Increasing Free Trade Zone Opportunities by Improving TransshipmentDr. H. Donald RatliffExecutive Director

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How do free trade zones add value?

Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other

countries to other countries Provide value added services for products from other

countries to other countries

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How do free trade zones add value?

Delay payment of duties and taxes on imported goods Serve as redistribution hubs for products from other

countries to other countries Provide value added services for products from other

countries to other countries

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How to justify redistribution hubs?

Transportation cost is frequently higher

Handling cost is higher Inventory is frequently lower Trade-off between P&L and

Balance Sheet Value of a 40 ft container of

product– Typical Asia to US retail = $50,000– Furniture = $75,000– Small electronics = $300,000– Sport shoes = $1,500,000

Justification based on “unlocking” capital by reducing inventory

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How does shipment consolidation at hubs impact inventory?

Container Capacity

Inventory at Customer

Average inventory

Half Container

Inventory at Customer

Half Container

Inventory at Customer

Average inventory

Average inventory

Direct ship

Hub consolidation

Hub consolidation

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Inventory using “direct ship”

Pendulum service

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• Customers in Savannah and NY• 10 suppliers in Asia, all with different

products• Ship in full containers direct from supplier

to customer• 0.5*10 = 5 containers at each customer

• Total inventory = 10 containers

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How do hubs impact inventory?

Transship service

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• Ship in full containers from each supplier to hub then ship mixed container loads from hub to each customer– Average inventory = 0.5*10= 5 containers

at Panama warehouse– Average inventory = 0.5*1 = 0.5 containers

at each customer• Total inventory = 6 containers• 10 containers less using hub

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Why Panama as a hub?

Inventory increases with number of hubs

Fixed cost increases with number of hubs

If only one hub then why should it be Panama?– Cost/time from DC to ports– Nearness to direct supplier

to customer routes– Time to customers– Variability in time to

customers– Connectivity

Pacific Cluster

Atlantic Cluster

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What connectivity characteristics are critical? Transit time from suppliers

and transit time to customers– In-transit inventory is

proportional to time in transit– Hub advantage only if transit

time reduced Variability in transit time

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Inventory

Importance of Transit Time Variability

Variability in transit time causes shippers to more maintain safety stock Longer transit time causes forecasts to be less accurate which requires

more safety stock

Time

Protecting against late deliveries

Planned delivery

Due to variability

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What connectivity characteristics are critical? Transit time from suppliers

and transit time to customers Variability in transit time Frequency of service

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Impact of Frequency of Port Calls

Daily service Panama to New York transit time = 3 days Weekly service Panama to New York transit time = 3 days

– Max time = 10 days– Min time = 3 days– Ave time = 6.5 days

Weekly service adds 3.5 days average inventory

Time

Port call frequency

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What connectivity characteristics are critical? Transit time from suppliers

and transit time to customers Variability in transit time Frequency of service Service coverage

– Must get product from all suppliers

– Must send product to all customers

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Panama’s Coverage to CustomersDestination from Balboa without transshipment

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Panama’s Coverage to CustomersDestination from Manzanillo without transshipment

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Panama’s Coverage to CustomersDestination from Panama without transshipment

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Why drives Panama’s connectivity?

Transshipment activity– Manzanillo = 84% – Balboa = 92%– CCT = 69%– Cristobal = 76%

Without transshipment Panama would have very little connectivity

Transshipment drives Panama’s connectivity

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Increasing Panama’s Transshipment

Ideally Panama’s ports function as a single port connected by conveyor belts in each direction

Transshipment must be fast and reliable

Integration of all components in the network is essential

Better disruption mitigation is needed

Bigger ships create more transshipment

Panama has excellent connectivity but must work to maintain and increase

Transshipment locations are easily changed by carriers

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