The Marine Transportation System and the  International Supply Chain

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MTSNAC Education Team. 2. MTSNAC Education Team Mission Statement. To study issues relevant to the nation's marine transportation system in an effort to prepare briefing materials for MTSNAC members to ensure an appropriate knowledge base for MTSNAC discussion, activities, and recommendations. In addition, it is also the mission of the Education Team, when authorized by the full MTSNAC, to prepare materials that support MTSNAC objectives, as well as inform the Department of Transportation and t9439

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The Marine Transportation System and the International Supply Chain

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1. The Marine Transportation System and the International Supply Chain MTSNAC Education Team Presentation

2. MTSNAC Education Team 2 MTSNAC Education Team Mission Statement To study issues relevant to the nation’s marine transportation system in an effort to prepare briefing materials for MTSNAC members to ensure an appropriate knowledge base for MTSNAC discussion, activities, and recommendations. In addition, it is also the mission of the Education Team, when authorized by the full MTSNAC, to prepare materials that support MTSNAC objectives, as well as inform the Department of Transportation and the general public.

3. MTSNAC Education Team 3 Introduction The MTS and the MTSNAC 1999 Report to Congress--An Assessment of the U.S. Marine Transportation System, recommended the creation of the MTSNAC The supply chain Key components Economic factors Role of transportation MTS challenges How MTS challenges affect the supply chain

4. Marine Transportation System (MTS) An Overview

5. MTSNAC Education Team 5 Marine Transportation System This presentation focuses on freight and the supply chain The MTS encompasses a much larger and complex set of maritime components Coastal and inland ports alone generate more then 13 million jobs More jobs and commerce are generated by: Commercial fishers Ferry commuter and passenger activity Ship, barge, tug, towboat, yacht, and sailboat building Recreational boating, sightseeing and charter operations Cruise ship operations and passengers Coastal and inland waterway security and businesses that supports these activities

6. MTSNAC Education Team 6 Marine Transportation System MTS has great value! Economic benefit Creates over 13 million jobs and has a business Revenue impact exceeding $1 trillion National defense Supports rapid military mobilization Enhances ability to sustain our military forces Recreational opportunities Boating, fishing, riverboat gaming and sightseeing, passenger cruise vessels Efficient environmentally benign transportation Ferry boat commuting, coastal and inland domestic alternatives to highway and rail freight movement.

7. The Supply Chain and Logistics

8. MTSNAC Education Team 8 The Supply Chain Simple definition--logistics All steps, direct and indirect, involved in the transportation of materials. bringing goods or services to market whether finished consumer goods or components or raw materials needed for additional manufacturing or distribution.

9. MTSNAC Education Team 9 The Supply Chain Broader concepts Flow of physical goods, associated information, and funds The delivery of customer and economic value through integrated management Cost saving Speed to market Customization Includes vendors, customers, carriers, and intermediaries

10. MTSNAC Education Team 10 Supply Chain — Key Components Production Inventory Location Information Transportation

11. MTSNAC Education Team 11 Supply Chain — Key Components Production What products; what quantities; when needed Production schedules Plant or facility capacity Labor availability Inventory What products need to be available at each link in the supply chain A buffer against uncertainty in the supply chain Location For production, for inventory Cost efficiencies

12. MTSNAC Education Team 12 Supply Chain — Key Components Information Data collection Real-time availability (i.e., GPS and RFID) The ability to track goods and equipment in transit electronically Visibility Data sharing Beyond EDI (i.e., portals) One to one becomes many to many Collaborative processing Basis for decision making Extensive software (i.e., ERP, SCM, TMS, WMS)

13. Factors That Impact the Supply Chain

14. MTSNAC Education Team 14 Supply Chain Economic Factors 1 International Trade Trade—the business of buying and selling for money or credit The act or business of exchanging commodities by barter People have always been willing to trade for goods they did not have or otherwise produce

15. MTSNAC Education Team 15 Supply Chain Economic Factors 2 International Trade The history of international trade, transportation and economic growth are inextricably linked 1290: Marco Polo connects Venice to China’s Silk Road 1492: Christopher Columbus seeks water route to India 1498: Vasco de Gama opens Asia to Europe 1602: Dutch East India Company develops global import/export network

16. MTSNAC Education Team 16 Supply Chain Economic Factors 3 Old model of production—local supply chain Local market enjoyed the advantage of locally produced goods and paid a premium for goods produced elsewhere and transported to the consuming market Traditional manufacturing areas Traditional agricultural areas A function of natural resources, labor availability, local infrastructure, and transportation service and cost

17. MTSNAC Education Team 17 Supply Chain Economic Factors 4 Industrial revolution increased trade and transportation Wide-scale mechanization of production Production and consumption no longer local Need to transport raw materials (in) and finished goods (out) Cheaper mass produced goods available for consumers Economies of scale The more goods available the greater the market

18. MTSNAC Education Team 18 Supply Chain Economic Factors 5 New model—International supply chain Manufacturing not dependent on local natural resources Food availability not dependent on local production Location of production not dependent on location of intended market Low production and transportation costs a driving factor Economies of scale Decentralization of production Reliable transportation service Creates world-wide manufacturing capabilities Make more goods available world-wide Creates new consumer markets

19. MTSNAC Education Team 19 Supply Chain Economic Factors 6 Globalization Restructuring of corporate ownership and global economics Economic "globalization" is a historical process innovation and technological progress increasing integration of economies around the world, through trade and financial flows the movement of people (labor) and knowledge (technology) across international borders Commercial aspect Availability of consistent quality consumer goods and services throughout the world

20. Links in the Supply Chain

21. MTSNAC Education Team 21 Key Links in the Supply Chain Producers Distributors Retailers Customers Service Providers

22. MTSNAC Education Team 22 Key Links in the Supply Chain Producers Raw materials, Finished products and components, Services Distributors Receive Products in bulk from producers Retailers Sell to customers and maintain limited inventory Customers Consumer or entity that uses the material in the production of another product

23. MTSNAC Education Team 23 Key Links in the Supply Chain Service Providers Services to producers, distributors, retailers, or customers Carriers Intermediaries Infomediaries Expertise about particular activity Transportation, Freight forwarding and consolidation, Warehousing, Financial services, Market research, Advertising, Engineering, Legal, Information technology

24. Transportation: a Look at Some of the Players

25. MTSNAC Education Team 25 Transportation Consists of: Shipper—places the goods in transit Consignee—designated to receive the goods Either the shipper or the consignee may make cargo transportation arrangements

26. MTSNAC Education Team 26 Supply Chain Transportation Need to move goods from origin to destination in the supply chain by Water Highway Rail Pipeline Air Decisions based upon cost, time, and reliability

27. MTSNAC Education Team 27 Water Transportation Providers Vessel Operator—provides ocean transportation Liner service—fixed routes on fixed operating schedules and generally refers to container cargo Non-liner service (tramp service)—non-container, project, and dry bulk (ores, grains, chemical compounds) cargoes Tanker service—oil and petroleum products, chemicals, LPG Port Authority—public, quasi-public, or private entity providing port berth and pier availability May act as landlord for terminal operators and other tenants Or may actually operate terminals and other facilities Marine Terminal Operator—operates facilities for cargo loading and discharging Stevedore—performs cargo loading and discharging operations for a terminal or vessel operator

28. MTSNAC Education Team 28 Non-water (Other Modal) Transportation Suppliers Carriers that transport goods to or from ports Railroads Motor Carriers Parcel companies Barge lines Air freight Basis of carriers can vary Financial structure Asset based Non-asset based Integrators Functional basis Transportation Intermediary

29. MTSNAC Education Team 29 Examples of Intermediaries

30. MTSNAC Education Team 30 Non-Asset Based Carriers and Intermediaries Freight Forwarder Acts as agent on behalf of the shipper Frequently makes the cargo booking reservation NVOCC Non-Vessel Common Carrier A non-asset based ocean carrier that provides carriage by purchasing capacity from vessel operators Intermodal Marketing Company Provides door-to-door intermodal services by purchasing transportation from a variety of asset and non-asset carriers

31. MTSNAC Education Team 31 More Intermediaries Logistics providers LLP—Lead Logistics Provider Aggregates and coordinates services of multiple 3PL and may be a 3PL itself 3PL—Third-Party Logistics Provider Manages inbound or outbound supply chain with its own resources 4PL—Fourth-Party Logistics Provider Assembles strategy, capabilities and technology to design, build and run supply chains

32. MTSNAC Education Team 32 Still More Intermediaries Assistance and technology providers Steamship Agent Duly authorized steam ship line geographical representative attending to all matters on behalf of the line’s vessels Customs House Broker Independent broker licensed to act for importers in handling Customs formalities for importers ASP (Application Service Provider) Distributes software systems through the internet to customers from a central site Portal Web-site providing multiple services and connecting multiple parties

33. MTSNAC Education Team 33 Functions of Intermediaries

34. The Container Revolution and Other Technological Advances

35. MTSNAC Education Team 35 Container Revolution in Transportation The history Malcolm McLean sailed the Ideal X from Port Newark NJ to Houston TX on April 26, 1956 with 58 thirty-five foot containers on deck. Matson Navigation introduced the first full container vessel the Hawaiian Citizen in 1960 The impact Revolutionized how goods were shipped Dramatically reduced transportation costs, delivery times, and shrinkage Required new port configurations, equipment, labor rules, and business practices Containerization along with the diesel engine, jet engine, and the internet were the transformative transportation technologies of the 20th century!

36. MTSNAC Education Team 36 Evolution of Cargo Traffic

37. MTSNAC Education Team 37 Evolution of Cargo Traffic 70% APL as market leader70% APL as market leader

38. MTSNAC Education Team 38 Import Cargo—Origin

39. MTSNAC Education Team 39 Import Cargo—Destination

40. Business Decisions That Impact Transportation and the Supply Chain

41. MTSNAC Education Team 41 Business Decisions That Impact the Supply Chain Location Manufacturing facilities Distribution hubs and centers Size of local markets Transportation options Rail Highway Water Low-cost producer

42. MTSNAC Education Team 42 Distribution Hubs and Centers Consolidation of retail and wholesale distribution hubs near fewer ports. Cargo from multiple sources is transloaded into domestic (sometimes ISO international containers) for further shipment to regional distribution centers. No warehousing. Value-add also performed (repacking, display, assembly) Domestic 53-foot containers have 60-70% more space than ISO 40-foot containers and are of significantly less weight making them more efficient for over-the-road use.

43. MTSNAC Education Team 43 Equipment Comparison Box car LCL Express (REA) Plan 1 and 2Box car LCL Express (REA) Plan 1 and 2

44. MTSNAC Education Team 44 Distribution Hubs Inventory deferral Deployment delay (from Asia to US discharge) reduces time interval for distribution to sale from 23 days to 6 days Sales forecast errors typically grow by the square root of lead time Inventory reduction >20% available from using inventory deferral

45. MTSNAC Education Team 45 Changing Definition of Inventory Prior to 1980 Carried to support sales and reduce manufacturing cost Inventory costs and risks ignored Transportation was a stand-alone function Often part of vertical integration Today Integrated with sales process Total cost (and risk) of ownership and movement is optimized Significant outsourcing arising from financial reengineering

46. MTSNAC Education Team 46 Intermodal 53-Foot %

47. MTSNAC Education Team 47 Large Scale Importers

48. MTS Challenges

49. MTSNAC Education Team 49 MTS Challenges Growing demand for transportation Rising cargo volumes Shifting user requirements Larger cargo vessels Fewer port calls Infrastructure not keeping pace with demand Security National defense needs

50. MTSNAC Education Team 50 How MTS Challenges Impact the Supply Chain Focus on cargo Increased cargo volumes Limited infrastructure Port facilities Berth space Labor Intermodal connectors Landside conduits to remove cargo from port Rail hubs Highways

51. MTSNAC Education Team 51 How MTS Challenges Impact the Supply Chain Goal of shippers and consignees is seamless intermodal transportation Hurdles National freight policy not in place Contingency plans for alternative ports and routes incomplete or not contemplated Example: Panama Canal capacity Deficiencies in business forecasting models Need for enhanced technology and productivity throughout system

52. MTSNAC Education Team 52 Challenges Traditional timeline has changed Change is more dynamic—less reaction time Physical life of infrastructure often exceeds useful economic life Removing one bottleneck may result in another that didn’t previously show

53. MTSNAC Education Team 53 Solutions Can Increase Challenges Alameda Corridor as example Designed for intact intermodal movement—didn’t directly address access to nearby distribution hubs (1990 design vs. 2005 reality) Removed bottleneck from port to railhead--but resulted in increased rail congestion at railhead Design compromise led to more local truck traffic--both absolute and relative Economic costs and benefits not assigned directly

54. MTSNAC Education Team 54 China Goods Movement

55. MTSNAC Education Team 55 China Goods Movement

56. MTSNAC Education Team 56 Challenges Traffic balance is continuing to skew Range and locus of volume Growth is unprecedented

57. MTSNAC Education Team 57 Container TEU Volume Historical View

58. MTSNAC Education Team 58 2003 Container TEU Volume – Traditional View

59. MTSNAC Education Team 59 2003 Container TEU Volume – Reality

60. MTSNAC Education Team 60 Trade Flows Are Changing (Lower Value)

61. MTSNAC Education Team 61 Trade Flows Are Changing (More Imbalance)

62. MTSNAC Education Team 62 Trade Flows Are Changing (Greater Empty Volumes)

63. MTSNAC Education Team 63 Trade Flows Are Changing (Less Intact Intermodal)

64. MTSNAC Education Team 64 Conclusion Container volume is expected to more than double in the next twenty years and nearly all non-bulk cargo will be containerized. We must plan now to ensure that we have the people, training, technology, transportation assets, and the infrastructure to provide efficient and reliable transportation services. Solutions must be flexible to accommodate changes that will inevitable occur.

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