Colombo International Maritime Conference- Sri Lanka 26.09.2015

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CINEC Campus

Minimizing Reposition CostLalith EdirisingheCINEC Maritime CampusVirtual Container Inventory

2The dry container fleet by 2013 was about 34.5 million TEU

The box to slot ratio, which measures the number of containers versus the spaces on container ships, considered at present is 2-to-1

Preamble

Preamble

Half the time of container lifetime is idle as they are either being maintained, repaired or in storage 9/27/20153

Empty container volumes 1990 - 20119/27/20154

(Source:Chiang, 2013)

Empty containersIn 2002 estimated empty container repositioning costs (ECRC) accounted for USD 20 billion globallyThis remain stable ranging from 18% to 22% between 1990 and 2011Empty containers cost Maersk Line USD 1 billion a year (ShippingWatch, 2012)ECRC of Sri Lanka is USD 100 Million annually

9/27/20155

Container imbalance represents 22% of the overall cost structure9/27/20156

Source: (Alderton, 2004)

Solution to ECRCSome researchers proposed that external container sharing or pooling container fleets among different ocean carriers may reduce ECRCVirtual Container Inventory (VCI) is derived from this out of the box thinking9/27/20157

VCI -The Virtual Container InventoryVCI is a strategic CIM solutionIt can operate globally while keeping carriers individual identities intactEach carrier may exchange containers on mutually agreed but continue to control its own inventories

9/27/20158

VCI -The Virtual Container InventoryAs the pooling is done virtually the physical storage of containers will not be a constraint

VCI expands the inventory of a carrier beyond its existing individual capacity(1+1 >2)

9/27/20159

Is the VCI realistic?9/27/201510YesNo

VCI is realisticSame mechanism is in practice for shipping space (slots)Many existing alliance agreements provide provisions to exchange containers It is evident that carriers accept the VCI in principle

9/27/201511

Alliance Agreements17 mega carrier alliance agreements facilitates equipment interchange

They represent approximately 82 % of total container trade globally

9/27/201512

TA-16 Carrier Agreements Active in the US/North Trade for 2006 through 201013NumberNameMembers111375Trans-Atlantic Conference Agreement ACL, Maersk, MSC, NYK, OOCL211280Star West Joint Service Agreement, Overseas311854Greensea Inc. Joint Service AgreementGreen Chartering, 411982Evergreen Line Joint Service AgreementEvergreen, Hatsu, Italia511602The Grand Agreement IIHL, NYK, OOCL611960New World AgreementAPL, Hyundai, MOL710955ACL/H-L Reciprocal Space Charter and Sailing AgreementACL, HL

811415MPA Space Charter and Sailing AgreementACL, MSC911705Grand Alliance-CP Ships Atlantic AgreementCP, HL, NYK, OOCL, PO1011794The COSCON/KL/YMUK/ Hanjin Worldwide SlotAllocation and Sailing AgreementCosco, HJ, KL, YM1111867Norasia/GSL Round The World Service AgreementCMA CGM/CSCL/ELJSA Cross Space Charter,Gold, Norasia1211955Sailing, and Cooperative Working Agreement, CMA, Evergreen1311912Dole-HSud Space Charter and Sailing AgreementDole, HSud1411927ITS/Hatsu Marine MUS Slot Charter AgreementItalia, Hatsu

TP-16 Carrier Agreements In The Transpacic Trade For 2006 Through 20109/27/201514NumberNameMembers111602The Grand IINYK, OOCL, HL 211435APL/HLAG Space Charter AgreementAPL, HL311794COSCO/KL/YMUK/ HANJIN/Senator Worldwide SlotAllocation & Sailing AgreementK-Line, Yang Ming, Hanjin, COSCO411885CMA CGM/MSC Reciprocal Space Charter, SailingAnd Cooperative Working AgreementCMA CGM, MSC511940Cross Space Charter, Sailing And Cooperative Working AgreementCMA CGM, Shipping611948CMA CGM/CSCL Cross Space Charter, Sailing And CWA-Central China/US West Coast, Yang Tse/ AAC2 ServiceShipping, CMA CGM

Source: Federal Maritime (2012)

Container imbalance is an outcome of trade imbalanceContainer Inventory Management is a complex matter Perceived marketing disadvantages due to indirect support to a competitor

9/27/201515VCI is NOT realistic ????

Possible legal implications as additional party involved in the transport contract (i.e. Line A load lne Cs containers on line Bs ship) Possibility of making additional insurance premium

9/27/201516VCI is NOT realistic ????

Perceived negative impact of the brand image

Whether the additional costs and disadvantages supersede the expected saving on empty reposition cost

9/27/201517VCI is NOT realistic ????

Evaluating the Pros and ConsSince there is no practice the outcome cannot be measured

A case study and simulation can be done instead9/27/201518

9/27/201519Sri Lankas External Trade (2004-2014)

Empty Container Movements in Sri Lanka 289,474 TEU s empty containers (MTY) were evacuated from port of Colombo in the year 201411.6 percent growth against 2013Paradoxically, shipping lines have imported 48,629 TEUs of empty containers to SL in 201424.3 percent growth from 2013(CASA Per. Review, 2015)

20

Analysis of Container imbalance of 40 GP (23 leading carriers in Sri Lanka in 2013)9/27/201521MonthStatusFinal outcomeMonthStatusFinal outcomeJANExcess557JULExcess619Shortage346Shortage215FEBExcess286AUGExcess697Shortage369Shortage491MARExcess477SEPExcess441Shortage672Shortage458APRExcess650OCTExcess121Shortage235Shortage562MAYExcess585NOVExcess334Shortage338Shortage499JUNExcess399DECExcess419Shortage163Shortage443Total Excess = 5585Total Shortage = 4791 Total Imbalance = 10376

9/27/201522Month StatusActual inventory positionStatusOutcome of ExchangeMonth StatusActual inventory positionStatusOutcome of ExchangeJANExcess557Excess211JULExcess619Excess404Shortage346Shortage0Shortage215Shortage0FEBExcess286Excess0AUGExcess697Excess206Shortage369Shortage83Shortage491Shortage0MARExcess477Excess0SEPExcess441Excess0Shortage672Shortage195Shortage458Shortage17APRExcess650Excess415OCTExcess121Excess0Shortage235Shortage0Shortage562Shortage441MAYExcess585Excess247NOVExcess334Excess0Shortage338Shortage0Shortage499Shortage165JUNExcess399Excess236DECExcess419Excess0Shortage163Shortage0Shortage443Shortage24Total imbalance estimated after exchange = 2644Total empty repositioning required after exchange = 2644

Analysis of Container imbalance of 40 GP (23 leading carriers in Sri Lanka in 2013)

Exchange vs. Work alone 40 GP - 20139/27/201523

9/27/201524Container Type& SizeImbalance when Work aloneImbalance when CollaborateTrade incentive of ExchangeSaving @ $ 500 per REPO20'GP1582211562851.20%$968,000 40'GP1048679492.40%$4,846,000 40'HC445862784237.60%$8,372,000 45'HC215510195.30%$1,077,500 20'&40'RF5975479119.80%$592,000 Total22142318981314.30%$15,855,500

Analysis of Container imbalance Multiple size/type - 2014

Proposed Container Exchange Model

Deriving a mathematical explanation AB1020 + AC5004 = BA5004 + CA2508 BC2010 + BA5004 = AB1020 + CB2010CA258 + CB2010 = AC5004 + BC2010....ABQ1t1 + ACQ2t2 = BAQ3t3 + CAQ4t4

9/27/201526

Evaluating the outcome of exchange 9/27/201527OffererDetails of Container ExchangeDirectionof containersTransit time after exchangeTotal EO as perceived by offererCarriers2040TEUSAA/B10-10x/w20 days400 TEU/DaysA/C50-50x/y04 daysBB/C-1020y/v10 days400 TEU/DaysB/A-2550x/y04 daysCC/A25-25y/w08 days400 TEU/DaysC/B20-20y/v10 daysTotal10535175

OffereeDetails of Container ExchangeDirectionof containersTransit time after exchangeTotal EO as perceived by offererCarriers2040TEUSAB/A-2550x/y04 days400 TEU/DaysC/A25-25y/w08 daysBA/B10-10x/w20 days400 TEU/DaysC/B20-20y/v10 daysCA/C50-50x/y04 days400 TEU/DaysB/C-1020y/v10 daysTotal10535175

Container Inventory Management Matrix - 6R ModelMultidimensional Index for Container Inventory Management Common Carrier Container Management System (On-line software application C3MS)

6R Model will be presented at the 14th World Conference on Transport Research that will be held in Shanghai in 2016

9/27/201528Future contribution.

9/27/201529ReferencesBranch, A. E., 2009. Global Supply Chain Management and International Logistics. New York: Routledge.CASA Per. Review, 2014. Circular to the members -No. 09/2014, Colombo: 23th January , 2013.Department for Transport, 2011. Choosing and Developing a Multi-modal Transport Solution, London: Freight Best Practice Programme.Diaz, R., Talley, W. & Tulpule, M., 2011. Forecasting Empty Container Volumes. The Asian Journal of Shipping and Logistics, 27(2), pp. 217-236.Dong, J.-X., Xu, J. & Song, D.-P., 2013. Assessment of empty container repositioning policies in maritime transport. International Journal of Logistics Management, 24(1), pp. 49-72.Feiyan, C. & Chuanxu, W., 2013. Empty Container Reposition Optimization Model with the Feeder Transportation. Hong Kong, International Forum on Shipping, Ports and Airports .Feng, C.-M. & Chang, C.-H., 2010. Optimal slot allocation with empty container reposition problem for Asia ocean carriers. Int. J. of Shipping and Transport Logistics, 2(1), pp. 22 - 43.FMC, 2012. Study of the 2008 Repeal of the Liner Conference Exemption from European Union Competition Law, Washington, DC: Federal Maritime Commission.Kiessling, T. & Comez, N., 2012. Joint inventory and constant price decisions for a continuous review system. International Journal of Physical Distribution & Logistics Management, 42(2), pp. 174-202.Kumar, G. & Banerjee, R. N., 2012. Collaboration in supply chain An assessment of hierarchical model using partial least squares (PLS). International Journal of Productivity and Performance Management, 61(8), pp. 897-918.Leung, S. C. H., Lai, K. K., Liu, K. & LI, J.-A., 2004. Empty Container Management in