The Fight For Trade Within The UK Ports

Measuring shipping logistics has never been more complicated. New carbon taxes, company alliances and work practices mean there are huge questions about what makes a port work, says Nick Martindale.

In November 2013, the first phase of the ambitious deep-water port at London Gateway opened for business, with the second berth coming into operation in May this year. One year on, the port is operating at around two-thirds capacity, primarily serving north-south sea routes, which is what was expected, says Peter Ward, head of supply chain at DP World London Gateway.

“The important thing today is berth capacity, so ports must have the deep water, long quays, big cranes and the turning circles to receive and handle the equipment that’s now in the fleets of the world’s major container shipping lines,” he says. “Without London Gateway, the UK would run the risk of becoming very isolated.”

He admits, though, that its standing will be enhanced once the logistics park being built alongside the port is operational. This is currently expected to be in the second quarter of 2015 and will include a shared-user facility, which Ward says will allow customers with smaller deliveries to also take advantage of port-centric logistics.

“To have a port right on the edge of one of the biggest consumer markets in Europe means it is very compelling for cargo owners to discharge at London Gateway, move it the very short distance to a logistics centre, and then go direct to the point of demand, either through their existing distribution networks or even direct to stores,” he says.

Martin Cleary, regional director south at contract logistics business Rhenus Logistics, says London Gateway should in the long-run reduce congestion at other UK ports and could lead to price competition among port operators.

“With the shipping lines taking ownership of larger vessels that can accommodate more containers, this should make the industry more competitive,” he says.

However, Mike Garratt, managing director of shipping consultancy MDS Transmodal, says the main impact so far has been to take traffic away from nearby Tilbury, rather than Felixstowe or Southampton. He points out that the port really needs to attract the east-west routes from Asia. More significantly, he questions the rationale that customers will want to operate their logistics out of London.

“If you look at the container flows through the likes of Felixstowe, you’ll find a small proportion of the containers head for London, because that isn’t where the warehousing is,” he says. “The warehousing is in the Midlands because Greater London is too expensive. The goods end up in London after coming out of the warehouses.”

UK-wide expansion

London Gateway is not the only port that is expanding in the UK. At Liverpool – operated by Peel Ports – the construction of Liverpool 2 will provide a deep-water container port in the north of England, which David Huck, ports director at Peel Ports Group, hopes will attract those looking to serve central England, as well as Ireland.

“North of Felixstowe, Southampton or London Gateway there is no other infrastructure in the 
UK capable of handling these larger vessels,” he says. “That immediate central corridor is underserved, particularly as the UK moves towards next-day delivery on the back of internet shopping.”

The port recently invested £3 million in upgrading its steel terminal, and signed a memorandum of understanding with the Republic of Korea, designed to share best practice and technology from the Busan Port Authority experience.

Globally, the expansion of Dubai’s Jebel Ali has also had an impact on the options open to firms looking to move goods in and out of the Middle East. Kees Van Der Vleuten is former CPO at TenneT, and was previously responsible and was previously responsible for global supply management at oil and gas business KCA Deutag. Dubai was a major hub for KCA Deutag, he says, but cumbersome handling and administration meant it would fly many essential components into the country.

“Once the new terminal opened we changed from air to sea and benefited from improved administrative procedures and free trade zones to get our cargo as quickly as possible to the final destination, which were our drilling locations,” he says. The new terminal also resulted in lower rates, he adds, although this is not always the case.

Looking east

Bryan Nella, director of corporate communications 
at supply chain platform GT Nexus, highlights the expansion of Singapore – now the world’s second biggest port – as a significant development, largely on the back of growing volumes of exports coming out of factories in Vietnam and Thailand. “The rapidly growing middle class in Asia – particularly in China and India – also means there are millions of new consumers entering the market, driving an increased demand for phones and cars,” he says. “There’s major expansion on both the supply and demand side.”

There are other trends around shipping in general which are affecting the decisions organisations make when it comes to port selection. Garratt points to the development of a number of alliances, including 2M – bringing together Maersk Line and Mediterranean Shipping Company – and Ocean Three – made up of CMA CGM, China Shipping Container Lines and Middle East firm United Arab Shipping Co – to pool vessels and combine routes.

“Port selection will become a major issue because the members of these alliances will all want to serve the same ports,” he says. “Shippers are going to have to decide which ports are likely to succeed in the future, if they’re forming their own supply chains around port-centric strategies, and how they’re going to deal with shipping lines.” This could also lead to much larger ships being more common, he adds, potentially restricting choice in the market, pushing up rates and lengthening lead times.

There are obvious economies of scale in using larger vessels and “slower steaming”, says Richard Wilding, professor and chair of supply chain strategy at Cranfield School of Management, but this potentially runs counter to the desire of customers – and retailers in particular – for shorter lead times, and even the port-centric logistics model.

“There are lots of trade-offs which have to be taken together, but the key trend is that people want to position inventory closer to the customer, and that has implications for the way you manage ports,” he says.

Dual strategies

Another significant development is the emergence of dual strategies, combining shipping and air. “Some organisations are shipping into Dubai and then flying it out,” he says. “People are trying to work out what is the best way to manage this.”

Tighter regulations – and charges – on carbon emissions are also having an impact. Garratt points to the sulphur control area, which will limit the amount of sulphur in fuel used in European waters from the start of 2015. “This basically means that ships can’t use heavy fuel any more but have to use gas oil, which is much more expensive, and likely to get even more so if all the ships in those areas have to use it,” he says.

“The likes of Maersk, CMA and Samskip have been announcing what impact this is likely to have on freight rates, and some of the increases will be quite large. That also may start having an impact on port choice; we may see more containers being landed in Southern European ports – the likes of Trieste – rather than Rotterdam.” Earlier this year, a number of maritime organisations warned costs could rise by as much as a third as a result of the ruling.  

How involved procurement and even logistics professionals are in such decisions varies, and many regard it is something of a “black art”, suggests Alan Braithwaite, chairman of LCP Consulting.

“It’s a very confusing market to be in, and most buyers don’t deal in the market directly,” he points out. “Their relationship is not with the carriers but the forwarder, and they’re relying on the forwarder to negotiate the prices, and give them the market intelligence. My observation is that procurement executives roll their eyes and despair of ever fully understanding it, let alone getting leverage on it.”

Wilding, though, believes procurement and logistics need to work more closely if they are to gain a genuine understanding of the total cost of purchasing decisions. “In many organisations they’re seen as different entities, so a procurement team might think they can buy something cheaply but do they really understand the true costs 
and service implications of buying from that particular location?” he asks. “Procurement professionals need to wake up to this.”

Movers and shakers

1. London Gateway
Opened in November 2013, with a logistics and distribution park expected to open in 2015

2. Esbjerg
Looking to develop a new combi terminal handling shipping and rail logistics

3. Liverpool
Liverpool 2 will be a deep-water port for the north of the UK

4. Hamburg
Currently seeing major expansion, the port expects to 
be able to handle 10 million containers a year by 2020

5. Rotterdam
Formerly the world’s biggest port, it remains the largest in Europe

6. Jebel Ali
The largest man-made harbour in the world and the Middle East’s biggest port, it is currently building a third terminal to take capacity to 19 million TEUs (20-foot equivalent units) a year

7. South Louisiana
The largest port in the US, 
it accounts for as much as 
70 per cent of US exports

8. Jeddah Islamic Port
Expansion of the Red Sea Gateway Terminal will increase capacity from 1.8 million to 2.5 million TEUs by 2015, in addition 
to that of the other two terminals

9. Busan
The largest port in South Korea and fifth largest container port in the world, it handles some 17 million containers a year

10. Shanghai
The largest port in the world, it handled 33.6 million 
TEUs in 2013

11. Dar es Salaam
Aims to almost double its capacity by 2020, to 28 million tons

12. Singapore
The world’s second biggest port behind Shanghai, it is currently undergoing a major expansion to take its total container-handling capacity to 
50 million TEUs a year by 2020

Steering a steady course

When Michael Mikkelsen joined wind turbine automation business Mita-Teknik as its new CPO in early 2014, he found port selection and shipping strategy came under 
his remit.The business mainly transports semi-assembled products from Scandinavia or Lithuania into China for final assembly, making use of a range of ports including Hamburg, Aarhus and Shanghai.

For Mikkelsen, it makes sense for procurement to oversee such decisions. “It’s definitely an advantage because you can set up the routes as part of your entire supplier selection process,” he says. “The more you know about the total cost, the better decisions you take, 
and the better you know your suppliers’ ability to live up to 
your requirements.”

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