Logistic A

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Defining maritime logistics hub and its implication for container port a

Hyung-Sik Nam & Dong-Wook Song

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Logistics Research Centre, Heriot-Watt University, Edinburgh EH14 4AS, UK Version of record first published: 09 Jun 2011.

To cite this article: Hyung-Sik Nam & Dong-Wook Song (2011): Defining maritime logistics hub and its implication for container port, Maritime Policy & Management: The flagship journal of international shipping and port research, 38:3, 269-292 To link to this article: http://dx.doi.org/10.1080/03088839.2011.572705

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MARIT. POL. MGMT., MAY VOL.

38,

NO.

2011,

3, 269–292

Defining maritime logistics hub and its implication for container port HYUNG-SIK NAM and DONG-WOOK SONG*

Downloaded by [Universidad Del Norte] at 16:57 03 February 2013

Logistics Research Centre, Heriot-Watt University, Edinburgh EH14 4AS, UK Since the hub-and-spoke concept was introduced to the aviation market after the US airline deregulation in the late 1970s, it becomes a primary distribution model employed by leading international logistics companies. This pattern drives the companies to consolidate shipments on the large scale at major terminals (i.e. hub) and to redistribute the smaller scale of shipments to their respective destinations via radial links (i.e. spoke). In the field of logistics and supply chains, however, the hub concept has been often introduced in various terms in accordance with functionality: for example, logistics centre, logistics zone, freight terminal, distribution centre and warehouse. Such a heterogeneous terminology on the concept of logistics hub seems still in usage by practitioners and academics alike. Having recognised this rather ambiguous concept and definition in the literature, this article attempts to define the concept applicable to the maritime industry by synthesising existing studies/perspectives and examine its possible implications.

1. Introduction Logistics has become a significant area of interest in global business and management, and is seen as a way to enhance firms’ performance and outcomes [1]. The importance of logistics has dramatically increased, as evidenced by the significant degree of attention paid to it by practitioners and academics alike, due in large part to the internal and external environmental factors affecting firms, such as globalisation, changing customer demands, advances in technology and industrial deregulation. Logistics centre (or so-called logistics hub or distribution centre) was introduced in early 1980. Initially, the function of logistics centre was mealy limited in simple warehouse which store the fished goods. However, modern logistics centre provides a wide range of services including sophisticated and comprehensive valueadding services. In the field of logistics and supply chains, however, the hub concept has been often introduced in various terms in accordance with functionality: for example, logistics centre, logistics zone, freight terminal, distribution centre and warehouse. Such a heterogeneous terminology on the concept of logistics hub seems still in usage by practioners and academics alike. Having recognised this rather ambiguous concept and definition in the literature, the main purpose of this article is to critically review the concepts and definitions

*To whom correspondence should be addressed. E-mail: [email protected] Maritime Policy & Management ISSN 0308–8839 print/ISSN 1464–5254 online ß 2011 Taylor & Francis http://www.tandf.co.uk/journals DOI: 10.1080/03088839.2011.572705

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H.-S. Nam and D.-W. Song


associated with the existing hub literature applicable to maritime transport and logistics by synthesising the existing studies and perspectives. As Webster and Watson [2] and Lewis and Grimes [3] claim; an effective review creates a foundation for advancing knowledge, closes areas where a plethora of research exists and uncovers areas where research is needed. In this sense, this article also makes a further proposition that hub ports (in particular, container ports) should be examined with not only their container throughputs in terms of Twenty-Foot Equivalent Units (TEU) but also their connections with shipping lines in the interand intra-region. It is therefore addressed that an applicability of network-based analyses would be made in the context of maritime logistics hub.

2. Logistics hub in concept 2.1. Defining logistics Since a logistics concept was introduced in the early 1960s, the role of logistics, as a main centre for firm’s cost reduction and consequently gaining its competitive market position, has been ever more important to the business world [4]. As Stroh [5] indicates, the term of logistics deriving from military that often refers to the management of troops’ movement (i.e. equipments and supplies from one location to another). After this military term ‘logistics’ was introduced in the field of management, it has been defined mostly as to manage the movement of products or items in business environment. The term of logistics is often used to imply a number of different aspects of its related functions, such as physical distribution, materials management, procurement and supply and supply chain management. Growing interests in logistics have been mainly due to the fact that logistics is one of the very few areas being utilised to establish substantial economies. The logistics concept provided by the Council of Supply Chain Management Professionals [6] is one of the most popular, where logistics is defined as part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. This definition implies all the relevant activities of the flow of goods from the origin to ultimate destination, including transportation, warehousing, purchasing, distribution, etc. As an important business function, logistics has drawn attention of business operators as well as academic and scholars. Logistics has been a frequently studied area, and a great number of studies and discussions have contributed enormously to the overall development of logistics. There are several authors who make an effort to define the logistics concept based on their own views. The generic strategy framework by Porter [7] proposes that cost readership and differentiation are the two main sources of competitive advantage. Stock and Lambert [8] identify that logistics can be used as an offensive weapon for firms to gain a differentiation and create a sustainable competitive advantage. David and Stewart [9] view logistics as part of the supply chain process that plans, implements and controls the effective forward and reverse flow and storage of goods, services and related information from the point of origin to the point of consumption. An emphasis of logistics functions differ from authors to authors. Rushton et al. [4] address that logistics should be characterised by both ‘material management and distribution’, while Agapio et al. [10] claim that ‘transport and distribution’ are cornerstones of logistics

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and its most visible manifestations. Logistics has traditionally been viewed first and foremost as the physical distribution brought about by a focus on transportation and warehousing [11], and is often regarded as the ‘whole process in managing the flow of goods, services and information flow from raw materials to final customers’ [12]. Baudin’s [13] definition also encompasses all the relevant activities associated with the flow of goods, including the functions of transportation, warehousing, purchasing, distribution and so on. Christopher [14] employs a marketing and cost-effective oriented approach, which highlights that logistics is a planning framework with marketing channels to create a single plan for the flow of products and information. Coyle et al. [15] provide three major stages in terms of logistics developments. The first stage is in 1960s to 1970s when logistics was considered as mere physical movement of goods. There existed recognition on relationships between the various functions within logistics, and companies recognising the change in the structure and control over their distribution chain. Large retailers developed their own distribution structures, which were based on the concept of regional or local distribution depots to supply their stores. Moving to late 1980s and 1990s, the second stage is linked to implementation of information technology concept [16] and integration of individual logistics functions in that logistics was regarded as materials management (i.e. inbound logistics) with physical distribution (i.e. outbound logistics). Finally, the third stage of logistics development took place in 2000 and beyond. Companies experienced a number of business challenges in order to maintain or improve their competitiveness against competitors. During this period, there was a positive value added role of logistics, while the traditional view of logistics being treated as merely a cost burden became a minor viewpoint, regardless of any other implication. Brief processes and related activities of logistics can be summarised as presented in Figure 1. Management actions Inputs into logistics

Planning

Implementation

Outputs from logistics

Control

Human resources Financial resources

Marketing orientation (competitive advantage) Logistics Management Raw In-process materials inventory

Finished goods

Customers

Natural resources (land, facilities and equipment) Suppliers


Defining maritime logistics hub and its implication for container port

Information resources

Time and place utility Efficient movement to customer Proprietary asset

Logistics activities •Customer services •Demand forecasting •Distribution communications •Inventory control •Material handling •Order processing •Parts and service support

Figure 1.

•Plant and warehouse site selection •Procurement •Packaging •Return goods handling •Salvage and scrap disposal •Traffic and transportation •Warehousing and storage

Components of logistics management.


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2.2. Defining logistics hub The development of international trade and industrial distribution patterns has been impacts on the development of logistics facilities as they have been recognised a main strategic contributor to achieving competitiveness and attractiveness [17]. There has been no clean cut definition towards what a logistics hub is. A dictionary [18] defines the term ‘hub’ as a central part of vehicle’s wheel and exchangeable with ‘centre’. The hub is commonly used in the aviation (especially, passenger sector) industry after the US airline Deregulation Act in 1978; the route structure has been since then adopted by a large number of airlines that operate in the deregulated market. A hub is strategically located at an airport utilised as a collection–distribution centre for passengers serviced generally by a single carrier [19]. Since the Deregulation Act eliminated routing restrictions, networks based on a hub-and-spoke architecture have proliferated in the US freight transportation industry as well. In the period of 1990s, the hub concept became the primary distribution model employed by logistics integrators such as DHL, TNT, UPS and FedEx and leading international carriers. Shipments coming from several origins are consolidated at major terminals (i.e. hub) and redirected to their respective destinations through radial links (i.e. spoke) [19]. The hub concept has been often introduced in various terms in accordance with mainly its functionality of storage and transportation: for example, logistics centre, logistics zone, freight terminal, distribution centre, warehouse, intermodal terminal international transport terminal, intermodal terminal and so on. Such a heterogeneous terminology on the concept of logistics hub seems still in usage by practioners and academics alike. According to Rimiene and Grundey [20], the ‘logistics facilities’ (so-called logistics centre) concept appeared around 30 years ago and can be classified into three different generations over the course of its evolution. Europlatforms [21] provides a precise definition of logistics centre that the hub for a specific area where all the activities relating to transport, logistics and good distribution, both for national and international transit, are carried out, on a commercial basis, by various operators. Johnson and Wood [22] views logistics centre as cost reduction centre which is defined as a facility where commodities move constantly to the end of circulation and the warehousing amount and relevant costs are reduced as much as possible. An UN report [23] states that a logistics centre should be able to equipped with all the public facilities necessary to carrying out the all logistics related activities. Logistics centres serve a variety of purposes including cargo transhipment, production synchronisation, facilitating business and trade, whereas others aiming to strengthen the logistics capability for transforming a region a more attractive or competitive market. However, the fundamental requirements as per logistics centre are on nodal point of transport network, common infrastructures, intermodality and logistics and transport services [24]. Over time there have been changes to how things are stored, produced and moved, which have been significant for the development. The logistics facilities concept could be, however, derived from three different perspectives such as a ‘traditional logistics and supply chain management’ perspective (i.e. distribution centre or warehousing), a ‘freight transport’ perspective (i.e. load centre, freight village and transport node point) and a ‘Foreign Direct Investment’ (FDI) perspective (i.e. international logistics zone and international free trade zone). Rimiene and Grundey [20] provide three stages of developments of logistics facilities: (i) 1960s–1970s, (ii) 1980s-early 1990s and (iii) mid 1990s-present, respectively. At the first stage,



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logistics facilities are viewed as a mere warehouse that is understood as a physical location for inventory, and have no direct linkage with production. Relevant references, terms and highlights are summarised in Table 1. Bowersox [25] defines ‘distribution centre’ as a physical facility used to complete the process of product line adjustment in the exchange channel, and its primary function is placed upon product flow in contrast to storage However, Reynaud and Gouvernal [29] expand its simple warehousing function into transportation that is defined as a place where consignments from different origins are grouped or split, and is above all a transportation organisational centre, located at nodal point in the logistics system. At the second stage of development, they are engaged with additional outbound transportation functions [16] and often called to be a ‘transport terminal’ and a ‘freight village’. Freight village is a defined area within which all activities relating to transport, logistics and distribution of goods, both for national and international transit, are carried out by various operators [20]. It is claimed that, there are four requirements for being a freight village – that is, (i) it must allow to access to all companies involved in the logistics activities in order to comply with free competition rules, (ii) it must be equipped with all the public facilities including staffs and equipment, (iii) it should preferably be served by a multiplicity of transport modes (i.e. intermodal transportation) and (iv) it is imperative that a freight village be run by a single body, either public or private [21]. Logistics facilities at the last stage have become a supplicated logistics node, which offers value-added services and a point where diverse routes converge to [30]. UN [23] identifies determinant factors that can be a successful logistics centre as follows: A community desire to have a comprehensive hub development strategy, Existence of comparative cost advantages, A favourable fiscal environment, Existing high-tech manufacturing industry base, One-stop-shop local marketing organisation that proactively promotes the location, . Supporting infrastructure at all transport terminal facilities and human resources and . Appropriate incentive packages for foreign investors. . . . . .

3. Maritime logistics hub in perspective 3.1. Defining maritime logistics Having the aforementioned definitions on logistics in mind, maritime logistics is concerned with maritime transport (i.e. shipping and ports), traditional logistics functions (e.g. storage, warehousing, offering distribution centre services) and integrated logistics activities (e.g. value-added services including labelling, assembly, repairing). Despite the fact that there have been a large number of attempts to investigate the convergent role between maritime transportation and global logistics [11, 12, 31], the term maritime logistics has not yet been clearly addressed. Panayides [32] initially introduces the concept of maritime logistics within the context of global supply chains, but the definition and other related attributes such as scope, process and characteristics of the concept have not been fully examined in his study. In this respect, this article makes an effort to fill in the literature gap by defining the maritime logistics based on the literatures of logistics and maritime transportation.

International logistics zone (or international free trade zone)

Dry port

Source: Compiled by the authors.

FDI/international facility location perspectives

Freight village/ logistics node

Freight transport perspective

Freight terminal

Distribution centre/warehouse

Types of hub

Traditional logistics and supply chain perspective

Perspectives

Key points

Perspectives on logistics centre/hub.

Place for a physical facility used to complete the procedure for the product line adjustment in the exchange channel. Warehouse for storing finished goods. Facility from which wholesale and retail orders can be filled. Place where consignments from different origins are grouped and/or split. Control the product flow in contrast to storage. Place for creating value-added services. Connecting link between producer and customer. Place for transport, logistics and goods distribution functionality. Provide geographic coverage. Facilities which include warehouse and storage area. Provide for public service and full territory access. A terminal for freight transport modes change. Provide a service for handling operation. Place for value-added services. Inland location for consolidation and distribution of goods. An integrated and intermodal extension of ports. Parts of the territory of a state where any goods introduced are generally regarded, in so far as import duties and taxed are exempted. Space for an arrangement where different trading entities, usually member countries, agree to cut or scrap taxed in order to lower business costs and remove bureaucracy.

Table 1.


[29, 30]

[27, 28]

[24, 27]

[21, 24]

[4, 19, 20, 22, 25, 26]

References

274 H.-S. Nam and D.-W. Song



275

Maritime logistics is often referred to as a process of planning, implementing and managing the movement of goods and information with ocean carriage being involved. It has, in particular, highlighted the role of maritime transportation in global logistics and supply chains [33], and its strategically significant role within the logistics integration system [11]. However, as Notteboom [34] indicates, maritime logistics is concerned with individual functions relating to sea transportation as well as an effective logistics flow as a systematic entity of the logistics integration system. Maritime logistics consists of three key players of maritime transportation – shipping companies, port operators and freight forwarders. Although shipping is mainly concerned with moving goods from one port to another, it also provides related logistics services in order to support an overall logistics flow, including pickup services, inbound/outbound bills of lading, intermodal services and container tracking. Ports in modern logistics systems involve not only loading/off-loading cargoes to/from a vessel, but also various value adding services including warehousing, storage and packing and arranging inland transportation modes. Freight forwarding as the third component of the whole maritime logistics systems, encapsulates the process of sea transportation in order to arrange the complex process of international trade such as booking vessels on behalf of shippers, preparing documents for ocean carriage and arranging logistics services for the shippers. Figure 2 illustrates those elements in relation to the traditional logistics functions. Over the past decade, the maritime industry has experienced a number of challenges occurred mainly due to changes in trade patterns, deployment of larger vessels, regional competition among shipping lines and ports and intermodality. Because of cost and capacity advantages, maritime transportation has always remained a primary choice in global trading. As of 2007, seaborne trade accounted for approximately 90% of global trade in terms of volume and 70% in terms of value [35]. The liner shipping industry is the major contributor to this significance to the world economy as it accounts for over 70% of total trade value shipped by sea [36]. A substantial volume of containers are delivered every day through its fast, frequent and reliable transport network to almost any destination worldwide. The development of the liner shipping industry has been accelerated through the process of globalisation. The total volume of international container trade reached 117.2 million TEUs in 2006, more than twice that of 1999. In order to cope with this increasing demand for container transportation, the total capacity of liner shipping services was increased from 4.7 million TEUs in 1999 to 10.8 million TEUs in 2006, an average annual growth rate of 8.7% [37]. Having been affected by the growth of containerisation traffic, shipping lines now compete to acquire vessel sizes as large as they can, in order to gain the advantages of economies of scale while also attracting the interest of powerful shippers with a large amount of products to be shipped [31]. This movement redefines the geographical structure of sea transport. Huge vessels now make it possible for only a few ports (e.g. hub ports) to accommodate them, leading to the division of container ports into hub and feeder ports. Under these conditions, an imbalance of power tipped in favour of the shipping lines and the added capability of dealing with huge amount of cargo has posed a new threat to both small-sized shipping lines and port terminal operators. Most shippers traditionally arrange two or more forms of transport modes in order to ensure that their goods are efficiently delivered to their final destination.

Freight forwarding

Port operation

Shipping lines

Key components of maritime logistics

Figure 2.

Maritime logistics

Maritime logistics in perspective.

+

Customer service

Transportation

Order processing

Distribution planning

Finished goods inventory

Industrial packaging

Materials handling

Warehousing

Manufacturing inventory

Production planning

Requirements planning

Purchasing

Demand forecasting


Physical distribution

Materials management

Logistics




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Maritime transportation is an inter-mediate mode which connects other modes of transport such as road, rail, air and sea. In order to offer a single transport package service and achieve quick door-to-door delivery, maritime operators are forced to amalgamate all possible transportation modes and to coordinate with other modes of transport [38]. Song [39] points out that ports should ensure that cargoes are smoothly and safely connected to road or rail modes to facilitate delivery to their final destination. Nowadays, it is crucial for maritime operators to combine the intricately connected intermodal systems in an efficient and reliable manner, since it may affect the performance of logistics integration. As far as the scope of managerial functions are concerned, maritime logistics involves not only the activities relating to maritime transportation, e.g. contracting, shipping, sea voyage, moving cargo, loading/unloading, but also other logistics services, e.g. stripping/stuffing, storage, warehousing, inventory management, offering a distribution centre, quality control, testing, assembly, packaging, repacking, repairing, inland connection and re-use. There are broadly three major trends in logistics in the maritime industry [35, 40] including firms’ pursuing globalisation, shift in supply chains and logistics integration and consolidation in the logistics service provider industry One of the main driving forces for change in the port industry emerges from the globalisation of production. Multinational enterprises are the key drivers of global production networks and associated distribution networks. As a result of changing business environments (such as globalisation and expansion into new markets, mass customisation in response to product and market segmentation, and lean manufacturing practice), service expectation of customers have moved towards a push for higher flexibility, reliability and precision [41]. It has led to increasing the number of products to be shipped and the shipment frequency, and decreasing average product life cycles and supply chain cycle. The integrating of supply chain processes (including customer order management, procurement, production planning, distribution, etc.) to enhance performance typically results in collaborative networks with logistics partners. Firms have acknowledged that warehousing and transportation are not part of their core business and as a result these operations are outsourced to logistics service providers (either third or fourth party). Increasing degree of firms’ globalisation pursuit and outsourcing have provided opportunities for shipping companies, forwarding companies, terminal operators and other transport operators. As manufacturing firms have been looking for global logistics packages rather than just straight shipping or forwarding services, most entities in the transport chain have responded by providing new value-added service in an integrated package throughout a vertical integration along the supply chain. The vertical integration has created mega-carrier through merger and acquisitions. Mergers and acquisitions have occurred not only driven by companies searching for takeover candidates, but also by companies which have decided to divest aspects of their business, and were consequently looking for buyers of these business [42]. Among the three key components of maritime logistics (i.e. shipping lines, port authorities and freight forwarders), both shipping lines and port authorities are the main players in the field of maritime logistics, although freight forwarders, often called international trade specialists, are a key players in the middle to facilitate cross-border trade. Liner companies operate regular, reliable and frequent services, but they incur high fixed costs. Once the large and expensive shipping networks are set up, the pressure is on to fill them with freight. In the 1990s, great attention was

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H.-S. Nam and D.-W. Song Table 2. 1991

45000 TEU 4000–4999 TEU 3000–3999 TEU 2000–2999 TEU 1000–1999 TEU 51000 TEU

0 7.5 17.6 29.0 30.5 15.3

Increasing scale of vessel size. 1996 1.0 14.4 20.6 22.6 28.4 12.9

2001 12.7 15.6 16.6 20.5 23.9 10.7

2006 30.0 17.1 11.4 17.7 16.8 7.1


Note: Figure indicates percentage of total fleets. Unit: %. Source: [46].

devoted to larger and more fuel-economic vessels, and these indeed produced substantial reductions in cost per TEU of capacity provided [43]. Larger ships have often have a lower cost per TEU-mile than smaller units with the same load factor [44, 45]. Table 2 shows the increasing scale of vessel size (in terms of percentage of total shares) during the period of 1991 to 2006. Since late 1990s, there have been three main integrations in shipping lines including trade agreement (i.e. liner conference), operating agreement (i.e. vessel sharing agreement and strategic alliances) and mergers and acquisitions [41]. Traditional function of ports has been limited for transhipment in order to transfer goods from one mode of transport (shipping) to another (either another maritime transport or inland transport) [47]. At present, however, ports play an important role in the management and coordination of materials and information, as the transport is an integral part of the entire supply chain. In order to develop maritime transport as an integrated logistics system, ports have to simultaneously work in several directions, by taking into account the requirements of the senders and receiver of goods (such as physical accessibility from land and systematic organisation of the information flow, which are regarded to the choice of seaport) as they become their business partners in addition to the traditional ones (such as shipping companies, terminal operators and forwarding companies). Chen [48] pointed out that the main contribution of modern ports depend upon: the availability of efficient infrastructure and inland connections, as part of a global transport system; and the ability of logistics and transport operators to contribute to the value creation and to accomplish also the qualitative attributes of customer demand (such as reliability, frequency, availability of information, security, etc.). As Notteboom and Rodrigue [12] indicate the main roles of traditional seaports have been viewed as areas made up of infra- and super-structure capable of receiving ships (such as pilotage and towing) and other modes of transport, and handling their cargo from ship to shore and vice-versa (i.e. stevedoring that facilitates the loading and uploading of cargoes). At present, however, ports play an important role in the management and coordination of materials and information, as the transport is an integral part of the entire supply chain [47], and as the importance of port’s capability of providing logistics services (i.e. creation of value-added service) is highlighted [49]. Among a number of logistics value-added service (such as consolidation, packaging, labelling, assembly, economic processing, contingency protection and operation efficiency), the importance of port’s value-added service is varied



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by different authors. Carbone and De Martino [47] indicate procurement and preassembly service are becoming of considerable significance, but Panayides and Song [33] conclude the provision of port facilities for adding value to cargoes is an important criteria for ports integrated in the supply chain. In order to develop maritime transport as an integrated logistics and supply chain management system, ports have to simultaneously work in several directions, by taking into account the requirements of the senders and receiver of goods (such as physical accessibility from land and systematic organisation of the information flow, which are regarded to the choice of seaport) as they become their business partners in addition to the traditional ones (such as shipping companies, terminal operators and forwarding companies). Chen [48] also points out main contribution of modern ports depend upon: the availability of efficient infrastructure and inland connections, as part of a global transport system; and the ability of logistics and transport operators to contribute to the value creation and to accomplish also the qualitative attributes of customer demand (such as reliability, frequency, availability of information, security, etc.). 3.2. Defining maritime logistics hub and successful conditions As definition of maritime logistics and different perspectives of hub reviewed in Section 3, the functions and spatial features of traditional seaport has been extended, and coordination with other modes of transport and integration to entire supply chains are key issues to attract customers. During the Section 3.2, the concept of maritime logistics hub and their successful condition to be a regional hub port are discussed within the context of the container port. From the maritime transportation perspective, the load centre concept, as summarised in Table 1, for a containerisation port has been particularly highlighted by several authors including Martin and Roman [50] and Wang and Slack [44]. The container revolution has provided a technology that was able to produce economies of scale in the general cargo segment of maritime transport, which have resulted from the employment of larger and more efficient vessels, a reduction of both time and cost of port operations and the intermodal integration of ocean shipping with movements by other transport modes [50]. Seaports have been defined as areas made up of infra- and super-structures capable of receiving ships and other modes of transport, handling their cargo from ship to shore and vice-versa [49]. However, the definition has been expanded to encompass the provision of logistics services which create value-added [14, 49], and ports constituting a critical link in the supply chain and their level of efficiency, and performance influencing to a large extent, a country’s competitiveness [17]. Tongzon [51], Lee et al. [52] provide the key factors to be a successful port (and also a logistics hub, to some extent). They include: strategic location, large capacity of port area and port facility capability for larger vessel, operational excellence and flexibility and government role (including government support, law/regulation and building free trade zone/free economic zone development). Hub ports should be located strategically that allows minimum deviation from the trade lanes, and enabling feedering from the ‘spoke’. Having been hugely affected by containerisation, shipping lines now compete to hold vessel size as large as they can, in order to gain advantages of economies of scale and attract powerful shippers with a large amount of products to be shipped [53]. This movement affects the geographical structure of sea transport. Larger vessels make it possible for only a few ports


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(e.g. hub ports) to accommodate them, which then cause the division of container ports into hub and feeder ports. These ports must be supply driven, and hence government support or an entrepreneurial drive should be followed. High productivity, turnaround time, equipment to cater the larger vessels are key factors when shipping line chooses the calling port. Robinson [54] studied the history of containership development and generalised the ports and maritime transport network evolution in the Far East, and concluded that the hub-and-spoke networks in the region will evolve continuously based on their operational cost and efficiency. Operational flexibility must not be undermined. The changing nature of trade results in lines needing flexibility, and ports that cannot or refuse to adapt will face consequences in the future. There have been a number of studies concerned with building seaport based logistics hub and its integration to the global supply chain network [16, 32, 55]. The roles of seaports are recognised as main components in determining the competitiveness of a nation’s economies, and there is a close relationship between development and expansion of seaport and economic growth [45, 55]. Through 2000s, the logistics hub concept has particularly developed by transport spatial perspective in Europe, and emphasise that the development of functional specialisation on inland terminals with related logistics activities and the importance of hinterland [56], which include platformes logistiques in France, Interporto in Italy, freight villages in UK, Gu¨terverkehrzentrum in Germany. These terms are often created within the framework of regional development policies as cooperative initiatives by companies, intermodal operators, regional and local authorities, the central government and/or the chambers of commerce [12]. Notteboom and Rodrigue [12], Thai [45] and Lee et al. [52] have shown the importance of a port’s hinterland as a new phase of development. Hinterlands are categorised into two types: main and competition margin [34]. The fundamental (main) hinterland is the space over which a port has almost the exclusivity for providing its services. The competition margins are the areas where other ports are in competition. The fundamental hinterland is being challenged by intense port competition with a port regionalisation mainly composed competition margins and few fundamental hinterlands. Notteboom [56] explains four phases of port development (called as Bird’s model) in terms of level of functional integration that setting, expansion, specialisation and regionalisation. The important role of hinterland could be found in the last phase, of the hinterland reach of the port through a number of market strategies and policies linking it more closely to inland freight distribution centre. Lee et al. [52] provide three regional patterns of hinterland concentrations by three geographical areas: North America, Western Europe and South East Asia. According to their research, current Asian ports characterise that ports are concentrated in the coastal region and there is relatively low hinterland coverage. UN [23] provides three evolutional patterns of port development. Until 1960, ports played a simple role as the junction between sea and inland transportation systems. At that time, the main activities in the port region were cargo handling and cargo storage, leaving other activities extremely unrepresented. Such a way of thinking severely influenced related persons in the government and local administration. Also, it even influenced persons related with the port industry, so it was considered that it was enough to develop and invest in only port facilities, as the main functions of the port were cargo handling, storage and navigation assistance.

Defining maritime logistics hub and its implication for container port Table 3.

281

The transhipment volume of main ports in Asia-Pacific area in 2005.

Port Singapore Hong Kong Busan (South Korea) Kaohsiung (Taiwan) Tanjung Pelepas (Malaysia)

Region

Total throughput (Million TEU)

Transhipment estimates (Million TEU)

Estimate transhipment incidence

Southeast Asia Southeast Asia Northeast Asia Northeast Asia Southeast Asia

23.19 22.60 11.84 9.47 4.17

18.79 10.15 5.18 4.82 4.00

81.0% 44.9% 43.7% 50.9% 96.0%


Source: [57].

It was for these reasons that important changes in transportation technology were neglected. Moving to the next pattern (ports built between 1960 and 1980), ports had a system comprising government and port authority, so the port service providers could understand each other and cooperate for mutual interests. The activities in these ports were expanded ranging from packaging, labelling to physical distribution. A variety of enterprises have also been founded in ports and hinterlands. Compared to first-generation ports, the second-generation ports have a characteristic that freight forwarders and cargo owners had a tighter relationship. We can say that the second-generation ports had begun to notice the needs of customers, but when it came to keeping a long-term relationship with customers, they took a passive attitude. From 1980, container transportation has developed quickly, and the new intermodal transport system emerged. The activities of production and transportation have linkage to form an international network. The former services function has been enlarged to include logistics and distribution services. The environment protection facilities are becoming more important, so the ports are developing closer relationships with those in their surrounding neighbourhoods. Compared to the past, today’s port authorities are focusing on efficiency rather than effectiveness. In the third-generation ports, the needs of customers were analysed in detail and port marketing has been actively engaged. The late 1980s saw the emergence of major changes [12]. Customers began to ask ports to provide a greater variety of services. Providing value-added services is a powerful way for ports to build a sustainable competitive advantage. Shippers and port customers are becoming increasingly demanding. Customers now tend to look at Value-Added Logistics (VAL) services as an integral part of their supply chain. As a result, ports must attempt to satisfy these needs by offering differentiated services. According to hub-and-network development, the container port can be divided into three categories: hub port, trunk port and feeder port. Huang et al. [57] pointed out that the main criterion a to be a hub port is not throughput cargo rate but transhipment cargo rate. They conclude that there are five hub ports in Asia Pacific region, which are two in Southeast Asia (Tanjung Pelepas, Hong Kong and Singapore) and three in Northeast Asia (i.e. Kaohsiung and Busan) in terms of total throughput and transhipment (see Table 3 for more). In 2005, the ratio of transhipment container and container throughput for these five ports are all over 40%. Singapore port handles the highest transhipment volume, 18.79 millions TEU, equivalent to 81% of throughput volume. The second highest is Hong Kong, which

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handles 10.15 millions TEU of transhipment container equivalent to 44.9% of container throughput. The third is Busan port, the transhipment volume is 5.18 million TEU and ratio is 43.7%. The fourth is Kaohsiung port, the transhipment volume is 4.82 million TEU and ratio is 50.9%. The fifth is Tanjung Pelepas port, the transhipment volume is 4 million TEU and ratio is 96%. Although the container throughput for Shanghai port and Shenzhen port already over 10 millions TEU, but their transhipment volume are only 0.40 millions TEU and 1.30 millions TEU, the ratio are lower than 10%. As Huang et al. [57] conclude, it is why Shanghai and Shenzhen ports can not be called hub port. Having the aforementioned discussions in mind, it would propose an operational definition of maritime logistics hub as follows: A maritime logistics hub is (i) a nodal point of cargo transit or transhipment assuring flawless door-to-door cargo movements, (ii) a principal distribution centre functioning as a temporary storage and sorting and (iii) a place creating and facilitating value-added services on the regional and/or international scale.

The above definition could be easily applicable to the regional or international container ports, competing to have more shipping lines called at a particular port that wants to be a maritime logistics hub in the region or on the global by keeping establishing, extending and sustaining networks for the shipping lines. 3.3. Maritime logistics hub in practice Perspectives on logistics centre/hub have been reviewed in previous studies. Maritime logistics hub used to locate near the sea in order to provide logistics service for maritime industry. However, as Notteboom and Rodrigue [12] emphasise, the concept and role of hinterland, its location and functional boundary, have been expanded into entire logistics systems. UNESCAP [23] provides three development phases of maritime logistics centre: functional division between port and logistics centre; new integrated port concept due to economic and industrial environmental changes and provision of value added-services behind hinterland which can diverse to free trade zone function. As initiated by Lee and Kim [58] and UN [23], the socalled Distripark (for the cases of the Netherland and Singapore) has been arguably the most advanced and sophisticated maritime logistics hub that provides traditional seaport functions, together with miscellaneous value adding activities and services created and facilitated within the area. What follows is a brief summary of these two cases. 3.3.1. The Netherlands: European distribution centres. Centralisation of panEuropean distribution is a major trend implemented by major American and Asian logistics operators in Europe. Not only are multinationals reengineering their total European manufacturing and logistics structure, but also medium-sized enterprises are setting up their first warehouse in the European market. Centralisation of European distribution brings many logistical and other advantages to the firms involved, which include reduction of logistics costs, increased sales, improved control, better product availability, enhanced competitive position, faster market response, etc. as well as economising on workforce and investment. The Netherlands has three main Distriparks (i.e. Distribution Parks) in Rotterdam port area. A Distripark is a large-scale VAL complex connected directly to container seaports. The main activities in Distriparks are storage, consol/transfer, labelling, testing/


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examination, packaging and distribution. Dutch and foreign logistics service providers in the Netherlands meet the requirement of non-European (mainly American and Asian) manufactures serving the European market. There has been an increasing trend towards outsourcing warehousing and distribution activities in Europe. The number of outsourced EDCs has grown tremendously since mid 1990s, especially in the Netherlands. Two-third of American European Distribution Centres (EDCs), 60% of Japanese EDCs, and almost all Taiwanese and Korean EDCs have outsourced their distribution services to logistics service providers in Europe. This means that only 30% to 40% of American and Japanese manufacturers operate their own EDCs themselves in the European Markets. The main advantages of outsourcing services to third party logistics service providers in Europe include: . . . . . .

No capital investments needed and thus, bearing less risks, Reduced total logistics costs, Flexibility in space and manpower requirements, Ability to exploit economies of scale, Local firms have insight into logistics planning and Multinational companies can concentrate on their core business of marketing and scale.

The Netherlands assist American and Asian firms to strengthen their position in European market by means of VAL. One out of every three EDCs in the Netherlands implements VAL. Through VAL in EDCs, firms combine logistics and industrial activities in an international gateway to create country-specific and/or customer-specific variation of generic products. The main VAL activities are customising/localising generic products, quality control and testing of products. The biggest advantages of VAL in EDCs are to reduce the costs and risk of keeping stocks as well as to enable a larger range of products to be offered. Several international logistics hubs have been established at major Asian and European airports and seaports, which have resulted from both multinational firms’ global business strategy, and host countries’ investment to attract foreign firms. Lu et al. [26] have provided a summary of recent trend of logistics zones (as a logistics hub in terms of functionality) which provides not only a place for firms to store or hold their raw materials, semi-finished goods or finished goods for varying period of time, but also many value-added activities (including manufacturing, warehousing, consolidation, packing, labelling processing and distribution). Lu et al. [26] highlighted the function of international distribution centre, which defined as a place which integrates the operations of manufacturing with land, sea, air transportation, storage, port and customs operations in order to achieve the efficient distribution of commodities, as part of foreign investment. 3.3.2. Singapore: Asian distribution centres. Singapore has the same position in Asian logistics as the the Netherlands does in Europe. There has been a growing trend for multinational firms to establish Central Distribution Centres (CDCs) in Asia. Using CDCs, they can meet their own standards of service quality and timely service to their own customers. They have better control and could respond more readily to the needs of the marketplace, with focused distribution from one hub to the surrounding region [53]. Because of the fierce competition in manufacturing and marketing, logistics plays a vital role in gaining a competitive advantage. In Singapore, multinational firms partner with third party logistics service specialists.


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Logistics firms have shifted from providing transportation and warehousing to offering total integrated logistics solutions. They are able to provide high quality custom tailored third party logistics services to Multinational Corporations (MNCs hereafter) via their CDCs, most of which are located in a Distripark. As a leading regional and international logistics hub, the logistics industry accounts for about 7% of Singapore’s Gross Domestic Product (GDP). Singapore has all necessary infrastructures support, which offers a strategic location at the crossroads of major shipping routes linking Indian and Pacific Oceans. It has world-class seaports and airports, excellent infrastructure, an efficient telecommunication network, a pro-business environment, intensive use of information technology, wide ranging business capabilities, as well as a skilled and disciplined workforce. All of these advantages have attracted a large pool of multinational and local companies to Singapore. Singapore has taken advantage of rapid growing neighbouring economies. Since the Southeast Asian countries have recorded average annual growth of 7% before the foreign exchange crisis of the late 1990s, the strong neighbouring economies have helped Singapore to build a regional distribution hub successfully. By mid 2000s, over 500 multinational firms have chosen as their Southeast Asian logistics/distribution hub. The logistics companies, which were over 6000 in Singapore, provide comprehensive services such as transport, forwarding, warehousing and distribution to the multinational firms.

4. Implication for container ports 4.1. Northeast Asia as a case This section makes an application of what has been discussed to the regional container ports with particular reference to the Northeast Asia as a case. The Northeast Asia, composed of China, Japan and two (North and South) Koreas and the Russian Federation, does not belong to any regional economic block except the Asia-Pacific Economic Cooperation (APEC), which is a sort of consultative regional forum. During the past two decades, however, the countries in the Northeast have engaged in a greater degree of economic cooperation. The reform and opening up of the Chinese economy since the 1970s have accelerated an economic cooperation in the region, mainly among China, Japan and Korea. China’s accession to World Trade Organization (WTO) in 2001 provided a new momentum for regional economic integration by promoting intra-regional trade and accelerating economic cooperation. The Northeast region is an area occupying one-quarter of the world population, and boasts a total economic size of above US$ 13 trillion [59], and some of the fastest economic growth rates in the world. It is also predicted that these three countries will have approximately 32% of the market share in global container movements, accounting for 1360 million TEUs and reap into the centre of the world economy by 2010 [60]. There has been competition being a regional maritime hub port nation in the region. Until the late 1990s when both Japan and Korea suffered their respective financial and economic crisis, maritime transport has played a key role in promoting trade between the nations. Based on its competitive labour cost and market size, China has been enjoying 8–11% of economic growth rates every year since the early 1990s [61]. China’s economic growth has accompanied development of the nation’s maritime infrastructure and seaports (such as Shanghai and Shenzhen) and China’s cargo throughputs was approximately 3.5 times more than Busan port, the main



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seaport in Korea, in 2006 [62]. Rapid growth of Asia’s container seaports and their market position in the 2000s can be seen in Table 4. In addition, total container throughput of major container ports in Northeast Asia (with particular reference to Japan, Korea, Singapore, Taiwan and China) since 1970s is illustrated in Figure 3. As noted by UN [37], the region’s economic opportunity is optimised if an appropriate transport and logistics system is carried out, including adequate port and shipping services in place to facilitate the efficient and effective flow of sea-based trade within the region as well as to and form overseas markets. However, there is an increasing concern that inadequate infrastructure and a lack of harmonised policies among the Northeast countries may cause serious bottlenecks in the transport and logistics system, and ultimately hinder the potential of trade and economic developments of the region. Multilateral maritime cooperation among the three countries seems essential to the establishment of a common shipping and port system. It will also help the maritime transport network evolve into other modes of transport throughout cross-boarder of different countries such as the projected Trans-Asian Railway. It is well recognised that seaports are the focal point of global distribution and logistics systems and therefore a priority should be given to the balanced development of the ports in the Northeast. The demand for container ports, and competition and cooperation within the Northeast region will further increase in the future. This trend will heighten competitive pressures on these major ports in Northeast Asia. Along with rapid trade expansion, manufacturing-dominant economies in East Asia have created tremendous demand for maritime transport. Because container transportation has been the most appropriate method for facilitating the efficient movement of manufactured goods to export markets, there has been a surge in demand for inter- and intra-regional shipping capacity and strong container handling performance. Looking back the past 10 years, the development of Northeast countries’ port can be summarised as remarkable investment on ports by China, while Korea and Japan have experienced economic recession since late 1990s. Two main container ports in mainland China (such as Shanghai and Shenzhen) ranked world third and fourth highest cargo throughputs which accounted for approximately 40 million TEUs in 2006 (The figure is 3.5 times more than Busan port in Korea) [63]. Even massive port construction both in China and Korea have often been unable to keep pace with the dramatic increase in their maritime traffic. Faced with these problems, countries in the Northeast have implemented new approaches to port developments and management, which were typically funded and managed by government. These new ways include deregulation, improvement of FDI and private sector involvement in ports [64]. The container port industry in China has experienced a rapid expansion during the past three decades. Throughput and capacity have been hitting record highs as progress has been made in port infrastructure, cargo handling facilities and administrative systems. Meanwhile, a significant amount of investment has been poured into the container port industry to support its double-digit growth. As a result, six of Chinese ports have ranked within the top 20 container ports in 2008. The concentration of throughput is a fundamental characteristic of China’s container port industry [65]. Adopting a geographical perspective, they can be organised into three regions: Northern China (Qingdao, Tianjin and Dalian), Central China (Shanghai and Ningbo) and Southern China (Shenzhen and Guangzhou).

Korea North China

Japan

Country

Note: Unit: 1000 TEUs. Source: Compiled from [58].

South China

Northeast Asia

Region

Hong Kong Guanzhou Shenzhen Xiamen

90 54 44

1970 904 358 95 328

1975 727 631 205 722 632

1980 1518 1004 422 1327 1148 206

1985 2595 1555 897 1647 2348 456 135 320

1990

18100 3993 1084 84

2265 2899 1911 2317 7540 5613 2120 1708 2148 902 1011

2000

12549

370

1463 2117 1477 2756 4502 1527 600 702

1995

Throughput of container ports in Japan, Korea and China since 1970.

Kobe Tokyo Nagoya Yokohama Busan Shanghai Qingdao Tianjin Yantian Ningbo Dalian

Port

Table 4.


19144 2180 7613 1750

1992 2712 1927 2364 9436 8620 3410 2410 4148 1860

2002

21984 3308 13615

2176 3358 2155 2717 11430 14557 5139 3814 2871 4005 2211

2004

23539 6600 18469 4019

7068 3212

2413 3969 2752 3200 12039 21710 7702 5950

2006


Defining maritime logistics hub and its implication for container port Container throughput in Japanese ports since 1970

Container throughput in Busan portin Korea since 1970

4,500 14,000

3,500

12,000

3,000

10,000 TEU (1,000)

TEU (1,000)

4,000

2,500 2,000 1,500

8,000 6,000

1,000

4,000

500

2,000

0 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 02 20 04 20 06

0 1970 1975 1980 1985 1990 1995 2000 2002 2004 2006 Year

Year

Container throughput in southeast Chinese ports since1970

25,000

25,000

20,000

20,000 TEU (1,000)

TEU (1,000)

Container throughput in northeast Chinese ports since 1970


287

15,000 10,000

10,000 5,000

5,000

0

0 Year

Figure 3.

15,000

1970 1975 1980 1985 1990 1995 2000 2002 2004 2006 Year

Total TEUs by major container ports in Japan, Korea and China since 1970.

Japan is a long, narrow island country and, therefore, the port industry plays an essential role in Japan’s economic activities. More and more top quality container terminals are set to provide the response to the increasing demand for container transportation. In Japan, major container ports were built in Tokyo Bay (the ports of Tokyo and Yokohama), Ise Bay (the port of Nagoya) and Osaka Bay (the ports of Kobe and Osaka). Japan has been well-endowed with port infrastructure for the container trades since the 1970s. At that time, based on the advantage of its industrialisation, Japan dominated the whole of Asia’s container trades. However, such an illustrious situation has changed dramatically from the middle of the 1980s. Japanese ports have been moving down in the world ranking over the last two decades. The falling competitiveness of Japanese ports has been a serious concern for both government and industry. In response to the challenge, investment in Japanese container terminals was emphasised in 1996. In 1998, the Japanese government set their target to ‘Surpass other major ports in Asia in terms of cost and service in about 3–5 years’. South Korea is only a part of a small peninsula but with vast potential in container transportation. Ideally located in the centre of the world’s main shipping lines, particularly for the Trans-Pacific route, South Korea has set their target to be one of the major logistics hubs in East Asia. Indeed, the container ports of South Korea not only carry out about 99.8% of the cargo handling for national foreign trade, but also handle transhipment cargo originating from China, Russia and Northwestern Japan. The ports of Busan, Gwangyang and Incheon together constitute the main force of South Korea’s container transportation. There are 21 container berths totalling 6220 meters at the port of Busan; 12 berths totalling 3700

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meters at the port of Gwangyang and five multi-purpose berths at Incheon port. Apart from the port of Incheon, both Busan and Gwangyang have the ability for hosting sixth generation container ships. Similar to the other countries in East Asia, existing container handling capacity falls far behind the trade and transhipment demand [17, 43]. 4.2. Network perspectives Analysing container hub ports used to evaluate with their throughput, largely in terms of TEUs. There is, however, a question that greater volume of container throughput should be regarded as the main or sole condition to become a regional hub port. As is defined in the previous section, a greater level of connectivity with neighbouring ports via shipping lines could be another signal factor with which to judge whether or not a certain port is in a region. A promising alternative for such an examination is a network theory, which is part of graph theory in the social network analysis [66] and is an area of computer and network science being useful for mapping and measuring of relationships and flows between objectives (i.e. people, groups, organisations and other connected information/knowledge entities). It can be presented in a form of visual and mathematical relationships. Network theory concerns itself with the study of graphs as a representation of either symmetric relations or, more generally, of asymmetric relations between discrete objects. Each graph represents a set of objects called vertices (or nodes) connected by links called edges (or arcs). Scott [67] explains that a graph structure can be extended by assigning a weight to each edge or by making the edges to the graph directional (e.g. X links to Y, but Y does not necessarily link to X, as is in webpages), which is technically called a digraph. In graph theory, a digraph with weighted edges is called a network. A primary aim/usage of graph theory is to identify an ‘important’ objective (called actor). On the other hand, the centrality and prestige concepts of graph theory seek to quantify graph theoretic ideas about an individual actor’s prominence within a network by summarising structural relations among the nodes [68]. The centrality concept shows how many inter-relationships an actor is involved with other actors in the network, regardless of sending and receiving directionality (i.e. volume of activity), whilst the prestige concept indicates how many directed ties an actor receives from other actors, but the actor does not initiate such relations (i.e. actor’s popularity is greater than extensivity) [66, 68]. These two concepts have a potential meaningfully applicable to the maritime transport and logistics which is in nature a network-based industry. Measuring the centrality is a widely used methodology in the field of transportation: for example, Ducruet et al. [69], Blonigen and Wilson [70] and Ducruet et al. [71]. Ducruet et al. [69, 71] examine the Northeast Asia’s hub port status according to centrality measurement with ‘degree centrality’ and ‘betweenness centrality’. The degree centrality can be simply measured by the sum of direct networks between nodes: a sum of direct network connection by shipping lines between two ports. The betweenness centrality is a measure of a node within a graph, and nodes that occur on a number of shortest paths between other nodes have higher betweenness than those that do not: the sum of proportions, for all pairs of ports, in which a main port is involved in a pair’s geodesics. These centrality measurements would be a useful tool to diagnose the regional hub port competition in Northeast Asia or even other parts of the world where a number of adjacent ports make a significant effort to be a key port in that region.


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Currently both Japanese and South Korean container ports have lost their competitive position to Chinese ports in terms of container throughput. However, it does not necessary indicate that they have also lost their relative hub port status; it might have been maintained or even have been strengthened based on network analysis. An analysis of regional hub port competition based on network theory would enable to provide a useful insight into how regional ports take an advantage against competitors and co-operate each other within the region.

5. Concluding remarks This article has attempted to make a meaningful concept and definition of maritime logistics hubs in the spirit that an effective literature review facilitates to enhance academic knowledge depth and horizon. There have been a number of empiricalbased studies on the topic but those researches are conducted under vague assumption or definition on maritime logistics hub, generally proxied in a form of container hub ports. While those empirical analyses have their own merits by offering a fact-based picture of the industry trend over the past years, they are unfortunately unable to clarify issues of what a maritime logistics hub or container hub port is, what factors make a hub, how to predict next steps, and what measures, in terms of policy and strategy making, are to be made to be a hub. It is hoped that the review made in this article initiates further discussion and scientifically rigours examination on the topic from a variety of qualitative and quantitative perspectives. This line of research will surely be beneficial to those engaged in port development and policy making and in daily port operations and management, and other strategically related industry sectors. Nevertheless, this study has such inevitable shortcomings that existing literatures are not rich enough to be directly applicable to the topic concerned, that the boundary of disciplines associated with the issue is still high to be pushed down, which makes things worse in making a consensus towards a precious concept, definition and scope of the matter and that this line of review might not be comprehensive to digest all the necessary aspects and perspectives related to the topic. It is sincerely hoped that those listed shortfalls and others not identified herein are the ones that we maritime academic community can deal with in an objective and scientific manner so that our understanding and knowledge are elevated and embellished.

Acknowledgements An earlier version of this article was presented at the 12th WCTR in Lisbon held on 11–15 July 2010. The authors are grateful to the conference organiser and scientific committee members for constructive and helpful comments on the previous version, which are well embraced into the current version with the enhanced quality as it is. Due appreciation also goes to the guest editors of this special issue during the preparation and review process.

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