Determinants of Risk Administration in the

Global Net of Cargo Transportation:

Speaker: Zeyan Zhang

Institute of Transport and ogisti!s Studies
The "ni#ersity of Sydney
$usiness S!hool
The Third IberoAmeri!an Symposium of %arine
Insuran!e
China&s 'oint of (ie)
OUTLINE
2

Introduction

The Causes of Supply Chain Disruptions

The Vulnerabilities in Maritime Transport Chains

The Impacts of Supply Chain Disruptions

Chinese Shippers Perceptions for Maritime Related SCDs

Mitigation Strategies for Supply Chain Disruptions

Chinas Logistics Industry

uantifying Supply Chain Disruptions Costs

Conclusions
The Causes of Supply Chain Disruptions
3

Supply chains !SCs" are comple# systems of net$or%s

&lobal SCs could be further subdi'ided into three layers( o'ersight layer)
transaction layer and logistics layer !*illis and +rti,) -../"
The Causes of Supply Chain Disruptions
4
The Vulnerabilities in Maritime Transport Chains
5

Sources of Maritime Transportation Related SCDs

The Impacts of Supply Chain Disruptions
6

The cost impact $ould be bet$een 0SD 12. million and 0SD 13..
million for each day a supply net$or% is disrupted4

Shareholder 'alue $ould decrease by 3.5-674 The a'erage abnormal

stoc% returns of the firms sampled $as about 8/.7 o'er a time period
that begins one year before and e#tends to t$o years after the
disruption announcement date4

9 port closure could cause a loss ranging from millions to trillions of

dollars for shippers) carriers) and consignees) and e'en damage a
nations economy4

Schedule unreliability in liner shipping operations affects se'eral

actors $ithin the maritime transport chain(

The threat of piracy is multifaceted4

The conse:uences of terrorist attac%s on maritime transport chain

systems include human) economic) and intangible conse:uences5
Chinese Shippers& 'er!eptions for %aritime
Related SCDs
7

Sur'ey Screen
Chinese Shippers& 'er!eptions for %aritime
Related SCDs
8

Sample Description
Chinese Respondents Shen*hen Shanghai
Sample Si*e /; -2
Importers
-;7 /67
+,porters
<37 2-7
Chinese Shippers& 'er!eptions for %aritime
Related SCDs
9

Chinese shippers perceptions for maritime related SCDs costs

Supply chain disruption=related costs Sum !7"
Lost sales>profit 22
Damage reputation /-
Increase administration $or%load and costs ?@
Increase transport costs ?-
Damage customer relationship -6
9ccount recei'able and cash flo$ 3/
Lead time increased 6
Chinese Shippers& 'er!eptions for %aritime
Related SCDs
10

Chinese shippers contingency plans for maritime related SCDs

Detail of !ontingen!y plans Sum !7"
-perational le#el
Change shipping schedule>route ?253/
Communication to all parties to reschedule deli'ery time -65?6
9lternati'e sourcing>substitute product 3<52<
Aegotiate price discount>rebate to customers>apply penalty to suppliers 6533
Strategi! le#el
Lengthen estimated lead time 35?2
Increase safety stoc% 35?2
Di'ersify carriers>suppliers base 3.563
Build ris% management team 3?523
In'est on IT system impro'e trac%ing>de'elop ne$ product

Mitigation Strategies for SCDs
11

Getting it Right from the Start

Proacti'e strategy !eg5 selecting CsafeD locations) robust suppliers"

$uilding a Se!ure and .le,ible Company Culture

Collaboration

Collaborati'e Transportation Management !CTM"

$uilding Redundan!ies

9 short=term SCD and In'entory carrying>managing costs are lo$

o
Eolding safety stoc%
o
Strategic stoc%

9 longer period of time SCD) and in'entory managing costs>the

ris%s of product obsolescence are high
o
Redundant capacities
o
Feeping a redundant IT system
Mitigation Strategies for SCDs
12
!Continuing"

$uilding .le,ibilities

Standardi,ation

Postponement

9 fle#ible supply base strategy

Gle#ible transportation strategy

Dynamic pricing>promotion>substitutable products strategies

!Dell successfully na'igated a SCD caused by the 3;;; Tai$an earth:ua%e by steering its
customers to buy particular products"
Chinas Logistics Industry
13

China&s ogisti!s Industry atest De#elopment

9n a'erage annual gro$th rate of -?74

In -.33) Chinas e#ternal logistic cost totalled RMB65/ trillion)

accounting for 3<567 of the &DP4

The structure of China logistics costs (

Chinas Logistics Industry
14

China ogisti!s Infrastru!ture De#elopment

Road transport
o
9ccounting for <@527 of the total freight carried internally in -..;4
o
To$ns $ith high$ays account for ;;5-/7 of all to$ns) and ;-56@7
of total 'illages country$ide ha'e access to high$ays5

Rail transport
o
Rail freight only accounts for 335;7 of the total freight shipped4
o
The third largest rail net$or% in the $orld $ith ;;)...%m of trac%4
o
9 proHect is under$ay to connect containeri,ed bo# shipments from
China to Iurope 'ia rail5
Chinas Logistics Industry
15
!Continuing"

Inland waterway
o
9ccounts for 33527 of the total freight in -..;4
o
Chinas 33.)... %m of na'igable distances pro'ides the $orlds
largest inland $ater$ay net$or%4
o
Ae$ Jangt,e Ri'er Port utilisation ma%es it an economically and
en'ironmentally sound alternati'e to road haulage5

Maritime
o
By the end of -..6) there $ere /3? ports in China) ?@ of $hich
ha'e an annual handling capacity of or abo'e3. million tons4
o
The port of Shanghai became the largest container port in the
$orld in terms of its throughput in -.3.5
Chinas Logistics Industry
16
!Continuing"

Air freight
o
9ccounts for only a small proportion of Chinas freight
transport mi#4
o
China has 2.- airports of $hich 667 ha'e pa'ed run$ays5

Chinas forwarding, brokerage and warehousing services

o
Increasing $arehouse efficiencies and capacities in China are
strongly needed4
o
Lo$ efficiency of $arehousing operations is a maHor
$ea%ness in Chinese SC systems5
Chinas Logistics Industry
17

China ogisti!s Industry Challenges

Lo$ efficiency and higher logistics costs4

Lac% of national integrated transportation net$or%4

Poor IT infrastructure and inability to use ad'ance technology4

0nderde'eloped $arehousing ser'ice4

Local protectionism4

9 scarcity of :ualified logistics personnel4

Inconsistency in policies and regulations4 and

Gragmented domestic freight5

Chinas Logistics Industry
18
Eigh$ays became par%ing lots in -.3- Chinas national day
holidays
Chinas Logistics Industry
19
R%$/01/ billion sales and more than 23 million pa!kages on //4//453/56 7single day8
Chinas Logistics Industry
20

Re!ommendations for Colombian Importers

Choose robust suppliers4

Choose robust ?PLs in China4

!better $ith lobbying and bargaining po$er $ith local go'ernment)
eg5 G+KC+AA5 &uan#i is indispensable in China"

9d'anced $arning strategies4

!lengthen lead=time) particularly) Labour day) Aational day) festi'als) etc5
+r bring for$ard to a'oid the Chinese festi'als"

Inhance information 'isibility4 and

Inhance collaboration $ith SC parties5

uantifying Supply Chain Disruptions Costs
21

Methodology

The Latent Class Models !LCM"= a probabilistic modelling

Seemingly 0nrelated Regression Models !S0RI"

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uantifying Supply Chain Disruptions Costs
22

.indings

The LCMs re'ealed that respondents latent preference heterogeneity

created t$o segments !lo$ and high" under normal operation and three
segments !lo$) medium) and high" $ith a disruption 5
uantifying Supply Chain Disruptions Costs
23
!Continuing"

Shippers *TP are different under normal and disruption operations4

Shippers VTTS could increase more than / times if there is a disruption5

uantifying Supply Chain Disruptions Costs
24
!Continuing"

The S0RI model results re'eal that production) company>supply chain

characteristics) and shipment specific characteristics ha'e significant
influence on shippers preference for maritime ser'ice attributes $ith and
$ithout a disruption5
o
Gor e#ample( geographical locations
uantifying Supply Chain Disruptions Costs
25
!Continuing"
o
Gor e#ample( geographical locations
iq i Shenzhen iq Sydney iq k k
k
U Shenzhen Sydney x = + + +

Conclusions
26

The findings !ould be helpful for industry stakeholders(

Shippers

Ser'ice pro'iders

Insurers

&o'ernments and policy ma%ers