Part C Further Reading

Passage One Design of Liner Services

Necessity of decision making in liner shipping

1. Strategic planning. In the strategic planning stage, the optimal number and mix of ships in a fleet is determined. Given that owning a ship involves a huge capital investment (usually in millions of US dollars) and the cost of idling a 2,000-TEU ship is $20,000-$25,000 per day, the strategic level decisions are extremely important.

2. Tactical planning. In the tactical planning stage, the service network is designed by creating the ship routes, i.e. the sequence of port visits by a given fleet, and the assignment of ships to these routes. Ships move in cycles from one port to another following the same port rotation for the entire planning horizon. To maintain a customer base and to provide customers with a regular schedule, most carriers have at least one departure each week from each port visited on a service route (i.e. a cycle). This requires that the number of ships that operate on a cycle be at least equal to the number of weeks that it takes to complete the cycle. Some cycles such as those connecting Asia to North America, may take up to eight weeks to complete, which means that a carrier requires at least eight ships to introduce a new service on such a route. The problem of designing the service network of a carrier is referred to as the ship scheduling problem.

3. Operational planning. In the operational planning stage, a carrier makes decisions regarding which cargo to accept or reject for servicing and which path(s) to use to ship the selected cargo. This is referred to as the cargo routing problem. A carrier may decide not to transport some cargo, either because it is not profitable or because there is other cargo, perhaps at other ports, that is relatively more profitable. A cargo starts its trip from an inland location and arrives at its origin port. This network which utilizes trucks, railroads, or waterways to bring cargo from an inland location to its origin port is known as the feeder network. Cargo then moves from its origin port to its destination port, possibly after visiting some intermediate ports. From there it is taken to its final inland destination using another feeder network. Some of the intermediate ports that a cargo visits during its journey from the origin port to the destination port may act as transshipment ports where cargo is transferred from one ship to another.

The decisions made at one planning level affect the decision making at other planning levels as well. The decisions at the strategic level set the general policies and guidelines for the decision making at the tactical and operational levels. Similarly, the decisions at the tactical level set the capacity limitations and network structure for the operational planning level. In the reverse direction, the information on cost and revenue that are generated by the system given the set parameters provides the much needed feedback for decision making at a higher level.

Design of liner services

When designing a liner service, liner companies consider primarily the market to be served. The main design parameters they consider are stated in the following.

1. Service frequency. Liner companies will try to have at least a weekly service. In doing so, they make a trade-off between frequency and volume on the trunk lines: smaller unit capacities allow more frequent services and as such meet shippers' demand for lower transit times, while larger units will allow operators to benefit from economies of vessel size.

2. Fleet size, vessel size, and fleet mix. The optimal vessel size depends on cargo availability, shippers' needs for transit time or other service elements and the choices made with respect to the other two key variables. As economies of vessel size are more significant on longer distances, the biggest vessels are deployed on the longest routes. The fleet size and mix also constitute important strategic planning aspects in schedule design. Liner companies have to secure enough vessels to guarantee the desired frequency. Large size differences among the vessels operating within the same schedule could decrease operational homogeneity. Shipping lines typically strive for a well-balanced fleet mix within the individual loops they operate.There are, however, operational and financial barriers to a shockwave increase in vessel size, so the fleet mix might not always be so homogeneous. Upgrading the vessel size on a specific route can take several years and demands huge phased investments.

3. The number of port calls. Limiting the number of port calls will shorten round voyage time and increase the number of round trips per year, thereby minimizing the number of vessels required for that specific liner service. However, fewer port calls mean poorer access to more cargo catchment areas. Adding port calls can generate additional revenue if the additional costs from added calls are more than offset by revenue growth.

Liner companies design the networks they find convenient to offer, but at the same time they have to provide the services their customers want in terms of frequency, direct accessibility, and transit times. This tension between routing and demand is important. The network planners may direct flows along paths that are optimal for the system, with the lowest cost for the entire network being achieved by indirect routing via hubs and the amalgamation of flows. However, the more efficient the network from the liner company's point of view, the less convenient that network could be for shippers' needs. Shippers could avoid indirect routes, opening the possibilities for other shipping lines to fill gaps in the market.

Passage Two Liner Companies

Impact of containerization on liner companies

With the growing use of containers in maritime transport, the impact of containerization on liner companies has increased. Firstly, containerization provides an opportunity for liner companies to offer shippers the door-to-door service, which has an impact on pricing and increases the growth of intermodality. Secondly, containerization consolidates the liner companies into fewer companies and creates new forms of cooperation. Thirdly, containerization promotes the transformation of terminals from multifunctional terminals to specialized container terminals. Fourthly, containerization makes tramp market for vessels carrying containerizable cargoes gradually disappear. Finally, containerization makes minor bulk cargoes move to specialist vessels.

Shorter transit times and reliable schedule of liner companies

The liner shipping system is structured by time-tight schedules. Liner companies have developed a strong focus on designing liner services with short transit times, combined with a high degree of schedule reliability. However, increased port congestion and infrastructure constraints are some of the reasons impeding liner companies from delivering impeccable liner services to their customers. Port congestion is the main source of schedule unreliability. Waiting times and delays put pressure on schedule reliability and might incur logistics costs to the customer.

1. Transit time. The transit time can be narrowly defined as the number of sailing days on a port-to-port basis; while in a broader logistics chain approach, it is the total time on a door-to-door basis, so including dwell times at terminals and time needed for pre- and end-haul to the port of loading and from the port of discharge. A crucial element in port-to-port transit time is the order of POCs in the loop or string. If the container's port of loading is the last POC on the maritime line-bundling service and the port of discharge the first POC then transit time is minimized. In view of delivering an impeccable service to their customers, liner companies are keen to meet the timings as announced in the official (published) schedules. Delays not only decrease the reliability of the liner service, but can also incur logistics costs to the customer as a consequence of additional inventory costs and in some cases additional production costs (e.g. a production stop due to a late delivery of materials). Delays also incur costs on liner companies in the form of additional operating costs, linked, for example, to unproductive vessel time and the rescheduling of vessels. Delays and time losses in vessel operations within a loop can have many causes. The causes of delays can be classified into four groups: terminal operations (including berthing and mooring); port access channel or river (including pilotage, towage, and other services); maritime passage along shipping route (e.g. Suez Canal, Panama Canal); and chance (engine failures, heavy weather, etc.)

2. Schedule reliability. The reliability of a liner service network can be defined as the probability that one or more of its links does not fail to function, according to a set standard of operating variables. A non-functioning, or at best, bad functioning link will impose costs on the shipping line in terms of loss of time, additional operating costs, or other costs as a result of delays and diversions. As far as the liner companies' clients are concerned, they might also experience a loss of value, potentially resulting in claims filed against shipping lines depending on contract terms. Reliability affects the degree of stability of the quality of service that a system offers. Vulnerability and reliability are two related concepts, but network vulnerability relates to network weaknesses and the economic and social consequences of network failure, not so much the probability of failure. In the context of shipping services, vulnerability could be defined as the inability to supply adequate serviceability. As such, reliability focuses on the possibility of maintaining a link; vulnerability focuses on the possibility of disrupting or degrading a link. With reliability and vulnerability being two different concepts, a measure of reliability does not translate into a measure of vulnerability.

3. Countermeasures for shorter transit times and reliable schedule. Liner companies have a range of possibilities to lower the risk of low schedule and transit time reliabilities. Firstly, reshuffling the order of POCs is common practice. Secondly, a liner company might cancel one or more POCs to cut total port time and get the vessel back on schedule. Thirdly, liner companies might deploy other vessels to take over (in combination with delivery to hub). Fourthly, liner companies might speed up turnaround time at next POC(s) in the loop to catch up and resume the schedule. Finally, liner companies might make up time by increasing vessel speed on the intercontinental trunk route. Increasing vessel speed incurs higher bunker costs, and the use of fast vessels is associated with higher capital costs than for slower vessels, but once a vessel is in service, it is generally assumed that capital costs are not affected. The additional costs need to be counterbalanced by savings in time costs.

E-operations of liner companies

The e-commerce activities of liner companies today embrace all areas from e-procurement to e-customer service in an integrated way that needs timely and accurate information which passes through the firewalls both from external companies and intrafirm departments. The integration among value chain activities of the companies enables efficient ERP systems. At liner shipping operation side, liner companies and their agents use e-commerce tools to create better work flows in vessel and physical shipment operations inside and outside the ports between the shipping communities working in these areas. Port's or privately owned information and communications Internet portals today enables all companies to share that kinds of operational based information in a timely and integrated way especially at such ports as Singapore, Hong Kong, and Rotterdam. At vessel operations side, the shipping agents inform the related port authorities about ETA and ETD of the vessels for timely buying of port services (i.e. e-berth booking, e-ordering for technical equipment and human workforce for loading/discharging of containers, etc.) At shipment operations side, the liner companies and shipping agents are better organizing their instructions related to movement of their empty and full containers to ports, shippers and other actors (railway operators, hauliers, depots, etc.), posting cargo manifests and customs documents to port and customs authorities and taking customs clearance approvals from them, sharing of other information and notifications about specific cargo types (e.g. hazardous and other types) with trading partners (i.e. freight forwarders, shippers, etc.) preventing possible shipment delays.