How IT Fits With Shipping and the Supply Chain

On Feb. 16, 2001, six days into its voyage from Taiwan to Seattle, the China, a 64,502-ton container ship longer than three football fields and too wide for the Panama Canal, encountered a force-nine storm near the Bering Strait: 40-foot waves and 50-knot winds. It was nothing like the typhoon that almost sank the ship three years before, but it forced China’s captain to chart a longer, safer course. A week later, at 10:30 a.m. on Feb. 23, the ship made port in Seattle.

Four hours late.

By midafternoon, the four giant cranes that line the Global Gateway North (GGN) terminal where the China docked are still motionless and only the occasional semitrailer stirs in the terminal’s 158-acre lot.

The first load of 8-foot wide, 9-foot-6-inch high, 20-foot long containers should have been off the ship and piled two-high on stack trains bound for the New York area hours ago. But the ship reached port too late to hire a morning crew of longshoremen and so the China’s 2,038 containers and the cargo inside them will sit until the next shift comes on. The 1,435 containers to be offloaded in Seattle won’t leave the yard until tomorrow at 4 a.m.

The storm that waylaid the China caused a ripple in the supply chain. Containers will miss trains. Wait-time snowballs with every delay. A container could arrive in Chicago an hour late but be forced to wait another 12 for the next train to Dallas. That means increased storage costs, increased overhead and decreased profits.

Ripples like these are inevitable. Shipping will always be subject to the whims of the sea. But APL, which operates the China, has begun employing IT to prevent those ripples from growing into waves.

On the Waterfront

The waterfront has changed a lot since Terry Malloy, Marlon Brando’s troubled ex-boxer in the 1954 film On the Waterfront, used hooks and muscle to unload ships. Back then, unloading took weeks, and by the time it was done, longshoremen often had looted a significant portion of the cargo. The industry considered the theft a standard cost of doing business. In the 1970s, containerization?the practice of loading freight into boxes that doubled as railcars and truck-trailers?significantly reduced the losses and revolutionized the way goods were shipped.

Today, about 55 percent of all international freight is shipped in containers. Thanks in part to what until recently had been a booming U.S. economy and a revitalized Asian economy, container shipments?and profits for the shipping lines?have reached an all-time high. According to U.K.-based Drewry Shipping Consultants, a record 229.3 million TEUs (20-foot equivalency units, or one small container, shipping’s standard unit of measure) passed through world ports in 2000, up 10.8 percent from 1999. And the forecast for 2001 is even better: Drewry predicts another record-breaking year with 244.5 million TEUs.

Shipping lines are reporting astounding earnings, including the three largest: the recently merged Maersk-Sealand based in Copenhagen, Denmark, the London-based P&O Nedlloyd and APL. APL’s parent company, Singapore-based Neptune Orient Lines (NOL), reported earnings of $178 million in 2000, nearly double 1999’s $94 million. (APL accounted for 81 percent of its parent’s business.) Even more remarkable is that this quantum leap in earnings occurred with only a 9 percent increase in total revenues.

The key to the rise in earnings, experts agree, is the efficiencies the industry has gained with IT. Until the 1990s, for example, containers were tracked and routed according to an invoice that was clothespinned to the box. Today, APL scanners automatically update an integrated container-tracking system, informing it when containers enter and leave the yard. APL also uses sophisticated planning software that helps devise strategies for loading and unloading ships most efficaciously. And by combining all that functionality into one terminal management application, the company now possesses supply chain visibility?the ability to see where every container or shipment is at all times.

“APL’s investment in technology has worked in their favor from the standpoint that they are now perceived as an industry leader,” says Doug Coates, a partner in the San Francisco-based transportation consultancy Manalytics. Indeed, when The Journal of Commerce, the global transportation trade magazine, named APL its container carrier of the year in 2000, it cited the increased efficiency the line has gained from IT. That greater efficiency is how APL hopes to differentiate itself in what is essentially a commodity business.

Off-Loading the China

At 6 in the evening, seven-and-a-half hours after docking, four crews totaling 88 longshoreman, six semis and one crane finally start unloading the China. Two hundred thirty-five New York-bound containers?Gap blouses and the like?have been identified as high-priority and come off the boat early in the operation. The goal is to have them across the terminal and loaded onto a train waiting on the other side of the yard by 1 a.m. Three Union Pacific engines will begin hauling the cargo east three hours later.

Every piece of equipment a container touches?ships, cranes, trucks, trains?adds complexity. Before one container of Gap blouses, for example, leaves the yard, it will be touched four times: by the longshoremen on board, by the crane that takes it off the ship, by the truck that carries it across the yard and by the crane that lifts it off the truck and places it onto the train. In carefully controlled tests, APL can perform this sweaty ballet in 57 seconds. It doesn’t go that fast in real life, but they get close?about five minutes barring complications.

“We’re trying to create efficiencies where the downtime is,” says NOL Group CIO Don Liedtke. “And that’s logistics.” And that’s where APL’s proprietary logistics system, Sparcs, comes in. Thanks to Sparcs, the Seattle terminal possesses a graphic display of the China’s load that was keyed in back in Taiwan. Each container on the China shows up onscreen, color-coded by its intended destination. All the blue-shaded containers are unloaded in Seattle. Dark blue is local cargo that will be transferred to trucks; light blue containers will be loaded onto eastbound trains. Green containers will stay on board. They’re headed for Los Angeles.

APL planners knew the China would be late ever since that storm blew up in the Bering Strait seven days ago, and they’ve used Sparcs to attempt to compensate. The ship will be unloaded in the most efficient manner they can devise. No Los Angeles-bound containers will be off-loaded only to be put back later. Those Gap blouses?a high-priority item for a high-profit customer?will receive special attention.

Sparcs, Liedtke explains, can track individual containers across the yard once they are placed on chassis-wheeled platforms that allow trucks to haul containers. Each chassis has an electronic identity tag so that a mobile inventory vehicle (MIV)?a Ford Explorer with two ultrasonic sensors and a radio frequency tag reader mounted on the back?can drive through the terminal and pick up signals from each of Seattle’s 3,000-plus chassis in the terminal. The MIVs transmit the chassis’ location through a wireless LAN to a server, which in turn updates the Sparcs system. Sparcs then updates its graphic map of the yard in real-time. When a trucker comes for a container or returns an empty one, automated readers installed in cameras at the terminal gatehouse scan the chassis, and Sparcs tells the driver where to go to pick up his next load.

At GGN, APL is also experimenting with GPS technology. Tractors, top-picks and cranes equipped with GPS sensors transmit the location of chassis and containers. The system works with Sparcs to create a virtual map of the yard displaying the location and status of each chassis. Gray rectangles are empty chassis; green are chassis with containers. Purple is for chassis parked in the right row but the wrong space; red is wrong row, wrong space. A few hours before APL starts unloading the China, there’s a lot of purple and red. That’s the result of human error. Sometimes a driver can’t park a chassis in its assigned slot because the chassis next to it is poorly parked, says Bruce Kuenzi, APL’s administrator for Sparcs in Seattle. And sometimes, he adds, truckers “don’t like parking where they’re supposed to.”

With GPS, the working map of the yard can be updated to account for those errors in real-time. Without GPS, a mistake might not be noticed, and a trucker might not find his appointed chassis until an MIV drives by. It might seem like a small matter, says Liedtke, but “two minutes makes a difference over a million moves.”

With crews working around the clock, the 1,120 Seattle-bound containers (60 percent of the China’s 2,800 containers are destined for Los Angeles) are fully unloaded by 3 a.m., Sunday, Feb. 25, and placed on trains or parked in the yard awaiting truck pickup.

The China leaves port for Los Angeles that day.

On time. Not Everybody Loves L.A.

Two days later, on Tuesday, Feb. 27, the China arrives at Global Gateway South (GGS), APL’s operation in Los Angeles?the largest terminal in the United States. Opened in May 1997, it covers 275 acres and has most of the same technology as its Seattle counterpart minus the experimental GPS tracking and fully automated gate system. The terminal moved 960,000 individual containers in 2000, nearly one-fifth of the port of Los Angeles’s record-setting 4.9 million, which was up from 3.8 million in 1999 and almost double 1995’s 2.5 million. Those 969,000 TEUs, says Director of Terminal Process Nathaniel Seeds, is more than the entire port of Seattle, the nation’s sixth-largest port, handles in a year and is four times the volume of APL’s GGN terminal. (See “How Your Home Port Stacks Up”.) The sheer volume at GGS makes it a significantly tougher operation to run.

“If you do a million of anything in a year, you need to have a fairly reliable script,” says Seeds. Over 3,000 trucks pass through the GGS gates every day?95 percent between 7 a.m. and 5 p.m. The late arrival of a ship like the China, Seeds says, creates yard congestion and in a worst-case scenario forces another vessel to ride the tides until a berth opens, resulting in more missed trains and fleets of waiting trucks with frustrated drivers twiddling their thumbs behind the wheels.

That, explains Liedtke, is bad for APL’s reputation. “Truckers make their money by the number of loads they can carry,” he says. “If they can get in and out, maybe they can carry three or four loads a day. But if they get one where they’re sitting in a yard for two hours, they may not want to come over and take a load.”

That’s the problem confronting the manager of global logistics for a major importer, who asked not to be identified. APL, he charges, has “had growth it can’t deal with.” His company’s truckers, the source continues, aren’t eager to pick up APL containers because they say they can get only two in a day versus six from another carrier. “They know they’ll be late for dinner,” he says.

During the previous peak season, spring through fall, the complaints against APL included long lines at the gates and congestion in the yard itself. The source charges that up to 10 percent of APL containers shipped through GGS arrived at his company’s warehouses late. The problem, he says, could be solved by simply expanding the terminal.

APL’s vice president of operations for the Americas, William A. Hamlin, acknowledges the congestion problem and says that APL has spent millions of dollars to open additional gates, expand operational hours and hire more experienced longshoremen. There are also plans to expand the terminal; another 25 acres opened in April and an additional 75 acres of landfill are planned. However, Jeff Leong, a former spokesman for the port of Los Angeles, explains that it could be anywhere from two to five years before those 75 acres are usable. In the meantime, APL will continue trying to improve its in-terminal efficiency. But even that strategy is fraught with problems.

According to Neil Davidson, a director for Drewry Shipping Consultants, the labor situation in the United States makes it hard for new technologies to get adopted without protracted negotiations with Terry Malloy’s old pals, the International Longshoreman and Warehouse Union (ILWU), whose members work every port in the country. Indeed, APL officials are hesitant even to mention innovations such as the automated gate readers, which could someday replace union gatehouse workers.

The ILWU, says union spokesman Steve Stallone, is not opposed to technology per se but just wants to make sure it is implemented in a manner that works for his membership. Stallone points to the Mechanization and Modernization Agreement of 1960, which mandates that: ILWU members will be trained on new technology, the technology cannot be used to cause speedups in work, and the union members will get a share of the increased wealth produced by the new technology. “The work will change and how it gets done will change,” says Stallone. “We just want to make sure that it remains union work.”

Looking Inside the Container

While the new technologies APL is testing await full implementation, the company hopes it can count on customer service to set it apart from its competitors. The key to this effort is Homeport (www.apl.com), APL’s online container management system. Launched in April 1999, Homeport taps the same database as Sparcs and allows customers to check the status of in-transit blouses, bananas and Barbie dolls. The site averages 1.2 million hits and 200,000 transactions a month. The location information available online is updated approximately every 12 hours. Rod Pyle, APL’s e-commerce manager for the Americas, says that the company has the capability to make container information available in real-time but customers don’t need that level of detail. (APL competitor CSX, the former owner of Maersk Sealand, announced in February plans to make real-time data available on its website, www.csx.com.)

Yossi Sheffi, head of the center for transportation studies and professor at MIT, thinks there’s another reason APL does not update its information more frequently. According to Sheffi, too much transparency can be a bad thing. “If you peek into the system, you will see that there are 1,000 loads and that maybe 300 are late,” Sheffi says. “Of course, they will take corrective efforts and get them to you on time. But if you think 300 are late, you would panic.”

The China provides a perfect example of what Sheffi means. With real-time updating, customers who logged in to Homeport on, say, Saturday morning, Feb. 17, would have learned that the ship was not where it was supposed to be and was behind schedule. But by Sunday, when the information was actually updated, the gap had been closed and curious Web users would see on-time cargo.

What Lies Ahead

Logistical efficiency, says Liedtke, is the shipping industry’s Holy Grail. APL is currently looking into optical character recognition technology, in addition to more GPS technologies, to speed up the loading and unloading process. Sparcs still requires human intervention to plan a ship’s load. One day, that may also be automated.

Finally, ships are getting bigger. The largest vessels plying the sea lanes are now 6,600 TEUs; there’s no reason why they couldn’t grow to 8,000 or even 10,000 TEUs. Of course, larger ships carrying more cargo demand more cranes, trucks, trains and longshoremen, each adding layer upon layer of logistical complexity for IT to tackle.

In the meantime, ships like the China crisscross the ocean, traveling between Hong Kong, Singapore and other Asian ports before returning, fully loaded, to the United States.

Right on schedule.

Barring, of course, bad weather.