Hubs help Logistics but there are risks to consider

Roger OakdenLogistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

International shipping trade and containers

Hub Ports and Logistics Hubs

As international trade flows change, so does the ranking of large container ports. But that does not mean a port of lesser size and its region is devoid of the same attributes as larger ports. However, the criteria for a Hub Port in the future will, in addition to current attributes, assess the port and its region for resilience.

A Hub Port depends on its location and ability to serve geographically dispersed areas. It does not require logistics services in its hinterland – Singapore is an example. The growth and consolidation of major container shipping lines and global Logistics Services Providers (LSPs) can result in acquired ports becoming a defined hub for its region. The port of Piraeus in Greece (majority owned by COSCO of China), as the fastest growing container port in Europe may be considered an example.

A Logistics Hub facilitates and processes international trade through investments in multimodal transport assets and by promoting value-added services as goods move through supply chains. It is an ‘open access’ site, located away from traditional land, air and coastal borders and about 4,000 hectares. It may also be referred to as a geographic area within a country or between countries. A Logistics Hub has attributes that were initially discussed by the Japanese consultant Kenichi Ohmae in the early 1990s:

  • Access to a large region market: about 3m people is often stated, but is dependent on the buying power of citizens
  • Multiple transport options: major seaport/airport, large rail/road intermodal facilities and key highway interchanges. Connections to other international logistics locations. Professional services established to support logistics and transport activities
  • Many logistics facilities in the location or region to process, store and distribute products for sales and post sales services. Depending on size and facilities, these can be called a Freight Centre, Intermodal Freight Terminal, Inland (or dry) Port etc.
  • Communications and IT infrastructure to support ‘on demand’ commercial and consumer activities
  • A low-risk political environment and economies that are engaged in international trade. Competitive taxes and charges

Influences on development

Particular Hub Ports and Logistics Hubs may become more important within regions, as intra-regional trade increases in the years ahead. This could occur due to the relocation of inventories and value adding activities for products located closer to the point of sale. Assisting the trend in the Asia Pacific region are establishing locations under a China+1 or 2 countries policy; implementation of Free Trade Agreements (FTA) and Digital Trade Agreements (DTA) between countries of the region.

Additional influences in the development of Hub Ports and Logistics Hubs are:

  • Increasing ship size (will there ever be 50,000 container capacity ships?) reduces the selection of available ports. ‘Post-Panamax’ container ships require a minimum of 15m (50 ft) water depth. If not provided, shipping companies and logistics service providers may move to a location that provides the capability. An opportunity arises for the ‘hub and spoke’ delivery model, using smaller feeder ships to service other ports
  • Reliance of shippers on Logistics Services Providers (LSPs) for the movement and storage of items. A high proportion of international trade is between related parties e.g. divisions and affiliates of companies; however, storage node locations are likely to be influenced by the Logistics Hubs selected by their LSPs
  • Land availability for expansion – development of multi-story facilities
  • Infrastructure investment: Expansion of major facilities, such as Panama and Suez canals and the Mediterranean Corridor (rail and road across six EU countries from south to east) provide new opportunities for countries and ports
  • Changing demographics influences trade lanes: example: a younger age profile in the future may increase trade between Africa, Middle East and Asia

Costs of Climate Change

As with all parts of supply chains, the big unknown is the effect of Climate Change on ports and their hinterland. As stated in a 2018 report by UNCTAD “Changes in sea-level, temperature, humidity, precipitation and extreme storms, floods and other climatic factors are likely to affect seaports and connecting transport infrastructure in the global network of supply chains … important gaps exist in the information available to seaports of all sizes and across regions, with implications for effective climate risk assessment and adaptation planning”

Shipping accounts for more than 80 percent of the total world’s trade volume. More than 60 percent of goods handling for export and import occurs in developing countries that are under-resourced (UNCTAD).

The media often portrays major weather incidents as ‘1 in 100 year events’. But, under a 1.5°C maximum air temperature increase, for more than half of the world’s coastline these will become an annual event. Parts of the tropics not subject to big storms and the Mediterranean are likely to experience more weather extremes. Recent evidence of increasing hurricane severity indicates that the seven ports along the US Gulf of Mexico coast (all within the 10 largest ports in America) will require a substantial increase in mitigation expenditure prior to 2030.

As sea levels rise, there is an Increased risk of damage to port infrastructure such as docks and bridges that may have to be raised and fortified. More intense hurricanes, cyclones, tornadoes and storms, with increased water volumes, will result in significant damage that require major repairs. This requires increased inventory of replacement parts for equipment. Sea level rise combined with storm surges, plus intense rainfall and subsequent flooding, could also affect the hinterland of ports and transport services, affecting the operations of port facilities.

Changes to the routing of ships: As sea levels rise, there is increased coastal erosion, with changing sedimentation patterns that can impact shipping channels, requiring limits on ship size or re-routing of ships. For inland maritime activities, water levels are expected to decline in European rivers and parts of the US Great Lakes system, so vessels will carry less cargo. Some Artic inland passages will become deeper and ice free in summer, allowing increased sailings by larger ships.

In addition to the effects of water, there will be an increase in heat waves. For ports and logistics facilities, heat waves can damage structures and require additional refrigeration and air conditioning. Reduced or changed working hours for staff may be required, which can affect delivery times.

When constructing your organisation’s Supply Chains Network Map, Hub Ports and Logistics Hubs become major nodes. As noted in this blogpost, there are increasing risks associated with concentrations of assets and these should be identified and analysed as input to the Map.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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