multimodal_supply

Multimodal supply chains: iron ore fromAustralia to China

Anthony Beresford, Stephen Pettit and Yukuan Liu

Transport and Shipping Research Group, Cardiff Business School, Cardiff University, Cardiff, UK

AbstractPurpose – This paper aims to analyse available multimodal transport route variations for iron ore shipments from northwest Australia to northeastChina, focusing on a major iron and steel manufacturer.Design/methodology/approach – The research is focused on a case study and uses an established cost model as a framework, for the first time, inthe context of heavy bulk cargo shipments. Field interviews and a questionnaire form the principal methods of primary data collection. Thecharacteristics of bulk iron ore transport flow are analysed against traditional criteria and an appraisal of the transport infrastructure in north east Chinais made, considering both road and rail options, and various possible combinations for transport being evaluated. All factors affecting modal choice inthe region are examined, including cargo volume, weight, and value, transport distance, transit time, transport costs and schedule reliability.Findings – The volumes of iron ore moved are large, with a high weight-to-volume ratio, and shipments are regular. The research initially confirms thatsea and rail transport combinations are the most appropriate for the movement of iron ore. However, where rail transport corridors are congested,provided that the transport distances are not too great, road haulage appears to be an effective substitute and the most competitive multimodaltransport route, at least in the short to medium term, is found to be a rail-sea-road combination via Port Bayuquan in China.Research limitations/implications – The research focuses on the delivery of iron ore to one major steel manufacturer in northeast China; so findingsmay not be transferable to other companies or circumstances.Practical implications – The paper first demonstrates that, for heavy, high volume cargoes concentration of flows on to one corridor, perhaps underthe control of one service provider, maximises scale economies, but works against competition and route/mode choice. Second, it demonstrates that, forlong haul shipments of iron ore, port variations and modal differences for inland transport yield only marginal differences in overall logistics costs.Originality/value – An assessment of high volume/heavy/low value cargoes such as iron ore has not previously been undertaken using this costmodel. This paper therefore provides an original analysis of such supply chains.

Keywords Transportation, Australia, China, Costs, Iron

Paper type Research paper

1. Introduction

The multidimensional nature of supply chains is widely

recognised and there has been increased discussion of the

relationships between shippers and carriers, shippers and

consignees and consignees and carriers. These together form

the well established logistics triad, first suggested by Beier

(1989), and subsequently developed by, for example, Bask

(2001). Within a given supply chain, relationships between

the service providers, cargo owners and shippers can be

critical, but are not easy to measure scientifically. There have

been a number of attempts to improve the understanding of

the processes within logistics chains by taking a systems

approach (Christopher, 1992; Mason and Lalwani, 2006;

Mason et al., 2007). As supply chains increasingly compete

with each other, the interdependence of elements within the

chains becomes ever more critical. Depending on the

commodity concerned, or on specific delivery requirements,

consistency of arrival times, price, risk of loss or damage and

other services factors become critical in determining the

success of the chain. Gentry (1996) confirmed this bysuggesting that, within a given chain “critical elements of

successful collaborative arrangements are sustained serviceperformance on behalf of the carrier”. Further, Lalonde and

Cooper (1989) suggest, in the longer term both the shipperand carrier “must have a vision of a partnering relationshipand the objective of developing such a relationship for it to

work”.Central to the modern view of supply chain structures and

the business relationships within them is the identification ofactivities which add value to the product or the process. Stank

and Goldsby (2000) present the generic supply chain as aseries of “gears”, each of which is dependent upon the other

to keep the “machine” in full operation; should any one“gear” fail the whole machine will fail. Similarly, if transport is

managed independently from other elements in the supplychain, it becomes disconnected from other components

increasing the likelihood of system failure. A moresophisticated model is then suggested which incorporates a

decision-making dimension, extending from the micro to themacro level, with a return flow of decision implementation

cascading from strategy to operations. Consistent with thisapproach, the authors outline a traditional three-step model of

mode and carrier selection as a basis for the development of arefined integrated model, incorporating simultaneous

consideration of: customer service, transit time, market/product characteristics, transport costs and carrier capability.

Carrier selection is the outcome but it is suggested thatcarriers themselves should reduce emphasis on price and

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Supply Chain Management: An International Journal

16/1 (2011) 32–42

q Emerald Group Publishing Limited [ISSN 1359-8546]

[DOI 10.1108/13598541111103485]

32

elevate the importance of value addition; at the same time, it

is suggested that a more expansive view of outsourcing ofsegments of the supply chain should be taken. A parallel study

by Selviaridis et al. (2008) confirms these findings andsuggests that risk related issues represent a key part of the

decision making process concerning logistics outsourcing andcarrier selection.Christopher (2005) states that there is a need to analyse

specific supply chains in terms of the consumption of time by

non-value adding and value adding activities. For clarity, hesuggests a graphical approach that captures movement, valueaddition, processing and storage. As a consignment progresses

along the chain, both cost and value accumulate andpossibilities for locations for inventory holding and other

activities are identified. This approach resembles themultimodal transport model first suggested by Beresford

and Dubey (1990) and refined by Beresford (1999). Thismodel focuses on long supply chains and highlights the

interrelationships between the respective modes of transport,without specifically identifying value addition opportunities.

Common to both approaches is time based competition andservice-cost trade-offs. The work of Beresford (1999) wasfocused on high-value, low inventory cargo, but the model can

be applied to the full range of freight classes in order toexamine combinations of transport modes which are

potentially best able to satisfy critical service criteria (Zhenget al., 2006).This cost-focused approach offers a valuable tool which

may be used for auditing both the individual components and

the complete supply chain which typically consists of non-movement (handling/storage) elements, and movement

activities which involve one or more transport forms(Beresford et al., 2006). A critical advantage can be derived

either from the non-movement elements in a chain or fromefficient transport, or from a combination of the two. Themodel is flexible enough to simultaneously accommodate

variations in value density, distance, volume, time and othervariables.In the case of an iron ore supply chain that is a high volume,

low geared single commodity flow, the critical success factor is

pipeline management. In this paper, the case of iron oreshipments from Northwest Australia to Northeast China is

taken (see Figure 1). Multimodal transport is well establishedin the general cargo and container sectors, where cargo value,

shipper numbers and the diverse cargo mix allow forimaginative combinations of routes, modes and methods.

Even iron ore, however, can present opportunities formultimodal transport although realistically it cannot beunitised and the weight of the ore mitigates against multiple

handling. Nonetheless, iron ore transport operations share thesame logistics imperatives as many other cargoes, with steel

companies under pressure to reduce costs and seekopportunities to employ just-in-time concepts to supply

their highly automated production sites (Christopher, 2005;Smith, 2000).By 2007, annual Chinese steel production had risen to 489

million metric tones (mmt), a 350 per cent increase in ten

years. In 2008, total production by the end of August hadreached 351mmt, an increase of 8.6 per cent on 2007. Such

production levels mean that the Chinese steel industry iseasily the biggest consumer of iron ore in the world (Stopford,2008; World Steel Association, 2008). Rapid growth in iron

ore imports has created serious logistics problems. Inland

transport bottlenecks and rail capacity shortages are driving

up supply chain costs for the Chinese iron and steel industry

forcing producers to review the structure of their supplychannels. The scale of import volumes also amplifies any

small supply chain inefficiency and puts further pressure onparticipants in the triad (Mason et al., 2007).

2. Research framework and methodology

2.1 Multimodal transport cost model

The choice of transport mode or combination of transportmodes has a direct impact on the efficiency of a multimodal

transport system. If a particular segment is inefficient, theoverall performance of the system will be adversely affected

(Liberatore and Miller, 1995). Simple cost-distance models of

road versus rail exist for both national and internationalroutes (Banomyong and Beresford, 2001; Jung, 1996;

Hayuth, 1992; Marlow and Boerne, 1992; Fowkes et al.,1989). As multimodal transport is especially important in

international trade, various models have also been devised toaid transport decision makers in choosing the most effective

transport mode or combination of transport modes(Christopher, 2005; Yan et al., 1995; Barnhart and Ratliff,

1993; Minh, 1991). These attempt to minimise cost or risk

and satisfy various on-time service requirements.The aim of this paper is to assess the various multimodal

transport routes currently being utilised, or that could beutilised, for the movement of iron ore into northeast China

from Australian iron ore mines. Account is taken ofinfrastructure and other constraints. For this purpose the

cost model proposed by Beresford (1999) is used to analysethe route cost structures. The model includes transport (road,

rail, inland waterway and sea) and intermodal transfer (ports,rail freight terminals, inland clearance depots) and it makes

use of cost, time and distance components. It has been

adopted globally as a standard methodology for analysingsupply chain effectiveness in a range of operational and

commercial circumstances for general cargo (UNESCAP,2003, 2006), but is used here in the context of dry bulk

freight for the first time.

2.2 Multimodal transport of bulk freight

The supply chain principles embodied within a multimodaltransport system need to be supported by appropriate

facilitation measures to attain efficiencies in tradetransaction (Banomyong and Beresford, 2001). Many bulk

operations share the same logistics imperatives as containertransport (Fawcett and Mangan, 2002), with energy and steel

companies relying more and more on just-in-time deliveries to

their highly automated production sites. Multimodaltransport system approaches can therefore be adopted in

bulk cargo transport in terms of both hard components or“hardware”: transport modes including rail, road, inland

waterways and coastal sea routes, and soft components or“software”: information systems, electronic data interchange,

data flow, through bills of lading, through rates, andstandardised procedures (Banomyong et al., 2008). There

are, however, some limitations imposed on multimodal

transport options for bulk cargoes. Iron ore flows can becharacterised as high volume – high weight – low value and

transhipment is time consuming, energy intensive andexpensive and it is not therefore practical to have several

modes of transport or a large number of transhipment points.

Multimodal supply chains: iron ore from Australia to China



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Ultimately, it is most appropriate to use sea transport for the

longest possible distance, and rail or truck for the shortest

distance (McKinnon, 1989). This in turn encourages the

pursuit of scale economies that is consistent with a risk

minimisation strategy on the part of the carriers (Ashenbaum

et al., 2005).

2.3 Methodology

In China, dry bulk cargo used to be transported under the

control of central government, and the costs of transport were

not a major issue when choosing transport modes. However,

as China’s economy has become market oriented, most

manufacturers now have to control the costs of their raw

material supply chain more carefully than before. The

literature relating to bulk cargo transport in such situations

is sparse and there is a need to understand the dynamics of an

individual company that forms part of a wider industry (Yin,

1994; Eisenhart, 1989). There are several hundred Chinese

steelmakers but only around 15 have crude steel output of

more than 15mmt per annum (Iron and Steel Statistics

Bureau, 2008). In such circumstances, the case study

approach was deemed the most appropriate method both to

obtain background information and to highlight the

alternative options available. This research focuses on the

iron ore transport chain of one major steel producer. Primary

data were collected through observation and a series of

interviews with transport and financial managers of a major

steel corporation and with senior officers of government

departments. Original data were collected during spring 2005

and, where appropriate, data were updated during 2008.

While “multiple sources of evidence” were used, it is accepted

that individual case studies do not provide enough evidence

for generalisable conclusions (Yin, 1994; Ellram, 1996),

although the findings generally reflect the situation in the

industry at large.

3. Current bulk transport options in China

One of the key problems in China is the inadequacy of

infrastructure. Currently the rail system is generally the only

viable means of transporting goods over long distances. The

lack of investment in hinterland infrastructure badly affects

the productivity at China’s bulk terminals, which is clear from

the delays seen at ports along the coast of China. The Chinese

government has acknowledged the problem, but has yet to

provide the correct remedy. It has moved to add rail capacity

but, according to King (2004), the ports will suffer from rail

track and terminal bottlenecks for many years to come. The

government has stipulated the building of an extra 20,000 km

of rail tracks nationwide by 2010, though observers have

warned too little attention is being paid to much needed

exclusive rail links to ports – both container and bulk – with

municipal governments by and large favouring road links

(Norfolk, 2005). The rail network is already overloaded by the

volume of passenger traffic so there is little room left for

cargo. Most manufacturing plants in China lack rail sidings,

and the country has neither an intermodal rail system, which

would allow truck-borne containers to be loaded onto rail

wagons, nor modern trucking networks, such as less-than-

truckload systems, to ship consumer goods efficiently. Railway

construction has not kept up with the rapid economic

Figure 1 Iron ore transport, Australia to China




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development and the system has been under heavy strain as

demand has surged (China Daily, 2008).Although China is the only major world economy where rail

transport accounts for a significantly higher proportion offreight movement than road transport by tonne/km, a number

of major road-building projects promise to make long-distance trucking a more tenable prospect once they arecompleted. According to Xinhua (2005), by 2004 the totallength of highways had surpassed 1.4 million km, of which240,000 km were newly built, and the total mileage of

expressways open to traffic had reached 16,000 km including13,000 km newly-built. The entire Beijing-Shenyang andBeijing-Shanghai expressway system has come into operationin the last few years.China’s inland waterways are among the most important in

the world, but the government has invested less in the sectorthan other forms of transport. The Chinese government hasrecognised this problem, and is encouraging investment in theregional river transport networks as an alternative to rail and

road. The state is dredging and widening the Yangtze River toallow Panamax vessels to penetrate further up river wheremany steel mills are located. During the period 2001 to 2005development of inland waterways and coastal ports wassignificant with 4,267 km of inland waterways re-engineered,340 new berths constructed along inland rivers and 96 new

deepwater berths built. Furthermore, dredging to allowCapesize vessels to access China’s eastern coastal ports hasbeen undertaken. Draught problems have meant that someships have to offload some of their cargo before berthing inChina, however, and this process accounts for a third of alllost time (Liu, 2006).

4. Multimodal transport of iron ore – Australia toChina

The massive rise in Chinese steel production has been largelyunderpinned by strong domestic demand and Chinese steelcompanies continue to invest in new capacity to meet

expanding consumption. In 2005 Chinese iron ore importsstood at 275mmt, with imports from Australia being112mmt. By 2007 China’s iron ore imports had increasedto 375mmt (Wall Street Pit, 2008). In the first nine months of2007, China imported over 108mmt of iron ore fromAustralia, 72mmt from Brazil and 61mmt from India

(Callick, 2007; Evraz, 2008). Global crude steel output in2006 was 1,176mmt and by 2007 it had reached 1,334mmt(Forbes, 2006, 2008; World Steel Association, 2008). Chinanow produces more than one-third of all crude steel in theworld compared to only 12 per cent in 1995 (Iron and Steel

Statistics Bureau, 2008; King, 2005). However, with suchhigh volumes of iron ore being imported, inland movementscannot keep up with those through the ports, which have hadmore money spent on them than their hinterland links. All ofthese problems have increased the Chinese steel industry’sdesire to control supplies and costs. Chinese steel mills, facing

abnormally high Capesize freight rates, recognised the valueof controlling every link of the supply chain – from the mineto finished product, from sea transport to hinterland links.Therefore, controlling the supply chain of iron ore in a costand time effective way has become one of the top priorities for

China’s steel companies, exemplified in the recent past bytheir seeking to invest in Australian iron ore producers such asFortescue mining (China Economic Review, 2008).

The steel company at the centre of this research has been

operating a complex supply chain for iron ore import and istypical of companies in this region of China. The company is

located in Liaoning Province which borders the QianshanMountain range and the Liaohe Plain. The Changchun –

Dalian Railway Line and the Shenyang – Dalian ExpressHighway are in close proximity and to the south are the

seaports of Dalian, Yingkou and Bayuquan. Suchinfrastructure contributes to effective communications and

transportation. There are some limitations in transport termsas there is no key waterway that can be used to transport ironore. Railway transport is primarily utilised for passenger

transport and road transport is therefore potentially the firstchoice for inland heavy haulage.The driving leg of the supply chain is the sea transport leg

that is performed by vessels typically of 250,000 tonnes

deadweight. Feeding the ships is a “merry-go-round” system ofultra large trains of up to 40,000 tonnes capacity. These are

themselves kept supplied by a continuous excavation system,which in some mines elsewhere in Australia (e.g. Granites and

Groundrush mines), employ six-trailer road trains of up to 400tonnes (275 tonnes payload) each for intermediate carriage(Brooks, 2004). In all cases the methods employed approach

the current vehicle capacity limits and maximise both vehicleand labour productivity. At the import region of north China

both road and rail transport are available with the reserve truckoption operating at 35 tonnes payload with convoys effectively

making up a road based inbound “merry-go-round”.The current logistics system for iron ore import is

structured in a traditional way and no integrated transportor multimodal transport arrangements are in place. However,

there are various multimodal transport corridors available forthe transport of iron ore. Existing alternative routes and

modal combinations from West Australia to northeast Chinaare summarised in Table I. It can be seen that there are twosegments in the supply chain, and the main difference

between these routes is on the import side in the Chinasegment; these are separated by a long (3,700-3,900 nm) sea

leg. The distance between Port Hedland and Dampier is only118 nautical miles, so there is almost no difference between

the sea transport costs and transit time respectively from thetwo ports into China. Therefore, significant differences

between routeing options can be identified only on theinland segments of the routes.The steel company primarily imports iron ore from two

mining complexes in northwest Australia owned by BHP

Billiton and Hamersley Iron (a subsidiary of Rio Tinto). Theexport ports are, respectively, Port Hedland and Dampier.Each year the manufacturer decides the volume of iron ore to

be imported from each mine according both to the price ofiron ore and the freight rate of shipping company. For

example, in 2004, over 1.5mmt of iron ore were imported,almost equally divided between the two mines.Rio Tinto, through its Hamersley Iron subsidiary, has

increased its iron ore production capacity substantially and,

like BHP Billiton, has entered into long-term deals withChinese steelmakers. Annual capacity at Rio Tinto’s Yandi

mines has been expanded rapidly to 52mmt per annum(Pilbara Iron, 2008). BHP Billiton has annual production

capacity of around 134mmt across six sites (BHP Billiton,2008b) implying that supply chain organisation for bothcompanies is primarily capacity driven with considerable unit

cost sensitivity.




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4.1 Hamersley to Port Dampier

Hamersley Iron operates two iron ore export terminals at Port

Dampier, bringing in ore by heavy gauge rail from mines320 km inland. Intermodal transfer is comparatively

cumbersome: from the trains, ore is first transferred torotary car dumpers, then to conveyors for transport to thestockpile area, where blending takes place. Automatic bucket

wheel reclaimers are then deployed to reclaim the ore fordelivery to ships.There are several dedicated private railways located in the

Australian northwest coastal area, owned and operated by the

main iron ore producers. These provide some of the mostefficient mine-to-port heavy-haul operations in the world and

include the BHP Iron Ore Railroad, the Hamersley Iron OreRailway, and the Pilbara Rail Company (BHP Billiton, 2008c;

Railway Technology.com, 2008). The Pilbara Rail Companywas formed in 2002 to effectively integrate the rail

distribution of Hamersley Iron and Robe River into a singleoperation. While both mining companies retain ownership of

their respective assets, including track, locomotives androlling stock, Pilbara Rail operates and maintains the system

on their behalf, delivering ore from the inland mines to theports. Standard ore trains consist of up to 230 ore wagons,

each having a load capacity of 106 tonnes of ore (Pilbara Iron,2008). A trainload, therefore, can commonly reach 20,000 þ

freight tonnes.

4.2 BHP to Port Hedland

BHP Billiton dominates traffic at Port Hedland, with athroughput of 68.5mmt of iron ore and hot briquette iron.

There are two separate port operations located on oppositesides of the harbour, at Nelson Point and Finucane Island.

Ore from Mount Whaleback, the other Newman mines andYandi is sent to Nelson Point. The Area C and Yarrie mines

send ore to Finucane Island. The port can handle up to fourships at a time, each up to 335 metres long and carrying up to

300,000 tonnes of ore (BHP Billiton, 2008a). The ore isunloaded from the trains and after processing is transferred to

a conveyor system, which carries it to the shiploaders whichtransfer around 10,000 tonnes an hour. On average, it takesabout 30 hours to load a ship and around 800 ships are loaded

each year at Port Hedland.The ore is railed in from the mines for export (Norfolk,

2005). BHP operates two heavy haulage railroads to PortHedland, one running 426 km from Newman, Yandi and Area

C mines, and the other 210 km from the Yarrie mine. TheNewman railway runs the longest and heaviest trains in the

world: they are up to 3.75 km long, typically comprising 208ore wagons, and powered by six 6,000 horsepower

locomotives; they carry up to 40,000 tonnes per delivery

(BHP Billiton, 2008a). Trains on the Yarrie line are smaller,

consisting of up to 90 ore wagons and one locomotive.The sea leg dominates in terms of distance, being between

3,700 and 3,900 nautical miles. The Chinese steel

manufacturer does not control the sea leg of its iron ore

imports, primarily depending on specialist freight forwarders

to arrange this segment. The cost of transport from Australian

mines to Chinese ports was around $20 US per tonne based

on an average figure for July, 2005 when the core of the field

survey was undertaken. The distances and total transit times

from the two mines to the Australian ports, then onward to

the three Chinese ports that are nearest to the steel

manufacturing facilities, are summarised in Table II.

4.3 Routeing via Qinhuangdao

There are six main routeing options available for the

movement of iron ore from northwest Australia to the steel

manufacturing plants. The options essentially involve

combinations of one of the two Australian ports (dependant

on from which company iron ore has been purchased) and the

three Chinese ports detailed in the previous section. The

route via the Port of Qinghuangdao represents the traditional

route for raw material supplies for the steel manufacturer, for

both iron ore and coal. This route had been operating for

more than 30 years, but since China began opening up

alternative supply chains, this route has gradually reduced in

importance. As the largest dry-bulk port in China,

Qinhuangdao plays an important role of transshipping iron

ore from south-eastern China to the north-east. Also,

Qinhuangdao is the most important cargo pivot centre in

east China.As China’s economy has become market-oriented, so state-

owned companies have had to consider more careful cost

control. Qinhuangdao is too far from Anshan, where the steel

company is located, to be a transhipment point for iron ore as

the distance by rail is 520 km with a transit time of eight hours

and transport costs of up to $US10/tonne (including port

charges and rail freightage). The port of Qinhuangdao is

linked by dedicated railway to Anshan. After discharge at the

port, the ore is loaded on to National Railway Bureau trains

and once the trains arrive in the District of Lingshan, the

wagons are re-coupled to steel company locomotives and

railed on a dedicated railway to the steel mills. This is a

relatively cumbersome procedure and, in terms of the cost

model used here, it is represented by a high “step” in the cost

curve, implying that the route is potentially vulnerable to

more efficient chains with more direct intermodal operations.

Table III and Figure 2 present the specific data for the route

via Qinghuangdao.

Table I Routeing alternatives for iron ore, Northwest Australia-Northeast China

Route Origin Mode Transhipment Mode Transhipment Mode Destination

1 BHP Train Port Hedland Sea Qinhuangdao Rail Steel Co.

2 BHP Train Port Hedland Sea Dalian Rail * Steel Co.

3 BHP Train Port Hedland Sea Bayuquan Road Steel Co.

4 Hamersley Train Dampier Sea Qinhuangdao Rail Steel Co.

5 Hamersley Train Dampier Sea Dalian Rail * Steel Co.

6 Hamersley Train Dampier Sea Bayuquan Road Steel Co.

Note: *Locomotive transfer in the district of Lingshan, with the iron ore railed directly from Lingshan to the steel plant




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There are also further issues to be considered. First of all, as

the biggest coal and iron ore port in China, Qinhuangdao is

also the busiest and port congestion and cargo accumulation

occurs frequently. Furthermore, the railway connecting

Qinhuangdao to north-eastern China is already overloaded

by passenger traffic with little room left for cargo. Current rail

system network capacity for moving coal is only one-third of

demand, according to Chinese media reports (Xinhua, 2005).

Therefore, routeing via Qinhuangdao is more expensive, less

reliable and more challenging for iron ore import. However, it

is an essential route for the supply of coal and the transport of

finished products to the west.

4.4 Routeing via Dalian

The Port of Dalian is situated at the south end of Liaodong

Peninsula; it is a hub port and the largest multi-purpose port

in northeast China. It is the closest hub port to Anshan, and is

preferred by the steel company as a transhipment point for its

iron ore imports. The steel company imports 4-500,000

tonnes of iron ore through the Port of Dalian annually. As for

the route via Qinhuangdao, the iron ore discharged at Dalian

is reloaded onto nationally owned trains, before being moved

to the District of Lingshan. After one hour’s transshipment,

the wagons are transferred to steel company locomotives and

moved on to the steel mills. The rail distance from Dalian to

Table III Segments from Qinhuangdao to steel company (routes 1 and 4)

Leg Transport/handling Transit time (hours) Distance (km) Cost ($US tonne)

Qinhuangdao Port (discharge) 3,000 tonnes/hour 0 0 4

Qinhuangdao-Lingshan Train * 8 520 6

Lingshan (Change loco) 1 0 0

Lingshan-steel plant Train * * 0.3 14 1.4

Total 9.3 534 11.4

Notes: *Trains owned by National Railway Bureau; * *trains owned by steel company

Table II Distance and transit time of each Australian segment

Route Origin Distance (km) Transit time (hours) Australian port Distance (nm/km) Transit time (days/hrs) * Chinese port

1 BHP 426 4 Port Hedland 3,811/7,058 13-6 Qinhuangdao

2 BHP 426 4 Port Hedland 3,706/6,864 12-21 Dalian

3 BHP 426 4 Port Hedland 3,856/7,141 13-9 Bayuquan

4 Hamersley 320 3 Dampier 3,810/7,058 13-5 Qinhuangdao

5 Hamersley 320 3 Dampier 3,705/6,864 12-21 Dalian

6 Hamersley 320 3 Dampier 3,855/7,141 13-9 Bayuquan

Note: *Average speed 12 nautical miles/hour

Figure 2 Indicative costs via Qinhuangdao (route 1 and route 4)




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37

the steel mill is shorter than the route via Qinhuangdao:319 km compared to 520 km, and the transport time is alsoshorter: eight hours compared to 12 hours via Qinhuangdao.The total transport cost from Dalian to the steel mill isUS$7.35 per tonne, including the port charges at Dalian.Table IV and Figure 3 present the specific data on the routevia Dalian.As for routeing via Qinhuangdao, there is a port congestion

problem in the port of Dalian. The railway segment fromDalian to Lingshan is also almost saturated with passengertransport. However, the situation on this route is better,Dalian and Anshan are in the same province: Liaoning.Therefore, the officers from all parties are in regular contact,and the steel company is able to obtain priority schedulingfrom the National Railway Bureau. This “soft” aspect, alsohighlighted in Banomyong and Beresford (2001), can beextremely important in determining the overall effectivenessof a specific supply chain and it can be critical to choice ofroute or mode (Cave, 2007).

4.5 Routeing via Bayuquan

The Port of Bayuquan is located 130 km south west ofAnshan. It was built in 1984, and is now the second largestport in northeast China. The transport infrastructure of theport itself is well established with excellent road and railconnections; links to the Shenyang-Dalian Expressway arealso good. Iron ore, after being unloaded at the port, isdirectly reloaded onto trucks. The truck company is owned bythe steel company and transport capacity is therefore flexible

and reliable. Via a short highway journey, the truck team can

drive onto the most modern expressway in China, the

Shenyang-Dalian Expressway, which is directly connected to

the steel mills. The total transport journey takes two hours,

and the freight rate is US$4 per tonne.Compared with the first two routes, this route is the most

competitive, as it has the shortest transport distance, as well

as the cheapest freight rate and shortest transit time. But

compared with Dalian, the efficiency of discharge is lower,

and the port charge is a little more expensive, at US$3.15 per

tonne. As the steel company is a major customer of Bayuquan

port, discharging iron ore from their own ships is given

priority, which means that the incoming ships do not have to

wait outside the port. Table V and Figure 4 present specific

data on the route via Bayuquan.Since January 2004, the Chinese government has increased

control over overloading in road transport. Though this has

contributed to a reduction in accidents, it has raised road

haulage rates. However, on the route from Bayuquan to the

steel company, the trucking is done in-house and vehicle

utilisation is high, keeping per tonne transport costs down.

There is a further advantage in using this route. One of the

biggest problems for dry bulk cargo carriage is that most

trucks and trains are empty as they return from their delivery

trips, and therefore, the average transport costs increase.

However, the problem is reduced on this route as the steel

company takes advantage of the return journey from Anshan

to Bayuquan by loading the trucks with finished iron and steel

Table IV Segment from Dalian to steel company (routes 2 and 5)

Leg Transport/handling Transit time (hours) Distance (km) Cost (US$/tonne)

Dalian Port (discharge) 3,000 tonnes/hour 0 2.65

Dalian-Lingshan Train * 5.5 319 3.3

Lingshan (Change loco) 1 0 0

Lingshan-Steel Company Train * * 0.3 14 1.4

Total 6.8 333 7.35

Notes: *Trains owned by National Railway Bureau; * *trains owned by steel company

Figure 3 Indicative costs via Dalian (route 2 and route 5)




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38

products, such as wire rods and tubes. These products are

then shipped from Bayuquan to global markets.One of the disadvantages of this route is that, because of the

limited cargo handling capability at the port (lack of dedicated

equipment and insufficient storage space), only ships of less

than 50,000 tons capacity can be handled, which significantly

increases the costs for those steel manufacturers using the

port. Nevertheless, this route is currently the steel company’s

preferred route for iron ore imports, and they import over 1

million tonnes via this port, accounting for two-thirds to three

quarters of the average annual total of 1.5 million tonnes.

5. Interpretation

This case study has applied an established multimodal

transport cost model to route selection for the iron ore import

for a major Chinese steel manufacturer. The route selection is

based on the two key components of movement by alternative

modes, and transfer between modes. The characteristics of

iron ore mean that the cargo is important in terms of its

volume and weight rather than for its value. The

competitiveness of existing and proposed intermodal routes,

including road, rail and shipping services, has been examined

and the strengths and weaknesses of each alternative route

have been highlighted. Of all the alternative routes for iron ore

import, the routes via Bayuquan achieve the shortest distance,

the cheapest cost and the shortest transit time (see Table VI).

Although sea freight rates and cargo handling speeds are

variable, as they are often vulnerable to external or

uncontrollable factors, the results presented here are valid

and potentially helpful for transport decision makers.As expected, sea transport is the cheapest per tonne/km, rail

is intermediate and road transport is the most expensive (see

Table VII). However, for the reasons discussed, the serviceprovided by rail transport in China is poor in terms of

capacity and schedule reliability, and the freight rate for seatransport fluctuates constantly. The reliability of road

transport in China and rail transport in Australia is good.The case study appears to demonstrate a mix of simultaneous

trade-offs on the part of the steel producers. The optimumsolution for high-volume iron ore import would be the use of

the largest possible ships into the ports with the greatesthandling capacity. However smaller ships operating through

the draught-restricted port of Bayuquan with onwarddistribution by road appear to offer a competitive

alternative, implying that supply chain effectiveness is not as

simple as a direct capacity-cost trade-off. For all routes timeschedules are less critical than transport and port terminal

availability.

6. Conclusions

It can be seen that, even for a high volume, bulky and heavycommodity such as iron ore, several alternate routes, modal

combinations and handling methods may successfully co-exist. Some of the findings, such as the principle of “sea

maximising and land minimising” for heavy cargo fitcomfortably with logistics theory, but on the margins there

can be room for alternative solutions.

Table V Segment from Bayuquan to steel company (routes 3 and 6)

Leg Mode Transit time (hours) Distance (km) Cost ($US/tonne)

Bayuquan Port (discharge) 3,000 tonnes/hour 0 3.15

Bayuquan-steel company Truck 2 130 4

Total 2 130 7.15

Figure 4 Indicative costs via Bayuquan (route 3 and route 6)




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39

In contrast with container transport, the movement of bulk

cargo has its own peculiarities. As mentioned previously, the

haulage volume of bulk cargo transport is large, the supply

chain is always long, and this kind of cargo cannot be held in

standard packing units, like containers. So the volume capacity

of transport modes for this kind of cargo needs to be very large.

On the other hand, a cargo like iron ore is comparatively cheap,

so it cannot bear very expensive freight rates or intermodal

handling techniques. In normal circumstances clearly rail-sea-

rail transport is the most appropriate modal combination for

bulk cargo. Under the circumstances pervading in China,

however, where rail capacity is mainly allocated to passenger

transport, road transport has to be utilised as a substitute to rail;

this can be effective as long as the transport distance is not too

great. The most important advantage of adopting road

transport in the movement of iron ore is flexibility, which

means that the return journey can be utilised for other

compatible cargoes such as steel products. In this way, the main

disadvantage of road haulage, its high cost, can be partly offset.The transhipment process for bulk cargo is time consuming,

energy intensive and costly, forcing producers and service

providers to concentrate their volume, and pursue economies of

scale as far as possible. As the bulk cargo market is vulnerable to

changes in global economic conditions, and the price of bulk

cargoes changes regularly, complete control of the supply chain

by one company is probably the best solution. From a transport

point of view, sea transport is widely accepted as the cheapest

and most appropriate mode for iron ore transport. Therefore,

the sea segment should be proportionately as long as possible.

Inland, if hauls are of a significant length, rail transport is the

most appropriate mode if transport costs per tonne are

considered, especially where large volumes are moved.

However, where rail transport capacity is constrained, road

haulage is a good alternative option if the inland leg is not very

long. Although road transport is shown here to be a little more

expensive, it can be the quickest and most reliable mode

available for inland iron ore transport.Although all major quantifiable factors affecting the supply

chain structure were examined here, a critical issue in the case

of iron ore imports is clearly supply chain ownership; this is

not easily embraced by the cost model. Nonetheless, the most

competitive route, at least in the short to medium term, is

shown to be a rail-sea-road combination via Dampier or Port

Hedland in Australia and Port Bayuquan in China. In order

to gain the maximum economies, this should be under the full

control of one owner.

Table VI Total transport costs and transit times

Route Total distance (km) Total transport cost ($US/tonne) Total transit time

1. Via Qinhuangdao (from BHP) 8,018 31.4 16 days 13.5 hours

2. Via Dalian (from BHP) 7,623 27.35 16 days 8 hours

3. Via Bayuquan (from BHP) 7,697 27.15 15 days 15 hours

4. Via Qinhuangdao (from Hamersley) 7,912 31.4 16 days 12.5 hours

5. Via Dalian (from Hamersley) 7,517 27.35 16 days 8 hours

6. Via Bayuquan (from Hamersley) 7,591 27.15 15 days 15 hours

Table VII Logistics costs by route and mode of transport

Route Mode Cost/tonne/km ($US) Transfer ($US/tonne)

(1) BHP – Port Hedland Rail 0.0164 3.0

Port Hedland – Qinhuangdao Sea 0.0014 4.0

Qinhuangdao – District of Lingshan Rail 0.0115

District of Lingshan – Steel Company Rail 0.1000


Port Hedland – Dalian Sea 0.0015 2.65

Dalian – District of Lingshan Rail 0.0103



Port Hedland – Bayuquan Sea 0.0014 3.15

Bayuquan – Steel Company Road 0.0307

(4) Hamersley – Dampier Rail 0.0219 3.0

Dampier – Qinhuangdao Sea 0.0014 4.0

Qinhuangdao – District of Lingshan Rail 0.0115



Dampier – Dalian Sea 0.0015 2.65

Dalian – District of Lingshan Rail 0.0103



Dampier – Bayuquan Sea 0.0014 3.15

Bayuquan – Steel Company Road 0.0307




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About the authors

Anthony Beresford graduated with a BA Honours degree inGeography from Manchester University in 1977. He wassubsequently awarded a PhD from the University of EastAnglia in 1982 before becoming a lecturer, then SeniorLecturer, at Cardiff University. His research has focused onlogistics and supply chain effectiveness, and his Cost Modelfor multimodal transport has become a standard methodologyfor comparing logistics chains in terms of their operationalefficiency. The model demonstrates time-cost tradeoffs,taking account of cargo characteristics, transport capabilitiesand aspects of the wider business environment. AnthonyBeresford is the corresponding author and can be contactedat: [email protected] Pettit graduated with a BSc Honours degree in

Maritime Geography from Cardiff University in 1989 and in1993 he was awarded a PhD from the University of Wales. Hehas been involved in a range of transport-related researchprojects including a number of projects for EU DGTRENincluding research into: the economic value of shipping to theUK economy; an analysis of the cost structure of the main tenports, and Work Organisation in Ports. His broad researchinterests currently include port development, port policy andinternational logistics.Yukuan Liu graduated from Cardiff University with a

Master of Science degree in 2006. His research focusedchiefly on multimodal transport in supply chains withparticular reference to the Chinese steel industry andinvolved data collection from a wide range of businesses andtrade organisations in China, Australia and elsewhere.




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