Intermodal ports and liner shipping: A 21st century status report by Helmick, Jon S Introduction Ports and merchant

shipping are vital in the facilitation of efficient and costeffective movement of freight in modern global logistics systems. In peacetime, over 95 percent of U.S. foreign trade (excluding that with Canada and Mexico) moves by sea. In time of war, the U.S. military relies on merchant vessels to meet over 95 percent of total lift requirements. Container ports and liner shipping are essential links in global supply chains involving the transportation of highervalue, more time-sensitive cargoes. As such, they are subject to increasing pressures from shippers, who are in turn driven by the ever-rising expectations of their own customers. Expanding recognition of the cost savings that can be achieved through inventory reduction and compressed, well-integrated supply chains have led to many shipper demands. Some of these demands include better on-time performance, improved document accuracy, greater in-transit visibility and enhanced information flows. Arising concurrently with these mounting pressures for enhanced service quality are numerous challenges and constraints related to infrastructure, market dynamics, technology, environmental issues, productivity and human resources. This article highlights the current status, key challenges and future prospects of the container port and liner shipping sectors. It begins by discussing various aspects of liner shipping, such as the dimensions of general cargo trade and the world fleet, the "mega ship" issue, the nature of the liner market and its finances, and the performance goals of carriers. The second section of the article surveys the magnitude and nature of the container port sector, addressing such issues as cargo volumes, access and capacity, port concentration and productivity. The third section examines the increasing importance of Intelligent Transportation System (ITS) concepts in intermodal port and liner operations and management. The article then considers some key challenges related to port and maritime workforce development. Finally, the concluding section contemplates the general future of these industry sectors.

Liner Shipping

Dimensions of General Cargo Trade

Liner service is the backbone of international trade in manufactured goods. Liners, sailing on regular schedules along established ocean trade lanes, move vast quantities of consumer, industrial and military commodities ranging from video cameras to night-vision scopes, perfume to paint, jeans to milling machines.

International general cargo trade now exceeds 1.2 billion metric tons. The portion of this cargo that is containerized approaches 100 percent on routes between developed economies. Globally, the socalled penetration of containerization is estimated to be about 55 percent. As ports and transportation infrastructure improve in the developing world, and as intermodal transportation becomes more viable in these regions, general cargoes will increasingly move in ocean containers. Containerized general cargo trade increased by 8.6 percent per year over the period 1993-1997, which far exceeds growth rates of other sectors in ocean shipping.'

The dominant flows in the containerized trades are found on East-West arteries, such as those between Western Europe and the US. East Coast, and between Asia and the U.S. West Coast. The North-South lanes are of lesser density and, in some carrier networks, consist of feeder services linked to the East-West lanes at specific hub port locations.

A prominent feature of most trade lanes is unbalanced cargo flows, which create major problems for carriers in the form of capacity planning and empty container repositioning requirements. In some lanes, load imbalances by direction are as much as 3:1. The carrier, of course, needs to provide vessel capacity to match the direction of heaviest demand. This aspect of liner operations represents one of liner shipping's greatest challenges, in both basic cost control and logistics management. Increases in Ship Size The global container vessel fleet (including barges and inland waterways craft) currently numbers over 6,800 vessels. Seventy-one percent of these are fully cellular, meaning they are "purpose-built" to carry ocean containers in specially constructed vertical slots. The capacity of this fleet is over 5.8 million Twenty-Foot Equivalent Units (TEUs).2

Early container ships were converted dry cargo and tank vessels that carried less than 1,000 TEUs. The "Post-Panamax" container ships that appeared in the late 1980s carried 4,000 to 5,000 TEUs. While nearly three-quarters of the current fleet by number consists of relatively small ships (specifically, those of under 1,000 TEU capacity), the "mega ship," or Super PostPanamax vessel of 4,500 TEU and larger, is

growing rapidly in prominence. The latest ships carry well in excess of 6,000 TEUs, with larger vessels on order.

Favoring the construction of mega ships is the economy of scale usually associated with their operation. The cost advantages of a 6,000 TEU "Super Post-Panamax" ship over a 4,000 TEU vessel in transpacific service were estimated in a report by Drewry Shipping Consultants. This comparison concluded that the 6,000 TEU ship offered annual savings per slot of $440, or a 21 percent reduction over the Panamax vessel. The authors of the study noted that if the marine portion of the intermodal move were allocated at 30 percent of doorto-door costs, a system cost savings of 6.3 percent would result from use of the larger vessel. However, the economies of scale that can be achieved through the operation of the latest generation of container vessels must be traded off against the greater difficulty in keeping such ships filled with cargo during voyage after voyage and the routing inflexibility inherent in their deployment.

Viewed in terms of their impact on the larger transportation system, such vessels may actually impose higher costs than their smaller counterparts. There are problems with the Super Post-Panamax class of ship. Some problems include the massive surge of containers discharged in a single port call and the expense involved in providing sufficient channel and berth depth, terminal areas, gantry cranes of adequate size, and other items of equipment and infrastructure. Despite these concerns, over 50 orders for ships in this class were placed with shipyards in 1999 alone. By the end of 2001, about 10 percent of the global box ship fleet by capacity is expected to consist of Super Post-Panamax ships.

Market Dynamics and Financial Returns Globalization and consolidation are prevailing characteristics of the liner industry. A brutally competitive environment, low rates and the need for carriers to reduce their costs have led to joint carrier operations and, increasingly, outright mergers and acquisitions. Carriers have banded together in operating alliances with the objectives of improving asset utilization and providing shippers with extended route networks and greater service flexibility. Typically, these goals have been pursued through collaborative planning of service offerings and the sharing of vessels, terminals, equipment and information systems. Today, it is estimated that the top 20 liner operators represent 53 percent of existing TEU capacity and are responsible for 55 percent of capacity on order.

In the aggregate, this rationalization has not resulted in upward pressure on shipping rates, nor has it produced meaningful enhancement of profitability for the carriers involved. Rates remain at historically low levels. The liner industry's financial returns are unimpressive, at best. It is interesting to note that the large merged carriers and alliance partners have shown significantly lower profits than have smaller and non-aligned carriers. For those operators that are members of the major liner alliances, reported return on revenue is now between -1 and 4 percent. However, independent and niche operators are posting returns in the vicinity of 8 percent. Carrier Performance Objectives Carriers have articulated specific objectives with respect to operational efficiency and performance. Foremost among these is better asset utilization. In the liner industry, this term encompasses a need for higher load factors (in other words, filling ships with revenue cargoes), lower cycle times (which translates to more frequent voyages) and reduced dwell time (implying increased effective capacity of terminals and transportation systems). In general, the high cost of capital equipment and low rates of return that characterize liner shipping compel carriers to aggressively seek out every opportunity to reduce operating costs. In addition, in response to the growing demands of shippers for value-added services, many liner operators are moving to reshape themselves as full-service logistics providers. Carriers that have traditionally been concerned only with the transportation of goods from one point to another are now being thrust into the world of Just-In-Time inventory practices, supply chain integration and logistics information system management. Shipper requirements for global coverage from their logistics providers have also been a factor in the trend toward expansion of service offerings and network reach by merged and blended carriers. Container Ports Cargo Volumes World container ports today facilitate the movement of over 165 million TEUs annually. Approximately 48 percent of this throughput occurs at ports in the U.S., China, Singapore and Japan. In 1999, American container ports handled 28 million TEUs. The U.S. container port system is highly concentrated, with the top 25 ports handling over 95 percent of all foreign container trade. The contiguous ports of Los Angeles and Long Beach together handle approximately one-third of all US. foreign container trade.

Access and Capacity Issues One of the most acute problems facing containers ports in the United States and in many other locations around the world is landside access. Urban traffic congestion often causes containers in transit to spend hours stuck within sight of the marine terminal gate. Where drayage is necessary, as with a move between the port terminal and an inland railhead, it is often a source of disproportionate expense and operational delays. As a result, a move toward ondock, or near-dock rail systems that bring the railroad to the port has characterized modern intermodal marine terminal design in recent years.

As the size of container vessels has increased, some U.S. ports have seen their competitive ambitions run aground. Their berth and channel depths are inadequate to accommodate the 45-46 foot drafts of the mega ship. Although the technical capability to construct container ships in the 12,000-15,000 TEU range exists today, many ports in the world do not currently have the capability to handle even the 6,000 TEU ships that are now in service. Most American ports have harbors with natural depths of less than 35 feet. These ports must secure approval and financing for dredging projects if this limitation is to be overcome. In addition to the staggering costs of dredging, in some cases shared between the Federal government and the individual port through a complex costsharing formula, there are severe environmental constraints on many proposed port development projects. Environmental issues include the potential disruption of marine habitat and the reintroduction of pollutants into the water column, to name but two. Ports today may be required to deal with 30 or more separate agencies in attempting to secure approval for development projects. This complexity has driven many ports to hire specialists who spend all their time pursuing permits.

Cargo handling equipment is another cost center for the modern intermodal port. The acquisition of gantry cranes with sufficient outreach to handle vessels carrying loads 17 boxes wide is, in and of itself, a major investment for a terminal. Such cranes now account for about 45 percent of gantry crane production worldwide. Given that these massive items of cargo-handling equipment may cost as much as $10 million apiece and that several are required for a single mega ship berth, the financial implications are formidable. Ports are now ordering cranes to handle container ships that will stow boxes 21-22 across, though there are no such ships in service today.' These, and other expenditures related to terminal development and infrastructure enhancement, caused US. ports to spend over $1.4 billion for capital projects in 1998. Some 45 percent of those projects involved general cargo and container cargo-related improvements.

Load Center Development The above-described port concentration is in part the consequence of a reduction by some operators in the number of ports at which their larger vessels call on a given voyage. From the carrier's standpoint, it is generally most cost-effective to limit the number of ports called on by such ships. The gathering and distributing of cargo originating at, or destined for, inland locations and other coastal ports is done through the use of smaller feeder vessels, railroads and trucks. This practice is termed "load centering." Broadly speaking, this pattern is analogous to the huband-spoke system that is common in the airline industry.

Port authorities have tended to view the load center phenomenon as a kind of "door-die" proposition. The fear of annihilation in the marketplace apparently underlies the efforts of some ports to achieve load center status, irrespective of their site, situation and capabilities (or lack thereof). Given the probable increases in maritime trade that lie ahead and existing constraints on port expansion, it will almost certainly be necessary to productively use all ports, regardless of their place in the evolving port hierarchy. This suggests that there is a place for load centers, for second-tier ports and for niche players in the marketplace. Further, infrastructure being equal, not all carriers serving a specific port range will necessarily select the same port for load center purposes. However, to the extent that carriers do choose the same ports as their load centers, the pressure on specific ports to provide adequate equipment, vessel access and landside access will be exacerbated. Productivity

Intermodal port performance involves elements of physical terminal productivity such as the utilization of cranes, yard handling equipment, labor, gates, berths and upland areas. It also involves aspects such as quality of service and the impact of port operations on supply chains and intermodal transportation systems. Numerous useful measures of physical capacity and productivity in container terminal operations exist, such as gate throughput, truck turnaround time, vessel turnaround time, labor productivity, crane productivity and berth utilization. However, the variables targeted by these measures are not typically considered in relation to the larger systems of which they are a part.

Managing the multiple facets of terminal productivity requires the identification of bottlenecks in the flow of cargo and the resolution of inefficiencies that impair the functioning of the logistics pipeline. These bottlenecks and inefficiencies may manifest themselves even before the cargo enters the terminal. A common case in point is the yard gate, which in many terminals is the site of long truck queues and costly delays. Often, the effective capacity of a marine terminal can be increased through such measures as increasing gate operating hours and reducing paper document exchange. Expansion of a port's container-handling capability may, in some cases, demand not the construction of additional berths and marshalling areas, but more intense utilization of existing facilities and equipment.

ITS in Ports and the Maritime Sector As in other realms of transportation and logistics, the role of information technology in liner service and port operations is becoming more crucial by the day. The management of vessels and the networks of

which they are components increasingly involves approaches that fall within the domain of Intelligent Transportation Systems, or ITS. The intermodal port and liner sectors have employed sophisticated technology in some aspects of their operations for many years. A number of factors, however, demand a better use of available and emerging information technology in port and maritime operations. These include: (1) the increased demands of customers for shipment information; (2) the need to extract greater productivity from existing terminals, transportation infrastructure and equipment; (3) the twin imperatives of safety enhancement and environmental protection; (4) the "fort-to-foxhole" intransit visibility paradigm of the evolving Defense Transportation System, and (5) the competitive advantage and cost reductions that can be derived from appropriate use of information technology in intermodal freight transportation.

A wide variety of existing and prospective ITS applications exist within the maritime and intermodal sectors of the transportation industry. Some examples of these involve inventory management, rate requests, route planning, motor carrier equipment management, cargo tracking, vessel positioning and vessel traffic control. Other examples include cargo monitoring, terminal gate automation, electronic Customs export declaration and manifest submission, railroad pool management, dispatching, Automatic Equipment Identification (AEI) and financial Electronic Data Interchange (EDI).

There are several challenges related to the expanded use of ITS systems in the maritime domain. One of these is the capital cost of information systems. Analysis of cost-benefit ratios, the determination of the appropriate "fit" between logistics strategy and specific information technologies and the careful evaluation of the impact of ITS implementation on logistics/intermodal systems in their entirety become imperative.

The issue of interoperability between and among the diverse (and often proprietary) ITS systems that have developed is a delicate one. Concerns for data and information security often outweigh the appeal of harmonized technical standards that would permit greater flexibility and improved communication. In this context, institutional obstacles to progress are frequently more difficult to surmount than technical barriers.

Workforce Issues Workforce development is a major concern for the container port and liner industries. Worldwide, there is a shortage of qualified and well-trained merchant marine officers to man the container ship fleet. There is a scarcity of personnel needed to operate and navigate merchant vessels. There is also an acute shortfall in the number of talented and appropriately educated individuals entering the managerial ranks of the port and steamship industries. This problem is not unique to the maritime sector, but extends throughout the transportation industry. Given this, it is important that programs designed to interest young people in maritime and transportation careers and to provide them with effective and welltargeted education and training have solid backing. The U.S. Department of Transportation, through Secretary Slater's flagship initiative known as the Garrett A. Morgan Technology and Transportation Futures Program, has had great success. The program is bringing government, industry and academe together for the purpose of increasing awareness of transportation career opportunities and supporting education and training efforts that will develop competent professionals in this field. In the maritime and intermodal field, the Maritime Administration devotes much attention to education and training through its own institution, the U.S. Merchant Marine Academy. The Academy provides support for the state maritime academies and their programs and other comprehensive and innovative educational initiatives. Conclusion The intermodal port and liner industries are crucially important to both the economic vitality and national defense of the United States. On a global scale, the intermodal approach is being increasingly pursued as a means to provide high levels of customer service and military preparedness.

However, these industry sectors suffer from near-invisibility where the general public is concerned. Few Americans appreciate the fact that liner shipping and container ports are key elements of the conduit through which flows the vast array of products available for their purchase. Few Americans are also aware that these goods are sold at prices that are only minimally impacted by the cost of transportation. For high-value imported goods, such as running shoes and VCRs, just I to 3 percent of selling price is typically attributable to transportation costs. The efficiency of ocean transportation and the port network of which it is a part is most impressive when considered in this light. Despite the general efficiency of the current container port and liner system, continuous improvement is clearly possible and essential. Enhancement of this system in the United States and elsewhere now demands a move from discussion of the systems perspective to genuine implementation of the concept. The integration of disparate modes and elements of intermodal transportation into more unified systems is critical if operations are to become even more productive and costeffective. Unfortunately, the largely fragmented character of these industry sectors renders this implementation much easier to talk about than to achieve in practice. However, it will be absolutely

necessary for ports and carriers to extract the maximum possible productivity from existing operations and assets if current and emerging challenges are to be addressed. If the projected doubling of U.S. maritime trade by the year 2020 is accommodated in spite of the infrastructure and other impediments outlined herein, it will be done through the concerted, systematic and cooperative efforts of "brainpowered" workers at all levels and in all links of the global intermodal supply chain. Footnotes

1. United States Department of Transportation, An Assessment of the US. Marine Transportation System: A Report to Congress, USDOT,

Washington, DC, September 1999. 2. Containerization International

Yearbook, National Magazine Company, London, 1999.

3. Damas, Philip, "Post-Panamax Containership Bonanza," American Shipper, September 2000, pp. 79-83.

Author's Biography

Dr. Jon Helmick is Director of the Logistics and Intermodal Transportation Program at the United States Merchant Marine Academy in Kings Point, New York. In this capacity, he has been responsible for the development and management of an industry-focused undergraduate curriculum and related programs. He holds the rank of Captain in the US. Maritime Service.

During his first career as a merchant mariner Dr. Helmick served as seaman, mate and master aboard a wide variety of commercial vessels, including tugs, tankers and tall ships. He holds a US. Coast Guard license as Master of Ocean Steam, Motor Auxiliary Sail and Sail Vessels of Any Gross Tons. In addition to his experience as a merchant marine ofcer, he has served as Vice President, Operations, for a start-up cruise line and as an expert witness and consultant.

Dr. Helmick received his Ph.D. from the University of Miami in Coral Gables, Florida. His research has been published in such journals as Logistics and Transportation Review, Transportation Journal and Transportation Quarterly. His research and writing have received national awards. He is a frequent speaker at major conferences and seminars. He has testified before Congress on issues including port and intermodal education and liner shipping operations. He is actively involved in several national and international cooperative efforts on intermodal transportation system development and logistics education and research.

Professional organizations with which Dr Helmick is affiliated include the American Society of Transportation and Logistics, the National Defense Transportation Association, the Intermodal Association of North America, the National Academy of Sciences Transportation Research Board, the Council of Logistics Management and the Propeller Club of the United States. He serves on numerous boards and committees within these organizations.

Copyright Society of Logistics Engineers Jan-Mar 2001 Provided by ProQuest Information and Learning Company. All rights Reserved