New Paradigm of Port/Airport Logistics

Most FTZs are located near port; lots of them are within port hinterland. Port hinterland is one of most important concepts in transport geography. Traditional spatial concepts of port hinterlands and forelands along with the related port-marketing terminology have become less relevant. Ports are influenced by the globalization, deregulation and privatization. The paradigms of ports were still changed. Before 1960s the ports were the morphological framework. In 1960s and 1970s, ports focused on the operational efficiency framework. And in early1980s, ports were as economic units and focused on ′economic principles′ framework. Between 1980s and 1990s, most researches showed that port governance and policy framework were most important. Recently, port shifted into a new paradigm as elements in value-driven chain system. UNCTAD (1999) also defined four- type generations, in which first and second generation ports are related to ship/shore and industrial interfaces, with second generation-types being reliant more on capital than labor. Third generation ports are a product of the unitization of sea-trade and multimodal cargo packing, which has led to the development of ports as logistics and intermodal centers offering value-added services. Four generation ports are mainly the result of port potential and functional change. Such classifications exemplify not only the functional evolution of ports, but also the diversification of port activities.

According to Bichou and Gray (2005), while a port can have many roles and functions, a variety of activities and services can also take place within ports, and different port operations create different value-added services. In traditional ports, the activities focus on cargo handling services, but port services have gradually edged towards handling logistics services. In order to show their competitive advantage, such ports have moved toward productivity-advantage leadership, or moved upwards, towards value-added service leadership. Moreover, they have integrated added value and logistics services within the port area (as seen in Figure 2-1). Nowadays, a number of ports have responded to this trend by focusing on value-added services as a means of gaining a competitive edge.

Furthermore, many countries build Free Trade Zones within or close to ports to extend pure

logistics into a maritime logistics and manufacturing function, and thereby take advantage of trading within ports.

Figure 2-1 Matrix of Competitive Advantage and Service Function

Additionally, the growth of global business has made the value of maritime logistics services to the competitiveness of port. Different scholars have considered the concept of port value chain (such as Robinson, 2002; Bichou and Gray, 2004; 2005) and maritime /port logistics (Panayides and So, 2005; Panayides, 2006). Robinson (2002) argued that in the context of value networks, competition takes place along value chains as opposed to between individual ports. Robinson (2006) also noted that competitive advantage does not necessarily mean the maximization of profits, and the advantage could be gained in the long run at break-even or better than break-even point. Ports are one element involved in freight movement in end-to-end pathways or logistics pathways, and the notion of logistics pathways connotes a sequential set of separate logistics ′operations′, for example, warehouse, depot operation, shipping, trucking, and freight forwarding that deal with the end-to-end movement of freight. In fact, firms are increasingly competing not as individual firms but also within chains or supply chains; and supply chains, rather than individual firms, compete with supply chains. So, ports do not compete simply on the basis of operational efficiency or location, but on the basis that they are embedded in chains that offer shippers greater value (Robinson, 2006). Furthermore, the more value pools, the more set of functions are integrated into the landside logistics operations. In other words, integrated value-added services in the FTZs depend on ports providing more value

Traditional High

Focus on: capable of delivering

Focus on: capable of delivering

pools. The concept of value networks in port environments argues that competition takes place among value chains as opposed to among individual ports. Port value chains thus are not limited on logistics channels, but can also be divided according to transportation system into route, forwarder of transportation and customer clearance, loading/unloading etc. All functions are integrated with deliverer (Bichou and Gray, 2005). Ports play an important role in integrating all three types of channel. Many organizations are involved or potentially involved in logistics and supply chain integration within and around ports, in the role of logistics channel facilitators (ocean carriers, land-based carriers, port operators, freight forwarders, port agents, etc.), trade channel members(shippers), and supply channel associates (manufacturers and retailers). Therefore, Bichou and Gray (2004; 2005) indicate that ports can provide more roles and perspective from integration within the role of logistics, trade and supply channel. These roles could be described as follows:

a. From a logistics channel standpoint, ports are very important node since they service as an intermodal/multimodal transport intersection and operate as a logistics center for the flow of goods (cargo) and people (passengers).

b. From a trade channel perspective, ports are a key location whereby channel control and ownership can be identified.

c. From a supply channel approach, ports not only link outside flows and processes but also create patterns and processes of their own. At this level, ports are one of the few networking sites that can bring together various members in the supply channel.

This new approach extends the traditional port system to an ′integrated channel management system′ where the port stands as a key location linking different flow and channels with their members.

Another concept in maritime /port logistics is that maritime transport concerns the transportation of goods and /or passengers between two sea ports. A supply chain consists of the series of activities and organizations that materials (raw materials and information) move through on their journey from initial supplier to final customer. Notably, maritime logistics is the concept of integration of physical (intermodal), economic/strategic (vertical integration, governance structure) and organizational (relational, people and process integration across organizations) (Panayides, 2006). It is crucial that logistics and other

added value services be provided at the right time and place to enhance production and delivery efficiency. The FTZ simply can serve this purpose.

Generally, ports are involved with both port and non-port business activities.

Although some studies, for example, Haralambides and Veenstra (2002), limit the core business of ports to cargo handling only, the World Bank broadens port activities to include a range of value-added services (including both value-added logistics and value-added facilities). Nevertheless, port industries can be classified into two traditional types (Huang, 2006): (1) Port dependent industries, including shipping, fishery, ship repairing, international shipping companies, etc. and (2) Port related industries, including containerizing, customs clearance, trading and manufacturing. Following the functional change of ports, the activities of ports now place emphasis on a high degree of global production and the need for value-added logistics (VAL) services. These services include labeling, assembling, semi-manufacturing and some kinds of integrated services which combine logistics and industrial activities. However, most of these industries might tend to cluster within ports, and spatial clustering of such industries may enhance the competitive position of ports. A lot of research has been carried out regarding the link between industries and international competitiveness (Robinson, 2006; Rugman, 1991), and various subsidiaries or lower-cost, leading-edge clustering might have more international market scope (Birkinshaw and Hood, 2000).

Porter (1991) proposed a value chain analysis that divided all activities in the value chain into two kinds of activities: (1) Primary activities: referring to activities directly relating to production and sales, which create the largest profit for firms. These activities include inbound logistics, operations, outbound logistics, marketing and sales and after-sale services. Given the purpose of FTZs to create maximum added value to transshipment, the primary activities of FTZs are activities that could create added value to transshipment. (2) Support activities: referring to activities which support the primary activities. As for FTZs, support activities are firm infrastructures which support the whole value chain. Once the high value-added industries locate in FTZ, their major related industries might also locate within FTZ area in order to support their core activities. Hence, FTZs create maximum transshipment through these kinds of core industries and their related industries within FTZs.

Due to limited space of a FTZ, some related industries may locate in other bonded area or

domestic tax area to neighbor with those core industries.

Figure 2-2 Relationship between Core Industries and Other Related Industries