Northeast Asia Economic Forum
Toyama, Japan, 25–26 October 2007

Regional Port Cooperation for
Supply Chain Integration

Lee Jungook
Bogo Economic Research Institute1

CONTENTS
1.

2.

3.

Globalization & Importance of SupplyChain Management
Growth in NE Asia’s Trade and Logistics
Challenges (Container Transport Sector)
Necessary Actions by NE Asian Portsand Logistics Community2

1. Globalization & Importance ofSupply Chain Management

3

Globalization & New Business Paradigm
Economic
Liberalization& Deregulation(WTO, OECD)

Expanded Market,Transport &More Competition
Telecommunication Revolution
Bilateral &Multilateral FTA

Production
costServicequalityGlobal shift of Production-Strategic Alliances-M&A- Joint Venture(EU, NAFTA)

Emergence of New Business Paradigm
Customer Value
Global Supply Chain Management

GlobalSourcing

GlobalProduction

GlobalSale4

Source: SRI International, Global Impact of Fedex in the New Economy

5

CSCMP Definition of Supply ChainManagement
 Supply chain management encompasses theplanning and management of all activities
involved in sourcing and procurement,
conversion, and all logistics management
activities. Importantly, it also includes
coordination and collaboration with channel
partners, which can be suppliers,
intermediaries, third party service providers,and customers. In essence, supply chain
management integrates supply and demand
management within and across companies.
6

CSCMP Definition of Logistics
Management
 Logistics management is that part of

supply chain management that plans,
implements, and controls the efficient,effective forward and reverse flow andstorage of goods, services and related
information between the point of origin
and the point of consumption in order
to meet customers' requirements.
7

On the importance of Supply
Chain Management
 "Inthis emerging competitive environment, theultimate success of the single business will
depend on management ability to integrate thecompany’s intricate network of business
relationships or supply chain management. "Professor D. M. Lambert, 「Supply Chain Management」, 1999

8

A CEO s View on the Importance of SCM
John F. Welch Jr. (CEO, General Electric, 54 )Globalization is now no longer an objective but an imperative,
as markets open and geographic barriers become increasingly
blurred and irrelevant.
The winners of the Nineties will be those who can develop a culturethat allows them to move faster, communicate more clearly, andinvolve everyone in a focused effort to serve ever more demandingcustomers.
The lines between the company and its vendors and customers
must be blurred into a smooth, fluid process with no other objective
than satisfying the customer and winning in the marketplace.
「Fortune」，March 26 1990
910

11

Impact of Globalization on Logistics
Management
 Relocation of production facilities andwarehouses
Increased hauling distance and quantity
 Supply chain integration
Fewer suppliers, logistics providers
 Inventory management by cross docking, JIT
deliveries, etc
Smaller package and short transport time Mass-production to Mass-customization
Frequent delivery and smaller package
12Supply Chain Management
 is a critical factor in global firms’

competitiveness and business performance is also an important driving force for thechange in the way cargoes are handled byshipping, port and road haulier industries
 will eventually change the role and functionof transport industry itself
13

Changes in Ports’ Characteristicsand Function in Supply Chain
Past

Now & Future

 Simple entry and exit

 Logistics center on

point of export andimport cargoes
 Traditional, suboptimized, unorganized,
complicated Reactive or passive tonew ideas

International Supply
Chain State-of-art service
industry armed withnewest IT software andmanagement skills
 Proactive and agile to
new mgt’ concept142. Growth in NE Asia’s Trade andLogistics Challenges(Container Transport Sector)

15

NE Asia’s Share in World Trade(2005)(billion U.S. dollars)

ExportImportChina 762.0 (7.3%)
Japan 594.9 (5.7%) 15.7
Korea 284.4 (2.7%) %Russia 243.6 (2.3%)
World 10159.0 (100.0%)

660.0 (6.1%)
514.9 (4.8%) 13.3
261.2 (2.4%)%
125.3 (1.2%)
10,511 (100.0%)

U.S.A

1,732.4(16.1%)

969.9 (9.3%)

Source: World Trade Organization
16China leads in Asian trade growth($ billion)
1997

1999

2001

2003

2005

2006

Exports

182.7

194.9

266.2

438.2

762.0

969.1

% change

20.9

6.1

6.8

34.6

28.4

27.2

Imports

142.4

165.7

243.6

412.8

660.0

791.6

% change

2.6

18.2

8.2

39.8

17.6

20.0

Total

325.1

360.6

509.8

851.0

1,421.9

1,760.7% change

12.1

11.3

7.5

37.1

23.2

23.8

Balance

40.3

29.2

22.5

25.5

102.0

177.5

Note: PRC exports reported on a FOB basis; imports on a CIF basis
Source: PRC General Administration of Customs, China's Customs Statistics;
and the National Bureau of Statistics

17

Half of Asian nations’ trade is withits neighbors
Asia’s merchandise export by region (2005)
Africa1.9%

South&Central
America
1.9%
CIS

Unspecified
0.6%

1.3%

Middle East
3.2%
Other Europe
1.1%

Other Asia
29.3%

EU(25)
16.8%

Europe
17.9%
Asia
51.2%
North
America
21.9%

Other NA
2.1%

China10%USA
19.7%
Aust/NZ
2.8%

Source: www.wto.org

Japan
8.8%

18China with H.K. is now Japan’s
biggest trade partner
China
17.0
Others29.0

China
HongKong
Korea
ASEAN
The U.S
EUOthers

H.K, 3.4

Total export/import: 123
trillion yenKorea, 6.4

ASEAN,
13.3

EU,
13.1
The U.S.,
17.8

19

Chino-Korean Trade continues togrow as well
 China became Korea’s the biggest trade

partner in 2004
(As % share of Korea’s export and import)
2520
15USA
Japan
China

1050

1998

1999

2000

2001

2002

2003

2004

2005

2006
20

Challenges in NE Asia’sLogistics

21

Asia’s Container Shipping:
Unprecedented Growth Full containers shipped worldwide

2001
60.5 mil.teus

2006
110.2 mil.teus (AAGR: 10.5%)

 UNESCAP Forecast for 2015: 177.6mil.teus

From 2002 to 2015
East-West Trade: 34 mil. teus to 70 mil. teus
North-South Trade: 17 mil. teus to 36 mil. teus
Intraregional Trade: 28 mil. teus to 72 mil. Teus

Most spectacular growth forecasted for Intra-AsianTrade!
22

Intra-Asian Shipping Route(Japanese case) Japan’s International shipping services

increased 11% during 2001-2006
From 830 to 917 weekly services
 But shipping services with China increased

44%: From 227 to 328 weekly services
 Total weekly container shipping services fromimportant ports*North America: 84, Europe: 22, Asia: 652 (China, 290; Korea,166)* 特定重要港灣
23World Container Port Throughput
Forecast
Million TEU‘04world 358‘05397‘06432‘07 ‘08
473 515‘09559‘10600

Fareast137

152

169 187

205

225

120

Source: Drewry, Annual Review of Global Container Terminal Operator 2005
• For the last 5 years world port throughput increased at

AAGR of 11% largely due to increased T/S cargoes and highgrowth in Chinese ports.
• AAGR (2004-2010): world, 8.9%, Far-east, 11.0%

24

Asian ports’ share in worldcontainer traffic (2005)
Total 297 million teus handled
18.5%

15.2%
65%

Asian ports
European ports
American ports
othersTop 8 chinese ports:
26.5%
25

Critical Question
Are Asian ports ready to handle thehugely increasing container
cargoes efficiently and connect toother logistics nodes to meet global
firms’ supply chain management
standards?
26

Tianjin: Thriving Economy Pushfor a Bigger Port Tianjin is the second largest comprehensive

port in China
 Thriving economy of Tianjin and Jingjinxi
hinterland is increasing port throughput
dramatically By 2010 Tianjin’s port
traffic will exceed
300 mil. M/T27

Continued Container handling capacity should be

expanded to at least 10 mil. TEUs by 2010 toaccommodate exploding container traffics- In 2006, Tianjin handled
5.9 mil. TEUs, up 23%

 Other port facilities,

connecting road andrailroad, deep-waternavigational channels
are indispensable,including the largest
bulk cargo center inNorth China
28

Thus, Tianjin need to supply vital
logistics facilities simultaneously

Container terminal

Inland container depot

Road connections

29
Value added logistics facilities

High logistics costs are big burden toChina (logistics costs as % of GDP)

Source: Ru Yi-yong, The Characteristics and Strategy of Chinese Logistics
and Transportation Policy and Its Implication, Dec. 7 2005. (Presentationmaterial, PDF file30

Logistics Costs of China vs. the U.S
 China’s logistics costs in 2004: 2.9 trillion yuan,
21% of China’s GDP vs. the U.S’s 8.6% (2005)

Japan’s 11%
 In the first three quarters of 2006: 2.6 trillion
yuan, 13.7% increase in real term but its portion
to GDP decreased to 18.5%(China Federation of Logistics and Purchasing) These costs are not burdened to China alone.

They will be transferred and distributed to allother trading partner countries !

31

NE Asia’s Logistics: challengesaheadUrgent need for infrastructure expansion tomeet exploding growth in container transport
sectorStreamlined logistics chain needed to cut
excessive logistics costs
Amending multiple governments’ bureaucracies
Limited budget for infrastructure construction

32

Other Challenges, too Absorption of new technologies to enhancethe efficiency in logistics operationex) RFID tag Very Large Container Carriers Port security issues
 Using a common communications
infrastructure, etc.

33

RFID, An innovative breakthroughin logistics industries and SCM

RFID-based logistics is ultimate goal of alllogistics players
Many ports are now testing this state-of-the-art
technology: Shanghai, Oakland. Busan……
Application of the tested RFID technology to Gate
automation, Yard management, Container
tracking and Terminal management can enhance
port efficiency

34

Continued According to Korea’s

test project (2006),

the lead time ingate operation: 50%
yard location: 45%
ship loading: 20%
 Overall, 44% ofterminal productivity
increase expected

35

Continued If RFID container tags are applied to port-

related logistic process, productivity gain would
be much greater- Port efficiency will be enhanced dramatically and so
it can reduce enormous port development pressure andbudget
 Meanwhile, ISO recently approved the U.S

standard RFID based e-seal technology- So, terminals processing export containers to the U.S
are obliged to use the RFID-based system in the nearfuture36

 Very Large Container Carriers (VLCC) arejoining the market- Vessels larger than 7,500 teus
2000
2007
2010*
1995
0100( 0%)80,822( 1.8%)

147

293

1,250,000 2,631,348 teus
(13.1%)(18.7%) of world totalcapacity- The TEU capacity of vessels over 5,000 teu willbe 40% of world total in 2010.

Demand for bigger terminal, equipments
and more hub & spoke transshipment
37

An Honest confession of port
community We do not have an “intermodal system” assuch. Rather we have an aggregation ofmultiple, private and public modes, each ofwhich are “stove piped” within their own
individual areas of interest with little or no true
cross communication and collabolation.
(during the 2007 IAPH Conference in Huston,
Texas)
38

3. Necessary Actions by NE
Asian Ports and Logistics
Community

39

Understanding current status ofNE Asian ports
 Globalization, door to door concepts, leanmanagement and just-in-time
production…contributes shippers requesting
integrated and “lean” logistics chain So, the role of ports evolves from mere entry
and exit points for exports and imports to1) logistics centers offering value
added service and2) transport solution providers ininternational transport chain.
40continued This new demand for ports, more clearly

perceived in NE Asia because,- China’s continuing export boom and increasing
intra-Asian trade creates enormous logistics
challenges for NE Asia’s logistics community So, NE Asian ports, among logistics community,

can take a first step to respond against thesechallenges

41“Lean port network” is essential
for NE Asia’s logistics community A good container port should be- flexible, adaptable and responsive in rapidlychanging logistic environment- a knowledge center- lean port, (efficient and cost-effective) In order to be competitive, lean port should
form a “lean port network” by inviting otherports and logistic nodes like ICD, dry ports,
ODCYs and freight stations
42

Continued This “network” can be made by cooperatingwith other ports bilaterally or by establishing a
regional organization for port cooperation.

43

Why cooperation among NE Asianports?
 Improve terminal efficiency through exchanging

operational experiences and technologies
 Trade promotion by developing more efficientlogistics chains in NE Asia
 Reduce overall logistics costs to the level ofdeveloped countries Adapt better to rapidly changing shipping andport industry environment- Increase bargaining power against powerful shipping lines’ with
VLCC and consolidated port operators
44

continued
 Reduce excessive terminal development

pressure in short period of time
 Development and application of new logistics
machinery and technologies, ex) RFID
 Common efforts, at regional level, toderegulate to reduce logistics costs andspeed up logistics processing
 Funding for necessary infrastructures atregional level through “NE Asia DevelopmentBank”

45

Different Channels of Cooperation
 Port to Port bilateral- Most common among ports as shown- NY-NJ, Copenhagen/Malmo type merger, etc
 Regional Bodies- Baltic Port Organization (BPO)- European Seaports Organization (ESPO) International Organization- International Association of Cities and Ports (IACP)- International Association of Ports and Harbors (IAPH)
46

Baltic Ports Organization(51 member ports)
Main objectives:-Improving competitiveness of maritime transport inthe Baltic region by increasing efficiency of ports-Marketing the Baltic region-Improving infrastructure in ports and related transportmodes-Improving cooperation with port users and operators-Applying new technology in port to improve
performance-Improve cost efficiency, etc
47

Why not NE Asian PortsOrganization?

48

NE Asian Ports Organization(NEAPO)(Open to further discussion)
 NEAPO’s Mission Statement
 Which ports to include as member ports?
 Cooperation with other logistics service
providers Governments’ role
 Preparatory body Establishment procedures
49

Thank you for your kind attention!

50