[#302-Appendix] Inbound port selection factors

A list of factors to consider while selecting inbound ports.

Welcome to “Supply Chain in Numbers”. This newsletter tracks significant numbers from the supply chain world. Primarily, this newsletter publishes five prominent numbers every Monday. In this “Appendix” post (published on Thursday), one of the numbers from the week is used to illustrate more interesting points.

Programming note: This is the first of “Appendix” posts. Please let me know your likes and dislikes of this addition, including the coverage style, frequency, and, of course, the content.

In this week’s Supply Chain In Numbers newsletter, I covered a number showing how the Savannah port is 32% cheaper for East Coast shipments compared to the West Coast. Here is what I wrote:

…Containers routed via West Coast ports are often trucked to local warehouses for transloading into 53’ domestic containers and then drayed to railheads for transit to Atlanta, which can add further delays and transit variability. The researchers factored in both vessel and inland transit from ten Asia ports to Atlanta. They found that Asia/Atlanta via West Coast routings and Asia/Atlanta via Savannah routings are very comparable in robust transit time, but Savannah is 32 percent cheaper... [The Trucker]

The finding is, directionally, correct. If you are a supply chain manager, how would you know if the Savannah port (or any other port) is suitable for your supply chain? (or as a Consultant would ask, “How to establish optimal inbound network strategy?”).

Since your objective is to select inbound port(s), let us assume the following are fixed: demand regions, nodes (manufacturing plants, DCs), ocean as primary inbound mode, and source geographies (i.e, origin ports of materials that are shipped in containers)

Here are some key questions to ask; this list is by no means comprehensive. I have three categories (most obvious, a little less obvious, and often missed) of line items or types of information to consider. Your supply chain is different, and hence, you need to decide how much each question needs to be weighed.

As you examine these, consider two numbers to compare for each question: Baseline and Future State, both of which are calculated for the same forecast scenarios.

What is the “Total Cost” difference?:

• Most obvious: Origin to destination port total FCL/LCL costs, Inbound port to final destination transportation cost (truck, intermodal, rail), and Transloading handling cost, Port fees

• A little less obvious: Insurance costs, One-time and fixed costs of adding/changing ports (e.g, do you need to run a new procurement event across multiple modes?), Transport lane rate fluctuations, typical peak season surcharges of port and transloading labor (e.g, LA port areas’ peak labor costs are 20 to 30% higher than Savannah’s), and temporary storage costs before transloading

• Often missed: Financial impact or benefits (cost or revenue) of service level changes. For example, for an apparel supply chain, a two-week delay of an inbound container with the launch SKUs at the start of the season might result in ~10% additional costs from wholesaler penalties, loss of sales, and expedite costs. In comparison, for an industrial appliance manufacturer with one month of safety stock, a one- or two-week delay may not matter much.

Can I improve my “Service levels”?

• Most obvious: Origin to destination port sailing days, TAT at destination ports (how quickly containers are unloaded once the vessel reaches the port), Transloading time, Drayage time, Final destination transportation days

• A little less obvious: Demurrage ranges, Lead time variabilities (ocean, truck, intermodal, drayage), Sailing schedules/frequencies

• Often missed: Cargo theft rates, Empty container pick up options (e.g, is “street run” an option?), Expedite options and costs

Is there an impact on “Sustainability”?

• Most obvious: Total CO2e for ocean + rail + truck movement. The higher the portion of ocean travel, generally, the lower the CO2e.

• A little less obvious: EV trucking options for drayage, VLSFO or MGO vessel options (low-sulphur vessel with lower air pollution)

• Often missed: Risk of long-haul movement (e.g, Cargo containers with large chemicals moving through populated areas), Labor availability if the volume scales significantly, State and local political / community considerations (e.g, for a Georgia business, selecting Savannah can be a matter of regional pride)

Am I improving “Resiliency”?

• Most obvious: Port disruption probabilities, including adverse climate events, port union contract situation, and geopolitical factors

• A little less obvious: Disruption probabilities of inbound port to destination movement, potential to change destination once the vessel leaves the origin port

• Often missed: Port throughput, as it determines the ‘time-to-restore’ after a disruption

How “Convenient” is this?

• Most obvious: Current system (ERP, TMS, etc) capability to assign inbound ports at the time of PO placement, Current freight and ocean contract coverage

• A little less obvious: Changes to the demand and supply planning process (including the ability to handle more parameter options)

• Often missed: Ability (and time required) to scale up and scale down

If you have read until this point — Congratulations and Thank You. I am sure I have missed many points, and I would be glad to learn from you. Please reply with your comments.