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Increasing Free Trade Zone Opportunities by Improving Transshipment

Increasing Free Trade Zone Opportunities by Improving Transshipment. Dr. H. Donald Ratliff Executive Director. How do free trade zones add value?. Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other countries to other countries

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Increasing Free Trade Zone Opportunities by Improving Transshipment

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  1. Increasing Free Trade Zone Opportunities by Improving Transshipment Dr. H. Donald Ratliff Executive Director

  2. How do free trade zones add value? • Delay payment of duties and taxes on imported goods • Serve as redistribution hubs for products from other countries to other countries • Provide value added services for products from other countries to other countries

  3. How do free trade zones add value? • Delay payment of duties and taxes on imported goods • Serve as redistribution hubs for products from other countries to other countries • Provide value added services for products from other countries to other countries

  4. How to justify redistribution hubs? • Transportation cost is frequently higher • Handling cost is higher • Inventory is frequently lower • Trade-off between P&L and Balance Sheet • Value of a 40 ft container of product • Typical Asia to US retail = $50,000 • Furniture = $75,000 • Small electronics = $300,000 • Sport shoes = $1,500,000 • Justification based on “unlocking” capital by reducing inventory

  5. How does shipment consolidation at hubs impact inventory? Direct ship Average inventory Container Capacity Inventory at Customer Hub consolidation Average inventory Half Container Half Container Inventory at Customer Hub consolidation Average inventory Inventory at Customer

  6. Inventory using “direct ship” • Customers in Savannah and NY • 10 suppliers in Asia, all with different products • Ship in full containers direct from supplier to customer • 0.5*10 = 5 containers at each customer • Total inventory = 10 containers • Pendulum service

  7. How do hubs impact inventory? • Ship in full containers from each supplier to hub then ship mixed container loads from hub to each customer • Average inventory = 0.5*10= 5 containers at Panama warehouse • Average inventory = 0.5*1 = 0.5 containers at each customer • Total inventory = 6 containers • 10 containers less using hub Transship service

  8. Why Panama as a hub? • Inventory increases with number of hubs • Fixed cost increases with number of hubs • If only one hub then why should it be Panama? • Cost/time from DC to ports • Nearness to direct supplier to customer routes • Time to customers • Variability in time to customers • Connectivity Atlantic Cluster Pacific Cluster

  9. What connectivity characteristics are critical? • Transit time from suppliers and transit time to customers • In-transit inventory is proportional to time in transit • Hub advantage only if transit time reduced • Variability in transit time

  10. Importance of Transit Time Variability • Variability in transit time causes shippers to more maintain safety stock • Longer transit time causes forecasts to be less accurate which requires more safety stock Protecting against late deliveries Due to variability Inventory Planned delivery Time

  11. What connectivity characteristics are critical? • Transit time from suppliers and transit time to customers • Variability in transit time • Frequency of service

  12. Impact of Frequency of Port Calls • Daily service Panama to New York transit time = 3 days • Weekly service Panama to New York transit time = 3 days • Max time = 10 days • Min time = 3 days • Ave time = 6.5 days • Weekly service adds 3.5 days average inventory Time Port call frequency

  13. What connectivity characteristics are critical? • Transit time from suppliers and transit time to customers • Variability in transit time • Frequency of service • Service coverage • Must get product from all suppliers • Must send product to all customers

  14. Panama’s Coverage to Customers Destination from Balboa without transshipment

  15. Panama’s Coverage to Customers Destination from Manzanillo without transshipment

  16. Panama’s Coverage to Customers Destination from Panama without transshipment

  17. Why drives Panama’s connectivity? • Transshipment activity • Manzanillo = 84% • Balboa = 92% • CCT = 69% • Cristobal = 76% • Without transshipment Panama would have very little connectivity • Transshipment drives Panama’s connectivity

  18. Increasing Panama’s Transshipment • Ideally Panama’s ports function as a single port connected by conveyor belts in each direction • Transshipment must be fast and reliable • Integration of all components in the network is essential • Better disruption mitigation is needed • Bigger ships create more transshipment • Panama has excellent connectivity but must work to maintain and increase • Transshipment locations are easily changed by carriers

  19. Questions? Comments?

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