Supply chain efficiency needs balancing against the risks of running a port, explains Martin Rushmere
Risk management is being examined against the background of vulnerable and sometimes overloaded supply chains as port executives try to improve efficiency. And concerns have increased in the wake of the explosion at the Port of Tianjin.
“The Tianjin explosion specifically has had consequences to the movement of hazardous cargoes, both solid and liquid,” says Brian Sullivan, development director responsible for logistics for TT Club. “Indeed the port remains closed to imports and exports of such materials. Xiamen is similarly restricted and handling fees for dangerous goods at Qingdao are set to double as a result of complex and costly storage requirements now imposed.
“So beneficial cargo owners (BCOs) concerned with hazardous cargoes sourced from (or indeed bound for) China are materially affected with high logistics costs. That said, TT Club is in favour of greater universal compliance with the IMO’s IMDG (International Maritime Dangerous Goods) Code which is internationally accepted as the guideline for the safe transportation of dangerous goods.”
Paul Bingham, vice president of EDR Group consultancy, says there must be effective regulations and monitoring to prevent incidents like the Tianjin explosion happening. “From a disruption perspective, Tianjin is one where certainly the port could justify HAZMAT commodity supply chains and shippers having to make information on the activities, and therefore the risks associated with those operations, better known.
“There is justification for such information requirements on security grounds,” he says. “The Panama Canal requires HAZMAT shippers to notify the Authority of the classification and quantities of HAZMAT commodities on transiting vessels. Some of those shipments then require additional personnel, procedures and payments to cover the additional risk management and safety steps the Canal takes to assure no disruptions to operations.
“Ports should probably behave the same way to manage disruption risk,” he says, “focusing attention on the commodities which have greater threat of disruption from mishandling, improper storage or criminal or terrorist activities.”
At the same time, ports are being pressured to examine their supply chain efficiency.
Observers agree that there is no universal answer that applies to all ports. “Relying on too many supply chains or providers makes a real dog’s breakfast,” says supply chain consultant Mary Brooks, professor emerita at Dalhousie University, Canada. “Different administration and communications systems are being used, leading to confusion, which is worse still if some suppliers use proprietary software. With too few, bankruptcy of a provider can cause huge disruption, while there are risks from natural disasters, cybercrime and things like that.”
“Increasing the range of providers is not automatically going to decrease the risk,” says Thomas Cullen, senior analyst at Transport Intelligence Consulting. For publically-owned ports he sees the process of deciding on the range of providers as involving the government. “Beyond this the important aspect is the relationship between the port authority and the logistics service provider – that is one of the determinants of balancing risk and efficiency.
Greg Aimi, director of Supply Chain Research, Logistics at Gartner consultants, adds that ports need to include customer needs when considering the type of vendors and systems. “It’s all about reliability. The customer knows it’s better to opt for a slower cycle time that is fulfilled 95% of the time rather than a faster time that is met only 50% of the time. ”
He advocates what he terms “high visibility” whereby there is a high degree of contact between ports, the supply chain and customers. “Letting everyone get advance knowledge of delays and disruptions will make a port more attractive.”
Paying attention to Lean Six Sigma principles will also stand the industry in good stead, he adds. “The aim is getting razor close to balancing supply and demand, in a much leaner way. The customer is looking for a faster and more reliable cycle time and is also saying ‘Let me know as far in advance of any variation from this.’”
One area that needs improvement and which would certainly help to reduce risk is in opening up information networks with customers and through the supply chain.
Ms Brooks is blunt about this: “Ports are too limited and more information needs to be made available. You always get better information and co-operation if people understand your business.”
And that pays off in times of crisis. She says the industry has much to learn still from aviation, as the September 11 terrorist attacks showed. “Nova Scotia’s Halifax airport customs dealt with 100 people an hour on average. That day 4,400 people came through – but the airport had such an efficient notification system that every relevant official was contacted immediately, e-mails were sent to residents in the town, and accommodation was found in private homes for every passenger on those flights that night.”
Vancouver, Canada is a good example of an open commercial information system, she adds. “Their dashboard and use of webcams goes right down to details such as the wait time for truckers. It’s so good that a driver can decide to take a lunch break because there is congestion at the terminal gate.
“Worries about sensitive information getting to the wrong people are a separate issue and should be addressed differently.”
The TT Club's Mr Sullivan emphasises the international aspect of supply chains. “Examples that have affected the automotive industry in particular include the extensive flooding in Thailand and the Japanese tsunami that both hit in 2011. Disruptive circumstances are not only the consequence of natural incidents, of course, as the protracted labour negotiations at US West Coast ports last year evidenced.
“Possible future re-occurrences of the port congestion brought about by such disputes,” he says, “together with the widening of the Panama Canal will surely bring about alterations to supply chains that avoid West Coast routings.
“Such adjustments by beneficial cargo owners to their supply chains may include, sourcing from more than one location or region; bringing manufacturing facilities closer to primary markets (so-called near-sourcing) and ensuring inventory levels are able to withstand temporary shortages."
WEIGHING UP THE REAL ISSUES
Container weighing is another issue that is prompting accusations of disruptions to the supply chain and the familiar debate of who foots the bill and who provides the equipment.
One consultant, speaking privately to Port Strategy, described the fuss as 'nonsense': “The facilities are right there at the terminal gates at most ports and the whole operation can almost be seamless. They are making a huge problem out of nothing.
“What is wrong with weighing in motion, as they do with heavy vehicles on the open roads? You look at the manifest, you compare it with the actual weight, if they’re different you put it down. Problem over.
“There have been heaps of examples of overloaded vessels,” says the consultant. “You only hear about the sensational ones such as the MSC Napoli; at least 10% of vessels are overloaded.”
What is seen as having the potential to upset the whole system is the US Coast Guard’s determination to ignore the new regulations. “What are they thinking?” says a maritime specialist. “The Coast Guard seems to operate as a separate government some of the time. The US was a party to the IMO SOLAS discussions – four years, that’s right four years – and they didn’t object.”
Paul Bingham of EDR Group puts the cost of weighing into perspective: “Weighing containers may add to costs faced by exporters but not very significantly in competitive markets. The available valid weighing methods provide enough flexibility that shippers should be able to find ongoing weighing solutions that are not that expensive. In the US, commercial truck stop scales like CAT Scales charge around $10 or less and those scale operators are in it to make money as their only business, where I am sure higher volume export shippers can negotiate paying much less per weighing.
“The best news for many shippers is that if they know the packaged weight (including all packing and bracing materials) of their products, then they won’t need scales at all. The available weighing methods allow them to just add the tare weight of the empty ISO container painted on the door to their cargo weight to come up with the gross mass number, so shippers may not have to pay anything extra other than the time to record and calculate the total weight for each container.”
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