The Change in Port Hinterland Relations Business Essay

Since the introduction of containerization system in the mid 50s and the impact of globalization to the increase of international trade, port has developed significantly as the main access and gateway to the trade activities in the world. One of the economic functions of seaports are to give benefit to trade activities through providing enhancement to consumer's and producer's surpluses by offering flexible and responsive, and at the same time cost efficient logistics networks to the distribution of goods. Nowadays, the market environment where ports and shipping lines operate is changing radically. Port holds the key role on the foreland and inland logistics and supply chain distribution which determines the total logistics cost of transporting goods. The developments in supply chains and logistics models urge port industries to constantly evolve with these changes and forced to revise their function in the logistics process to maintain their level of services to meet the recent market demand expectations. Port needs to apply appropriate development framework within their expansion strategy to connecting it with nearby hinterlands area and closing the gap between gateway and hinterlands. Port regionalization (Notteboom and Rodrigue, 2005) offers solution to these problems by extending the freight corridors to hinterland regions which located beyond the port perimeter and integrates port with the other logistics provider thus can give benefit to the supply chain network.

Factors Influence Port Regionalization

The Change in Port-Hinterland Relations

Port serves as the main gateway to facilitate those goods or cargo transfer activity which is including loading, discharging and stacking. A seaport or port (Hayuth, 1985 cited in Rodrigue and Notteboom, 2010) is a transit area through which goods and people move from and to the sea. As such, port are places of contact between land and maritime spaces, nodes where ocean and inland transport lines meet and intertwine, intermodal places of convergence. Port represent valuable resources which attract many companies to get involve in it's to support and facilitate the flows of goods. In fact, the geographical connection between ports is seen as a great potential for direct and indirect revenues and benefits to the general society environment surround them because port are part of a larger system consist of foreland, port itself and hinterland which generally represent its function on seaborne leg and inland leg activities. While the definition of hinterland is explaine as the area of which the greater part of the trade passes through the port (Barke, 1986; Blumenhagen, 1981; Sargent, 1938; Weigend, 1958 cited in Rodrigue and Notteboom, 2010). Hinterland, as part of the port system is defined by a group of locations connected to the port through related goods flows and usually the connections are involving various modes of transportation such as road, rail and barge. Langen (2007) distinguish hinterland regions by captive and contestable hinterlands. In contestable hinterlands most ports will have a share of the market as a result of no single port have a clear cost advantage over competing ports in some hinterlands regions. In the other hand, the regions which offer competitive advantage to a port because of lower generalized transport costs to these regions is the captive hinterlands of this port. Hence, the vast majority of cargoes to and from these regions are handled by the port. As the maritime business evolve and the growth of container traffic reached a level in several large port facilities there are a need for more efficient form of hinterland transportation to be organized. This gave birth to the process of port integration with the hinterland where the development of port is now concept of structured integration operational, by which the development of coordinated multimodal corridors has made maritime operator to connect their links with rail and road transport operators to gain wider chance into markets that affect to the optimization of supply chains system. Hence, the incorporation of inland freight distribution centers and terminals act as active nodes in shaping load center development (Rodrigue and Notteboom, 2011). The connecting corridors between ports and hinterlands will affect to the smoothness flow of goods and influence the cost of logistics and supply chain of goods distribution in general, and made hinterland one of the most important factors to the port development.

The Evolution of Port in Supply Chain Systems

Another driver which affecting the role of port is the development of global logistics and supply chain systems. These supply chains link is largely scattered production and sourcing sites to more geographically concentrated consumption regions. On this basis, shippers and customers have concern on the performance of the supply chain in terms of price, the quality of service and reliability. The focus on the chain as a whole is reflected by the efforts of the supply chain players to consolidate, vertically integrate or otherwise enter into long term contracts, to not only push the costs down but also increase the level of coordination and synchronization (OECD, 2008). Logistics in the other hand is the process of planning, implementing and controlling the flow of storage of raw materials, inventory, finished goods, services and related information from the point of origin to the point of consumption (Coyle et al. cited in Panayides and Song, 2008). Therefore ports function in a logistics system in general would be receiving and delivering goods and information from and to both sea and land, while within supply chain function, ports would contribute in a wider role where other process and activities beyond its perimeter could influence its primary goals in adding value to the supply chain process. Seaports have been long acknowledged as the key constituents of many supply chains. Theys, Ryoo and Notteboom (2008) examine that port has actively stimulated logistics polarization in port areas by the accession of smooth custom formalities and advance information system. Port as the terminal of ocean transportation is the assemble point of large cargoes in transport links, which made port holds the most critical node of various mode of transport. The stringent competition between logistics provider and the demand for better and cheaper logistics services have develop port from the pure transportation and distribution center into modern integrated logistics center (Wang, 2011). The modern ports used to offer a mixture of the traditional function of seaports with the latest demand in maritime market by acting not only as the place of transshipment of the goods with storage facility but also as a place of circulation processing enhanced by sophisticated warehouse management with the use of advance information processing by electronic data interchange application (EDI). The EDI helps to control the flow of goods through coordination and rational planning and creating a more effective logistics system. The evolution of port role in supply chain system forced many shipping companies to engage an alliance and integrated their business to offer extended port gate service by take control inland transport, inland terminals and depots which resulted in large port clients who possess strong bargaining power to terminal operations and inland transport operations.

Port Regionalization and Benefit to Logistics and Supply Chain

Port regionalization model extent the previous theory of anyport model which unfortunately failed to show the recent condition of port development which is first, the model does not explain the role of seaport terminal as transshipment hub and second, it does not include the importance of nearby hinterlands regions as driving factors toward ports developments (Notteboom and Rodrigue, 2005). A port development model of regionalization offers efficiency is derived with higher levels of integration with inland freight distribution systems. There are two models on the port regionalization scheme, first is hinterland-based regionalization and second is the foreland based regionalization In the foreland based regionalization, port extent it reach by making integration with off-shore hubs islands location or any locations without local hinterlands (Rodrigue and Notteboom, 2010). The reason behind such type of development is the rise of the ship size. Off shore hubs hold the advantage of greater depth since it is build in the sea territory thus can handle bigger ship size which has become phenomena because its economy of scale. Off shore hubs can also become the most possible way to improve port capacity with limited land territory for expansion. This foreland based model even further can trigger the possibility of the creation of logistics zones within the precincts of port area that can give value added to the port role on logistics chain rather than just to loading and discharging cargo. The second model is hinterland-based regionalization where there are joint and coordinated developments of certain multimodal logistics platform with load centers in the hinterland that trigger the formation of regional load center network (Rodrigue and Notteboom, 2011). The ultimate characteristics of this second model are the integration of seaports with deep inland waterway ports through barges and seaport with inland terminals through rail freight. However, this integration need additional structures like the viability of dedicated rail for train freight that lies along from seaport to the inland terminal and the possession of distribution centers are often necessary. The driver and direction of intermodal corridor development enables a more nuanced understanding of the process of port regionalization. The increasing level of integration on land distribution has lead to the removal of intermediate steps in transport chain. In port regionalization, land transport cost reduction is a main goal because it is improve the efficiency of inland distribution within supply chain terms by promoting logistics integration and lowering the distribution costs. Globally, inland access costs account for 18% of the total logistics costs, and could be reduced by one third with appropriate regionalization strategies (Notteboom and Rodrigue, 2005). A success in achieving cost reductions from effective management of inland container logistics can provide an important cost savings advantage and adding extra value to the customers. Notteboom and Rodrigue, (2005) explain that the development of port into regionalization is a market driven process as the result of the increasing focus on the attractive logistics integration, Jacobs and Notteboom (2011) added that the window of opportunity as a result of competition between firms in which specialized locations compete for similar investment opportunities can lead to a certain path of regional development. However, the regionalization phase demands good port governance structures in order to overcome the challenges posed by changing port hinterland relationships and the demand on port efficient logistics services. Governments can attempt to direct regionalisation strategies through policies and funding mechanisms to meet objectives of modal shift or economic development (Monios and Wilmsmeier, 2012). Therefore, port authorities are expected to play its role in order to promote the regionalization process in the term of observing current port challenges which mostly related to congestion problem, increase of cost, and the growing traffic in the port. The government can set a framework which recognize the rights and contribution of port stakeholders and perform joint strategic relationship in the form of establishing direct and indirect networking with nodes and market players such as the creation of logistics zones, the construction of dedicated freight rail infrastructures and inland ports, and the extension of customs authorities to the inland terminals or dry ports.

Conclusion

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