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February 19, 2014Hellmann Worldwide Logistics
March 3, 2014
YANTIAN INTERNATIONAL
CONTAINER TERMINALS
YICT GLOBAL BEST IN CLASS CONTAINER TERMINAL
After researching how container terminals across the world compared with YICT it became evident that they had first mover advantage and as such were identified as the benchmark in container terminal operation globally. This led to accreditation of YICT as the the Worlds “Best in Class” Container Terminal by the Institute. In recognising YICT, the Institute is underlying the importance of the continuing and expanding co-operation between end users and container terminal operators to make the port centric logistics process more efficient.
The evolutions in supply chains and logistics models urge container terminal operators to re-think their function in the logistics process. Terminals are central to the design of supply chains and are considered as strategic assets.
The Institute’s research program The Role of Container Terminal Operation in Global Logistics focuses on how Container Terminal Operators are responding to this new opportunity and responsibility.
Findings from the Institutes research program “U.S. Beneficial Cargo Owners Sourcing in China: The Logistics Challenges” identified that “Best in Class” international logistics departments supporting procurement departments sourcing intercontinentally, demand direct relationships with each stakeholder in the logistics process.
The majority of Fortune 500 companies outsource directly to third party logistics provider’s (3PL’s) however it is regarded as “best practice” to have direct contact with the the key logistics service providers, particularly the liner shipping company and the container terminal operator.
Home Depot who the Institute has accredited as “Best In Class” in the execution Of Container Logistics Strategy pioneered direct relationships with container terminal operators. It was through this research that we became aware of Yantian International Container Terminals (YICT) and its ground breaking work.
YICT is the world’s largest single container terminal and are champions of “Joined Up Thinking” and have built their cargo volumes through marketing directly to cargo-owners a strategy they called ‘End User Marketing’.
YICT END USER MARKETING STRATEGY
YICT is regarded as the first container terminal operator to deploy an End User Marketing strategy. The driver for this is that Beneficial Cargo Owners (BCO’s) do not have contractual relationship with any of stakeholders inside the port, leading to a dependence on third parties for status reports etc. This can lead to misreporting and guessing about the status of a particular container. This is mitigated by container terminal operators liaising directly with BCO’s and their 3PL’s.
BCO’s report that direct relationships with container terminal operators has led directly to greater Visibility, increased Velocity and added Value add in their container logistics processes. For terminal operators direct relationships with their end user had a direct influence on decisions by shipping lines to include their terminal on their network maps. Shipping lines are heavily influenced by their upstream customers − the port’s end users.
The YICT approach to collaboration has also lead to logistics innovation particularly in the area of “Port Centric Logistics” which again the terminal is credited with innovating.
Port Centric Logistics which as we know has grown to become a vital part of global supply chain strategy today was born in Shenzhen out of this dynamic and continues to proliferate globally, DP World’s $2.5 Billion Dollar development London Gateway in the U.K. is built on a port centric model.
After researching how container terminals across the world compared with YICT it became evident that they had first mover advantage and as such were identified as the benchmark in container terminal operation globally. This led to accreditation of YICT as the the Worlds “Best in Class” Container Terminal by the Institute.
In recognising YICT, the Institute is underlying the importance of the continuing and expanding co-operation between end users and container terminal operators to make the port centric logistics process more efficient.
The philosophy behind YICT and its attitude towards its operations is that it is part of the logistics process, where there must be due regard for both the inbound and outbound mechanisms that surround port movement. The Institute believes that this innovative approach, the port paying due respect to the smooth operation of the supply chain, should be mirrored across the globe.
THE RESEARCH FINDINGS FROM THE YICT RESEARCH PROGRAM
In 1993, Yantian International Container Terminals Limited was formed as a joint venture between the Shenzhen Municipal Government and the international consortium headed by the Hong Kong based Hutchison Whampoa Group. The contract was signed on 5 October, 1993 in Beijing. YICT’s charter was to develop and operate the Yantian port to become an international container terminal, catering to the needs of international shipping lines.
Administratively, from the Shenzhen government perspective, port development was the responsibility of a quasi-government business group known as Dong Peng Industry Company Limited, which later in January 1995 changed its name to the Yantian Port Group. Typical of special economic developments of the time, the company was given little money but freedom and policy flexibilities to explore non traditional ways of port development. The Dong Peng Industry Company/Yantian Port Group was Hutchinson’s direct partner in the YICT joint venture.
What has happened over the last 22 years at Yantian is nothing short of an economic miracle and the Institute’s research clearly identifies that this success was achieved by pioneering innovations built on its legal and strategic framework.
MODULE 1: Legal and Strategic Framework
YICT is an equity joint venture between Hutchison Port Holdings (HPH) and Yantian Port Group (YPG), a subsidiary of the Shenzhen city government. This ownership structure between a private company and government body became the key reason for the success of YICT and indeed Shenzhen port.
By 2006 HPH had amassed a portfolio of 42 ports in 20 countries, handling over 50 million TEUs annually. Its flagship operation was Hong Kong International Terminals (HIT) which has handled exports of Hong Kong’s manufactured goods since the late 1960s and Southern Chinese exports from the mid-1980s.
A combination of a substantial cargo hinterland, a willing and able labour force and a hands-off approach by Hong Kong’s Government, lead to HIT’s rapid development into a 10 million TEU per annum capacity operation and the world’s busiest independently owned container terminal operator by 2006.
The key to HIT’s success had been the drive to create value for customers, local partners and stakeholders and its early adoption of the practice of continuous process improvement in pursuit of efficiency. This culture of innovation and all subsequent intellectual property were carefully ‘exported’ to all new developments. HPH gives ‘berth’ to each new port operation with DNA genetically engineered in Hong Kong and built upon the sum of experiences of its predecessors.
HPH led the field in yard marshalling innovation and technological breakthroughs and had developed world class techniques and expertise owed in a large part as a result of listening to the wishes of their customers – the shipping lines. These had been exported worldwide and were considered standard operating procedures by 2006.
HPH combined material, referential, and expert power with skilful negotiation to secure the establishment of Yantian International Container Terminals (YICT) on politically remarkable terms for their time.
MODULE 2 :YICT A Public Private Partnership
The success of the partnership became evident In November 1995 when YICT was formally appointed by the Beijing government as the ‘pilot site’ for national port administration reforms. This was a major breakthrough in legitimizing YICT’s aim to develop a ‘world-class port’ and opened up a wider program of port reform in China as a whole.
HPH appointed the Chairman of the YICT Board, the General Manager, and a majority of senior executives. It approved forward strategy and provided finance for investments. YPG supplied the Deputy Chairman and Deputy General Manager and focussed more on managing relationships with the government. This proved to be central to YICT’s success on many fronts.
Without the approval of external agencies YICT could not realize its strategic objectives. To build a viable business it required the reform of port practices, particularly customs and cargo clearance procedures which were controlled by multiple government agencies located within the port, each of which could decide to hold up cargo. Their practices and operational efficiency impact directly on the quality of service that that YICT could offer.
Without the approval of external agencies it could not build its physical infrastructure. It had to secure building permits and approval of construction projects from several agencies. To expand the port into subsequent phases, cooperation and approval were required from both the Shenzhen and the central government.
The success of the partnership became evident In November 1995 when YICT was formally appointed by the Beijing government as the ‘pilot site’ for national port administration reforms. This was a major breakthrough in legitimizing YICT’s aim to develop a ‘world-class port’ and opened up a wider program of port reform in China as a whole.
MODULE 3: An Agenda For Reform
In the course of a few years, the YICT team developed an agenda for reform in government agency port practice, ranging from simplification of procedures to innovative applications of computer technology.
The company formulated specific program objectives, examined existing procedures, and then proposed and drafted new procedures and detailed implementation plans.
This plan was intended to:
• show that YICT’s agenda supported the country’s broad reform objectives of growth and development.
• show that the proposed changes were low-risk and implementable.
• give the front-line government officials a sense of owning the reforms.
The company’s willingness to provide supporting investment and technology not only made these initiatives possible but also helped to secure legitimacy for them. One of the key outcomes of such reforms was that customs clearance times had been reduced at these terminals from 5 hours to as little as 5 minutes. The coevolution of the private (HPH) with the public (YPG) through YICT was working and enabled the young port to handle the volume of trade attracted its facilities, which grew at over 30 per cent per annum in some of its formative years.
More importantly it allowed YICT to explore a new approach to its business model and strategic planning.
MODULE 4: Two Key Innovations
Careful examination of the first three years of YICT’s existence shows how the business model was developed.The pillars were End User Marketing and Port Centric Logistics
YICT had to persuade ship-owners to use the new Yantian port over the competition, principally Hong Kong. Frustrated by the unwillingness of ship owners to move, YICT (with very little to lose) took the radical step of marketing directly to cargo-owners (‘end users’). This was a first for the port industry and can be credited to Yantian’s ability to change and instinct to survive. The principle behind this was simple, if the port could convince the cargo owner to use Shenzhen, they in turn would specify the port as their preferred choice which in turn gave the carrier no choice but to call. The key was in setting up the exchange and YICT looked very hard at finding ways to add value and reduce costs for the end customer.
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This strategy was in stark contrast to how traditional ports operated which rarely engaged with cargo owners which they did not have a direct contractual arrangement with. Direct contact with the BCO’s led to some very important breakthroughs. For the first time the port was hearing directly from its end customer and in this environment it became possible to see exactly where its challenges were coming from.
Communication was at the very heart of the issue, it came as a surprise to BCO’s how little access their 3PL had to information about their cargo once it had been deposited at the yard or unloaded from the ship. Like the BCOs, 3PLs had no contractual relationship with any of stakeholders inside the port. This led to misreporting and guessing about the status of a particular container which was now beyond their reach. The port operator on the other hand was in constant contact and could liaise with BCO’s anxious to know the exact status of their cargo.
By 2005, cargo owners were beginning to take control of their global supply chains and were increasingly deciding on when and how their products were shipped around the world. YICT offered to plug any gaps, and give shippers the support they required.
To a certain extent these improvements were the “low hanging fruit”. More in-depth discussions with cargo owners saw the re-engineering of their whole supply chains to take advantage of the cheap labor available in China. In the early days of Shenzhen there was a lot of land available and port executives were keen to see cargo stored and processed as close to the terminals as possible. They worked with cargo owners and their agents to develop what we now call “Port Centric Logistics” The principle was very simple: instead of shipping containers of a product to the USA where they would then be cross-docked for store delivery, why not get that process out of the way in China? Doing this would make it possible to eliminate a process at the receiving port and, in doing so, cut out considerable costs.
Logistics models like this are referred to as DC Bypass Programs and became increasingly popular as the model developed. It was a “win-win” situation for all concerned – the ports attracted more and more ship calls, and the cargo owners enjoyed greater speed and lower costs. The model began to be exported as early as 2005 and was central to the success of the Port of Savannah in the US for instance. Today no self-respecting port is without an “End User Marketing” strategy and even more so without a Port Centric Logistics Model.
Conclusions
YICT proved port operators who succeed in adding value play an important role in the supply chains of global shippers (buyers and manufacturers) — a role that ports traditionally found themselves excluded from.
In bestowing the Institutes inaugural ‘Global Best in Class Container Terminal” accreditation on YICT, we have identified the benchmark port in global containerization. Since its inception in 1994, YICT has set itself apart by approaching its task differently.
YICT, as a result of its enormous responsibility to provide a quality service that supports China’s emergence as the world’s leading trading nation and also because of competition from other port operators in the region, adopted a very open flexible approach.
YICT collaborates with its End Users, to provide a competitive, efficient solution. It continuously invests in next generation technology and materials handling in anticipation rather than in reaction to market changes. The terminals management and executives have become available to the global logistics community in a way not witnessed before and have done much to herald in a new dawn in the history of port operator/shipper relations. Port operators worldwide need to look to Yantian when choosing the operation to emulate.
IF IT CAN’T BE MEASURED, IT CAN’T BE MANAGED
YICT introduced Six Sigma which they in turn leveraged to develop their own Terminal Quality System built around Benchmarks, KPI’s and ‘measure to manage’ methodologies. The results were very impressive. The management team at the terminal had identified the key processes in their operation and, by recording their performance daily, were able to build up a picture of the terminals operational performance pattern and set goals around continuous improvement targets.
No amount of infrastructural development could have kept pace with throughput at YICT, in the year 2001-2002 it experienced a 52% increase. To meet this demand YICT had to achieve almost double the industry average of efficiency per berth (1.2 million TEUs. The industry average is 700,000). Its monthly productivity average was 35 moves per hour per quay crane and in some cases achieved 59 moves per hour per crane using a single lift method.
While truck turnaround time in some of the world’s major ports stretches to two or three hours, Yantian had a rate of 41.7 minutes in 2003, which was cut to 37.4 minutes in 2004 and then again to 36.5 minutes in 2005 with an average of about 10,000 trucks coming onto the site every day.
An example of the latter was YICT’s direct approach to General Electric and Motorola to access details of the Six Sigma system which they leveraged to develop their own Terminal Quality System built around Benchmarks, KPI’s and ‘measure to manage’ methodologies. The results were very impressive. The management team at the terminal had identified the key processes in their operation and, by recording their performance daily, were able to build up a picture of the terminals operational performance pattern and set goals around continuous improvement targets. Moreover it helped to identify the most efficient operatives who were encouraged by incentives to share their insights and techniques with other team members.
The system gave enormous comfort to shipping lines and BCO’s who were reassured by YICT’s approach. In many cases details and results of the system were openly shared with all stakeholders which only served to reinforce their value and application.
Beneficial Cargo Owners like Home Depot, only too aware that US west coast container throughput capacity was in danger of falling up to 10 million TEU short of anticipated demand by 2008, were keen to use YICT’s formula to conduct their own research on US west coast container terminals and help them to decide on carrier contracts based, not just on the port of call, but also on the terminal of call.
This approach to Quality management became the inspiration for the Container Terminal Quality System (CTQS) subsequently developed by the Institute in partnership with DNV GL
MORE ABOUT THE CONTAINER TERMINAL QUALITY SYSTEM (CTQS)
YICT:A VERY OPEN FLEXIBLE APPROACH
In bestowing the Institutes inaugural ‘Global Best in Class Container Terminal” accreditation on YICT, we have identified the benchmark port in global containerization. Since its inception in 1994, YICT has set itself apart by approaching its task differently. YICT, as a result of its enormous responsibility to provide a quality service that supports China’s emergence as the world’s leading trading nation and also because of competition from other port operators in the region, adopted a very open flexible approach.
Velocity is the hallmark of effective logistics. The global supply chain is as strong as its weakest link and as fast as its slowest one. Much like a relay race the effectiveness of the process is all about the handover or interchange between the athletes in the team or in the case of logistics the modes of transport employed. If executed correctly and diligently no speed is lost in the hand over, however if the receiving team member is not alive to the imminent transaction and constantly in a state of expectancy the process breaks down and worse, continues through to the next relay in the race.
Logisticians have traditionally seen the port piece in the global supply chain equation as the weakest link or if you like the team member cast as the poor receiver/ deliverer. Ports have long enjoyed the enviable position of being indispensable in the creation of and execution of international and global supply chains and as such tended to set the transport agenda in their space as opposed to accommodating it. If the global logistics revolution was to succeed then a new modern type of port had to emerge, our objective was to identify and accredit it.
In bestowing the Institutes inaugural ‘Global Best in Class Container Terminal” accreditation on YICT, we have identified the benchmark port in global containerization. Since its inception in 1994, YICT has set itself apart by approaching its task differently. YICT, as a result of its enormous responsibility to provide a quality service that supports China’s emergence as the world’s leading trading nation and also because of competition from other port operators in the region, adopted a very open flexible approach.
YICT collaborates with its End Users, to provide a competitive, efficient solution. It continuously invests in next generation technology and materials handling in anticipation rather than in reaction to market changes. The terminals management and executives have become available to the global logistics community in a way not witnessed before and have done much to herald in a new dawn in the history of port operator/shipper relations. Port operators worldwide need to look to Yantian when choosing the operation to emulate.
THE STORY OF YANTIAN INTERNATIONAL CONTAINER TERMINALS
YICT is a joint venture established by Hutchison Port Holdings and the Shenzhen Yantian Port Group. The JV commenced operations in mid-1994. The Company is responsible for operating and managing the first 3 Phases of Yantian Port, where it has nine container berths. Total investment now reaches HK$ 13.8 billion. The past eleven years have seen exponential growth at the port in large part due to the rapid expansion of the Chinese economy.
The natural deepwater Port at Yantian has led to it attracting the major international shipping line. There are currently 74 weekly shipping services calling at Yantian, which include 41 US bound and 22 bound for Europe, making it one of the busiest ports in Southern China.
Pingyan Railway, which starts at Yantian in the south, is a dedicated railway with a total length of 23 kilometres. It provides YICT with distribution, consolidation and multi-modal transportation services.
YICT is continually striving to minimise bureaucracy and recently signed a memorandum of understanding with Shenzhen Entry-Exit Inspection and Quarantine Bureau to increase inspection and quarantine efficiency.
These improvements to business procedures and increased speed with cargo declarations have enabled customers to save time and money. The continued strive to innovate and respond to customers’ requirements in both managements and operations are all contributing to the standard that has Yantian in a ‘class of its own’. As a demonstration of its own efficiency Yantian holds the world record for Container Movements.
SHENZHEN MARCH 2005
YANTIAN INTERNATIONAL CONTAINER TERMINALS “BEST IN CLASS”
The announcement comes as a result of the Institute’s ongoing analysis of the efficiency with which container terminals are operated. The research has been targeted at revealing which container terminal most readily integrates themselves into a seamless supply chain and continually search for efficiencies in the logistics process. The research sought to identify the container terminals, which set the standards of excellence in the way terminals are operated.
In recognising YICT, the Institute is underlying the importance of the continuing and expanding co-operation between port end users and container terminal operators to make the process more efficient. Time consuming bureaucracy and inefficiency can have no part in the global supply chain.
The philosophy behind YICT and its attitude towards its operations is that it is part of the logistics process, where there must be due regard for both the inbound and outbound mechanisms that surround port movement. The Institute believes that this innovative approach, the container terminal is paying due respect to the smooth operation of the supply chain, should be mirrored across the globe.
Speaking at the announcement of the award, Mr. Kenneth Tse, Director and General Manager of YICT said:
“I’m very honoured to accept this award on behalf of Yantian International Container Terminals. It shows that YICT’s past efforts have been well recognised by industry’s leaders – carriers, end users and logistics experts. In today’s global economy, international businesses are seeking further opportunities in sourcing globally. To survive, YICT has to be an integral part of the supply chain. We must support the logistics community to stay competitive”
The ‘Spirit of YICT’ is such that both its management and operations staff have a commitment to finding further efficiencies on a daily basis.
YICT is a joint venture established by Hutchison Port Holdings and the Shenzhen Yantian Port Group. The JV commenced operations in mid-1994. The Company is responsible for operating and managing the first 3 Phases of Yantian Port, where it has nine container berths. Total investment now reaches HK$ 13.8 billion. The past eleven years have seen exponential growth at the port in large part due to the rapid expansion of the Chinese economy.
The natural deepwater Port at Yantian has led to it attracting the major international shipping line. There are currently 74 weekly shipping services calling at Yantian, which include 41 US bound and 22 bound for Europe, making it one of the busiest ports in Southern China.
The port is surrounded by a sophisticated road network, which ensures the smooth flow of cargo between the container terminal and the manufacturing bases. It also enables Yantian to have frequent and accessible contact with southern China. As a result of the rapid development of Yantian Port and Eastern Shenzhen, YICT has co-operated with the municipal and district governments, traffic management and planning departments on several initiatives which have included both financial support and material resources to upgrade the local road network. As part of continuing infrastructure development in the area 7 major road improvement projects are due for completion in 2007.
Pingyan Railway, which starts at Yantian in the south, is a dedicated railway with a total length of 23 kilometres. It provides YICT with distribution, consolidation and multi-modal transportation services.
The port company is continually striving to minimise bureaucracy and recently signed a memorandum of understanding with Shenzhen Entry-Exit Inspection and Quarantine Bureau to increase inspection and quarantine efficiency. These improvements to business procedures and increased speed with cargo declarations have enabled customers to save time and money. The continued strive to innovate and respond to customers’ requirements in both managements and operations are all contributing to the standard that has Yantian in a ‘class of its own’. As a demonstration of its own efficiency Yantian holds the world record for Container Movements.
Commenting on the award Kieran Ring, CEO of the Global Institute of Logistics said:
“Velocity is the hallmark of effective logistics. The global supply chain is as strong as its weakest link and as fast as its slowest one. Much like a relay race the effectiveness of the process is all about the handover or interchange between the athletes in the team or in the case of logistics the modes of transport employed. If executed correctly and diligently no speed is lost in the hand over, however if the receiving team member is not alive to the imminent transaction and constantly in a state of expectancy the process breaks down and worse, continues through to the next relay in the race.
Logisticians have traditionally seen the port piece in the global supply chain equation as the weakest link or if you like the team member cast as the poor receiver/ deliverer. Ports have long enjoyed the enviable position of being indispensable in the creation of and execution of international and global supply chains and as such tended to set the transport agenda in their space as opposed to accommodating it. If the global logistics revolution was to succeed then a new modern type of port had to emerge, our objective was to identify and accredit it.
In bestowing the Institutes inaugural ‘Best Global Container Port of the Year 2005-06” accreditation on YICT, we are confident that we have identified the benchmark port in global containerization. Since its inception in 1994, YICT has set itself apart by approaching its task differently. YICT, as a result of its enormous responsibility to provide a quality service that supports China’s emergence as the world’s leading trading nation and also because of competition from other port operators in the region, adopted a very open flexible approach.
Right from the outset YICT made efforts to understand and reach out to those businesses that would use their port, working with what it clearly views as its partners, to provide a competitive, efficient solution for its clients. In an effort to communicate this enthusiasm YICT has invested in next generation technology and materials handling in anticipation rather than in reaction to market changes. As we all know putting your money where your mouth is, is still the greatest talking that any organization can do.
YICT’s management and executives have become available to the global logistics community in a way that we haven’t witnessed before and have done much to herald in a new dawn in the history of port operator/shipper relations, We are delighted to honor them in this way and encourage port operators worldwide to look no further than Yantian when choosing the operation to emulate.
I would like, on behalf of the Institute’s council and members, to congratulate all at the port on this wonderful achievement and to encourage them to continue to innovate, they have the global third party logistics industry’s support.”
