An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

Chapter 1 Introduction
1.1 Research background

In todays very challenging economic atmosphere, most business has increasingly realized that globalization can make the world getting smaller and more competitive. Also, customers are seeking the products and services that can satisfy their specific needs. Without international trade, a small number of countries can preserve an appropriate standard of living. Using domestic and household resources only, each country can produce a limited number of products, thus shortages of products would commonly happen (Yap and Lam, 2005). Global trade enables a massive variety of resources to be more accessible. It also facilitates the sharing of different products and services from different parts of the world. As a result, international trade tends to decrease the overall costs of production and manufacturing process and increase productivity rate worldwide. Yap and Lam (2005) stated that consumers can buy more goods from the wages they earn, and peoples standards of living can be improved. International trade consequently demonstrates the extent of globalization with increased relationships where flows of capital, goods, raw materials and services are established between regions of the world. Therefore, firms are now looking to develop business strategies that can provide cost, quality, technological and other competitive abilities in order to stay survive in a globally competitive environment. One of competitive methods for firms is to promote and provide value to its customers by employing its supply chain activities more effectively than its competitors (Song and Yeo, 2004). As a consequence, the focus of most business has been placed on the logistical management of firms supply chain. Logistics management can be described as the systematic process of planning, implementing and controlling the flow and storage of materials and products and the ways to manage related information within a supply chain (Malchow and Kanafani, 2004). Having effective logistics management can offer the firm a major source of competitive abilities as it can manage costs and improve products and services differentiation. This inclusive character can help firms become both cost and value leader in the market. Thus, good logistics management is increasingly accepted as one of the key success factor, which allows a company to gain and maintain its competitive advantage and guarantee customer satisfaction.

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An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

In international trade environment, transportation systems have been under increasing pressures to support additional demands in volume and distance to deliver the products. To handle this upward demand, ports are one of the key players in the supply chain of most firms. A port is basically used as a point where products are shipped from one region to another. According to Brewer et al. (2001), ports and marine shipping in global trade in clearly identifiable, particularly in terms of tonnage, as it handles about 90% of the global transportation. Generally speaking, international trade is the world of marine shipping. However, a common development problem is the inability of international transportation infrastructures to support flows of products from the global market. Bichou and Gray (2005) pointed out that ports have experienced many challenges due to unpredictable environmental changes and trends in the shipping, port and logistics industries. In addition, Christopher (1993), Gilmour et al. (1995) and Heaver et al. (2001) indicated that most ports in the world have faced a variety of challenges and emerging issues including the following issues.

Globalization of manufacturing and outsourcing activities. Global trends of logistics network restructuring and reposition of regional and/or local distribution centre. Rapid growth in volume of global marine transportation. Emerging hub in global shipping services. Increase of transshipment cargo and competition among ports and terminal operators. Increasing competition towards hub ports. Emerging one stop shopping concept and intermodal transport linking strategically between ocean, railway, road and inland waterway Increasing role of ports in global supply chain management and logistics network structures. Increase of productivity and efficiency in ports

To cope with abovementioned challenges and emerging issues ports across the world have been trying to develop their physical infrastructures, especially container terminals and related facilities, and to expand their port hinterland through introducing free trade zones with a hope of developing hub ports and international logistics centers. In addition, many ports have been carrying out port reforms such as port governance, restructuring and deregulations, private and public partnerships.

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An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

International trade has also played a significant role in Thailands rapid economic development in the past three decades. Exports and imports are now valued at about more than 80 percent of Thailands gross domestic product (Goh & Pinaikul, 1998). In Thailand, there are five international ports including Bangkok, Laem Chabang, Mab Ta put, Songkhla and Phuket. The two most important are Bangkok Port and the Laem Chabang port. Both ports can accommodate commercial shipping and tourist liners. According to current statistics reported by Commercial Statistics Centre (2008), Bangkok port accounted for 10,795,149 tones of container cargo while Laem Chabang port accounted for 15,748,371 tones. In Thailand, the national ports activities are controlled and managed by the Port Authority of Thailand (PAT). The operations of these activities are mandated by Port Authority Act B.E.2494 (1951) which is amended by the Act B.E.2543 (2000). The activities to be carried out by the Port Authority of Thailand (PAT) including management, monitoring and control of Bangkok Port, Laem Chabang Port and other designated ports. PAT is allowed to make decisions on appropriate management and operations of each port under its control, provide that such decisions must correspond to PATs work objectives as stipulated by the Act. Moreover, the Thai government has a policy to promote private participation in port and port business so as to help boosting Thailands trade and economic expansion. The present privatization policy relating to maritime transport services has mainly concentrated on the privatization of the Port Authority of Thailand. After several years of consideration by the government, not much progress has been made since there is a strong opposition to some proposals leading to drastic changes in PAT. The matter is now awaiting clearer direction and guidance from the government. For the operations of other major public ports as well as private ports, the Thai Government has maintained the policy that the private sector be allowed to participate in port services either by operating the existing facilities in such ports or funding the development of and operating the new or additional facilities. Port operators are required to fulfil the technical requirements in order to obtain permission in constructing and operating their ports. This is to ensure non-obstruction of navigation channel, port safety and economic viability. In recent year, shipping companies have been taking the initiative of vertical and horizontal integration in the international maritime logistics chain. As consequence, the market power of shipping companies has increases over the other service suppliers. This development has compelled port authorities to re-evaluate their strategy in response to the change of market structure. The purpose of this paper is to review the current port competition -3-

An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

in Thailand, to analyze the response of port authorities to the changing market environment in which they operate as well as to identify the Critical Factors Relating to the Competitive Success of port Operations. 1.2 Problem statement In Thailand, maritime transport carries 96.2 million tones or 86 per cent of the total freight volume. Keeping in step with the global practice of container shipment, most of the general cargos have been containerized and these are handled mainly at the Bangkok Port and Laem Chabang Port situated in the Eastern Seaboard. These two ports are focusing on developing different strengths Laem Chabang port (LCP) will continue to expand facilities for serving increasing demand while Bangkok port, which is limited by its access channel and traffic problems in the Bangkok area, will optimize its efficiency and service levels. With an annual turnover of some 2.5 million TEUs, LCP is the main container port for the country. It is faced with the challenges of coping with continuous growth in containerized cargos, the gradual migration of containers from Bangkok to the Eastern Seaboard. LCP has launched a vast expansion plan by constructing a second basin for six container terminals, handling 2.6 million TEUs annually. These terminals will be leased out to private operators. The first terminal with annual capacity of 600,000 TEUs has been completed and is presently in the stage of bidding. Soon two other terminals will follow to keep pace with the current 8 per cent, or some 200,000 TEUs annual growth rate. After completion of the two basins, the container throughput will increase to 5.1 million TEUs per annum. Currently, the government deems that Thai logistics system is still in an early stage of development. Most logistics in the country are concentrated on physical distribution of goods and services. However, the government needs to take a more integrative approach to logistics management. The Government, therefore, is encouraging Thai companies particularly SMEs to invest in internally integrated logistics and externally integrated logistics. At the same time, the production and supply chain to the product distribution will need to be more efficient. What the government can have a more direct impact, however, is infrastructure development. There needs to be a networking system of different methods of transportation (road, rail, air, and sea). Furthermore, highways linking Thailand and other countries in the region will be crucial to promote intra-regional trade and investment. At present, the major problems and obstacles for logistics development in Thailand can be summarized as follows.

The concentrate on only physical distribution. Lack of internally integrated and externally integrated logistics. -4-

An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

Lack of using IT for logistics. Few logistics business providers. Lack of connection between transport modes. Lack of rules and regulations.

Above barriers can lead to unsuccessful logistics operations of entire transportation systems including ports. To deal with these problems, the Thai government, therefore, is now in the era of developing the strategies for Thai logistics network and system. Several strategies have been launched. Many agencies, both from the public and private sectors, are involved as such: Ministry of the Prime Minister, Ministry of Communications, Ministry of Industry, Ministry of Commerce, the Thai Chamber of Commerce, the Federation of the Thai Industry, and many professional associations. However, no inclusive strategy has been proved as the best way to manage logistics operations in ports of Thailand. Therefore, this study aimed at investigating the critical success factors for logistics success of logistics operations in the Thai ports. The results of this study can be used to develop a practical guideline for achieving successful port operations. 1.3 Objectives of the study The focus of this study is placed on comprehensive exploration of specific aspects of logistics operations in Thai ports. Therefore, the objectives of this study are listed below. To review the current situations towards port competition in Thailand. To analyze the response of port authorities to the changing market environment. To investigate the critical factors relating to the competitive success of logistics operations in the Thai ports. The tasks to achieve the aforementioned objectives are primarily to explore the full context of logistics and port operations theoretically and practically. The results of the research can be used as strategic guidelines in managing logistics in the Thai ports more successfully.

1.4 Research questions To meet the need for helping the Thai ports operator to successfully manage their logistics along with the need for filling significant gaps in current research, it is crucial to conduct this study, which attempted to investigate the critical factors relating to the competitive success of

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An Empirical Study of Critical Factors Relating to the Competitive Success of Logistics Operations: A Case Study of Ports in Thailand

logistics operations in the Thai ports. Furthermore, there are a lot of pertinent questions that must be addressed in this research as follows:

What is the current situation of logistics and port operations in Thailand? What are the roles of port authority towards logistics and port operations in Thailand? What are the elements usually perceived as common success factors for logistics and port operations?

Which are the most crucial factors for improving logistics and port operations? What are the potential barriers to successful logistics and port operations?

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