Comparatively speaking

Stephen Taylor, of UK Ports and Logistics says key perfomance indicators (KPIs) are an important starting point for dialogue with others in the supply chain. “Shipping lines will have their own KPIs about, say, returns on capital employed in containers and vessels.”

However, he says, the big issue is how to agree KPIs that are convergent with those of the stakeholders, rather than contradictory ones. Further, the interesting point, he says, is that not enough is happening to involve the ports’ end-user – and this isn’t the shipping line, this is the customer. “Too often ports and shipping lines don’t make sure that their KPIs actually make sense all the way up and down the supply chain,” he says.

For example, slow steaming – while a good measure for lowering fuel costs - can grate with a need for rapid turnaround once inside the port. But further than this, slow steaming might well impact the customer, who then has a lot of its cash tied up in the goods onboard – and out of reach for so long it’s uncomfortable at the bank.

Mr Taylor adds: “You can’t say one rule fits all, different KPIs come about depending on the nature of the supply chain the port is operating in.”

Dr Mark Yong of BMT Asia agrees, and points out KPIs will be different across the different types of terminal. “In bulk ports, you tend to unload iron ore for example, and store it a while before use. With the more consumer orientated container operations, you are looking at more ‘just in time’ shipping so timing is more critical.” Further, the changes in different markets affect ports’ strategies differently, with congestion in some places meaning that getting the boxes out is still a priority, while others have space to spare and cranes are idle for some of the time.

As everybody knows, “what gets measured gets changed” and if you put a driver in one place, you risk taking attention off another.

Alexander Ignatov of Ignatov & Co says that the Russian tale of KPIs bears looking at. He explains that in the 1990s the region’s primary interest turned to financial indicators. “Ports almost forgot about volume indicators and completely forgot about efficiency indicators,” he says. Unfortunately, this stopped being a good measure of success in the 2000s as much profit or loss that time was due to economic turmoil, not to ports’ efficiency.

He adds, too, that the region's KPI woes aren’t over, as there are pressures to pull the figures in different directions. “Port owners simply want to see profits, governmental agencies (like the Transport Ministry) want to see the evidence that the "Russian economy recovers" while KPIs for the third group, which includes other investors and Western partners, are ‘comparable’ indicators to show that ‘we are in line with global rivals’.”

“It’s an example of the conflict that can surround KPIs,” says Mr Taylor but he adds, strategically, it is also about the port’s role in the local economy – and to get this right, there has to be effective dialogue.

Further, ports have different and varying ownership structures. Some, like the UK’s, are largely private, while others have a lot more government input. In these cases, the KPIs should be agreed as part of the local strategy for the port, and how to measure its success.

Mr Taylor says port-centric logistics, already employed in places like Europe’s Zeebrugge, and the ports of Charleston and Savannah in the US, are one way forward.

“There is more global trade now, notwithstanding the recession. Ports will have to rethink strategy: for example, the Panama Canal widening will open up a whole new pattern of trade – and the ports that will win will be the ones that think globally, all the way to the end user.”

The serious issue is that once a KPI is created, it becomes difficult to adjust to changing needs as historical comparisons will be lost. Conversely a dubious KPI might well be created because the port sees the need to keep a particular history. Dr Yong is of the opinion that since there is an inherent cost to KPIs “and you can’t do it all” you have to keep them pruned, top level down, to avoid going crazy.

While some KPIs will obviously be internal, some are shared with stakeholders, and some are up for public display. But, can there be really comparable cross-industry KPIs?

John Hunter, director at Armor Business Solutions, says there are just too many holes to make the process legitimate, giving the example of two container terminals operating in the same port. “Each terminal works an 8-hour shift and uses the same type of crane working the same type of ship. They both set the same crane rate KPI, and achieve it. Does this mean that both terminals are performing at the same level? We have no way of knowing.

“One terminal has sufficient employees to offer continuous working (so divides its shift by eight) while the second terminal uses fewer employees so has to stop operations for rest breaks, but achieves the same average by dividing by the number of hours worked (seven). One terminal offers a better service to the ship operator but at a higher cost - which terminal is more efficient? Further, how do we define ‘productive’? If the terminal using automated equipment uses very expensive labour, it may be that the other terminal actually has a lower labour cost.”

Mr Hunter also points out: “While a company’s strategy (and therefore KPIs) can be expected to be reasonably consistent under normal conditions, circumstances change and so KPIs must be capable of being changed as well.”

He goes on to say that the company can “weight” its KPIs according to what’s needed at the time, which gives a measure of adaptability. “One way to use them is to set KPIs for various areas (enough to give a picture of the whole operation), and weight them according to strategy. For example, we may decide that this week, we are going to give crane rates a weight of two, with dwell times only a weighting of one, because we have a very heavy ship program and we need to get ships off the berth as quickly as possible.” This is obviously a very tailored approach – and not particularly consistent with obtaining figures comparable with other operations. “To do that,” says Mr Hunter, “you use industry benchmarks instead.”