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Esa Hämäläinen, Tommi Inkinen
INTERMODAL TRANSPORTATION COSTS
ICTS 2018
Portorož,
14. – 15. June 2018
121
INTERMODAL TRANSPORTATION COSTS
Esa Hämäläinen, D.Sc.
Tommi Inkinen, D.Sc.
Brahea Centre, University of Turku, Finland
esa.hamalainen@utu.fi, tommi.inkinen@utu.fi
ABSTRACT
This paper reveals with empirical case data how the maritime-based short sea shipping costs aggregate in export industry.
The authors had the possibility to utilize invoice data of the delivered orders. The data contains the information of logistics
costs from the mill located in a Nordic country to two customers located in two different countries in the Mediterranean
region. This study shows that micro level data may reveal interesting perspectives of the logistics costs research tradition.
Keywords: intermodal transport, logistics cost, export industry
1 INTRODUCTION
Long transport routes including short sea shipping can be a
challenge for the export industry. Serving customers
located far from the manufacturing unit increases delivery
time and also costs. Porter (1990) described in his diamond
model the essential elements to competitiveness of
industries (see also Krugman 2017; Aiginger 2006). They
all addressed the importance of flexible logistics functions.
The aim of this study is to present intermodal logistics
components and their costs from a mill to end customers.
The integration of manufacturing and logistics are essential
topics for an export dependent industry (Huemer 2012;
Pagh and Cooper 1998). Eckhardt and Rantala (2012)
address that efficient logistics make globalization possible,
offering methods to transport raw materials and end
products. On average, logistics costs constitute a
considerable proportion of operating costs, often more than
10 per cent of the company’s turnover (Engblom et. al
2012). Hämäläinen (2011) presented in his study that in the
Nordic paper industry the share of logistics costs from the
turnover varies significantly depending on how far
customers are located from the mill. In total, logistics costs
can be up to 20% of the turnover on customer level. Bulk
products need heavy and expensive machinery during
transportation and transfers.
Manufacturing companies in Nordic countries utilize
heavily intermodal transport functions to get their products
to the customer. Usually, Short Sea Shipping (SSS)
connections operate according to scheduled timetables
from the Nordic ports. In a continuous production
environment, like in the paper industry, dispatching,
shipping and logistics have an essential role. Because, in
reality, daily export deliveries are not possible, there is a
need for warehouses along the transport routes in export
countries. In multimodal logistics handling, every stage
increases costs variously and depending on the nature of
logistics phase, e.g. port handling and lifting, land and sea
transportation or warehousing.
Large bulk companies produce thousands of tons of
products monthly to the market and this supply chain
requires accurate coordination and communication with
third party transport operators. Openness of information
and utilizing the best practices could support
improvements and development of logistics from the
remote areas to the end customers. Anderson and van
Wincoop (2004) note that it is difficult to measure the real
trade costs generated from deliveries between countries.
This paper tries to make a small contribution to this
deficiency. Earlier Hämäläinen (2011) utilized case data
from an export company to reveal this well-known problem
in transport logistics research. Davis and Weinstein (1999)
and Krugman (1991) have claimed that location and freight
transport costs have an obvious matter when companies
make investments decisions. Connections to markets must
be taken into account when location decisions are made.
Main topics of this paper are: 1) Expose foreign deliveries
with detailed invoice-based transport data. 2) Reveal
variations in logistics data during the transport process. 3)
Provide information on how short sea shipping together
with port handling impacts the delivery costs. 4) Analyse
whether the delivery volumes and logistics costs have any
correlation. These four points are important topics when
intermodal transport is exposed (see e.g. Albornoz et al.
2016). According to Martincus et al. (2014) heterogeneity
can arise from reasons like market knowledge,
effectiveness of logistics chain and from delivery accuracy.
These all indicate that the complexity of the supply chain
is possible to uncover with the help of very accurate case
data.
The structure of this paper is as follows: Some of the
theoretical aspects concerning port and shipping that gave
ideas to compose this paper are presented in Section 2. In
Section 3, we reveal how research data was acquired and
we present the research methods used in this paper. The
findings based on case empiric data are presented with
several figures in Section 4. Discussion, conclusions and
managerial deductions are addressed in Section 5. Ideas for
future research drawn from this study are presented in
section 6.
2 BACKGROUND OF PORT AND
SHIPPING BOUND LOGISTICS
Nordic countries have developed efficient integration of
remote area connections, maritime transport and port
handling services. Twrdy et al. (2012) point out that ports
are important part of supply chains and that today whole
Esa Hämäläinen, Tommi Inkinen
INTERMODAL TRANSPORTATION COSTS
ICTS 2018
Portorož,
14. – 15. June 2018
122
supply chains compete among themselves, not just ports.
Usually a maritime transport system covers ports, logistics
operators and vessels, which link export and import ports.
Connections from the manufacturing unit to the port are
operated by either trucks or rolling stock. When
manufacturing is running 24/7, this demands very detailed
logistics planning and continuous freight flows from the
site to consignees. Álvarez-SanJaime et al. (2013)
emphasize that the shipping companies hold market power
and enjoy economies of scale. Vaghi and Lucietti (2016)
analyzed with a case study that by speeding up formalities,
it is possible to gain a significant amount of potential in
ports. They used very detailed company-based data to
reveal these improvement potentials. Integrated value
chain with logistics service providers helps create the
product or service that is required by the customer (Porter
1985). Partly due to Porter’s ideas, companies started to
increase outsourcing especially the activities in which the
organization does not have a clear competitive advantage,
like ex-mill logistics activities. They also note that the
rapidly developed and expanded information and
communication technology brought a new era to
controlling, managing, and improving the flow of
deliveries from suppliers to end users (Christopher 2005).
Increase in deliveries and trade flows increase a need to
develop clever algorithms to handle logistics information
flows. A multimodal maritime freight transport includes
loading at the port, transportation from its origin to its
destination, including a sequence of at least two
transportation modes, the transfer from one mode to the
next being performed at an intermodal terminal (Crainic
and Kim 2007). Anderson and Van Wincoop (2004)
remind that transport expenses are a fundamental part of
trade costs. Results of many studies show that service
quality, like the frequency of services, may have an impact
on freight rates (Wilmsmeier et al. 2006; Martinez-Zarzoso
and Nowak-Lehmann 2007). In Nordic countries the
service frequency is a challenge due to the SSS transport
routes. Shipping lines operate weekly or sometimes 2–3
times per week depending on the port and freight volumes.
Wang et al. (2016) emphasize the importance of port
connectivity to the entire logistics chain of maritime
transport and that it is a cost-efficient way to facilitate
international trade. Because of long logistics routes from
Nordic countries, warehouses in the export countries act as
service centers for local customers increasing inventory
levels and binding extra capital (see Langevin et al. 1996).
Wang and Cheng (2009) have exposed that the inventory
cost function can be unified into a common expression for
various batching schemes. Daganzo and Newell (1985) and
Daganzo (2004) state that transportation costs are generally
understood to be a function of the travel distance. Tang et
al. (2011) exposed with empirical data that port efficiency
is the most important factor in acquiring new and keeping
the existing customers. The important role of ports in
transport and supply chains has been examined in many
studies, see e.g. Pallis et al. 2011; Notteboom et al. 2013.
Robinson (2002) pointed out that ports serve as an essential
element in the value-driven chain systems connecting
businesses together.
For export industry ports are a part of a value-driven chain
system and due to cost-efficiency of sea transport, it is hard
or even impossible to replace ports with other logistics
systems (Robinson 2002). Bichou and Gray (2004) argue
that ports are an essential component of integrated supply
chains (also Marlow and Paixao 2003). Configurations of
shipping routes and networks provide a direct assessment
of port connectivity, representing a port’s competitiveness
(Low et al. 2009). Tran (2011) points out that the selection
of a port is based upon the minimization of the overall cost
of the cargo’s journey. Freight logistics developers have
used clustering to understand the geographic distribution
of demand and simplify logistics operations (Cao and
Glover 2010; Sharman and Roorda 2011; Singh et al. 2007;
Qiong et al. 2011). There are arguments that competition
has moved from competition between firms towards
competition achieved through practical logistics chain
management (e.g., Ketchen and Hult 2007). Efficient
logistics certainly support a manufacturer to operate in a
more profitable way in the international business
environment. However, operating in a global market may
also increase the uncertainty in the company’s operations
(Bhatnagar and Viswanathan (2000) and Bhutta et al.
(2003). Long transport routes may lead to increased
inventories and longer delivery times of freight transport
and bond capital. Researchers note that location of an
industry naturally has an impact on the success and
survival of a production unit. Carbone and Martino (2003)
emphasize the importance of a common platform among
both the logistics systems and the cargo handling systems
to create synergies and to combine the interests of all
actors. Pettit and Beresford (2009) remind about the
change of ports’ roles towards vertically integrated
logistics services during last years. Integration of logistics
services offers an essential method for continuous bulk
manufacturing to stay in international business even for
companies located far from market like the Nordic paper
industry.
3 RESEARCH DATA
Logistics research has long traditions and roots in industry
location questions. When making an analysis of the
logistics and transport, the crucial matter is to receive
reliable data (Martinez-Zarzoso and Suarez-Burguet
2005). Official statistical data (e.g. International Monetary
Fund) as a source for logistics research may be too
unreliable (Baier and Bergstrand 2001; Limo and
Venables 2001; Hummels and Lugovskyy 2006).
Hummels (2007) points out that exact transport data are
available only in few countries in their open official
statistics. Firm-level data on transport costs are not
available (e.g. Bernard et al. 2006). Goffin et al. (2006)
indicate that the buyer–supplier relationships should be
revealed according to their industrial contexts.
Research material for this study is received from the
integrated cost management system (see e.g. Hämäläinen,
2011; Hämäläinen et al. 2017) and this confidential data
was converted for research purposes. The data comes from
a paper mill that relies on the multimodal logistics chain
that consists of transfers by truck to port and from ship port
Esa Hämäläinen, Tommi Inkinen
INTERMODAL TRANSPORTATION COSTS
ICTS 2018
Portorož,
14. – 15. June 2018
123
by truck to the end customer. Because the customers are
located in different regions and countries, this increases the
variety of logistics chain between markets. As the data is
from a bulk industry it may bring some contributions to
research of bulk industry in which continuous 24/7
production and logistics is a normal function.
The data includes invoice information from the deliveries
to two countries located far from the mill in the
Mediterranean Sea region. The data covers June 2009.
Both of these countries are rather important markets for the
mill. The mill sold paper products nearly 15,000 tons
annually to both countries, which makes round 1,300 tons
per month. In total, there were 186 deliveries during this
sample period. We removed 2 deliveries from both country
data, because information of invoice data in was not
proper. These were probably so called test deliveries that
were not priced and transport information was incomplete
and insufficient. So, in total, we could utilize 71 invoiced
deliveries from one country and 111 deliveries from
another country, which is 182 deliveries altogether. These
invoices contained detailed logistics data after the mill
warehouse: total transport costs, delivered tons, transport
to port and port handling costs, the part of maritime costs
of transport costs, land transport from export port to
consignee/warehouse and domestic and export
warehousing costs. The mill was running, producing and
delivering paper products as usual during 2009. The
logistics data was moved to Excel spreadsheet and
analysed there together with countries in separate columns.
Martinez-Zarzoso and Suarez-Burguet (2005) point out
that many studies address that firm-level, reliable logistics
cost information is only rarely available for research
purposes. With this case data, we also wanted to expose the
characteristics of variations between the deliveries to these
countries. In the following section, we will show rarely
revealed features of logistics functions, costs and their
behaviour in the export logistics environment with the help
of our detailed data.
4 FINDINGS
In this section, we will try to contribute to logistics research
discussions with detailed empirical data. We highlight the
logistics costs during the transport from the mill to export
countries based on empirical data. The data contained 182
deliveries and these are presented in Figure 1. It presents
the distribution from largest to smallest and total tonnage
and average amount during the research period. The
distribution is relatively normal between delivered
volumes and the orders are divided quite evenly. However,
the delivery volumes to Country 1 are smaller. Country 1
is closer to the mill and this addresses that closer location
may result in smaller deliveries but the deliveries may take
place more often. During the research period, delivered
tons in total are nearly the same, but to Country 1 there
were 111 orders, 11,62 tons on average and to Country 2
there were 71 deliveries and the average amount nearly 18
tons per order. When single orders are from a few tons up
to 50 tons, there can be between 15,000 and 30,000
international shipping annually in a mill that produces
500,000 tons annually. The amount of deliveries
emphasizes the role of continuously flowing logistics for
paper and other industries producing high volumes of
saleable products.
Source: authors
Figure 1: Distribution of the orders in tons. Source: authors.
The interesting thing is that the total transport costs from
the mill to the end customer vary relatively little as Figure
2 highlights. Hummels et al. (2009) support this finding;
export costs vary endogenously with trade and adoption of
new transport technology. Figure 2 indicates that in
Country 1 the transportation costs vary between 105 €/T
and 130 €/T and, on average, the costs are 114 €/T. This
country is located closer to the mill than Country 2.
Logistics costs were approximately 75 €/T to a large extent
in the case of Country 2 (flat starting of the line), but in the
highest case close to 100 €/T. Calculated average for
Country 2 is 78 €/T. As Figure 2 highlights, there can be
some expensive deviations in transportation. The data did
not reveal the reasons for these costly transports. Both
countries are behind the SSS and therefore the transport
prices are rather easy to estimate because freight owners
usually have long-term agreements with shipping
companies due to large and regular freight volumes. The
vessels usually visit export ports weekly or sometimes
more often. In the port of import, the packages are
transported directly to customers or stored to warehouses
and later delivered to destinations.
Source: authors
Figure 2: Total transport costs €/T of the orders
Sea freight is an essential and obligatory transport mode
for Nordic mills. Figure 3 addresses the sea freight costs in
euro per ton compared with total transport costs. Both
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65.00
70.00
1 12 23 34 45 56 67 78 89 100 111
Tons
Nro of Orders
Ctry 1 Ctry 2
Average 17,97
Average 11,62
Total 1275,90 T
Total 1277,90 T
Esa Hämäläinen, Tommi Inkinen
INTERMODAL TRANSPORTATION COSTS
ICTS 2018
Portorož,
14. – 15. June 2018
124
country data is sorted by sea freight costs. The sea freight
costs of all deliveries were nearly the same to the country
2, averagely 51 €/T. This addresses that all the deliveries
were transported along the same shipping route between
export and import port. The picture shows that there are
some variations, especially in other than sea freights. Sea
freight costs to Country 1 were twofold. Firstly, sea freight
costs were rather small, a little under 40 €/T in 28 cases. In
these deliveries, the other logistics costs fill the rest of the
costs. In the 100 cases to Country 1, the sea freight costs
are 80 €/T. The other logistics costs are land transports,
port handling and warehousing, and in all of the cases the
total transport costs vary between 105 and 120 €/T. Port
handling is an important and essential part of logistic chain.
Freight is transported to port and at the port, the cargo is
handled carefully and packed in to the specific cargo
vessels.
Source: authors
Figure 3: Sea freight costs and total transport costs of the
orders €/T
Figure 4 shows the port handling costs and their share of
total transport costs in per cent. These values are obtained
by dividing the total port handling costs in euro with the
total transport costs in euro. At the export port, the handling
costs are the same for both markets. The variation rises
when the vessels arrive at import ports, where the
differences in handling costs arise. In Country 2, the total
port handling costs, on average, are nearly one fourth of
total transport costs. In Country 1, on average, the port
handling costs are only 11 per cent of the total costs.
Figure 4 addresses that average values tell very little about
the logistics costs. Also, in the case of building a
mathematical model to report logistics costs, the variation
pointed out by Figure 4 should be built into the systems.
The total maritime bound logistics costs as an important
modal in supply chain are presented in Figure 5. The total
maritime bound transport costs to Country 1 are 80 €/T on
average, and the share of these costs of the total
transportation costs are 70 % on average. But there is a
significant variation in the share of maritime bound costs
of total logistics costs starting from 45 €/T and ending up
to 85 €/T. The route planning of deliveries is very
important. The freight owner should find the best, cost-
efficient route for each delivery. Maritime bound logistics
costs to Country 2, which is a longer sea route away, are on
average 68 €/T and the average share of total costs is very
high at 87 €/T. Because this market is a long sea route
away, it fills out major part of all logistics costs. Figure 5
addresses the impact of long sea route to the total costs.
The variation is smaller and, obviously, the logistics costs
can be estimated more accurately due to the significant
impact of one modal. It is rather astonishing that there is
trade between Nordic mills and these regions even when
the burden of transport costs is so heavy. The transport
information is rarely presented at this accuracy before.
Case based logistics costs data has its benefits in giving a
researcher an opportunity to look into the logistics world.
Source: authors
Figure 4: Port handling costs and share of transport costs
Finally, the authors wanted to test if there were any
correlations between delivered tons and transport costs in
€/T. Very few studies have been conducted of this
phenomenon earlier (see e.g. Hämäläinen 2011). Figure 6
reveals a correlation between delivered tonnage volumes
and costs in €/T. In Country 1, there is a strong negative
correlation (calculated with Excel-spreadsheet). When
tonnage volumes rise, the actual transport costs per ton
decrease, although there is also significant variation
between deliveries. The transport costs understandably
vary because packages are delivered to different places in
the target country. Country 1 is also closer and the
delivered volumes per order are nearly a half a size
compared to the second country. In theory, it could be vice
versa, i.e. when a country is closer the volumes are smaller,
but of course this depends on the shipping routes and
intense of traffic between export and import port. The
correlation in Country 2 is much smaller and also negative.
The authors calculated the correlation of all deliveries
together and correlation was -0,34. The negative
correlation indicates that companies get logistics services
cheaper in €/T when delivering more tons in the same
order. The delivery volumes are naturally dependent on
how much customers order. A break-even point exists
when the order volume is so small that the invoiced price
does not cover the expensive transport.
0
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1 10 19 28 37 46 55 64 73 82 91 100 109
€/T
Ctry 1 Sea freight Ctry 1 Transportation costs
Ctry 2 Sea freight Ctry 2 Transportation costs
Average 51
Average 67
0
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30
35
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1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 9 1 96 101 106 111
€/T
%
Nro of Orders
Ctry 1 Porthandling costs €/T Ctry 2 Porthandling costs €/T
Ctry 1 Porthandling costs/Transport Costs in % Ctry 2 Porthandling costs/Transport Costs in %
Average 11 %
Average 13 €/T
Average 18 €/T
Average 23 %
Esa Hämäläinen, Tommi Inkinen
INTERMODAL TRANSPORTATION COSTS
ICTS 2018
Portorož,
14. – 15. June 2018
125
Source: authors
Figure 5: Maritime related costs and share of transportation
costs
Source: authors
Figure 6: Correlation of transport costs €/T with delivered
tons to customers
In this section, the authors revealed a piece of logistics
operations and their costs and delivery environment with
empirical figures. The figures addressed that in different
markets the delivered volumes, logistics rates and behavior
of the whole supply chain is unique. In the end, the cost
differences reveal the variety on real life transport chain.
Large companies in Nordic countries need efficient
logistics, although it can be very costly for them. Due to
expensive transport competition, a company must be
secured with other means, like economically efficient
business and operation models.
5 DISCUSSION AND CONCLUSIONS
Export bulk industry that runs around the clock needs a lot
of predictable logistics services to stay in business. In many
industry sectors, like in paper industry, the price
competition is high and consumption is decreasing due to
the digitalization of society and business. The authors of
this paper wanted to contribute to the logistics research
tradition with empirical numbers. The data (182 invoices
in total) of our study was obtained from a large company’s
records of June 2009. The data included detailed cost and
delivery data of orders to Mediterranean countries a long
sea transport route away. We were not able to show how
logistics impact on the margins of the orders, i.e. customer
profitability. Hämäläinen (2011) has earlier addressed that
logistics has a clear impact on profitability and it varies
between market areas. We may imagine that it is the same
in this case to some extent. One purpose of this study was
to make a small contribution and managerial implications
to the logistics discussion in form of cost analysis. An
intermodal supply chain adds costs in every step and,
unfortunately, from freight owners’ points of view, the
shipping companies have a strong negotiation position
when rates are stated. This study shows that sea freight has
a fundamental role in cost accumulation. Because the
research data covers invoice data from one company and
from a short period, it is an obvious limitation and
extrapolations based on these findings should be done
cautiously. As a summary, the authors point out that
intermodal logistics is highly complicated system,
especially in situations where volumes are high and
transport routes are long. Both freight owners and
customers expect reliable service partners, predictability,
cost efficiency, flexibility in case of obligatory changes
and safety in everyday operations.
6 FUTURE RESEARCH
All logistics researchers are aware of the difficulty to
acquire firm based export data. Future research could focus
more on finding reliable empirical data and together with
mathematical modelling make tests based on this case data.
Also route modelling with real costs could be interesting
topic to reveal.
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14. – 15. June 2018
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