Group assignment choice of weekly shipping service from east coast south america to north europe

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS GROUP ASSIGNMENT CHOICE OF WEEKLY SHIPPING SERVICE FROM EAST COAST SOUTH AMERICA TO NORTH EUROPE Mid-term Assignment - International Tr

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

GROUP ASSIGNMENT

CHOICE OF WEEKLY SHIPPING SERVICE FROM EAST COAST SOUTH AMERICA TO NORTH EUROPE Mid-term Assignment - International Transport Management

1 Assumption 3

1.1 Route: East Coast South America to North Europe LH HH xe 3

2.1 Create a direct SCrvice ccc ố ẻ 5 2.2, Create a service from East Coast South America to Algeciras, and tranship the cargo onto your existing services from Algeciras to North EUTope ĩc 2n v2 2 2x2 7 2.3 Enter into a vessel sharing aØT€€IT€TI - c2 2022113213111 3 131515151111 1111 017 11111 111 tp 8 2.4 Buy space (slot charter) from another Ìine ¿- c2 1 112 13221315 235115112112 1111115 xe 10

3.1 Comparative analysis Ụ 11

Kiện 12

1 Assumption

Our “7 chu lun” company is currently evaluating the suitability of the transportation service for the increasing demand More specifically, to calculate the approximate cost and flexibility, we choose a time frame of 1 year

1.1 Route: East Coast South America to North Europe

The route is expected to depart through several ports in South America and Northern Europe, with the destination being the port of Rotterdam in the Netherlands Based on the port’s capacity and the types of vessels allowed to operate at this port, we chose the port with the shortest route, the port of Rio De Janeiro in Brazil Thus, the journey will take about 24 days (including 4 days for loading and unloading)

BUENOS ARES

Figure: Route map (“Service Finder (THEA) - Hapag-Lloyd”)

From/To Tangier Rotterdam London Gate Hamburg Bremerhaven Antwerp Le Havre Sines

Arrival day MON FR SUN TUE THU

Buenos Aires 27 31

Montevideo 25 29 31

Rio Grande 23 27 29 31 33 36 38 42

Navegantes**

Paranagua 19 23 25 27 29 32 4

Santos 18 22

Rio de Janeiro 16 20 22 24 26 29 31 35

Salvador

Pecem* 9 13 15 1 19

Figure: Transit time in days from North Europe - South America East Coast (“Service

Finder (THEA) - Hapag-Lloyd”)

Key ports: Rio De Janeiro Port, Rotterdam Port

e Port of shipment: Rio De JanEiro Port, Brazil (medium seaport): Port is maintained and operated by Autoridade Portuaria Docas do Rio (CDRJ) Exports include break bulk

cargoes, (containerized) minerals, grain, and oil products

steel products, and crude

Inland port

Mean tide

Tide

Overhead Limit

Swell

No

1 foot m

Channel Cargo Pier Mean Tide Anchorage Oil Terminal

Harbor Size Shelter Max Vessel Size

Harbor Type Turning Area

Imports include breakbulk,

16 - 20 feet 4.9 - 6.1 meters

16 - 20 feet 4.9 - 6.1 meters

1 foot

16 - 20 feet 4.9 - 6.1 meters

21 - 25 feet 6.4 - 7.6 meters

Large Excellent Over 500 feet in length

Coastal Natural

Yes

Figure: Port of Rio De JanEiro’s details (www.findaport.com, www.searates.com)

e Port of destination: Port of Rotterdam, Netherlands (very large deepwater seaport): Large multipurpose port and Europe's largest container port, with excellent inland

connections by water, road, rail, and pipeline

Region

Inland port

Mean tide

Tide

Overhead Limit

Swell

West part of North Sea

No

1 foot m

Channel

Cargo Pier Mean Tide

Anchorage Oil Terminal

Harbor Size

Shelter

Max Vessel Size Harbor Type

Turning Area

36 - 40 feet 11 - 12.2 meters

26 - 30 feet 7.1 - 9.1 meters

1 foot

41 - 45 feet 12.5 - 13.7 meters

31 - 35 feet 9.4 - 10 meters

Large

Good

Over 500 feet in length River Natural

Yes

Figure: Port of Rotterdam’s details (www.findaport.com, www.searates.com)

e Port of tranship (if needed): Port of Algeciras, Spain (medium seaport): Naturally sheltered port within a large, deep-water bay Facilities cater for most types of cargo, with repairs and bunkering also available

Inland port

Mean tide

Tide

Overhead Limit

Swell

No

1 foot m

Cargo Pier Mean Tide Anchorage Oil Terminal

Harbor Size Shelter

Max Vessel Size Harbor Type Turning Area

36 - 40 feet 11 - 12.2 meters

1 foot

76 feet - OVER 23.2m - OVER

46 - 50 feet 14 - 15.2 meters

Small Fair

Over 500 feet in length Coastal Breakwater

Figure: Port of Algeciras’s details (www.findaport.com, www.searates.com)

e Name: Grain

e Type of vessel: Bulk carrier (dry bulk) — Panamax (60,000 - 80,000 DWT)

ECSA SEABORNE GRAIN FLOWS PER FLEET

20M

®Handysize & Smaller © Handymax @®Supramax ®Ultramax @ Panamax

(

, Ci)

5M

Figure: ECSA Seaborne grain flows per fleet (Aganev, 2022)

2 Evaluation of 4 given options

2.1 Create a direct service

Definition: Direct shipping is an order fulfillment method where a seller manages their inventory and ships products directly to customers, bypassing intermediaries like transhipment The seller controls the entire process: picking, packing, shipping, and customer service

Cost:

Ship

Ship parameters

Average daily fuel consumption 228 t/d

Table: Annual cost assumption of creating direct service (Fan & Gu, 2019)

Case: In 2020, Dell experienced a surge in demand as industries shifted to remote work,

prompting the company to adapt rapidly This increased pressure on Dell's distribution centers and activated its risk management plan DHL and Dell Technologies collaborated to develop a direct shipping model Within three months, the companies redesigned the supply chain, achieving an average of 99% on-time performance to the final-mile carrier hubs, increasing reliability while reducing lead times

— It takes about 3 months to develop a direct shipping service

Pros and cons:

Faster Delivery Times: Products are | Increased upfront costs: Direct shipping shipped directly from the supplier to the | demands a hefty upfront investment in customer, reducing the time spent in transit | inventory, which can be challenging for new and improving customer satisfaction businesses with limited funds Very high initial

investment Lower Inventory Costs: Retailers can

facilities, lowering overhead costs |shipping demands effective Inventory associated with inventory management management to meet demand without

overstocking, potentially limiting product Increased Flexibility: Retailers can easily | variety

scale operations up or down based on

demand without the constraints of | Time imvestment: Running a_ shipping managing physical inventory operation is time-consuming, adding to your

responsibilities as a retailer and manufacturer, Better Control Over Quality: By | which may strain your resources

choosing reliable suppliers, retailers can

maintain higher standards for product | Slower fulfillment for large orders: Direct quality and packaging, enhancing the | shipping is efficient for small orders but slower overall customer experience for large ones due to labor intensity, making

dropshipping a better option for quicker Enhanced Customer Experience: Direct | fulfillment

shipping often leads to a more efficient

order fulfillment process, resulting in | Logistics complexities: Direct shipping adds a timely deliveries and improved customer | layer of complexity to your business operations

carriers, manage shipping costs, and potentially handle any damaged goods or returns This can require additional resources and expertise in logistics management

2.2 Create a service from East Coast South America to Algeciras, and tranship the cargo onto your existing services from Algeciras to North Europe

Cost: (Henriquez Larrazabal, R D., 2022)

Cost of delivery by sea (FCL) to Algeciras $20,000,000

Departures per week

Direct services

Typical emissions range

577-791 kg co;

Transshipment

Pros and cons:

Leveraging Existing Network: Benefits from the

established network and infrastructure in North

Europe

Optimized Port Operations: Centralized

transshipment in Algeciras can streamline operations

and optimize costs

Flexibility and Scalability: Adaptable to fluctuating

demand by adjusting vessel capacity and frequency

Risk Mitigation: Reduced financial risk as the

company is not fully responsible for the entire route

Risk of damage and loss during transshipment

Additional cost or lead time for

transshipment and handling

Require more control for each path

Increasing complexity

Insufficient capacity for existing service

2.3 Enter into a vessel sharing agreement

Definition: A Vessel Sharing Agreement (VSA) is a contractual arrangement between shipping lines that allows them to share vessel space on specific trade routes using a specified number of vessels The quantum of space that each partner gets may vary from port to port and could depend on the number of vessels which are operated or placed by the different partners within the agreement (Manaadiar, 2023)

Cost: (Assistant & Phd, n.d.)

Total costs for participation in the VSA = Vessel’s running costs + Voyage costs

duration

+

x

=

=

:

os

y

x Total portcosts

‘TEU capacity i+

¥

Cost peri TEU

bunker costs, all canal and port dues (disbursement accounts), terminal handling charges

at ports of loading and discharging as well as at transshipment ports

e Voyage costs are calculated based on: the designated round voyages distance in nautical miles, sailing time of the ship (basis service speed and nautical distances), time for entering and leaving the ports, navigation through canals, port stay time (depending on the volume of cargo to be handled and available port infrastructure), total voyage time including the sailing time, time for canals navigation, entering and leaving the ports, port stay time

e Annual cost assumption for 1 shipment:

o Time charter hire: $15,000/day x 24 days = $360,000

o Fuel costs: 40 tons/day x $600/ton x 24 days = $480,000

© Operating costs (crew, maintenance, insurance): $7,500/day x 24 days =

$180,000

o Port fees:

m Port of Rio De Janeiro: $40,000

m Port of Rotterdam: $50,000

— Total cost/shipment/year = $1,100,000*52 = $57,200,000

Pros & Cons:

Cost Sharing and Economies of Scale: Sharing | Reduced control: Because vessel space with other shipping lines allows the | decisions about vessels, port company to reduce capital investment and operational | rotations, and scheduling are made costs — Significant reduction in fixed costs per TEU | collectively — Limited control over compared to operating solo on the same route some control over specific aspects

of service operations Risk Mitigation: Sharing vessels with other carriers

reduces the financial burden, especially in periods of | Potential conflicts: relating to low demand or market fluctuations operational issues, such as pricing

Flexibility in Capacity Utilization: Each partner is

allocated a specific number of slots, but unused slots

can often be offered to other partners — Better

utilization of vessel space, reducing the number of

empty container slots

Access to Larger and More Efficient Vessels: By

pooling resources, the company can gain access to

larger, more fuel-efficient ships that might have been

too costly to operate independently — Enhance

competitiveness through lower per-unit transportation

costs

Environmental Benefits: Entering VSA can reduce

the number of total vessels needed on a route —>

footprint per TEU

or port priorities

Capacity Constraints: Although partners capacity, the allotment for each participant is fixed In periods of high demand, the company may not have enough slots available to meet its customers’ needs, leading to potential service disruptions

share

Reduced independence: If a partner experiences operational

weekly schedule of the shipping company

2.4, Buy space (slot charter) from another line

Definition: Slot Charter refers to an arrangement in the maritime industry where a shipping line leases container slots on a vessel from another carrier In this agreement, the slot charterer doesn't take control of the entire vessel but instead acquires space for a specified number of containers This arrangement allows shipping lines to optimize their operations and capacity utilization, offering flexibility and cost-effectiveness

Cost: (Chung & Seong Ko, 2016)

Voyage cost: 3,500 USD

Fixed space cost: 350 USD

Cancel fee: 80 USD

Penalty cost for undelivered container for route: 200$

Costs of loading and discharging as well as stowing, lashing and securing are payable by the slot charterer: 100 USD (Luczywek, n.d.)

Local charge cost: 300 USD

=> Total estimated cost per container: 4,530 USD per container

Pros & Cons

Minimal Operational Risk: Minimal operational risk as_| Limited Control: Limited the carrier providing the slots assumes most of the risk control over schedules, pricing,

and capacity allocation

Low or No initial investment: We will not have to buy

or charter the vessel as well as pay the operation costs Dependency on Other Carriers:

Reliance on other carriers for Flexibility: can apply chase strategy: When the reliable and efficient service

demand 1s low, we will book less space, when it is high,

availability of slots, influenced

Leverage economies of scale, distributing operational by market demand and shipping costs: reducing the financial burden on individual

seasons entities

Effective LCL shipment

Establish a strategic alliance with liners, which will

facilitate our demand for route and cost efficiency when

operating in any other routes

3 Implementation plan

3.1 Comparative analysis

On the scale of 5 Option - Criteria Cost-effectiveness Stability Long-term potential Total

Currently, we need to deal with the increasing demand by providing weekly shipments; however, we are not sure whether the demand will keep increasing in the long term, thus, our criteria for choosing the solution are strongly based on cost-effectiveness and stability instead of long-term potential

The first option, creating a direct service, requires a huge initial investment as to ensure the weekly delivery service, we will have to invest in at least 7 vessels This is because it takes each vessel nearly 49 days to accomplish a shipment and return to the Port of Rio De Janeiro while we need a shipment every 7 days Thus, the investment amount could be up to 560M USD In addition, if the increasing demand is not big enough, we cannot fully utilize the capacity of the 7 vessels and our company may have to offer the empty space for sales Moreover, operating and controlling that number of vessels is also a challenge requiring a lot of