increasing free trade zone opportunities by improving transshipment
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Increasing Free Trade Zone Opportunities by Improving Transshipment. Dr. H. Donald Ratliff Executive Director. How do free trade zones add value?. Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other countries to other countries - PowerPoint PPT PresentationTRANSCRIPT
Increasing Free Trade Zone Opportunities by Improving TransshipmentDr. H. Donald RatliffExecutive Director
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How do free trade zones add value?
Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other
countries to other countries Provide value added services for products from other
countries to other countries
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How do free trade zones add value?
Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other
countries to other countries Provide value added services for products from other
countries to other countries
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How to justify redistribution hubs?
Transportation cost is frequently higher
Handling cost is higher Inventory is frequently lower Trade-off between P&L and
Balance Sheet Value of a 40 ft container of
product– Typical Asia to US retail = $50,000– Furniture = $75,000– Small electronics = $300,000– Sport shoes = $1,500,000
Justification based on “unlocking” capital by reducing inventory
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How does shipment consolidation at hubs impact inventory?
Container Capacity
Inventory at Customer
Average inventory
Half Container
Inventory at Customer
Half Container
Inventory at Customer
Average inventory
Average inventory
Direct ship
Hub consolidation
Hub consolidation
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Inventory using “direct ship”
Pendulum service
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• Customers in Savannah and NY• 10 suppliers in Asia, all with different
products• Ship in full containers direct from supplier
to customer• 0.5*10 = 5 containers at each customer
• Total inventory = 10 containers
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How do hubs impact inventory?
Transship service
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• Ship in full containers from each supplier to hub then ship mixed container loads from hub to each customer– Average inventory = 0.5*10= 5 containers
at Panama warehouse– Average inventory = 0.5*1 = 0.5 containers
at each customer• Total inventory = 6 containers• 10 containers less using hub
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Why Panama as a hub?
Inventory increases with number of hubs
Fixed cost increases with number of hubs
If only one hub then why should it be Panama?– Cost/time from DC to ports– Nearness to direct supplier
to customer routes– Time to customers– Variability in time to
customers– Connectivity
Pacific Cluster
Atlantic Cluster
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What connectivity characteristics are critical? Transit time from suppliers
and transit time to customers– In-transit inventory is
proportional to time in transit– Hub advantage only if transit
time reduced Variability in transit time
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Inventory
Importance of Transit Time Variability
Variability in transit time causes shippers to more maintain safety stock Longer transit time causes forecasts to be less accurate which requires
more safety stock
Time
Protecting against late deliveries
Planned delivery
Due to variability
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What connectivity characteristics are critical? Transit time from suppliers
and transit time to customers Variability in transit time Frequency of service
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Impact of Frequency of Port Calls
Daily service Panama to New York transit time = 3 days Weekly service Panama to New York transit time = 3 days
– Max time = 10 days– Min time = 3 days– Ave time = 6.5 days
Weekly service adds 3.5 days average inventory
Time
Port call frequency
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What connectivity characteristics are critical? Transit time from suppliers
and transit time to customers Variability in transit time Frequency of service Service coverage
– Must get product from all suppliers
– Must send product to all customers
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Panama’s Coverage to CustomersDestination from Balboa without transshipment
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Panama’s Coverage to CustomersDestination from Manzanillo without transshipment
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Panama’s Coverage to CustomersDestination from Panama without transshipment
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Why drives Panama’s connectivity?
Transshipment activity– Manzanillo = 84% – Balboa = 92%– CCT = 69%– Cristobal = 76%
Without transshipment Panama would have very little connectivity
Transshipment drives Panama’s connectivity
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Increasing Panama’s Transshipment
Ideally Panama’s ports function as a single port connected by conveyor belts in each direction
Transshipment must be fast and reliable
Integration of all components in the network is essential
Better disruption mitigation is needed
Bigger ships create more transshipment
Panama has excellent connectivity but must work to maintain and increase
Transshipment locations are easily changed by carriers
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Comments?
Questions?