Colombo International Maritime Conference- Sri Lanka 26.09.2015

Minimizing Reposition Cost

Lalith EdirisingheCINEC Maritime Campus

Virtual Container Inventory

2

The 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

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Empty container volumes 1990 - 2011

05/02/2023 4(Source:Chiang, 2013)

Empty containersIn 2002 estimated empty container

repositioning costs (ECRC) accounted for USD 20 billion globally

This remain stable ranging from 18% to 22% between 1990 and 2011

Empty containers cost Maersk Line USD 1 billion a year (ShippingWatch, 2012)

ECRC of Sri Lanka is USD 100 Million annually

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Container imbalance represents 22% of the overall cost structure

05/02/2023 6Source: (Alderton, 2004)

Solution to ECRCSome researchers proposed that external container sharing or pooling container fleets among different ocean carriers may reduce ECRC

Virtual Container Inventory (VCI) is derived from this ‘out of the box’ thinking

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VCI -The Virtual Container Inventory1. VCI is a strategic CIM solution2. It can operate globally while

keeping carriers’ individual identities intact

3. Each carrier may exchange containers on mutually agreed but continue to control its own inventories

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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)

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Is the VCI realistic?

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YesNo

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

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Alliance Agreements17 mega carrier alliance agreements facilitates equipment interchange

They represent approximately 82 % of total container trade globally

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TA-16 Carrier Agreements Active in the US/North Trade for 2006 through 2010

13

Number Name Members

1 11375 Trans-Atlantic Conference Agreement ACL, Maersk, MSC, NYK, OOCL

2 11280 Star West Joint Service Agreement , Overseas3 11854 Greensea Inc. Joint Service Agreement Green Chartering, 4 11982 Evergreen Line Joint Service Agreement Evergreen, Hatsu, Italia5 11602 The Grand Agreement II HL, NYK, OOCL6 11960 New World Agreement APL, Hyundai, MOL

7 10955ACL/H-L Reciprocal Space Charter and Sailing Agreement ACL, HL

8 11415 MPA Space Charter and Sailing Agreement ACL, MSC9 11705 Grand Alliance-CP Ships Atlantic Agreement CP, HL, NYK, OOCL, PO

10 11794The COSCON/KL/YMUK/ Hanjin Worldwide SlotAllocation and Sailing Agreement Cosco, HJ, KL, YM

11 11867Norasia/GSL Round The World Service AgreementCMA CGM/CSCL/ELJSA Cross Space Charter, Gold, Norasia

12 11955 Sailing, and Cooperative Working Agreement , CMA, Evergreen13 11912 Dole-HSud Space Charter and Sailing Agreement Dole, HSud14 11927 ITS/Hatsu Marine MUS Slot Charter Agreement Italia, Hatsu

TP-16 Carrier Agreements In The Transpacific Trade For 2006 Through 2010

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Number Name Members1 11602 The Grand II NYK, OOCL, HL 2 11435 APL/HLAG Space Charter Agreement APL, HL3 11794

COSCO/KL/YMUK/ HANJIN/Senator Worldwide SlotAllocation & Sailing Agreement K-Line, Yang Ming, Hanjin, COSCO

4 11885

CMA CGM/MSC Reciprocal Space Charter, SailingAnd Cooperative Working Agreement

CMA CGM, MSC

5 11940

Cross Space Charter, Sailing And Cooperative Working Agreement CMA CGM, Shipping

6 11948

CMA CGM/CSCL Cross Space Charter, Sailing And CWA-Central China/US West Coast, Yang Tse/ AAC2 Service Shipping, CMA CGM

Source: Federal Maritime (2012)

Container imbalance is an outcome of trade imbalance

Container Inventory Management is a complex matter

Perceived marketing disadvantages due to indirect support to a competitor

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VCI is NOT realistic ????

Possible legal implications as additional party involved in the transport contract

(i.e. Line A load lne C’s containers on line B’s ship)

Possibility of making additional insurance premium

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Perceived negative impact of the brand image

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

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

A case study and simulation can be done instead

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Sri Lanka’s External Trade (2004-2014)

Laden Domestic Im-ports 62%

Laden Domestic Ex-ports 38%

Sri Lanka External Trade

(In terms of con-tainers)

Laden Domestic Ex-ports 54%

Empty Domestic Exports46%

Sri Lanka Domestic Exports 2004-14(In terms of con-

tainers)

Laden Domestic Imports

90%

Empty Domestic Imports

10%

Sri Lanka Domestic Imports 2004-14(In terms of con-

tainers)

Empty Container Movements in Sri Lanka 289,474 TEU s empty containers

(MTY) were evacuated from port of Colombo in the year 2014

11.6 percent growth against 2013

Paradoxically, shipping lines have imported 48,629 TEUs of empty containers to SL in 2014

24.3 percent growth from 2013(CASA Per. Review, 2015)

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

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Month StatusFinal

outcome Month StatusFinal

outcomeJAN

Excess 557 JUL

Excess 619Shortage 346 Shortage 215

FEB

Excess 286 AUG


MAR

Excess 477 SEP


APR

Excess 650 OCT


MAY

Excess 585 NOV


JUN

Excess 399 DEC


Total Excess = 5585

Total Shortage = 4791

Total Imbalance = 10376

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Month Status

Actual inventory position

Status

Outcome of

Exchange

Month Status

Actual inventory position

Status

Outcome of

Exchange

JAN

Excess 557 Excess 211JUL

Excess 619 Excess 404Shortage 346

Shortage 0

Shortage 215

Shortage 0

FEB

Excess 286 Excess 0AUG


Shortage 83

Shortage 491

Shortage 0

MAR

Excess 477 Excess 0SEP


Shortage 195

Shortage 458

Shortage 17

APR

Excess 650 Excess 415OCT


Shortage 0

Shortage 562

Shortage 441

MAY

Excess 585 Excess 247NOV


Shortage 0

Shortage 499

Shortage 165

JUN

Excess 399 Excess 236DEC


Shortage 0

Shortage 443

Shortage 24

Total imbalance estimated after exchange = 2644

Total 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 - 2013

05/02/2023 23JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 0

200

400

600

800

1000

1200

1400

ExchangeWork alone

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Container Type& Size

Imbalance when Work alone

Imbalance when Collaborate

Trade incentive of Exchange

Saving @ $ 500 per REPO

20'GP 158221 156285 1.20% $968,000 40'GP 10486 794 92.40% $4,846,000 40'HC 44586 27842 37.60% $8,372,000 45'HC 2155 101 95.30% $1,077,500 20'&40'RF 5975 4791 19.80% $592,000

Total 221423 189813 14.30%$15,855,50

0

Analysis of Container imbalance Multiple size/type - 2014

Proposed Container Exchange Model

A

B

C20

40

20

40

20

40

A

B

C20

40

20

40

20

40

A

B

C20

40

20

40

20

40

A

B

C20

40

20

40

20

40

Port x Port y

Port w Port v

A

B

C20

40

20

40

20

40

A

B

C20

40

20

40

20

40

25

50

10 25

10

20

4 days

10 days

8 days20

days

Deriving a mathematical explanation

AB1020 + AC50

04 = BA5004 + CA25

08

BC2010 + BA50

04 = AB1020 + CB20

10

CA25

8 + CB2010 = AC50

04 + BC2010

…………………..

……………..ABQ1

t1 + ACQ2t2 = BAQ3

t3 + CAQ4t4

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Evaluating the outcome of exchange

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Offerer Details of Container Exchange Directionof containers

Transit time after exchange

Total EO as perceived by offererCarriers 20’ 40’ TEUS

A A/B 10 - 10 x/w 20 days 400 TEU/DaysA/C 50 - 50 x/y 04 days

B B/C - 10 20 y/v 10 days 400 TEU/DaysB/A - 25 50 x/y 04 days

C C/A 25 - 25 y/w 08 days 400 TEU/DaysC/B 20 - 20 y/v 10 days

Total 105 35 175

Offeree Details of Container Exchange Directionof containers

Transit time after exchange

Total EO as perceived by offererCarriers 20’ 40’ TEUS

A B/A - 25 50 x/y 04 days 400 TEU/DaysC/A 25 - 25 y/w 08 days

B A/B 10 - 10 x/w 20 days 400 TEU/DaysC/B 20 - 20 y/v 10 days

C A/C 50 - 50 x/y 04 days 400 TEU/DaysB/C - 10 20 y/v 10 days

Total 105 35 175

1. Container Inventory Management Matrix - 6R Model

2. Multidimensional Index for Container Inventory Management

3. 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

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Future contribution……….

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on Shipping & Ports.

Thank you

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Education

Colombo International Maritime Conference- Sri Lanka 26.09.2015