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CMR Exposed.


Maintenance outsourcing of port equipment

June 2001

Container Management

Reinventing the deal

Container managers are talking about the concept of outsourcing for ports, terminals and liner agency as if it is a new idea. The concept has, in fact, been tried and tested elsewhere in other sectors of the industry almost since it began. Steve Cameron analyses the potential of outsourcing.

Within the ports and terminals industry, the hire of labour has been outsourced for a number of years: time chartering a vessel complete with crew is a form of outsourcing, as is subcontracting liner agency functions, or local haulage. None of these are seen as particularly ambitious or novel approaches to the industry, but they are simply the tip of the outsourcing iceberg.

As the economic pressure mounts, businesses are looking for ways to simultaneously deliver better service while becoming more efficient and cutting costs. Some shipping lines are choosing to insource terminal operations, while ports and terminals look to outsource more of their own operations. Both approaches can be considered a natural evolution as operators strive for the efficiency gains required to compete in the international marketplace.

A similar divergence has been seen with liner agencies. Major lines are buying into or establishing their own agency network, yet elsewhere, third party agency networks have been combining and outsourcing some of the functions. The result has been a move towards combined neutral offices to cover back office operations such as documentation and administration, as well as transport and container logistics. Outsourcing options

The range of outsourcing options is only limited by the approach ports and terminals take to their business: IT, labour supply, equipment supply, financing and maintenance are the most frequent choices. It has become increasingly common for ports to hand over maintenance, in particular, to an outside supplier.

Scandinavian equipment manufacturer, Kalmar, for example, has launched a new division - Kalmar Solutions - which aims to provide ports with complete supply, maintenance, and fleet management services for container handling equipment (whether or not it was bought from Kalmar in the first place). They scored a major contract in Marseilles, the Eurofos terminal.

While they are happy to simply repair existing machines as required, the contract can be as ambitious as the port itself not owning any handling equipment, with Kalmar owning the assets and providing a service with payment based on production targets, or other agreed criteria. While Kalmar's expertise with their own product base is unquestionable, the company's recent purchase of Dutch crane manufacturer, Nelcon, will bring a range of additional core competencies, said Kalmar Solutions president, Raimo Ylivakeri.

Ylivakeri stressed the flexibility of the service, explaining that the package depends entirely on the customers' requirements, and can cover all types and brands of port handing equipment. The real proof of this will be in the successful award of an outsourcing contract for a large non-Kalmar fleet. (The company won its first major contract in the Eurofos terminal operated by the Port of Marseille, but this is dominated by Kalmar machines.)

Another company operating along similar lines is the Singapore-based crane specialist, Portek. Managing director, Larry Lam, presented the outsourcing argument at last year's Container Asia conference: a company specialised in maintaining cranes was able to realise economies of scale, train staff to a narrow skills set and therefore higher level of expertise in that field, and relieve the massive cost risk of crane downtime by bearing this as part of their contracted responsibilities. vA number of terminal operators in the region seem convinced, with Portek's client list including PSA's Pasir Panjang Terminal (Singapore); and a range of Indonesian ports and terminals led by a strong relationship with the Terminal Petikemas Surabaya.

A degree of focus and expertise can benefit just about any area of port operations - in the Port of Antwerp, for example, a flexible labour supply is provided by outsourced labour. Peter Bosmans, a spokesman for the port through its education office, the Lillo Port Centre, believes the benefits of a dedicated labour pool include better trained staff, claimed to be up to 30% more productive than those in competing ports nearby. Antwerp, as a result, has able to pay higher wages than other ports, and the labour pool is clearly appreciative: unlike other well known European ports, Antwerp has not had a strike since 1975.

Further gains could still be made, however, Bosmans feels. Along with other observers from Antwerp, he points to the success of local manufacturing and chemical companies that have outsourced a wide range of functions to allow them to concentrate on their core competencies - manufacturing. Antwerp's increasing success as a global centre of chemical industry owes much to outsourcing, observers believe.

A recent example has been a contract won by Barlow Handing with Corus Aluminium Antwerp which is believed to cover full our sourcing of a large fleet of more that 100 items of equipment from fork trucks to mobile cranes. This contract raises some interesting issues for Antwerp maintenance providers: the machinery servicing the bulk cargo sector can very similar to that used in container handling, and the benefits of large cargo handling equipment pool covering both industries could be significant. Yet many of the stevedores in Antwerp still operate their own individual equipment fleets, only relying on general supply companies like Catracom and Cuypers to cover their shortages. So it remains to be seen if companies like Kalmar Solutions and Barlow Handling make progress in this area, or if the continued process of consolidation of the Antwerp stevedores provides the efficiency gains that all players in the industry are seeking.

Overseas edge

Catracom, one of the equipment suppliers servicing the Antwerp market, also specialises in providing handling equipment and expertise to ports and terminals in emerging markets, such as West Africa. In this type of environment, the benefits of outsourcing can be even more persuasive for operators.

As a carrier specialising in services to this region, OT Africa Line, was often bemused to find that, after significant investments in handling equipment by the ports, an initial dramatic improvement in service was then followed by a return to previous poor levels as handling equipment deteriorates or is put out of service due to a lack of spares and maintenance. Some of these ports still have graveyard areas full of machines that have been allowed to fall into disrepair after relatively a short time. Port productivity drops, damage increases, and not surprisingly, banks are not prepared to lend more money for further investment in the port.

Outsourced responsibility for maintenance tasks could break this cycle, whether as a straightforward maintenance contract, or a complete package spanning the supply of equipment, maintenance, and the evening the training and drivers to ensure maximum productivity from the investment.

Another opportunity is provided by the range of financial options companies such as Catracom, Kalmar Solutions and other full-service equipment specialists can provide: payment can be a difficult issue in cash strapped ports, with hard currency often diverted direct into central government.

Suppliers must be careful to evaluate all potential problems - the establishment of residual values at the time of ownership transfer, for example, could have significant implications should there be a significant difference against book value. The choice of service levels, and structure or description of any subcontracting, is likely to be dictated by both financial and operational requirements as well as local political issues in Africa - mere rumours of job losses due to changing management practices, for example, have led to strikes and near riots in Africa in the recent past. But for the number of African ports considering privatisation, and the terminal operators eyeing those concessions, outsourcing holds the potential to transform service levels in the region.

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