughput in world ports did not exceed 40 million TEU. In 1990, it reached 75 million TEU. As far as the near future is concerned, worldwide container handling is expected to increase further to 628 million TEU in 2010, of which 57% are port-to-port full containers, 14% are port-to-port empty containers and 29% are transhipment (Drewry, 2006).

Degree of containerisation in a selection of European mainland ports (sorted according to degree in 2005)

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Indian Logistic Sector- Information Technology

Logistics is the management of the flow of goods between the point of origin and the point of use in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software, but is constantly changing. This can involve anything from consumer goods such as food, to IT materials, to aerospace and defense equipment.[wiki]

India’ phenomenal growth across industries doubled with the entry of multi-nationals has spawned the need for smart logistics and efficient supply chain management. In this rapidly growing market quality service is of utmost importance for logistics service providers to face the stiff competition and retain customers. So what can logistics service providers do to overcome their challenges? Technology is the key. Traditionally in the logistics sector, which is primarily unorganized, information technology has faced extreme neglect. It is only of late logistics companies have realized the importance of Information technology in transforming them into a more efficient and competitive. The logistics sector’s failure in adopting technology has been one of the biggest stumbling blocks in its progress.

The low penetration of technology in the logistic sector coupled with the highly redundant processes, wastes lot of time and is an obstacle to expansion of operations beyond certain limits. The rudimentary systems used by the logistics companies are outdated and incapable of serving the needs of current times. Among those who have adopted technology to some extent, the use of independent software for each of their processes has created islands of information. These independent systems or do not communicate with each other, affecting the visibility and decision taking ability of the company, thereby undermining their efforts and ability to provide efficient logistic services.

The winds of change are blowing with the emergence of organized players and the introduction of various technology solutions like supply chain software and Freight Forwarding software in this sector. Logistics companies have lately woken up to the importance of technology in delivering quality services to their customers. Looking at the current scenario in the logistics sector in India one finds that the companies have not adapted to the changing scenario and have failed to keep pace with the technological requirements of modern times.

Today all activities associated with international trade have come under the ambit of information technology. Yet, many service providers are still not fully aware of the potential and actual benefits that can accrue from it.

The logistics sector can no longer afford to put off adoption of new technologies and integrating the same into their operations. The logistics companies are under tremendous pressure from their partners and customers to change their traditional styles of functioning and adopt modern systems and technologies to help speedy delivery and enhance performance. It is significant that many logistics service providers including freight forwarders , NVOCC, Custom Brokers (Custom House Agents), have started investing heavily on new information and communication technologies to perform better.

The advancement in information technology has led to the arrival of software for supply chain operations, freight forwarding and custom clearing .With the latest technology logistics service providers are no longer handicapped by geographical limitations and can very well expand their business to any location. Technology allows them to operate from anywhere and at the same time maintain high visibility and control. They are also able to integrate their operations with partners and customers. The biggest challenge of holding on to competitive advantage can be overcome with information technology. Given the rapidly changing market scenario it is certain that adoption of information technology is the only way to face new challenges of the future.