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Student number: SML S17099 Specialization: Shipping Management and Logistics (SML)

TYPE OF ASSIGNMENT: Individual Assignment Class of 2017 Term 1 Subject: MGM 104 Fundamentals of Shipping and Port Management – Topic 2

Number of credits: 4 EC Date: 13 March 2017 Given by: Professor Devinder GREWAL

Word count: 2200 (Excluded table of contents and reference list)


Table of Contents Abbreviations ............................................................................................................................. 3 Introduction ................................................................................................................................ 4 Colombian Port Governance Background ................................................................................. 5 Import and Export Profile .......................................................................................................... 6 Port Management Structure ....................................................................................................... 8 Economic Function. ................................................................................................................... 9 Location .............................................................................................................................................. 9 Frequency of ship calls ..................................................................................................................... 10 Port Charges ...................................................................................................................................... 10 Land Use and Hinterland Properties ................................................................................................. 11 Sustainable development .................................................................................................................. 12 Terminal Efficiency .......................................................................................................................... 13

Conclusion ............................................................................................................................... 15 References ................................................................................................................................ 16 Annex A- Docking line from March 10 to 14, 2017 - Santa Marta Port Society. ................... 18 Annex B – Port Charges Comparison – Use of terminal facilities. ......................................... 19

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Abbreviations BP COP DIMAR DWT EU Km Mt SMPS TEU

BolĂ­var Port Colombian Peso Maritime General Direction - Colombia Dead Weight Tonnage Europe Union Kilometers Meters Santa Marta Port Society Twenty-Foot Equivalent Unit.

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Introduction Ports play a strategic role in the economic development of a State. The port is the focal point of the supply chain between companies producing goods and services, shipowners and buyers. The production concept, trade, and transport cannot be analyzed separately. The efficiency of a port and its competitiveness depends on factors such as increase cargo terminal efficiency, reduction of costs and procedures, optimize land use and social responsibility. The scope of this assignment is defined initially by the Colombian port governance background, giving a short historical review of the milestones that changed the national port strategy from a centralized, disorganized and bureaucratized to a planned, decentralized and regulated policy (Viloria, 2000). Additionally, with mixed capital composition with the strategic projection to serve as a link for intermodal transportation. Furthermore, a description of the import and export profile will be made to have an unobstructed panorama of the type of products that circulate through the Colombian ports. Moreover, an analysis of the economic functions of Santa Marta Port Society (SMPS) was developed. With the aim of discussing the management structure, factors like location, the frequency of ships calls, cargo handling capacity, land use, and social responsibility were evaluated based on historical data and statistics. All things considered, the conclusion was described, to assess the Colombian port governance and how had has influenced the port management, what challenges the State has to face to increase the degree of specialization, and which measures are necessary to improve the port performance in an intense international competition.

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Colombian Port Governance Background The beginning of cargo containerization was selected as the departure date. In the 1950´s and 1960´s the Colombian ports were controlled by the State, with centralized administration, high costs of operation, cargo handling, and storage. At the beginning of 1960 Colpuertos was created through the Law 154 and the ports were managed by the national state monopoly. During the seventies, the State authorized the entry of private companies to operate ports to exports primary commodities (Gaviria, 1998). In the period 1980-1989, Colpuertos described losses in their financial balance. During 1989, the worst balance of the decade was reported, with losses exceeding 14.3 billion Colombian pesos (COP). Ports trade unions imposed restrictions on working hours, and high wages and benefits and salary costs increased by 23%. In 1986 Buenaventura Port was active only 40% of the year and in 1987 Cartagena Port only 50%. The main problems of the ports were the poor use of the physical space and the cargo reserve; the last term was defined by Viloria (2000) as the sole guarantee of Colombian shipping companies to transport domestic export products without competition and imports products for local industry. For better understanding, the events mentioned above are plotted in Figure 1.

Figure 1: Colombian Port Governance timeline - Elaborate by David Restrepo Note. From various sources.

In the early 1990s, the situation was critical, and there was an excess of personnel, bureaucracy, trade unions limiting the efficiency and productivity of ports, cost overruns in the port service, corruption and limited investment in infrastructure. Under those circumstances, the State bearing to move into an internationalization process of the economy and decentralization of public administration since the 1990s has asserted the need of becoming more competitive in the seaborne trade. In this context, Colombia enters into a process of economic integration and

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among the different political reforms establishes the Law 1"# of 1991 Statute of Maritime Ports and other provisions (National Congress, 1991, p.1).

Originating changes to the port

management from the public to the private sector. With the insertion of Colombia in the international markets, through the seaborne trade and ports development, the economy of the country begins a process of growth that translates into a greater movement of merchandise both regarding exports and imports. Despite the real economic difficulties, the national government has been establishing policies for the port expansion and logistics management strengthening. These strategies aimed at improving the efficiency in the Colombian maritime shipping industry and ports services (Restrepo, n.d., p. 4).

Import and Export Profile Observing the statistical figures of the Colombian international trade according to the Ports and Transport Superintendence, Oyola (2016) in Figure 2, below, in the first quarter of 2016, exports decreased by -6.7% compared to the same period of 2015. Under those circumstances, 2.4 million tons less than in 2015. Exports in coal in bulk cargo and liquid bulks were 63% and 33% respectively, of total exports; Presenting a reduction of a -2.8% and twelve-point-five percent -12.5%, separately. The major bulk cargo trade was 1.9 million tons less, falling 8%, the total amount of export trade decreased -6.7%. Furthermore, the movement of container cargo during the first quarter of 2016, was 549.000 TEUs, this number represent 10.000 TEUs less compared with the same period of 2015, declined -2%. However, the private and public sector executed investment in the construction of eight new port facilities, with investments in order of US$ 53.9 million. Not to mention, the total cost of transport and insurance in the Colombian ports, are 30% higher than the world average (Ajagunna, I., & Pinnok, P. F., p. 318).

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Figure 2: Colombian exports trade in 2016 by type of cargo - Elaborate by David Restrepo Note. From The World Bank IBRD•IDA (2016).

Under these negative trends in the Colombian seaborne trade, it is important to contrast with the liner shipping connectivity index (LSCI), published by the World Bank in 2016. This measure is based upon of the shipping services, trade facilitation, quality standards and international regulations. It is clear to see the current position of Colombia in the region, in Table 1, occupying the third place among the countries of North, Central and South America excluding Canada (Restrepo, n.d., p. 6).

Source: Adapted from (The World Bank IBRD•IDA., 2016)

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Port Management Structure After the enactment of the Law 1"# of 1991, as explained by the background, port societies were created as entities with administrative autonomy, mixed equity (private/public capital) and legal status. The operation, management, maintenance, loading and unloading services and storage among other related services are the primary functions of this Port. Figure 3, shows the hierarchical structure of the Santa Marta Port Society (SMPS). At the managerial level, the corporation has the shareholder general assembly, the directors board, and the presidency. The port company assigns concessions for port operator whom, following a public tender wants to develop any port terminal inside the facilities of the Port Society. For this particular case, the SMPS has four different terminals or port operators, general cargo, bulk cargo, liquid bulk, and containers. Each terminal handles its processes independently, however, integrates all the logistics processes with the SMPS and the others terminals through the regulation of technical operational manual.

Figure 3: Santa Marta Port Society Management Structure. Elaborate by David Restrepo Note. From (SPSM, 2016).

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The specific functions defined by law for port operators include: port services, directly related to the port activity of loading and unloading, storage, pilotage, towing, stowage and unloading, land management, cargo handling, dredging , emptying and filling of containers, classification, recognition and taking of samples, mooring and untie, service of boat, opening and closing of warehouses, minor repairs, stripe, rent of equipment and all other activity that takes place in the port terminal. (National Congress, 1991).

Economic Function. After having made a general description of the characteristics of the port, and considering according to Tongzon (1994) the primary function of a port is to serve as a link throughout the logistics and supply chain. Consequently, its level of efficiency and performance will determine to a large degree the competitiveness in the market. Hence the importance of considering the determinants of performance.

Location Santa Marta Port Society has the best natural deepwater port in the country, but it has the disadvantage of being surrounded by the city and mountains which restrict its possibilities of future expansion. The port is located at the northwestern of Santa Marta Bay, on the Caribbean Sea, framed to the north by San Martín and Ancón Hills and the Taganguilla cove. The direct access it’s through the Caribbean highway and one indirect access through the railway connection. Figure 4-5, shows the general location in South America, the Caribbean coast and the specific land distribution.

Figure 4: General location of SPMS. Elaborate by David Restrepo. Image from Google Apple Maps.

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Figure 5: Land used by Bolivar Port. Elaborate by David Restrepo. Image from Apple Maps.

Frequency of ship calls The volume of cargo handled by SMPS by the docking line published for March 10, 2017, in Annex A, (SPSM, 2017) shows an average of 3 vessels per day at container terminal Nยบ2. In dry bulk dock Nยบ4, it handles a slower traffic, with an average of 48 hours per ship in cargo handling of products. The dock Nยบ7 for coal, manages a similar frequency, with an averaging between 36 and 48 hours, the IYO WIND, for instance, loaded 49,000 tons of coal in 45 hours. It is highlighted that the anchorage area handles a queuing line of 3 or 4 ships per day, which shows reduced operational efficiency. Finally, consolidated ships call for 2016 were 964, with an average of 80.33 per month. (DIMAR, 2016). Port Charges Port charges for operation service facilities of SMPS were compared to the three port terminals whom represent the closest direct competition for SMPS. (Annex B).

The most relevant

difference is in the cost by TEU's movement of 20 'and 40'. The Cartagena container terminal being located 120 miles southwest of SMPS is the most expensive on the Caribbean coast, this

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variation could be derived from the secure access to the Cartagena Port and the reduced waiting times in anchorage area and the cargo handling speed. The port with the lowest used for terminal facilities charges, it is the Palermo container terminal, near to the city of Barranquilla, and 45 Nm to the South-West of the SMPS. The cost per movement USD $ 35.00 could be due to the difficulty access to the port through the Magdalena River access channel. Provided that, it can be inferred that the difference in the rates is directly related to the cargo handling speed, and the waiting times to access the terminal docks. Land Use and Hinterland Properties As can be seen in figure 6, the port facility only has one access road, which is perimeter to the city of Santa Marta, this helps to avoids traffic jams. However, the land behind the port is fullhabited, and the topography surrounding the port from the north does not allow future expansions. The road infrastructure is limited and insufficient to prevent bottlenecks. Also, any partial blockade on the access road paralyzes port operations.

Figure 6: Hinterland properties. Elaborate by David Restrepo. Image from Apple Maps.

Evaluating a possible marginal quay extension in dock Nยบ7 or dock Nยบ2 would not be suitable since it generates blocks in the port access channel. Furthermore, the water land competition between the terminal (dock Nยบ1) and the small local fisheries, cause congestion problems that reduce the productivity. As can be seen in figure 7, the water land competition is highlighted with red lines. Additionally, the SMPS migrated the industrial activities through the Ro-Ro

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storage yard, marked with Nยบ2 in the figure, show the location of another yard inside the residential area close to the port.

Figure 7: Land use of SMPS. Elaborate by David Restrepo. Image from Apple Maps. Adapted from

Sustainable development Regarding sustainable development, SMPS has implemented measures to mitigate the environmental impact generated by the management of coal and other solid bulk. During the year 2015, retaining walls were installed around the coal storage yards (Y4-Y5). However environmental contamination is evident, in Figure 8 carbon particles are observed around the storage yard. For port management, it should be a priority to take measures to reduce environmental effects within a more appropriate standard. Despite the environmental considerations, it is necessary to recognize that SMPS is a pole of growth for the city, the generation of direct and indirect jobs is significant. In addition, SMPS has developed initiatives to improve access to education and basic services such as potable water and electricity in rural indigenous populations.

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Figure 8: Land used by Bolivar Port. Elaborate by David Restrepo. Image from Apple Maps.

Terminal Efficiency For port efficiency purposes, the number of container movements during the year 2015 was evaluated, with a total of 302,550 TEUs. (DIMAR, 2016). Regarding TEUs loaded and unloaded per hour, the figures published by the entity are estimated according to the average terminal efficiency at 34.48 TEU/hr. Assuming that the international optimum standard establishes a value of 35 TEU/hr, the port terminal has normal cargo handling speed in containerized cargo. Regarding dry bulk cargo, the average yield is 10,776 tons/day. The RoRo cargo register 322 units/hr. In the case of general cargo, in particular steel and ammonium nitrate, an average of 300 tons/hr was recorded. Therefore, the problem of the Port Society is the dock space available, for instance, the total length of the dock Nยบ2 and Nยบ3 are 345 Mt. If a ship of 300 mt length calls the terminal, and its located in dock Nยบ2, then dock Nยบ3 will be disabled generating more queuing. According to the information described above, the theoretical concept of Queuing System Cost was used to illustrate the relationship between the operating costs against the service level evaluating the information provided in Annex A - Docking line from March 10 to 14, 2017. (Figure 9) We identified the waiting time of a vessel to dock at Pier No. 3 was 53 hours 6 minutes. In this

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case, the option to reduce wait lines is to increase cargo handling speed, optimized cargo handling through the implementation of analytic data tools, storage, and inventory management and improving hinterland properties.

Figure 9: Assumption for Queuing System Cost – 10mar17 - SMPS. Elaborate by David Restrepo Note. Adapted from (Ballini, 2017)/(SMPS, 2017)/(Stopford, 2009)

The balance of terminal efficiency, regarding these figures in contrast with other Colombian ports, the SMPS is an efficient port despite the physical space limitations.

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Conclusion Given the discussion before, the Colombian administration has a long way to go if it intends to be an international logistics reference, as a node in the supply chain. They must have a competitive approach based on the quality customer services and proactive management, generating added value beyond the own traditional functions, being configured as an instrument of foreign trade service to the supply chain. Thereupon, a detailed analysis of the future development projects, for new port installation and expansions its required to achieve an effective port net, to link the domestic trade with the rest of the world. It is therefore recommended that the port strategy is focused on increasing the speed of cargo distribution, i.e., improving the conditions of intermodal transport. This development is a responsibility of the State supporting the private capital investments. In the particular case of the SMPS, the investment master plan is very limited due to the physical space available. For this reason, improving communication channels to connect the port is a priority to increase operational efficiency. The goal of the SMPS port manager should be, considering the limitations of land, to provide a differentiated service, based on quality and competitiveness, through the integrated processes, optimized cargo flow implemented analytic data tools and an adequate used for hinterland properties. His or her decisions should be based on the correct analysis of the maritime information network and the global digital framework, in other words, analyze the external and internal environment to reduce costs, improve processes, services, and utilities.

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References Ajagunna, I., & Alix, Y. (2012). Partie III - Approches stratégiques et prospectives. In P. F. Pinnok (Ed.), Les Corridors de Transport (pp. 313-322). Paris: Editions EMS. doi:9782-84769-448-2 Ballini, F. (2017, February 7). The theoretical basis of Queuing Theory. Lecture presented at MGM104 Fundamental of Shipping & Port Management in World Maritime University, Malmö. DIMAR. (2016, November 30). Queries and downloads. Retrieved March 8, 2017, from http://app.dimar.mil.co/zonadescarga/Formularios/frmMenu.aspx Gaviria, J. (1998). Port Privatization and Competition in Colombia. Viewpoint, 167th ser. Retrieved from (www.worldbank.org/ html/fpd/notes/I.) Grewal, D. (2017, February 10). Management of ports. Lecture presented at MGM104 Fundamental of Shipping & Port Management in World Maritime University, Malmö. National Congress. (1991). Law No. 01 of 1991 (Ser. 39.626) (Colombia, National Congress, Ministry of Transport). Bogota: Presidency. Oyola, G. (2016). Statistical bulletin maritime traffic in Colombia - First quarter 2016 (1st ed., Vol. 1) (Colombia, National Congress, Ministry of Transport). Bogota. Retrieved November 19, 2016, from http://www.supertransporte.gov.co/documentos/2016/Julio/Puertos_11 Paredes, Y. (2010, July 1). Port Logistics [Scholarly Http://www.supertransporte.gov.co/. Retrieved February 7, 2017.

project].

In

Restrepo, D. A. (n.d.). An analysis of the Cartagena – Colombia port development by Network Hub Port Assessment (NHPA) in a fluctuating macroeconomic environment (Unpublished master's thesis). World Maritime University. Santa Marta Port Society Statutes, 2016 Http://www.spsm.com.co/Empresa/Estatutos.aspx 42 § I (SPSM 2016). SPSM. (2012, December 31). Santa Marta Port Society Land Use Plan. Retrieved February 06, 2017, from http://www.spsm.com.co/Puerto/Plano.aspx Stopford, M. (2009). The organization of the shipping market/The role of port in the transport system. In Maritime Economics (3rd ed., pp. 47-89). New York: Routledge. doi:0-20389174-0

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Tongzon, J. L. (1995). Determinants of port performance and efficiency. Pergamon, 29A(3), 245-252. doi:0965-8564(94)00032 Viloria, J. (2000). From COLPUERTOS to private ports: The ports of the Caribbean, 19901999 (Vol. 16). Cartagena, BL: Republic Bank of Colombia. The World Bank, & PPIAF. (2007). Port Reform Toolkit (2nd ed., 1-8, Rep.). Washington, DC: The World Bank. doi:10.1596/978-0-8213-6607-3

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Annex A- Docking line from March 10 to 14, 2017 - Santa Marta Port Society.


Annex B – Port Charges Comparison – Use of terminal facilities.

Source: Elaborate by David Restrepo. Note: From DIMAR. (2016, November 30). Queries and downloads. Retrieved March 8, 2017, from http://app.dimar.mil.co/zonadescarga/Formularios/frmMenu.aspx.

Fundamentals of Port Management  

The scope of this assignment is defined initially by the Colombian port governance background, giving a short historical review of the miles...

Fundamentals of Port Management  

The scope of this assignment is defined initially by the Colombian port governance background, giving a short historical review of the miles...

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