The Marine Transportation System and the Supply Chain

1. The Marine Transportation System and the Supply Chain MTSNAC Education Team Version 5.0 Last Revised 1 August 2006

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. Proposed Web Site

4. Marine Transportation System (MTS) Overview Section #1 Last Revised: 1 August 2006

5. Marine Transportation System • MTS has great value • Economic benefit • Creates over 13 million jobs • 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.

6. Marine Transportation System • Job impact • Coastal and inland ports generate over 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 • Businesses that supports these activities

7. Introduction to Logistics and the Supply Chain Section #2 Last Revised: 1 August 2006

8. Topics for Discussion • Introduction • International trade • Supply chain components • Transportation industry participants

9. Introduction • Definitions • Transportation • Transporting something from one location to another • Logistics • Procurement, transport, and storage of goods -- particularly with material flow (raw materials, work in progress, finished products )

10. Introduction • Definitions • Supply chain management • Integrated management of the flow of physical goods, funds and associated information, from raw materials sourcing to delivery of finished products to consumers • Design and management of seamless, value-added processes across organizational boundaries to fulfill customer needs

11. Introduction • The supply chain • Delivers customer and economic value through integrated management • Cost saving • Speed to market • Customization • Includes vendors, customers, carriers, and intermediaries

12. Introduction • Key components of the supply chain • Production • What products; what quantities; when needed • Production schedules • Plant or facility capacity • Labor availability • Location • For production, for inventory • Cost efficiencies • Inventory • What products need to be on hand at each link in the supply chain • A buffer against uncertainty in the supply chain

13. Introduction • Key components of the supply chain • 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)

14. Introduction • Economic impact to the US economy in 2005 • Total logistics = $1.2 trillion (9.5% of total GDP) $ Billion Source: CSCMP

15. Introduction Capacity Rightsizing Capacity Constraints Capacity Downsizing Source: CSCMP

16. Introduction Source: CSCMP

17. Introduction Source: CSCMP

18. Regulation Cost driven pricing Customer choice Cost plus mentality No expense control Timing issue on rates Excess capacity Social contract National emergency Barrier to entry Monopoly licenses Deregulation Price driven costing Carrier choice Market price Expense control Timing as decided Necessary capacity Business decision Daily operation No entry barriers No assigned rights Deregulation Infrastructure bargain changed. Once-in-an-eternity free ride is over.

19. 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 • Initial model: local economies • Local sufficiency in both manufacturing and agricultural production

20. International Trade • International Trade • The history of international trade, transportation and economic growth are inextricably linked 1602 Dutch East India Company 1492 Columbus 40 AD Monsoon cycle discovered 1290 Marco Polo 1944 Bretton Woods 1498 Vasco deGama

21. International Trade • Revised model – introduction of trade • Competitive balance • Advantage for locally produced goods • Premium cost for goods produced elsewhere and transported to the consuming market • Market development • Manufacturing areas • Agricultural areas • A function of natural resources, labor availability, and local infrastructure, • Transportation service and cost

22. International Trade • Paradigm shift #1 -- Industrial revolution • Increased trade and transportation • Wide-scale mechanization of production • Economies of scale resulted in less-expensive goods for consumers • More goods available -- the greater the market • Production and consumption no longer local • Need to transport raw materials (in) and finished goods (out)

23. International Trade • Paradigm shift #2: Globalization • Continued restructuring of corporate ownership and global economics • International innovation and technological progress • Global economic integration through trade and financial flows • Free movement flow of across international borders • People • Materials • Knowledge

24. International Trade • Globalization • Many intellectual foundations to this trend • Thoughts and actions for the past 300 years

25. International Trade • Globalization’s new model • International supply chain • Extended scope of industrial revolution • Production location not related to consumption location • Manufacturing not dependent on local natural resources • Food availability not dependent on local production • Low costs for production and transportation • Economies of scope and scale • Reliable transportation service essential • World-class manufacturing evolves to make more goods available world-wide – creating new markets

26. International Trade Source: Global Insight

27. International Trade Source: Global Insight

28. Supply Chain Components Producers Distributors Retailers Customers Transportation and Logistics Service Providers

29. Supply Chain Components • Producers • Provide raw materials, components, finished products, and services • Distributors • Receive products from producers and distribute to retailers • Retailers • Sell directly to customers • Customers • End consumer -- or entity that uses the material in the production of another product

30. Supply Chain Components • 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

31. Prior to 1980 Stand-alone functions optimized separately Vertical integration commonplace Today Integrated process optimized globally Frequent outsourcing and reengineering Supply Chain Components Changing Nature of Inventory

32. Supply Chain Components Changing Nature of Marketplace Pre-1980 1980-1995 1996-today Inflation and Deregulation Globalization and Reengineering

33. Transportation Industry • All transactions require • Shipper—places the goods in transit • Consignee—designated to receive the goods • Either the shipper or the consignee may make cargo transportation arrangements with the carrier(s) • Carriers can be shippers too (e.g., steamship lines purchase rail and truck transportation)

34. Transportation Industry • Goods can move from origin to destination by many modes • Water • Highway • Rail • Pipeline • Air • Decisions based upon cost, time, and reliability

35. Transportation Industry • Factors for routing decisions Price Time Reliability

36. Transportation Industry • Marine transportation system 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)—generally non-container cargoes and special project cargo • Tanker service—oil, ores, grain, chemicals, LPG • Barge lines are vessel operators on ocean and inland waterways

37. Transportation Industry • Marine transportation system providers • Port Authority provides infrastructure • Public, quasi-public, or private entity provides berth and pier availability • May act as landlord for terminal operators or may actually operate facilities • Terminal Operator operates facilities • Supports cargo loading and discharging • Stevedore provides terminal labor • Performs cargo loading and discharging operations for a terminal or vessel operator

38. Carriers that transport goods to or from ports Railroads Motor Carriers Parcel companies Air freight Different basis of providers Financial structure Asset based Non-asset based Integrators Functional basis Transportation Intermediary Transportation Industry Other Marine Transportation Providers

39. Transportation Industry Marine Transportation Intermediaries

40. Transportation Industry • 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 Operating 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

41. Transportation Industry • Logistics providers • 3PL: Third-Party Logistics Provider • Manages inbound or outbound supply chain with its own resources • LLP: Lead Logistics Provider • Aggregates and coordinates services of multiple 3PL and may be a 3PL itself • 4PL: Fourth-Party Logistics Provider • Assembles strategy, capabilities and technology to design, build and run supply chains

42. Transportation Industry • Assistance and technology providers • Steamship Agent • Duly authorized steamship 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

43. Transportation Industry Functions of Intermediaries

44. Containerization andLiner Shipping Section #3 Last Revised: 1 August 2006

45. Topics for Discussion • Containerization • Liner shipping • Intermodal

46. Containerization • Cargo previously handled many times • Consolidation at port of loading • Deconsolidation at port of discharge • Inland transportation distinct • Port calls as necessary

47. Containerization • The Conex Box (1946-1955) • Institution of unitized loading • Implemented by US military • Intact movement from origin to destination

48. Containerization • Commercial container shipments • First vessel, Ideal X, was converted tanker • Newark NJ to Houston TX on April 26, 1956 • 58 thirty-five foot containers on deck • Competition for rail merchandise

49. Containerization • Specialization • Matson Navigation introduced the first full container vessel, Hawaiian Citizen, in 1960 • Developed specialized container terminals

50. Containerization • The impact • Revolutionized how goods were shipped • Dramatically reduced transportation costs, delivery times, and inventory shrinkage • Required new port configurations, equipment, labor rules, and business practices • Containerization along with the diesel and jet engines were the transformative transportation technologies of the 20th century