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Gajjrja

In: Business and Management

Submitted By xz5c30
Words 487
Pages 2
Containerization and Global Supply Chains

Containerization was a major technological innovation that revolutionized the nature of maritime based freight transport of manufactured goods. It caused a substantial degree of standardization of port services. With containerization, ports in the same region become closer substitutes, and hence are more exposed to competition from other ports and other routes. This tendency is reinforced by two other factors. First, the use of ever larger container vessels implies that fewer port calls are required. This move to larger ships reduces shipping lines’ dependence on particular ports and intensifies competition. Second, the emergence of intermodal rail and road transport has extended gateway ports’ geographical reach.

These technological factors imply that the exposure of ports to competition has increased. At the same time, widespread adoption by governments of new public management principles has resulted in a more commercial approach to the management of port operations. Port competition is intense, but ports are not “perfect substitutes”, i.e. they are not interchangeable perfectly or without cost. First, gateway ports still have a strong position in at least some of their service area, as hinterlands do not overlap completely. Second, the intensifying effect of containerization on port competition may be reduced by congestion in ports or in their hinterland transport networks. Third, switching ports is costly.

The Emergence of Global Supply Chains

The second driver of change that directly affects the role of ports is the development of global supply chains. These chains link dispersed production and sourcing sites to more geographically concentrated consumption regions. What matters is the performance of the supply chain in terms of price, service quality and reliability.

This focus on the chain as a whole is reflected in efforts of the various service providers to consolidate, vertically integrate in order to reduce costs and to increase the level of coordination and synchronization. Such concentration carries a risk of generating excessive market power. It also increases uncertainty and forces logistics service providers to use more than one routing options, so as to reduce route risk.

The increase in levels of concentration is quite spectacular. In 1980, the top 20 of the world’s shipping lines controlled 26% of TEU-slot capacity; by 2007 their share had increased to 81% Many of these top 20 further concentrate by engaging in alliances. Shipping lines also vertically integrate, in some cases working towards “extended gates” where shipping lines take control of inland transport and inland terminals and depots. At the level of port terminal operations, the market share in terms of throughput of the top 10 players rose from 42% in 2001 to 55% in 2005. The emerging picture is one of market dominance by a handful of large players.

Finally, geographical concentration of flows is increasing as well. For example, the North-South imbalance among ports in Europe is growing larger, and this is because of more favorable hinterland transport conditions in the North.…...

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