the issue of dwell time charges to optimize container terminal capacity

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IAME 2005 Annual Conference23-25 June 2005, Limassol, Cyprus

THE ISSUE OF DWELL TIME CHARGES

TO OPTIMIZE CONTAINER TERMINAL CAPACITY

By Filip MERCKX*

* Research Assistant, Department of Transport and Regional Economics,University of Antwerp, Keizerstraat 64, 2000 Antwerp, BELGIUM

Tel: +32 3 275.51.40, Fax: +32 3 275.51.50, E-mail: [email protected]

Keywords: container dwell times, terminal capacity, storage yard capacity, charging

policies, port pricing, supply chain management

Abstract:

The capacity of a container terminal depends on a number of factors. One of these factors

- often disregarded in capacity planning - is the dwell times of containers on the stacking

area. The container dwell time is the average time a container remains stacked on theterminal. The shorter the dwell time, the higher the potential utilization of a container

terminal (expressed in TEU per hectare terminal surface per year and for a given stacking

height). In theory, reducing the average dwell time of containers is to be considered as a

cost-effective measure to optimize terminal throughput. In particular, at terminals where

the available stacking area or storage yard limits the throughput capacity even marginal

dwell time reductions have a major impact on the storage yard capacity.

However, given the fact that stacking areas/storage yards of container terminals are

utilized by shippers/consignees (both for import and export cargo) as overflow nodes in

their supply chain, dwell times tend to be dictated by the shippers and have a tendency to

increase. Especially in the current market conditions of strong growth in the containersector, these increasing dwell times of containers result in capacity bottlenecks on

terminals. With regard to import cargo a quicker landside removal of containers would

result in a reduction of dwell times, improving the level of terminal services and avoiding

capacity bottlenecks. A just-in-time delivery of export cargo to meet the intended vessel

on the other hand would also reduce container dwell times and improve the storage yard

capacity

The common practice to use terminal stacking areas as overflow nodes in logistics chains

can partly be explained by the absence of charging schemes to penalize excessive dwell

times. This paper deals with the issue of dwell time charges to optimize container

terminal capacity. The following aspects are dealt with:

‐ An analysis of average dwell times based on cargo flow patterns (import, export and

transhipment);

‐ The introduction of pricing mechanisms to reduce dwell times on container terminals,

based on an extensive literature overview of port pricing systems;

‐ Assessment of the impact of dwell time charging schemes on the terminal capacity

and the future role of terminals as buffers in logistics chains.

As such this paper provides a theoretical background for the introduction of dwell time

charges on containers to improve the throughput capacity of container terminals. The

content of this paper is based on ongoing research and includes a road map of futureresearch on the issue of container dwell time charges.

1




THE ISSUE OF DWELL TIME CHARGES

TO OPTIMIZE CONTAINER TERMINAL CAPACITY

1.

INTRODUCTION

The operations performed on a container terminal consist of a number of different

processes. In order to optimize the throughput capacity1 of a container terminal, these

processes are implemented in a logic sequence. As such, it is possible to represent the

layout of a container terminal for import, export and transhipment container flows as in

Figure 1.

Figure 1: Typical layout of a container terminal

Remark: the Ship Operation Area also includes barge and feeder operations

Source: Steenken et al, 2004, pp. 6

Sgouridis and Angelides (2002) define the different operational activities performed in

each functional area of an all-straddle-carrier container terminal. Important to mention in

this respect is the fact that the throughput capacity of a container terminal depends on a

rapid succession of the different terminal processes. Generally, the container flow through

a container terminal system (CTS) is split up in four subsystems/operations: ship-to-

shore, transfer cycle, storage and delivery-receipt area. Henesey (2004) provides a brief

description of these subsystems.

Figure 2: Schematic overview of a container terminal system (CTS)

Source: Henesey, L.E., 2004, pp. 5

1 Maximum number of containers which can be processed by the container terminal system. Hereby, thethroughput capacity of a container terminal system depends on various constraints

2




In this paper we will mainly focus on the influence of container dwell times on the

operational capacity of the terminal stacking area or storage yard 2. In contrast to the

available set of simulation papers on container terminal capacity, the aim of this seminar

paper is to provide a theoretical framework to evaluate the impact of container dwell

times on the container terminal capacity.

2. PARAMETERS INFLUENCING CONTAINER TERMINAL CAPACITY

In order to define the capacity of a container terminal it is important to cover peak

moments. Given the definition of the National Ports Council the annual terminal

throughput capacity is defined as ‘the maximum throughput of cargo which the operator

believes can be achieved on a continuing basis without incurring severe delays and

disruptions’ (NPC Bulletin, 1980:53). Winkelmans (2004) points out that this definition

deals with a specific value – referred to as throughput – which is influenced by the

assessment of the terminal operator and that it is determined for an activity on a

permanent basis without delays or interruptions.

In this respect the study of the National Ports Council defines two different types of

throughput/capacity: ‘maximum attainable throughput’ (MAT)3 and the ‘highest efficient

attainable throughput’ (HEAT)4 (see Figure 3). The distinction the National Ports

Council has made to indicate the port capacity can also be extended to the representation

of the intrinsic (CHI) and effective handling capacity (CHE) of a container terminal (NPC

Bulletin, 1980:53).

Figure 3: Schematic representation of MAT and HEAT of a container terminal

Throughput

MAT = CHI

Source: Winkelmans, W., 2004, based on NPC Bulletin, 1980 and Manalytics, 1976

2 In the remainder of the seminar paper we will refer to the terminal stacking area as the storage yard and inour view this area comprises the land surface of the terminal, excluding the apron, the area dedicated for

administrative buildings and the area to perform hinterland operations.3 The top limit at which the factor can be utilized even when the provision of every other factor is

favourable4 Capacity to process a specific volume of cargo on a permanent basis without detrimental effects (e.g.unacceptable waiting times)

Time

HEAT = CHE

Over occupation Under utilization

3




MAT = CHI

HEAT = CHE SLACK CAPACITY

TROUGHPUT SLACK CAPACITYOVERCAPACITY

TROUGHPUT SLACK CAPACITY

UNDERCAPACITY

Source: Merckx, J-P., 1991, pp. 2

A container terminal designed for a specific container throughput will only operate on a

fraction of his intrinsic capacity. This level of utilization depends on a number of

interrelated systems, critical components and strategic/operational considerations of the

terminal operator. The storage yard is influenced by four parameters of which the dwelltime is the primary factor focused on in this paper. As shown in Figure 4, it is obvious

that the throughput capacity of a container terminal (CHE or HEAT) is determined by

numerous components and thus can vary significantly from the intrinsic capacity (CHI or

MAT).

Figure 4: Different parameters/factors influencing the intrinsic container terminal capacity (in TEU)

Scope of this paper

Source: Lemper, B., 1996

Figure 2 presents the factors influencing the throughput capacity of a container terminal

as a continuous process, whereby each segment constitutes a certain operational capacity

constraint. Consequently, the final throughput capacity of a container terminal will be

determined by the segment with the smallest diameter or biggest capacity constraint. In

order to increase the throughput capacity it is vital to have a clear understanding on thecapacity constraints in other segments of the container terminal system.

4




In the remainder of this paper we will assume that the terminal stacking area (cf. storage

yard in Figure 2) is the bottleneck in increasing the throughput capacity. Moreover the

terminal stacking capacity5 is not only affected by technological/spatial constraints of

deployed container terminal equipment, but also by container dwell times. Given the fact

that terminal operators have no direct effect on container dwell times they are looking atindirect measures to affect this parameter. In this respect, we will analyse the effect of

container dwell times on the storage yard capacity.

2.1.

Storage yard capacity

Traditional measures to increase the storage yard capacity are rather space intensive.

Given the limited space available to expand terminal activities, this option nowadays has

also become increasingly capital intensive. As such container terminal operators are

looking for different possibilities to optimize their storage capacity: either by introducing

new stacking and/or handling technologies, by increasing the stacking height (e.g.

stacking 6 rows high instead of 3) or by improving the annual turnover rate6. As statedearlier in this paper we will focus on the latter: how to reduce container dwell times and

improve cargo turnover rates?

2.1.1. Dwell time concept

In general terms, the container dwell time is the average time a container remains stacked

on the terminal and during which it waits for some activity to occur (Manalytics,

1979:31). According to this definition dwell time also refers to the efficiency of terminal

operations. The shorter the dwell time the more efficient the performed operation and vice

versa.

Important to highlight in this respect is that dwell times can be influenced by many

factors, some of which are unrelated to the service quality. For instance, commercial

customers often use the storage yard as an overflow node in their supply chain creating an

intentional delay. This situation distorts dwell time data since some of the commercial

customers place their export cargoes on the terminal well before the time required to meet

the intended vessel and may leave their import cargoes on the terminal yard for an

extended time after their arrival.

Another aspect of the dwell time is the amount of time required to process the paperwork

for the release/intake of a container. However, with the increasing level of informationand paperless documentation procedures in (maritime) transportation this specific element

is becoming less relevant. In order to analyse data on container dwell times it is important

to take these aspects into account.

2.1.2. Literature review on dwell times

The literature on dwell times mostly emphasizes operations research oriented issues of

container terminal capacity. The general framework of how to calculate port/terminal

5 In the remainder of this seminar paper referred to as storage yard capacity

6

The annual turnover rate is the complement of dwell time. For example, at full capacity utilization whenthe average container dwell time is 5 days the cargo in these slots will on average ‘turnover’ 73 times peryear (Manalytics, 1979:31)

5




capacity is presented in NPC Bulletin (1980), Manalytics (1979), De Monie (1981 and

1985) and Lester et al (1986). Watanabe (2001) analysed capacity constraints,

productivity, selectivity and flexibility of different container handling systems in function

of the type and size of the terminal. Steenken et al (2004) cover the different operational

aspects of a terminal structure, including the deployment of handling equipment.

Furthermore, this paper touches upon the different optimisation processes in containerterminal operations and different types of relevant simulation systems.

A second set of papers can be classified as simulation-based papers aiming to model the

sequential flow of operations to improve terminal performance. Hereby, a distinction can

be made between strategic, operational and tactical simulation models. Within this

research field Veenstra and Lang (2004) describe a conceptual approach and present a

framework for analysing the economic performance of a container terminal design, using

operational indicators.

In both streams, the subject of container dwell times is dealt with only from a capacity

restrictive point of view. To our knowledge, no academic publications look at dwell timesas an evaluation tool to improve annual turnover rates. In addition to the existing

literature, this paper presents the role of dwell times to optimize terminal capacity.

2.1.3. Mathematical framework of how to calculate the storage yard capacity

Table 1 gives an overview of how to calculate the storage yard capacity of a container

terminal. In this calculation the container pool is split up in four different types (FCL &

LCL7, empty, reefer and hazardous containers) which are stacked in designated yards

with specific characteristics. In practice, each of these stacking yards is furthermore

divided in import, export and transhipment containers. But this extra dimension is not

taken into account in the storage yard capacity calculation in Table 1. Adding up the

storage capacities of the above-mentioned yards indicates the annual storage yard

capacity of the container terminal.

Table 1: Mathematical framework to calculate storage yard capacity of a container terminal

Storage Yard Capacity Total (TEU) = StoreFull + StoreEmpty + StoreReefer + StoreHazardous (1)

For each yard (FCL & LCL, empty, reefer and hazardous goods):

Storage Capacity (TEU) = Number of ground slots (TGS8) × Stacking Height (TEU/TGS) (2)

Whereby:

Number of ground slots (TGS) = Slot Density (TGS/ha) × Yard Area (ha) (3)

Resulting in:

Storage Capacity (TEU) = Slot Density (TGS/ha) × Yard Area (ha) × Stacking Height (TEU/TGS*) (4)

Storage Yard Capacity (TEU/pa9) = Storage Capacity (TEU)×

tor Peakingfacdaysime MeanDwellT

padays

×)(

/365(5)

7 FCL & LCL: Full Container Load and Less than Container Load8 TGS: Twenty-Foot Ground Slot

6




Remarks:1) The storage yard capacity of reefer containers is determined by the number of available connections and

less by the available space, whereby the average number of plugs is based on expected traffic flows.

Seasonality in reefer traffic is accommodated by diesel driven alternators to generate power supply;

2) All capacities in the proposed mathematical framework are expressed in TEU. When the capacities are

indicated in number of containers it is important to adjust these figures with a TEU factor;

3) By including the peaking factor in equation 5 it ensures the terminal operator that there will be sufficientstorage capacity available to accommodate peaks in container traffic. This peaking factor resembles a

safety factor and incorporates the difference between the MAT and the HEAT. The peaking factor

exceeds 1, e.g. a peaking factor of 1.20 represents a safety margin of 20% and seems to be realistic (Chu

and Huang, 2005 and Watanabe, 2001);

4) Dally (1983) elaborated Equation 4 with an additional parameter indicating the number of available

working slots per yard as a proportion of the total storage capacity;

5) Dharmalingam (1987) on his turn modified Equation 5 and introduced a slot utilization factor.

Source: adopted from OneStone Intelligence GmbH, 2003, pp. 90

In order to calculate the storage capacity of each yard a number of additional performance

data are required to perform some intermediate calculations. Given the fact that each

stacking yard resembles a rectangle, it is possible to calculate approximately the daily

storage capacity in TEU by multiplying the number of Twenty-Foot Ground Slots (TGS)

with the stacking height (TEU/TGS) (Equation 2). This calculation assumes that all

containers are stacked in the same way and have a similar density.

Containers can be stacked according to different stacking methods and various slot

densities. Consequently, a more fine-tuned method to calculate the number of ground

slots in function of a slot density per hectare for each respective yard is required

(Equation 3). Thus, the slot density of each yard depends on a number of strategic

decisions taken by the terminal operator, such as the type of infrastructure deployed onthe container terminal. For example which type of stacking method is applied: rubber-

tyred gantry cranes (RTGC), rail-mounted gantry cranes (RMGC), straddle carriers (SC)

or a combination of the aforementioned stacking methods. Next to stacking method the

terminal operator has also to decide on the level of automation of the container terminal.

Both decisions have a direct impact on the slot density of each stacking yard.

Figure 5 shows that the slot density in total ground slots per hectare (TGS/ha) of a

terminal equipped with rubber tyred gantry cranes or rail mounted gantry cranes is

generally higher than the density of an all straddle carrier (SC) container terminal. The

former stacking method makes it possible to stack containers in blocks, without leaving

any space in between the container rows. Nowadays RTGC and RMGC with a width of 9rows are in operation. When a container terminal is deployed with straddle carriers a

wheel space of in between 1.5 and 2.0 meter in width between each row in a certain block

has to be provided in the terminal layout. Furthermore, each block should be separated by

an access aisle way of about 20 meter. This space allows straddle carriers to manoeuvre at

any time to the exact location (UNCTAD, 1985).

9 pa = per annum, on a yearly basis

7




Figure 5: Slot density for different types of stacking methods

Rubber tired gantry cranes/

Straddle carrier storage yard Rail mounted gantry cranes

Source: own research

The final storage yard capacity (in number of TEUs per year, TEU/pa) is calculated by

multiplying the storage capacity for each yard with the annual turnover rate (Equation 5).

The annual turnover rate indicates how many times a twenty-foot ground slot (TGS) – as

a unit of storage - has been utilized over a certain period of time. The annual turnover rate

is the complement of the mean dwell time (expressed in days) of the specific type of

container 10. In order to anticipate sufficient terminal capacity a peaking factor has been

introduced in Equation 5. This peaking factor ensures the terminal operator that there will

be storage capacity available to accommodate peaks and seasonality trends in container

traffic.

2.1.4. Impact of mean dwell time on the storage yard capacity

According to Vickerman (2000) reducing the mean dwell time by one half doubles the

storage yard capacity of a container terminal. As such reducing the mean container dwell

time seems to be a cost-effective measure to optimize the potential throughput capacity of

the terminal without investing in new capacity.

Recalling the assumption that the storage yard forms the bottleneck in increasing the

throughput capacity indicates the importance to limit container dwell times. Table 2

shows the effect of varying container dwell times on the storage yard capacity of adummy container terminal. Hereby, applying Equation 5 of Table 1 for each of the

considered container types (FCL & LCL, empty, reefer and containers with hazardous

goods) the potential effect of dwell times on throughput capacity has been analysed and

acknowledges the assertion of Vickerman (2000) that reducing the dwell times by one

half doubles the storage yard capacity of a container terminal.

10 For example, at full capacity utilization when the average dwell time of full TEUs is 5 days the cargo inthese slots will on average ‘turnover’ 73 times per year.

8




Table 2: Sensitivity analysis of mean dwell times on storage yard capacity of a dummy container

terminal

Assumptions: # of ground slots

(TGS)

Stacking height

(TEU/TGS)

Slot density

(TGS/ha)

Yard area

(ha)

Mean Dwell Time

(# of days)

FCL & LCL 10,000 3 400 25 5

Empty 3,000 6 600 5 14

Reefer 500 2 100 5 3

Hazardous goods 500 3 100 5 5

Storage capacity (TEU): (Equation 4 & Equation 1 in Table 1) Corresponding peaking factors:

FCL & LCL 30,000 FCL & LCL 1.20

Empty 18,000 Empty 1.10

Reefer 1,000 Reefer 1.00

Hazardous goods 1,500 Hazardous goods 1.10

Total 50,500

Storage yard capacity (TEU/pa): (Equation 5 in Table 1)

FCL & LCL 1,825,000

Empty 426,623

Reefer 121,667

Hazardous goods 99,545

Total 2,472,835

Sensity analysis of mean dwell times (MDT):

MDT*3 MDT*2 Assumed MDT MDT/2 MDT/3

FCL & LCL 15 10 5 2.5 1.67

Empty 42 28 14 7 4.67

Reefer 9 6 3 1.5 1.00

Hazardous goods 15 10 5 2.5 1.67

Adjusted storage yard capacity (TEU/pa): (Equation 5 in Table 1)


FCL & LCL 608,333 912,500 1,825,000 3,650,000 5,475,000

Empty 142,208 213,312 426,623 853,247 1,279,870

Reefer 40,556 60,833 121,667 243,333 365,000

Hazardous goods 33,182 49,773 99,545 199,091 298,636

Total 824,278 1,236,418 2,472,835 4,945,671 7,418,506

0

1,000

2,000

3,000

4,000

5,000

6,000


S t o r a g e

y a r d

c a p a c i t y

( i n

T E U ,

* 1 , 0

0 0

) FCL & LCL

Empty

Reefer

Hazardous goods

Source: own research, based on data of anonymous terminal operators

9




2.1.5. Data on container dwell times

Due to the different characteristics of each container terminal it is rather impossible to

present a general fact sheet on container dwell times. The dwell time on container

terminals depends on a number of terminal-specific parameters, such as:

‐ in which region the terminal is located (with regard to the availability of land)and which hinterland the terminal is serving;

‐ the frequency of the sailing schedules calling at the terminal;

‐ which mix of cargo flow patterns is handled on the terminal (split of import,

export and transhipment containers);

‐ which type of containers form part of the cargo mix (FCL & LCL, empty, reefer

and hazardous goods containers);

‐ for empty containers the dwell times are also related to the functional role the

terminal fulfils for the shipping companies (classic import-export container

terminal, terminal with empty container depot function or mixed container

terminal);‐ the modal split of hinterland connections (in other words by which transport

modes the containers are delivered to and retrieved from the terminal);

‐ the openness and management structure of the terminal (dedicated terminal,

semi-dedicated terminal or public terminal).

Given this highly interactive character data on container dwell times is rather limited. The

few sources indicating some facts on this issue are consultants’ reports - e.g. Drewry,

OSC, ISL, Onestone Intelligence, Transystems, etc. - although this data is only partially

available. The data gathered in this section is based on contacts with various terminal

operators and shipping companies in the Hamburg-Le Havre range (see Table 3). Due to

the confidential aspect of this data the sources relied on will be kept anonymous.

Table 3: Average container dwell times (in number of days) for different container types on

terminals in the Hamburg-Le Havre range

Cargo flow pattern

Container type Import Export Transhipment

FCL & LCL

6,5 5,5 3

Empties, dwell time depends on type ofcontainer terminal:

- Import-export container terminal 10 10 n/a- Terminal with depot function 14-20 14-20 n/a

- Mixed container terminal 10-14 10-14 n/a

Reefer 4-6 3-5 n/a

Hazardous goods 3 2 n/a

Source: own research, based on data of anonymous terminal operators

Table 3 shows the dwell times of different types of container (FCL & LCL, empty, reefer

or hazardous goods) on terminals in the Hamburg-Le Havre range taking into account

their cargo flow pattern. The cargo flow pattern indicates whether the container is in

import, export or transhipment on the container terminal.

10




Analysing the obtained information on average container dwell times for the different

container types, the empty containers have the highest dwell times (both for import and

export containers). Given the fact that hazardous goods and reefer containers have to be

treated specifically both by the terminal operator as well as the shipper can explain the

lower dwell times for these types of containers. The dwell times of FCL and LCL situate

in between the earlier mentioned container types. In general the import container dwelltimes exceed the export container dwell times. Because of the above-mentioned terminal

specific parameters generalizing the data of Table 3 for all container terminals in the

world is impossible.

During the author’s field research it has become obvious that container dwell times are

also determined by which transport mode the containers are delivered to or retrieved from

the terminal. Generally, containers which are shipped by road generate the shortest dwell

times. However, container terminals which are connected by rail or barge services often

faster distribute seaborne containers to and from the network of interconnected inland

terminals. To some extent the evolution of container dwell times also depends on the

availability of transportation means. Apparently, situations occur that containers cannot be picked up or delivered to the container terminal because there are no trailers and/or

slots on a block or shuttle train available. In such conditions the container dwell times are

influenced by external factors on which the terminal operator has no influence.

The slow landside removal or early delivery of containers is contradictory to the faster

cycle times which are eyed by the terminal operators in order to increase the terminal

capacity. Current practice whereby container terminals are used as cheap (mostly free),

temporarily overflow nodes in the supply chain seems to be embedded in port logistics.

Because of the boom in container transportation and the consequent lack of storage

capacity terminal operators are looking at container dwell time charges to optimise their

throughput capacity.

3. IMPACT OF DWELL TIME CHARGES ON CONTAINER TERMINAL

CAPACITY

According to Table 2 reducing the container dwell times, thus improving the annual

turnover rate increases the storage yard capacity and vice versa. Given the fact that the

throughput capacity depends on capacity constraints in different segments of the container

terminal pipeline, an unremitting pressure to reduce dwell times will result in capacity

problems in other segments of the container terminal system (see Figure 2).

In this section we present a theoretical framework to optimize container dwell times

resulting in an optimal container terminal capacity. This theoretical framework is a supply

driven approach whereby the optimization process is looked at from a terminal operator’s

point of view. Hereby, we described some pricing policies to achieve the optimal dwell

time and thus increase the potential storage yard capacity. Furthermore, we will focus on

the future role of terminals as buffers in logistics chains.

3.1. Theoretical framework to optimize container dwell times

The proposed theoretical framework is a simplification of current practices in containerterminal management and is based on the following assumptions:

11




‐ the container dwell time is the trigger in the optimization process of the storage yard

capacity;

‐ in the analysis two capacity constraints determine the optimal dwell time: namely

the quay capacity and the gate capacity (reflected in function of the level of gate

utilization), whereby the quay capacity determines the gate capacity;

‐ the waterfront of the terminal has no capacity constraints, meaning that all vesselsdo arrive well distributed over time and sufficient berths are available;

‐ the terminal operator has no financial constraints to invest in quay capacity (e.g.

gantry cranes), transfer-cycle capacity or horizontal transportation means (e.g.

straddle carriers, forklifts, reach stackers, etc.) and gate capacity to meet any

increase in storage yard capacity.

Figure 6 shows the optimal container dwell time (d) given a certain level of quay capacity

(qc) whereby the throughput capacity of a terminal is optimized. Any decrease of the

dwell time results in a capacity level which cannot be attained by the available quay

capacity (shaded area). An increase of the dwell time on the other hand will result in an

underutilization of the available quay capacity. Based on the results in Table 2 the yard

capacity (yc) is represented as a linear decreasing function of the dwell time. From this

starting point we will elaborate the theoretical framework, for the considered cargo flow

patterns: namely import (foreland-terminal-hinterland), export terminal traffic

(hinterland-terminal-foreland) and transhipment.

A decrease of container dwell times (from d to d’) would imply a quay capacity

bottleneck. As such the eyed storage yard capacity cannot be attained without any

additional investments in quay capacity. In order to accommodate a decrease of dwell

times (d’) – and consequently to reach a higher level of storage yard capacity – additional

investments should be made to increase the quay capacity from qc to qc’.

Figure 6: Optimal dwell time given a constraint in quay capacity

Capacity Capacity


Dwell time

Yard Capacity

Dwell time

Quay Capacity

d dd’

qc qc

qc’

yc yc

Yard Capacity

Quay Capacity

12




In Figure 6 we did not consider the effect of any quay capacity improvement on the gate

utilization. Logically, we can assume that with a decreasing storage yard capacity the gate

utilization level will also decrease (and vice versa). Supposing the quay capacity will be

expanded from qc till qc’ this means that the gates will be over occupied, resulting in gate

congestion. As such it would be sensible from the terminal operator’s point of view to

aim for a dwell time of d’’ instead of d’ (whereby d’’>d’) (see Figure 7).

Figure 7: Optimal dwell time given an additional constraint in gate capacity

Capacity CapacityUtilization Utilization


Combining the proposed theoretical framework represented in Figure 6 and Figure 7, we

can theoretically define a terminal equilibrium whereby the container dwell time is

optimized based on a given quay capacity and gate capacity.

3.2. Terminal equilibrium: in search of the optimal dwell time

The optimal dwell time (d) on a container terminal is the intersection of the constraining

parameters – in the proposed model the storage yard capacity, the quay capacity and gate

capacity (reflected in function of the level of gate utilization). When the terminal operator

intends to decrease container dwell times, capacity improvements both on the ship-to-shore segment (quay capacity) and delivery-receipt area (gate capacity) are required.

Given the quay capacity increase from qc to qc’ and the anticipated gate capacity increase

from gc to gc’, the container dwell time of d’ remains optimal (see Figure 8).

As such for the terminal operator it is important to approach the terminal equilibrium as

close as possible, because at this point the throughput capacity is optimized. In order to

achieve this objective terminal operators are looking at different mechanisms to approach

the optimal dwell time.

Dwell time

Yard Capacity

yc

Dwell time

Quay Capacity

d dd’

qc qc

qc’

yc

Quay Capacity

Gate Utilizationgu gu

Gate Utilization

Yard Capacity

d’’

13




Figure 8: Terminal equilibrium given a capacity increase in quay and gate capacity

Capacity CapacityUtilization Utilization


In the case of a changing cargo flow pattern on the container terminal will also affect the

optimal dwell time. For example whenever a substantial amount of containers is no longer

handled as import or export cargo (e.g. a shift towards transhipment containers) this will

have an effect on the gate utilization. In our example the gate capacity would become

underutilized because a significant share of the containers will be handled at the

waterfront. As such the gate capacity can be decreased from gc to gc’ while providing the

same service level (see Figure 9). Together with the reduced gate capacity the optimaldwell time increased from d to d’. In this situation containers can remain stacked for a

longer period on the storage yard without creating a shortage on yard capacity.

Figure 9: Terminal equilibrium given a capacity decrease in quay and gate capacity


Dwell time

Yard Capacity

yc

Dwell time

Quay Capacity

d dd’

qc qc

qc’

yc

Quay Capacity

Yard Capacity

Gate Utilization

gu

Gate Utilization

gu

gu’

CapacityUtilization

Dwell time

Yard Capacity

yc

Dwell time

Quay Capacity

d d d’

qc qc

qc’

yc

Quay Capacity

Yard Capacity

gu gu

Gate Utilization Gate Utilization

gu’

14




In the next section we will highlight the introduction of different pricing mechanisms to

reduce dwell times on container terminals. Furthermore, we will also refer to the existing

literature on port pricing and present some existing charging systems. Secondly, we point

out the potential role of inland terminals to reduce container dwell times on seaport

terminals.

3.3. Mechanisms to achieve optimal container dwell time

As mentioned above the terminal operator has some possibilities at his disposal to

approach the optimal dwell times. Hereby, we primarily focus on the effect of dwell times

charges. By introducing dwell time charges the terminal operator intends to realize an

impact on the container dwell times. The eventual impact of this measure will largely

depend on the height of the dwell time scheme, but also on some related aspects such as

the type of terminal on which the charge has been applied, the type of customers serviced

at this terminal, the value of the goods confronted with the dwell time charge, etc.. The

calculation of the price elasticity of dwell times is an important element is this respect,

but has not been included in the scope of this paper. This research question will be dealtwith by the author in future research on this topic.

Next to the dwell time charges imposed by terminal operators we will also highlight the

potential role of inland terminals to reduce container dwell times at seaport terminals. The

idea of satellite (inland) terminals as a local solution to hub congestion has been

suggested by Slack (1999) and this idea is applied to the issue of container dwell times.

3.3.1. Schemes of dwell time charges on containers

Before zooming in on the different dwell time charging schemes on container terminals a

relevant element in this respect are pricing theories and policies available to terminal

operators. Wiegmans (2003) analysed the selling power of ‘public’ terminal operators and

concluded that their negotiating power vis-à-vis the carriers is limited. Given the

introduction of dedicated terminals their selling power is further curtailed. He concludes

that the prices terminal operators negotiate with the carriers are based on: firstly the

willingness-to-pay for these services and secondly, prices comparable to those of the

competitors. Thus, the buying power of the big shipping companies is the main driver in

contract negotiations with the terminal operators. In this setting terminal operators grant

discounts on handling prices based on the expected cargo volume of the customers.

The summarized pricing policies also reflect the usage of dwell time charging schemes byterminal operators. Generally, a distinction can be made between two dwell time charging

schemes on containers: namely a flat charge (without any relation to the terminal costs)

and a variable dwell time charging scheme which approaches the real costs of occupying

a container slot. For the latter category a subdivision can be made on the type of

container.

Moreover, the benefits of reduced dwell times are primarily reaped by third parties (e.g.

the terminal operator himself because of the additional created storage yard capacity, the

port authority which witnesses an increase of the ports’ container capacity without having

to invest in any infrastructure and any future shipping customer benefiting from the

capacity made available) and not necessarily by those who are charged. This aspect also

15




makes it difficult for terminal operators to unilaterally oppose dwell time charging

schemes.

3.3.1.1. Flat dwell time charging schemes

In case the terminal operator is not contractually bounded to the shipper, it is ratherdifficult to enforce a penalty for containers staying on quay too long. In this respect the

shipping company is the only party they have a direct contractual relation with. As such,

when the terminal operator intends to introduce a dwell time charge this scheme is often

based on a fixed amount, mostly irrationally diversified over time. In practice this type of

dwell time charges are not linked to the actual terminal costs of a container occupying the

terminal slot for a certain period of time.

Moreover, because the dwell time charges form part of the contract negotiations with the

shipping companies the height of this amount varies depending on the commercial

interests. The more traffic a certain shipping company/shipping line represents the more

flexible the terminal operator takes position on this issue in contract negations.Consequently, the height of such fixed dwell time charges is often marginal and hardly

covers the real costs of occupying a container slot for a certain period of time.

Table 4: Flat dwell time charging scheme at MSC’s Home Terminal11 (Antwerp, Belgium)

Rate per day per container or part thereof Period of occupation (in days)

Up to 20’ Above 20’

0-7 Free Free

8-15 € 5 € 10

16-30 € 10 € 20

> 30 € 15 € 30

Remarks:

1) The above-mentioned figures indicate which rental prices are charged to the shippers by MSC2) This charging scheme is only applicable on import containers (import reefer containers and transhipment

containers are excluded)

Source: Van den Bossche, B., 15 April 2004

Shipping companies on their part often include container demurrages in their rates to

shippers. When a shipping company is confronted with a dwell time charging scheme

imposed by the terminal operator, this cost element can be set to recover the duty. Maersk

Sealand for example recently announced that “as of May 1, the demurrage charges for dry

import containers at most US port, rail terminals and inland depots increased to USD 225

a day, and to USD 400 per day for reefers;, after the expiration of the free time.” (Leach,

2005) This increase in demurrage charge is combined with a reduction of free time “at

most port terminals and inland deports to four days for dry containers and two days for

reefers.” (Leach, 2005) In the case of Maersk Sealand the higher charge has been

communicated to the shippers as a pass-through of the increased charges imposed by

(intermodal) terminal operators.

11 Joint-venture of PSA/HNN and MSC

16




However, some shipping companies include container demurrages in their tariffs even

when they are not charged for this cost or oppose container demurrages which are higher

than what they are charged by the terminal operator.

3.3.1.2. Variable dwell time charging schemes

When terminal operators have more direct relations to shippers dwell time charges can be

– given their selling power and few substitutes available – more easily imposed. In this

case shippers also have a clear view on the opportunity cost directly linked to the use of a

container terminal as overflow node in their supply chain. As such the height of the

variable dwell time charging schemes approximates the actual terminal costs of a

container occupying a slot for a certain period of time.

Shippers confronted with direct collection for stacking their containers on the container

yard will be urged to reconsider their supply chains to overcome the extra taxation.

Moreover they will use the imposed dwell time charge as a shadow price in negations

with other parties involved in their supply chain.

3.3.1.3. Dwell time charging schemes to optimize storage yard capacity

Before turning to the pricing structures in practice Figure 10 represents the different

parameters determining the financial viability of a container terminal operator. In order to

calculate the dwell time charge to approach the dwell time which optimizes the storage

yard capacity, we start from a basic model of terminal supply based on Strandenes (2004).

Figure 10: Flows of revenues and costs on a container terminal

Shippers/ Sub-lesseesContainerReceivers CFS/ otherslines

REVENUE BASED ON TARIFFS

Concessionnaire

Terminal Operator

Source: De Monie, 2005

A company running a container terminal should cover his variable costs to operate the

terminal at optimum capacity. In terminal circles the net revenue per year is based on

negotiated tariff for various terminal operations with different customers, less the specific

Labour and

Staff Suppliers

Contractors

Equipment

manufacturers

Banks

Other finance

providers

Government/

Port AuthorityGovernment Concessionnaire

T.O.

OPERATING

COSTS CAPITAL COSTS LEASE

RENT ROYALTY

TAX NET

ON REVENUECHARGE REVENUE

CAPITAL FINANCIAL

COSTSRECOVERY

17




terminal costs: such as operating costs capital costs, royalty charges, taxes on revenue

(see Figure 10). The net revenue is the objective value in this maximization problem.

As argued by Strandenes (2004) traditional infrastructure pricing and cost-based pricing

of terminal operations generally do not induce terminal efficiency. Referring to the

literature on port pricing she describes a number of pricing structures which may optimizeterminal utilization levels: namely congestion pricing, priority pricing and prices set by

auction procedures.

Given the ongoing research on this topic, the usage of the above-mentioned pricing

structures on the container terminal management will be subject of a forthcoming paper.

In this paper an in-depth analysis of the different pricing mechanisms available to the

terminal operator to optimize the container dwell times will be dealt with. The second

paper on this issue will also be part of the author’s Ph.D. research track.

As mentioned above the shipper will look for alternatives to reshuffle the overflow nodes

in his supply chain. In addition some terminal operators are anticipating this generaltrend. Some terminal operators are evolving towards freight integrators, offering related

logistics services to their customers. The potential role of inland terminals to reduce

container dwell times is assessed in the next section.

3.3.2. Potential role of inland terminals to reduce container dwell times at seaport

terminals

Given the recent investments of terminal operators in inland barge terminals (e.g. stakes

of ECT in TCT, Willebroek – Belgium and DeCeTe, Duisburg – Germany, stake of P&O

Ports in DIT, Duisburg – Germany, etc.), these inland terminals can be incorporated in

their strategies to reduce container dwell times on seaport terminals. Next to the

investments made by terminal operators and the consequent expansion of the network of

inland terminals the recent success of inland container barging in the ports of Antwerp

and Rotterdam offers possibilities for dedicated shipments to and from their hinterland

hubs. Notteboom and Konings (2004) presented this evolution in a spatial development

model for a hypothetical port-linked container barge network. As such terminal operators

have to make the strategic decision ‘whether their core business is to store containers or

to load, unload and forward containers fast and reliable’ (Ilmer, 2004:12).

As such the inland container terminals act as a bridgehead in order to reduce container

dwell times at seaport terminals. Within this seminar paper on container dwell times theeconomic viability of the strategic option to include inland terminals in the portfolio of

terminal operators in order to reduce container dwell times at seaport terminals is not

worked out in detail yet and will form part of future research. The following issues will be

addressed in this respect: who will pay for the transport by barge, how will the extra

handling costs (two extra moves) be recovered, which strategic decisions have to be taken

by the terminal operator to succeed, is all information available to the terminal operator,

how much containers etc.?

18




4. FUTURE RESEARCH ON THE ISSUE OF CONTAINER DWELL TIME

CHARGES

The objective of this seminar paper is to indicate the importance of dwell times on the

throughput capacity of a container terminal. Given the limited attention which has been

given to this subject in the economic evaluation of container terminal management, we believe that future research in this field would contribute to the existing literature on

container terminal management.

In order to get more acquainted with container dwell times and to gain more insights in

the issue of container dwell time charges interviews were performed with leading

terminal operators. In a second phase we foresee to perform an in-depth analysis of data

sets on container dwell times. Negotiations with leading terminal operators to secure this

data are ongoing.

Apart from the in-depth analysis of container dwell times, the elaboration of the concept

of dwell time elasticity is another subject. Future research on the concept of dwell timeelasticity is in the pipeline and will be performed from a logistics – shippers - point of

view. This research will be conducted within the framework of the author’s Ph.D.

research track.

5. CONCLUSION

This seminar paper dealt with the impact of dwell times on container terminal capacity

and provides a theoretical framework of which constraints a terminal operator has to take

into account in order to optimize the container terminal capacity by altering container

dwell times. As such the paper described the different dwell time charging schemes on

containers and summarized a number of pricing mechanisms available to terminal

operators to optimize the terminal capacity. In conclusion the general guideline is to

implement a terminal charge which affects the dwell time so that the available quay and

gate capacities are optimized. An in-depth analysis of the pricing structures to optimize

terminal utilization levels (including the price elasticity of dwell times and willingness-to-

pay of terminal customers) is being researched and will be subject of a forthcoming paper

in the author’s research track.

Next to the issue of dwell time charges to reduce the dwell times on seaport container

terminal the potential role of inland terminals has been included.

ACKNOWLEDGEMENTS

The author would like to thank all members of his Ph.D. Commission (Prof. Dr. Willy

Winkelmans, Dr. Theo Notteboom and Dr. Wout Dullaert) and Mr. Bert Vernimmen for

their comments and contributing remarks on this paper.

Furthermore, we would like to thank a number of unspecified leading terminal operators

and contact persons for supplying data and feedback on different economic aspects of

container terminal management.

19




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the issue of dwell time charges to optimize container terminal capacity

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