«The terminalization of supply chains: reassessing the role of terminals in port/hinterland logistical relationships Jean-Paul RODRIGUE Department of ...»
The terminalization of supply chains: reassessing the
role of terminals in port/hinterland logistical
Department of Global Studies & Geography
Hofstra University, Hempstead, New York 11549, USA
Institute of Transport and Maritime Management Antwerp (ITMMA) – University of Antwerp
Keizerstraat 64, 2000 Antwerp
The paper discusses how logistics service providers are using terminals in their supply chains. It argues that an increasing „terminalization‟ of supply chains is unfolding, whereby seaport and inland terminals are taking up a more active role in supply chains by increasingly confronting market players with operational considerations such as imposing berthing windows, dwell time charges, truck slots, all this to increase throughput, optimize terminal capacity and make the best use of available land. With the development of inland terminals, a new dimension is being added: logistics players are now making best use of the free time available in seaports terminals and inland terminals, thereby optimizing the terminal buffer function. As a result, transport terminals are achieving an additional level of integration within supply chains that goes beyond their conventional transshipment role.
Given increasing levels of vertical integration in the market and an increasing pressure on port capacity, a further terminalization of supply chains is likely to occur, which will strengthen the active role of terminals in logistics.
Keywords: freight distribution, port terminal, inland terminal, terminalization, supply chains
1. Introduction Transport terminals are the main regulators of freight flows and as such considerably influence the setting and operation of supply chains in terms of location, capacity and reliability. Their function as gateways and hubs of global freight distribution is well known. Containerization has changed the function and layout of terminals. The introduction of container vessels meant larger cargo volumes per port call and shorter handling times per volume of freight. Both factors contributed to a modal separation at terminals and the setting of a significant buffer in the form of large stacking areas (figure 1). This modal separation in space was a requirement for setting up a system of indirect transshipment whereby each transport mode follows its own time schedule and operational throughput, implying a modal separation in time. Under the indirect transshipment system, the terminal stacking area functions as a buffer and temporary storage area between the deepsea operations and the land transport operations thattake place later in the process (or earlier depending on the stage along the supply chain). As a consequence, and in spite of higher turnover levels, the space consumed by container terminals increased substantially. In turn, these space requirements changed the geography of ports and the migration of terminals to new peripheral sites, as outlined in port development models such as those of Bird (1980) and Hoyle (1988). These issues are well documented.
Figure 1 Modal and Temporal Separation at Freight Transport Terminals
However, advances in logistics in the last decades gave a new meaning to the temporary storage at terminals. Instead of using the stacking area as a facilitator for a smooth synchronization between transport modes, shippers and logistics service providers started to use terminals as places for the cheap storage of consignments. This change in the functional use of terminals implied that high dwell times at container yards were no longer an indication of a poor connectivity, low productivity and lack of synchronization between maritime operations and land transport. It represents a divergence from conventional port productivity measures (Kek Choo Chung, 1993). High dwell times got increasingly associated with deliberate actions of actors in the supply chain. Additionally, in many cases the purchaser can delay payment to the vendor until final delivery even if the consignment is conveniently available at the nearby terminal. Terminals thus became buffers in supply chains, sometimes absorbing inefficiencies created elsewhere in the chain.
This paper discusses how logistics service providers are using terminals in their supply chains. It argues that an increasing „terminalization‟ of supply chains is unfolding, whereby seaport and inland terminals are taking up a more active role in supply chains by increasingly confronting market players with operational considerations such as imposing berthing windows, dwell time charges, truck slots, all this to increase throughput, optimize terminal capacity and make the best use of available land. As a result, transport terminals are achieving an additional level of integration within supply chains that goes beyond their conventional transshipment role. Given increasing levels of vertical integration in production and distribution and an increasing pressure on port capacity, a further terminalization of supply chains is likely to occur, which will strengthen the active role of terminals in logistics.
First, this paper discusses the terminalization concept and links it to existing literature on the role of terminals. Then, it investigates the concrete unfolding of terminalization processes in supply chains. The role of deepsea terminals in shaping terminalization processes and examples of terminalization processes in Europe and North America are then presented.
2. Terminalization and the function of terminals in supply chains
A port terminal is commonly defined as a specialized facility where ocean vessels dock to discharge and load cargo. Container terminals are facilities designed to handle containers, with specialized equipment such as container cranes, straddle carriers or stacking cranes and container stacking areas. However, the above technical definition of a terminal does not portray the specific function of terminals in supply chains. Heaver (1993) argues that terminals have come to be specially designed to meet the cargo handling and throughput requirements of integrated logistic systems. Of particular relevance is Heaver‟s assertion that terminals rather than ports are adversaries in the competitive struggle between ports.
While terminals undeniably compete with one another, they do not compete exclusively for tangible assets such as port infrastructure. Operators are primarily competing through the provision of services that add value within the supply chains of its users. This perspective thus begs to reassess the role of terminals. Robinson (2006:54) and Robinson (2002) rightly underline that terminals are in essence through locations or elements in logistics pathways from sellers to buyers. It implies that terminals deliver value to its users (shipping lines, logistics service providers and shippers) not as individual locations but as elements in larger systems of circulation. The value creation process of a terminal is thus linked to the specific attributes of the supply chains that run through the terminal and the logistics network configuration in which the terminal plays a role.
In this paper, we introduce the concept of „terminalization‟ of supply chains to capture the changing role of terminals as through locations in supply chains. It is worth considering to what extent terminalization is an unintended consequence of a new and more constrained context in freight distribution or simply a transitory phase in port / hinterland evolution.
Initially, the term terminalization was brought forward to illustrate a new functional and operational reality of seaports where terminal operators were playing a more important role (Olivier and Slack, 2006; Slack 2007). For instance, the different strategies of global port operators, notably in terms of capital investment, have led in several cases in notable differences in terminal productivity within the same port. Here, the concept is expanded over the realm of supply chains, where two types of terminalization can be identified (Figure 2): bottleneck-derived terminalization and warehousing-derived (buffer) terminalization.
Bottleneck-derived terminalization encompasses a conventional perspective on the role of terminals where the terminal is the main source of delay and capacity constraint for the supply chain. It does not necessarily mean that the terminal is running close to capacity, but that operational issues (storage space, port call frequency, gate access) are imposing a more rational use of the facilities so that the performance and reliability of the terminal is maintained. This is particularly important since terminal operators must maintain a level of service to their users, particularly maritime shipping lines. In this case the supply chain adapts with volume, frequency and scheduling changes and may seek alternatives if possible.
Warehousing-derived (buffer) terminalization refers to an emerging trend where the function of warehousing, in whole or in part, is shifted to the terminal. The terminal becomes the main buffer instead of the distribution center, which functionally makes the terminal a component of the supply chain, no longer as a factor of delay, but as a storage unit. Even if this trend appears paradoxical vis-à-vis “just-in-time” strategies, it gives the supply chain a higher level of flexibility to lower their warehousing costs as well as to adapt to unforeseen events such as demand spikes or delays. An “inventory in transit” strategy coupled with an “inventory at terminal” one can reduce significantly warehousing requirements at distribution centers. Considering the wide variety of commodity chains, each with its own requirements in terms of origins, destinations, frequency, reliability and overall elasticity, buffer-derived terminalization can take many forms.
Historically, distribution centers were located adjacent to terminals, leading to the creation of port-industrial or rail-industrial complexes than not only encompassed heavy industrial activities but a wide range of manufacturing. The terminalization of supply chains was thus important as terminals were the core component in delays since inland freight distribution tended to be costly and unreliable for break-bulks. Containerization has broken this relevance, initially with improved intermodal efficiencies and later on with the setting of inland transport systems. Paradoxically, the terminal became less relevant as the productivity gains of containerization were absorbed by supply chains, which became structurally and spatially more flexible. This came to be known as the move from “push” (manufacture to supply) to “pull” (manufacture to order) logistics. While a push logistics system involves a limited level of integration between suppliers, manufacturers and distributors, a pull logistics system tries to achieve a higher level of efficiency through integration and synchronization. Freight flows between components of the supply chain tended to be more frequent, in smaller batches and subject to tight time constraints. In addition, the sharing of demand dependant data (such as sales) helped better synchronize supply with demand. The emergence of large terminals in new manufacturing clusters, such as the Pearl River Delta, is indicative of the changes brought by the setting of global supply chains supporting global production networks.
However, due to supply chain issues, namely capacity, congestion and security, it is argued that terminalization is resurging in a new form. The move from “push” to “pull” logistics may unfold as “hold” logistics where supply chain management places a greater emphasis to the time constraints related to terminal use. The conventional inventory in transit approach widely used for containerized modes is being complemented by buffer / hold logistics at terminals due to congestion, but also since the terminal is the convergence point – the gateway – of global freight distribution. However, it is becoming difficult for many large terminals, particularly gateway ports, to provide additional capacity because of space and environmental constraints. The capacity of inland distribution has also been a limiting factor, but the setting of inland terminals linked to gateways by high capacity corridors has provided a new dynamic as we will illustrate in the next section.
3. Unraveling terminalization processes in supply chains Terminalization is a particularly suitable strategy for international long distance supply chains, which have become notably prevalent in the consumption goods sector, including a wide variety of products, from apparel to electronics. Figure 2 provides a schematic overview of a typical retailing supply chain where production and consumption have a substantial geographical differentiation. In the next sections we will consecutively look at how terminalization is unfolding in each of the segments of the supply chain.
Figure 2 Forces towards terminalization in a global retailing supply chain
3.1. Export flows to the gateway The export oriented gateway in the midst of a manufacturing cluster is commonly facing capacity issues, implying some constraints in the usage of its facilities. Containerized cargo flows reach the gateway either directly from the supplier or via an intermediate export center in the port area, in a logistics zone near the gateway or in a hinterland location connected to the gateway via a multimodal transport corridor. Mainly in Pacific Asia, export centers are often used as consolidation points and container stuffing locations for non-containerized cargo. Inland connections tend to be poor and trade flows imbalanced, so distribution centers agglomerate nearby gateway facilities, which favors a fast turnover of containers. Once produced and assembled in container loads, the goal is to insure that they are shipped to the maritime segment promptly. Distribution tends to be synchronized with terminal handling capacity and availability implying that terminalization is mainly bottleneck-related at this stage.