Supply chain integration in a maritime context has been mostly studied in the field of container liner shipping. This is a logical consequence of the fact that the goals, operations and activities of shipping lines have been more relevant to those of logistics.
fIgurE 9.1 Annual growth of demand and supply in container shipping (2000–2010)
0%
5%
AGR in %
10%
15% Annual Growth Rates
Annual Growth Rates
–5%
–10%
Demand Supply World GDP
2000
10.7% 2.4% 10.5% 11.6% 13.4% 10.6% 11.2% 11.4% 4.3% –9.1% 11.1%
7.8% 8.5% 8.0% 8.0% 8.0% 10.5% 13.6% 11.8% 10.8% 5.1% 8.8%
4.4% 1.8% 2.1% 2.6% 3.9% 3.4% 4.0% 3.7% 1.7% –2.1% 3.7%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 e
SOuRCE Authors, based on data from UNCTAD (2010)
Shipping Logistics 154
Casson (1986) conducted one of the first studies related to integration in the shipping industry. According to that analysis, shipping companies are seeking ‘arm’s length’ relationships by offering a broad range of services.
However, Casson (1986) underpins that existing contractual arrangements should not be jeopardized by untried innovations. This especially refers to existing relations with partners that work as freight forwarders. The conclu- sion is based on theoretical analysis and is supported empirically. Demand complementarities exist if, for example, a liner company becomes a cus- tomer of a port and vice versa. By controlling both segments, port logistics and shipping services, a company can match service formation and pricing in the most efficient way (Casson, 1986).
Heaver (2001) specifically addresses the possible economies of scope for carriers as a result of vertical integration. In addition to the expansion of the fleet deployed, corporate strategies for different services were integrated into a liner company. The integration of terminal operations is value-adding if suf- ficient container traffic is available on offered routes. Nevertheless, customers expect that the terminals are run independently. Therefore, the integration of intermodal services does not require ownership but a consistent management (Heaver, 2001). Only in this way, efficient and effective door-to-door services are provided. Heaver (2001) concludes that the satisfaction of customers is not dependent on the ability to offer a wide range of logistics services, but rather on the actual quality of the container transportation service.
With respect to the container handling business, in Europe leading han- dling companies developed independently of the liner industry, whereas in North America shipping liners aim to integrate ports services (Slack and Frémont, 2005). It is important to realize that transport integration and port performance influence each other. Port performance is affected by added- value services and port characteristics such as accessibility and hinterland size (Ducruet and van der Horst, 2009). These beneficial port features influ- ence the willingness of container liners to integrate additional logistics services.
In a competitive, deregulated market, corporations try to simplify and control supply chains. As stated by Robinson (2002) the integration of modes, service and networks is crucial for successful transportation chains.
In addition, firms try to ‘seek advantage and value’ (Robinson, 2002, p 22).
In this manner, value is not only related to operating or technical efficiency.
More precisely, the degree of integration of business processes and of the effectiveness of alliances and inter-firm arrangements is a contributor to a company’s value chain. In summary, Robinson (2002, pp 20–21) identi- fies six key drivers that influence the value addition in an integrated supply chain:
● operational efficiency and capacity matching (intra-firm);
● real-time information and the integration of business processes (intra-firm);
Supply Chain Integration of Shipping Companies 155
● alliances and coalitions (intra-firm);
● chain structures and value chain constellations (inter-firm);
● market settings (macro level);
● policy setting (macro level).
Especially at times of increased demand, integrated firms are able to take advantage of their own service portfolio. Externalities can be controlled more effectively (Notteboom, 2002), hence, volumes and transportation times are balanced more effectively. Inefficiencies might arise if core com- petencies are not developed in each field of business activity. Heaver (2005, p 206) states that ‘customers are reluctant to use a logistics service if they feel that logistics services are only offered as a means to feed another business’.
A widely described advantage for vertical integration refers to the reduc- tion of transaction costs (Panayides, 2002). Integrating logistics services may result in gained efficiency by realizing synergies (Panayides and Cul- linane, 2002). In this manner, information flow between different logis- tics services can be improved. An improved exchange of information and business knowledge enhances logistics service quality. Better supply chain management enables the reduction of cycle times, inventories and improved flexibility, which especially holds for the competitive container shipping industry (Casson, 1986).
It is widely recognized in the literature that the future of containerization will be shaped by inland transportation systems (Notteboom and Rodigue, 2009). Figure 9.2 illustrates potential steps for transport chain integration.
The scenario is developed from the shipping line perspective. The suggested steps of integration are not necessarily linear. Nonetheless, shipping liners implement those services into their business portfolios that are closely con- nected to their own services in the transportation chain. In this way, it is most beneficial for shipping lines to control terminal operations first. Following this, the connection to inland transportation can be worth considering.
fIgurE 9.2 Steps of supply chain integration
Terminal operations
High reliability
Holistic view End-customer oriented
Shipping line
Logistics provider Shipping agent
Freight forwarding Inland transportation
Vertical integration
Limited service High utilization Pricing monopolies
Asset Driven
Supply Chain Driven
SOuRCE Based on Frémont (2009a) and Fransoo and Lee (2013)
Shipping Logistics 156
Furthermore, higher expectations in the production chains force transporta- tion companies to offer services just-in-time. By offering integrated transpor- tation services, the shipping lines have closer relationships with the customer and can reduce their dependence on third-party logistics. In many cases, in order to offer such door-to-door services, subsidiaries are mandated to integrate the transportation chain under the supervision of the shipping line.
It must also be noted that inland logistics represent one of the most attrac- tive parts of the transportation chain for reducing costs. More specifically, inland costs account for 40 to 80 per cent of the total costs. In contrast to fixed-cost-driven ocean logistics, inland transportation turns out to be much more variable, respectively cost-driven. Notteboom (2002, p 92) states that inland transportation costs are 5 to 30 times higher than long-distance liner shipping rates.
Notteboom (2009, p 21) provides a positive picture by summarizing:
‘What will take place inland, will shape the future of containerization in terms of its potential to further accommodate the growth of international trade.’ Nevertheless, since the shipping company moves away from its core business, new problems might be encountered. Competition between the different inland transportation modes is not a given anymore which might result in inefficiencies (Frémont, 2009a, p 11).