Enhancing the competitiveness of Korea’s container shipping industry through structural improvements

ABSTRACT

After the collapse of Hanjin Shipping in 2016, Korea faced the task of reconstructing its container shipping industry by enhancing the competitiveness of its shipping companies in a rapidly evolving market environment. Responding to this need for policy design, this study first attempts to understand the industry based on the shipping ecosystem, which comprises the following four areas: shipping finance, collection of cargo, acquisition of ships, and partnership among carriers. Second, it lists the structural problems, along with the remedial policy alternatives, that were identified after conducting in-depth interviews with industry experts, which included mid-level managers. Third, it conducts an importance-performance analysis to classify problems according to their importance and performance, followed by an analytic hierarchy process analysis to define the priorities of policy alternatives. Finally, drawing on the empirical results, the paper concludes with suggestions on an integrated policy package for the container shipping industry.     

A continuous berth template design model with multiple wharfs

ABSTRACT

Berth planning plays an important role in improving the efficiency of a container terminal. This study focuses on the berth template problem (BTP), which determines the berthing windows of the calling ships within a planning horizon (e.g. a week) in a cyclical way. As a mid-term tactical decision problem, BTP provides the decision support for a terminal operator to negotiate the contracts with the shipping lines. This study develops an integer programming (IP) model aiming to minimize the total deviation, given the ship-dependent target times preferred by the shipping lines. To validate the model and illustrate the benefits of its use, we perform a numerical experiment based on operational data of a specific container terminal in Southeast Asia. Two IP-based heuristic methods are developed to take into account the decision framework of terminal operators in reaction to demand increases. The experiment results indicate that the model and the solution approaches can enhance the resource utilization and operational efficiency of container terminals.     

Benefit segmentation of the container shipping market in Turkey

ABSTRACT

Marketing policies have gained more importance in container shipping as the industry experiences challenges arising from commoditization. Market segmentation is fundamental to marketing policies, yet it needs a detailed analysis in container shipping. Accordingly, this paper aims to explore homogenous customer groups in container shipping by conducting a segmentation analysis, which can help container lines apply more efficient marketing policies. A survey study is conducted on 356 shippers in Turkey. The study develops five reliable and valid selection criteria factors and applies cluster analysis based on the selection criteria factors. The cluster analysis produces a total of six benefit segments which are differentiable. The segments are significantly identified by the demographic characteristics of shippers. The paper suggests several implications for the marketing policies of container lines.     

Reposition of empty containers of different life stages integrated with liner shipping network design

ABSTRACT

This paper integrates empty container reposition with container shipping network design considering the container life stages. A mixed-integer linear programming model is built to determine the liner shipping network, the initial launch ports of new containers, the ports for scrapping obsolete containers, the empty container reposition scheme and the containers of different life stages being used for a specific voyage. A case study is done by taking liner shipping among China, Japan and South Korea, Southeast Asia, Europe and the US as an example. The results show that over 93% of new containers are put into use in China while 63% of old containers are scrapped in Europe or the US, and 73% of containers used for packing cargoes from China to the US are those at the Decline Stage or the Exit Stage.     

Cost analysis of bulk cargo containerization

ABSTRACT

Bulk cargo containerization (BCC) involves changes in the transportation mode of container shipping for cargo that uses bulk carriers without packing. This topic has recently attracted considerable attention as an alternative transportation method for container cargo. BCC is advantageous because it can address imbalances in the amount of cargo conveyed between the main and back hauls, thereby improving efficiency. A previous survey among companies involved in cargo shipping revealed that in addition to ocean freight, vanning and devanning, and customs clearance costs, consignees’ decisions were the key factor in selecting transport modes. The present study aims to clarify the cost competitiveness of container shipping and identify cost reductions that may increase the use of BCC. To quantitatively check the results of the survey employed in this study, we constructed a model based on consignees’ and container shipping companies’ costs to determine the choice of transport mode for back-haul trade, then examined the incentives for consignees and shipping companies. We found that BCC can be realized by cost reduction on the part of the consignee and profit improvement on the part of the container shipping company for some routes and goods. Although reducing the freight rate would effectively promote BCC, reducing other costs would not have the same effect.     

Connectivity analysis of the global shipping network by eigenvalue decomposition

ABSTRACT

Maritime shipping necessitates flexible and cost-effective port access worldwide through the global shipping network. This paper presents an efficient method to identify major port communities, and analyses the network connectivity of the global shipping network based on community structure. The global shipping network is represented by a signless Laplacian matrix which can be decomposed to generate its eigenvectors and corresponding eigenvalues. The largest gaps between the eigenvalues were then used to determine the optimal number of communities within the network. The eigenvalue decomposition method offers the advantage of detecting port communities without relying on a priori assumption about the number of communities and the size of each community. By applying this method to a dataset collected from seven world leading liner shipping companies, we found that the ports are clustered into three communities in the global container shipping network, which is consistent with the major container trade routes. The sparse linkages between port communities indicate where access is relatively poor.     

Critical success factors of supply chain integration in container shipping: an application of resource-based view theory

ABSTRACT

The container shipping industry is receiving growing attention in driving the performance of global supply chains. This phenomenon has accelerated supply chain integration (SCI) within the industry. Although SCI could offer numerous benefits, it is often quoted to be implemented easier in theory than in practice. The high failure rate that is associated with SCI is often not addressed in the literature. Grounded on resource-based view (RBV) theory, this paper is aimed at identifying the critical success factors (CSFs) and examining their influence on SCI and supply chain performance (SCP). Survey questionnaires were administered on 164 container shipping firms. The constructs were validated empirically using confirmatory factor analysis and were subsequently analysed using structural equation modelling. The proposed CSFs in this study are found to be positively corelated with SCI, which, in turn, is positively correlated with SCP. This paper has contributed to both theory and practice by applying RBV theory to identify the key resources and capabilities that are necessary for SCI in the container shipping industry.     

Modelling cyclic container freight index using system dynamics

ABSTRACT

This paper investigates the cyclical nature of container shipping market represented by a containerized freight index and proposes a predictive cyclical model of the market. In contrast to the traditional spectral analysis (univariate), system dynamics reflect the drivers of the market in both supply and demand side, and therefore, it is a multi-variate system equilibrium approach consisting of various causal spillovers from sub-components of the market. This study is the first to analyze the cycle of container market using system dynamics. By utilizing system dynamics cyclicality approach, one-step ahead predictions are generated for monthly containerized freight index and compared to conventional benchmarks for post-sample validation. Our study can also help policymakers and shipping liners for better management and invest timing of container ship.     

Voyage-based statistical fuel consumption models of ocean-going container ships in Korea

ABSTRACT

Accurately estimating fuel consumption of ships is crucial for shipping companies, port authorities, and environmental protection agencies. The bottom-up approach is becoming increasingly popular because it can estimate ship fuel consumption by accounting for ship activity conditions, such as changes in voyage speed, time, and distance; however, its use is still limited when estimating ship fuel consumption. Ship-specific information, such as the daily fuel consumption rate for main and auxiliary engines for every vessel, is expensive to gather, and generally not collected from private shipping companies. To address this research gap, we develop simplified and composite ship fuel consumption models for ocean-going container ships by size using a regression model. To estimate the fuel consumption models for container ships, we rely on ship activity data, including average speed and sailing time, distance, and actual fuel consumption for main and auxiliary engines. This information is obtained from a major container shipping company in Korea. We estimate and validate the parameters associated with fuel consumption for five different container ship sizes, all of which are smaller than the Post-Panamax container ship (15,000 TEU and above).     

Structure,conduct and performance on the major liner shipping routes 1

Market concentration on the major container shipping routes has the potential to reduce contestability, impede effective competition and, as a consequence, inhibit the positive relationship between trade and economic growth. This development could also hamper the ability of economic regions to realize their respective competitive and comparative advantages. Within this context, the structure-conduct-performance (SCP) framework is used to analyse liner shipping dynamics in the transpacific, Europe–Far East and transatlantic trade routes. The analysis finds no conclusive evidence that either the increased concentration of slot capacity or the attempts by shipping lines to boost potential slot capacity (mainly through collaborative arrangements) lead to improved financial performance. The paper concludes that, despite high and increasing concentration among carriers on each of the trade routes analysed, these markets remain contestable.     

Crucial factors influencing international logistics operations for African landlocked countries – A case study of Burkina Faso

ABSTRACT

This study aims to evaluate the crucial factors influencing international logistics operations for African landlocked countries. To this end, a case study and a questionnaire survey were conducted. A total of 147 usable responses from container shipping firms were obtained as a result of the questionnaire survey. The results of factor analysis revealed that transportation capability, external risks, information integration, logistics infrastructure, local agents’ logistics capability, and national law and policy were crucial factors influencing the logistics operations of African landlocked countries. Specifically, local agents’ logistics capability was perceived by respondents to be the most important factor. Moreover, the results of the study also indicated that the highest factor mean values of small shipping companies were related to transportation capability, external risks and the local agents’ logistics capability, whereas container shipping companies that arranged trucks for inland transportation paid more attention to the external risks, logistics infrastructure, the local agents’ logistics capability, and national law and policy.     

Optimal container ship size: a global cost minimization approach

ABSTRACT

Currently, the best container ship size in a service is determined mainly by the liner operator, considering only the economies of scale of ships. Its external diseconomies to the ports and shippers are usually not considered in the decision-making process, which may reduce the overall efficiency and lead to global nonoptimality. This study incorporates the cost to the shipping companies at the main lines, ports, and feeder services, as well as the external costs to shippers and ports in a hub-and-spoke network, and determines the best ship size and the number of weekly services to minimize the overall costs. The external cost to the shippers in the feeder ports is assumed to be proportional to the feeder cost, and a sensitivity analysis is provided. The maximum container ship size is estimated according to different levels of freight demand. A numerical analysis shows that the optimal size should be smaller than the current biggest container ships in service.     

Scenario analysis for supply chain integration in container shipping

Competition in the business world nowadays is largely between supply chains, rather than individual players only. The same situation exists in container shipping. The study looks into container shipping from an integrated perspective and investigates the nature and level of supply chain integration in container shipping. Based on empirical examinations of the world's top 30 container shipping lines, a scenario analysis is conducted. The paper aims to present the scenario analysis for examining supply chain integration in container shipping. It also aims to formulate strategic recommendations for liners to create and sustain competitive advantage. The scenario analysis is designed to allow more complete consideration of alternative possible outcomes and their implications on the research topic. It involves an evaluation of past and present events and provides a plausible discussion of what might occur in the future. It depicts four scenarios of supply chain integration in container shipping, namely, low integration, partner-focused integration, activity-focused integration and high integration. On the whole, research findings suggest that market situations favour those scenarios representing higher level of supply chain integration. Importantly, with reference to the scenario analysis, shipping lines should position themselves in an appropriate scenario and formulate strategic plans accordingly.     

An econometric analysis for container shipping market

This article presents an econometric analysis for the fluctuation of the container freight rate due to the interactions between the demand for container transportation services and the container fleet capacity. The demand is derived from international trade and is assumed to be exogenous, while the fleet capacity increases with new orders made two years before, proportional to the industrial profit. Assuming the market clears each year, the shipping freight rate will change with the relative magnitude of shifts in the demand and fleet capacity.

This model is estimated using the world container shipping market statistics from 1980 to 2008, applying the three-stage least square method. The estimated parameters of the model have high statistical significance, and the overall explanatory power of the model is above 90%. The short-term in-sample prediction of the model can largely replicate the container shipping market fluctuation in terms of the fleet size dynamics and the freight rate fluctuation in the past 20 years. The prediction of the future market trend reveals that the container freight rate should continue to decrease in the coming three years if the demand for container transportation services grows at less than 8%.     

A reactive container rerouting model for container flow recovery in a hub-and-spoke liner shipping network

This paper focuses on the container rerouting due to a disruption, aims at making the optimal container flow recovery plan for the affected liner shipping company. First, we make the initial effort to bring up with a basic framework of disruption management for liner shipping. Second, we present a compact integer linear programming model for addressing the container rerouting problem under the proposed framework in a hub-and-spoke liner shipping network, based on a given recovery vessel schedule that determines to omit a port of call. Other shipping companies’ services and other modes (roadway, railway, and airline) as candidate alternative means to transport the miss-connected containers are also incorporated in the proposed model. The container flow recovery plan would select the optimal alternative paths for the miss-connected containers balancing the trade-off between container transport costs and delivery delay penalty costs. Finally, a case study from a global liner shipping company is investigated and the computational results indicate the model can be solved effectively and efficiently for the real-scale problem. Thus, the proposed approach in this paper can supply real-time decision support tool for the liner shipping operators on handling the process of container flow recovery.     

Evaluation of risk attitude in the shipping freight market under uncertainty

ABSTRACT

The main purpose of this study is to examine how market participants take risks, in other words, what their risk attitude/preference is, and how their risk attitude could be related to the shipping freight and other markets. To address them, we calibrated the risk attitude of participants in shipping freight markets from 2007 to 2013, and provided an example of the application of risk attitude. For market participants, risk attitude/preference has an important role in understanding shipping freight markets and managing risks under uncertainty. However, risk attitude is not directly observable. To achieve this, we applied a framework that consists of structural model and calibration with market data. We interpreted risk attitude and confirmed that a structural break occurred around 2008 for the calibrated risk attitude parameter. The average risk attitude of market participants tended to be more risk-averse after 2010. We conducted an additional analysis to provide an example of the application of calibrated risk attitude, using structural equation modeling to calculate a latent variable that reflected other commodity markets. We compared the risk attitude parameter and the latent variable, and clarified the relationship between the risk attitude parameter and commodity markets.     

Integrating banks’ decision on financing dry bulk shipping: a multivariable approach

ABSTRACT

Shipping is characterized by extreme changes in revenues, operating expenses and asset values, making shipping banks’ final decision for financing shipping market considerably harder. This paper develops a practical decision tool based on the estimation of the credibility factor in the decision-making process, each bank’s policy, and the most significant variables arising from both its operating environment and the dry bulk market. Revealed relationships between bank’s internal environment, its own policy, and dry-bulk shipping market conditions through GDP growth of China constitute a newly presented decision framework in shipping finance. The values of credibility factor implicate either an aggressive or passive defensive strategy taking into account the GDP China changes: Consistent with the economic growth of China, a bank’s holds an aggressive policy if the credibility coefficient is about one. On the other hand, the model predicts that a less aggressive policy in combination with the increase of China’s GDP would drive to the decrease of bank’s loan grants.     

Lessons from bankruptcy of Hanjin Shipping Company in chartering

This paper aims to analyze the charter contract management of major container shipping companies in response to fluctuations in shipping market conditions in terms of contract duration using data of containerships between 2010 and 2016. Duration analysis was conducted to examine the relationship between charter duration and shipping market conditions. Moreover, this paper explores the causes of Hanjin Shipping Company’s bankruptcy, drawing managerial implications. Test results from Cox PH (Proportional Hazard) model show that most container shipping companies in Europe having net earnings purchased large vessels instead of chartering vessels, while some ocean carriers featuring poor financial performance, in particular the Hanjin Shipping Company, chartered bigger ships with higher charter rates and longer duration. Contract charter rates and duration of Hanjin Shipping Company featured greater risk compared to competitors.     

U.S. import/export container flow modeling and disruption analysis

International containerized freight movement is a vital part of the supply chain for many companies, and a critical element of moving consumer goods to points of retail sale within the U.S. Containerized imports also present a clear security concern (e.g., terrorists attempting to ship “dirty bombs,” chemical, biological or even nuclear weapons, into the U.S. in a shipping container). The goal of the research presented here is to create a modeling tool for analyzing flows of U.S. imports and exports of containerized freight, and the potential changes in those flows under a variety of conditions (e.g., port disruptions, extensive security-related delays, etc.). Our focus is on movements through maritime container ports, and not overland movements between the U.S. and Canada or Mexico.The network model, referred to as the System for Import/Export Routing and Recovery Analysis (SIERRA), represents container movements between the U.S. and 46 other countries that account for the vast majority of U.S. imports and exports. The SIERRA model is a network equilibrium model that predicts flows between foreign countries and North American ports, the total volumes handled (import and export) by each port, the modal volumes (truck and rail) moving domestically into and out of each port, and volumes between each port and a set of transportation analysis zones within the U.S.     

Valuation mismatch and shipping q indicator for shipping asset management

ABSTRACT

This paper aims to develop an adaptation of the Tobin Q investment model for the shipping asset management in order to monitor valuation mismatch and bubble pricing of shipping assets. In this circumstance, the market prices of various shipping assets (e.g., Capesize or Panamax dry bulk carriers in different age profiles) are compared to the measured long-term asset value with second-hand ship prices. The mark-to-market prices of shipping assets are led by current market trends and freight rates, while the long-term asset value is estimated by using past data under certain assumptions (mean reversion, trend reversion). The discrepancy between market prices and the long-term nominal value of a shipping asset reflects any mispricing, which in turn sheds light on investment timing and market entry-exit decision.