Incorporating flexibility in terminal design Planning vs. Reacting, A Cost Comparison

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Incorporating flexibility in terminal

design

Planning vs. Reacting, A Cost Comparison

Thesis Proposal

Pieter Leo (1327380)

Transport & Infrastructure and Logistics

Date: 01 August 2014

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Research Proposal

Course TIL 5050, Thesis

Program Master Transport, Infrastructure & Logistics Specialization Transport Engineering

Company APM Terminals

Author P.M.C. Leo

Student number 1327380

Faculty Civil Engineering and Geosciences

Section Hydraulic Engineering

Graduation Committee

Chairman Prof.ir. Tiedo Vellinga (HE CiTG)

Professor Ports and Waterways,

Faculty of Civil Engineering and Geosciences Delft University of Technology, Delft

1st_supervisor _{Dr. Bart Wiegmans (T&P CiTG)}

Senior Researcher Port Performance Faculty of Civil Engineering and Geosciences Delft University of Technology, Delft

2nd_supervisor _{Dr.ir. Poonam Taneja (HE CiTG)}

Researcher Flexibility of Ports,

Faculty of Civil Engineering and Geosciences Delft University of Technology, Delft

3rd_supervisor _{Dr.ir. Dingena Schott (TEL 3ME)}

Associate Professor Bulk Materials,

Faculty of Mechanical, Maritime and Materials Engineering Delft University of Technology, Delft

External supervisor Ir. Wijnand Visser (APMT)

Principal Engineer Business Implementation APM Terminals, The Hague

This document is the property of APM Terminals and may contain confidential and proprietary information. It may not be used for any purpose other than that for which it is supplied. This document may not be wholly or partly disclosed, copied, duplicated or in any way made use of without prior written approval of APM Terminals.

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Preface

“Nothing is more flexible than water”

-Lao Tzu

This document is the start of the closing chapter of my Master Transport, Infrastructure and Logistics at the Delft University of Technology. It contains the start of a Master thesis researching the flexibility of container terminals.

This research will focus on construction cost of terminals when changing the type of cargo handled. I intend to broaden my knowledge in the construction and design of different types of terminals whilst researching the advantages and disadvantages of initial flexible terminal design.

I would like to thank APMT for offering me a thesis position within APMT and all my supervisors in helping me scope and find a subject which offers depth and complexity but is manageable in the timeframe of 6 months.

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1. Introduction

1.1 Background Information

1.1.1 APMT

APM Terminals is a global container terminal operator that was established in 2001 as part of the Maersk Group. It currently operates 65 terminals spread over 6 continents and with 8 offices worldwide and everything is headquartered in The Hague. The Secondary business units are container inland services and cargo support.

In 2013 the company had a revenue of 4.3 billion dollars and handled 36.3 million TEU which is an increase of 3 percent compared to 2012 (APM Terminals , 2014). This was done by the 20,300 employees working for APM Terminals worldwide. The company has increased its market share in upcoming economies in Russia and Brazil in order to stay competitive and so an increase in market share in both economies can be noted.

Figure 1.1- APMT terminal locations (APM Terminals , 2014)

The future of APM Terminals is secure and promising due to the current rise of economy. Trade volumes are increasing, Figure 1.2, because of an increase in globalized wealth and a change in corporate strategies (International Maritime Organization, 2012). Globally this has resulted in more terminals with a focus on BRIC countries as can be seen in Figure 1.1. This growth is covered in the APM Terminal business model “we create value for our clients that they cannot get from anyone else”. This is done by offering expertise, operational excellence,

Figure 1.2 - Container Trade Trend (Drewry Shipping Consultantds ltd, 2013)

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The Flexibility of Container Terminals 2 investments, the right innovations and is offered worldwide.

2010 was the start of its first sustainability challenge, with clear goals in lines of safety, emissions, spills and labor standards. Figure 1.3 shows that large steps were made by 2013 to reach the sustainability goals. However more work needs to be done to fully integrate sustainability in the ways of working, For the future of sustainability at APMT the credo is, “Creating shared value and building communities through economic development and sector-leading social responsibility.” (APM Terminals, 2013)

With the above goals in mind APM Terminals has approximately invested $1 billion annually on new terminals, terminal expansion and innovation (APM Terminals , 2014). The Business Implementation department at the head office in The Hague is in charge of successful execution of these investments. Within Business Implementation, Project Engineering manages the design, development and engineering activities, to prepare APMT for the future. A task which in prospects, opportunities and uncertainties are grasped for the next leap forward.

1.1.2 Terminal Flexibility

In a world where customers decide markets and where the flexibility of people, companies and corporations is requested as a service the trade market must react. In the past products were transported by ships that were commonly deployed between two terminals (Lee, Wan, Shi, & Li, 2014). As such, companies markets and terminals were optimized for a particular trade with little to no variations in product or destination. These days an open market and a change in consumer behavior has created a world where products are sold to the highest bidder and the choice in supplier are not confined by boundaries (Thanapoulou, 1998).

This change has caused cheaper products for consumers, but a very irregular and uncertain trade market for terminals and transportation companies. Business margins for both sectors have decreased and only by reducing cost via automation, economies of scale and synergy the profits can increase (Dekker, Verhaeghe, & Wiegmans, 2011). Yet there are other opportunities, terminal flexibility is a sound example. Terminal flexibility is a term that has been introduced in academics in the beginning of 21 century (Taneja, 2014). It is seen as a reaction to the volatile world market and the shifting function of ports. The need for this flexibility is found in one major issue, time. This can be explained by an example, whilst in the design phase of a terminal a port master planner creates a sketch for the next decades. This plan is filled with uncertainty and the initial development plan might be outdated on completion. Research shows that this is because paradigm shifts and structural shocks to the system are not considered by planners (Notteboom & Rodrigue, 2009), resulting in many outdated new terminals.

Flexibility in a terminal design enables the operator to adapt a volatile market. It is a design tool in which uncertainties and its probabilities can be attached to create a design that within its lifecycle makes a terminal most profitable. Flexibility costs money but reduces potential risk (higher costs in the future).

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Investing in flexibility is a choice which management should make based on uncertainties in an early stage of the design phase.

1.2 History of Terminal Design

Terminals and ports have always been designed in such a way that goods can be transshipped safely and quickly (de Gijt, 2010). This has been done so that an excellent business climate can be created in which local economies prosper. The handling speed of a terminal is dependent on many factors i.e. policy, available labor force, automation, design and many more. Terminals are usually situated in river basin or estuaries as these add an extra modality to the port infrastructure.

In Western Europe the price of labor has risen in the past decades (Bauer, Bredtmann, & Schmidt, 2013). This has led to a rat race in efficiency between terminal operators in the le Havre-Hamburg range to become the most cost efficient terminal and as a result offer the most competitive prices. In this line Royal Haskoning received the first tender to design and engineer a dedicated terminal in Felixtowe solemnly meant for container transshipment (Royal Haskoning, 2014). This increased the handling speed and capacity tremendously and gave this operator an edge. This event started a new volley of dedicated terminal construction which is still happening all over the world today. From the small terminals built in the fifties to the first class fully automated terminals on the second Maasvlakte today.

Figure 1.4- Examples of Terminal Design

In terms of construction there has been a change. In the past ports and terminals were over dimensioned in construction strength, necessary water depth, and area because of safety margins on engineering calculations. This led to undeliberate flexibility reaping benefits for those terminals operators with the increase in ship size we have seen in the last ten years (APM Terminals , 2014). This is in stark contrast to the current newly designed terminals which are designed exactly to the predefined specifications. Many

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The Flexibility of Container Terminals 4 terminals now notice that any market variations means a full redesign of a terminal resulting in major deficits (Smissaerts, 2014). The extra costs are high and they could have been suppressed if flexibility was used in the decision making process.

1.3 Problem Definition

In modern day container terminals are measured based on efficiency and costs. How can the terminal operator reduce handling time, increase the volume of handled cargo, and decrease quay time? All these questions result in a higher efficiency and a possible increase in profit. Section 1.2 indicates the design of dedicated terminals in which this efficiency is sought after for a dedicated cargo type. The dedicated terminal was designed at the end of the sixties (Wilmsmeier, Tovar, & Sanchez, 2013) and was designed to avoid interference of different cargo flows and increase the efficiency of terminals. But times have changed and automation is gradually taken tasks away from manual labor which is hastening processes. Likewise the margins on container shipping are decreasing and in some locations in the world the volume of containers handled is not enough to feasibly build a dedicated terminal.

The past few years APMT has seen a large growth in trade around BRICS countries and as a result many new terminal projects have been set up in these countries. Market research on these countries show that besides containers and trade they are and will become even bigger players in the bulk market (Dinwoodie, Landamore, & Patrick, 2014). This trend has caused APMT to look into expanding their expertise towards the dry bulk market. That is why APM Terminals is now faced with a different question;

“Is it possible to increase the efficiency of a container terminal by creating a terminal that can handle different types of cargo simultaneously, in succession or interchangeably?”

This is a terminal in which a partial or full cargo shift can be made, from container to dry bulk or vice versa depending on what the market requires at that moment.

APMT operates and partly owns 2 partial bulk terminals in India and Oman and the first experiences and lessons have been learned. These events have actualized the described problem and questions, and are the incentives for this research.

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2. Thesis Proposal

This chapter describes the structure of this thesis. What are the main goals, research questions and deliverables? An overview is also given of the methodology which will be used for answering these questions.

2.1 Objective

The objective of this thesis will be to create a cost comparison of preventive flexibility and reactive flexibility of container terminals. The term preventive flexibility stands for costs construction phase which were built for future flexibility. Reactive flexibility costs are construction costs that are made when an existing terminal is redesigned to handle different cargo.

2.2 Scope

Chapter 1 has shown that flexibility of terminals has different definitions and is applicable to many terminal variations. It is deemed necessary to define the specific areas of research to ensure enough depth for a master thesis whilst also to confine the author. Firstly this research project will be conducted within APMT, making the flexibility of a container terminal the focus of this research. As APMT newly designs terminals as well as redesigns terminals both types of terminals are within the scope. It will focus on external flexibility e.g. change in cargo and function of a terminal and not on internal operational flexibility e.g. variations in container size, container ship size, type of container and variations in container operations.

With my interest and initial knowledge acquired at the TU in the area of Hydraulic Engineering, Transport and Civil projects this report will focus on the difference between engineering costs in terminal projects that were designed for change or are redesigned for change. These costs are predominantly made in the engineering phase(s) and are directly related to construction time, material costs and operation down time. This research will look into the cost of the full lifecycle of a terminal. .

In the initial chapters in this research this change will be assumed certain to easily compare costs. In a later stage in this report the uncertainty of this change is explored and the indicators are researched. This scope encompasses the title because flexibility is a way of insuring uncertainties in the market (Taneja, 2013), but flexibility costs money.

The change described in the past paragraph can be any type of market switch affecting the terminal e.g. a crash in the container market, a strong trade growth of a different commodity type or arrival of competition etc. These all cause a change in the amount and type of handled goods at a terminal. The problem description has shown the potential of the dry bulk and liquid bulk market that is why this research will focus on these two change options,

 Container – Dry Bulk and vice versa  Container – Liquid Bulk and vice versa

LNG and General Cargo terminals have all been disregarded for this research as the first two possess many more complications in safety, hazards and operational experience. The General Cargo terminal has been disregarded because this is a well-researched subject and does not add new insights to science or to APMT.

The timespan of change is also important when looking at the research subject. Will the change be temporary due to seasonality and or market change or permanent because of depletion and or competition? With temporary change the amount of downtime due to switches needs to be addressed

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The Flexibility of Container Terminals 6 Likewise it is important to know if the terminal will be dedicated to one type of cargo or that more than one commodity can be handled at once. These questions are all part of the initial scope of this thesis.

2.3 Research Questions

Based on the research objective and the set scope, the suggested research question is:

How can APM Terminals incorporate terminal flexibility in future terminal design and what are its profits and consequences?

The answer to the main question should be found by answering the following set of sub questions. 2.3.1 Sub questions

The sub questions are split in two categories, the construction cost and terminal flexibility.  What are the different construction elements of Container, Bulk terminals?  What are the costs of these elements and what are the building times?

 What change in design is required at a container terminal to handle different types of commodities?

 What are the differences in costs if these changes in designs are done preventively compared to reactively?

 What is terminal flexibility and how is it measured?

 What is the value of flexibility? And how can uncertainties in markets be valued towards flexibility?

 Which terminal characteristics are indicators to become a flexible terminal in the future?

2.4 Methodology

The proposed research question is answered by delivering a comparison of reactive and preventive costs, an outline of when preventive cost should be incorporated and finally a list of parameters that indicate the high risk of uncertainty. To derive the deliverables, all of the above sub questions should be answered using different research strategies. These strategies require tools and instruments of which the choice depends on the objective, the available data and the disciplinary expertise. The following section describes how the report will be structured and how each research question is explored.

Chapter 1 will introduce the terminology and the different subjects and stakeholders introduced in this research. This will be followed by a more elaborate research approach containing the research questions and strategies.

Chapter 2 will introduce terminal construction elements and their related cost. This chapter will focus on the construction and engineering of container terminals. This chapter will also include a section where the different construction elements of bulk and bunkering terminals. This chapter will make use of past construction projects to structure the costs. This is done by historical review, literature study and case studies.

The next chapter will be dedicated to the gap analysis between terminals. What parts of the terminal have to be revised to enable different commodity handling? Are there different design possibilities? There are four case studies that will be used for this chapter; these are: 2 APM Terminals, the Botlek Tank Terminal and Cirrus in Amsterdam. The data on these projects is acquired by conducting interviews and a literature research.

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The concept terminal flexibility is introduced in chapter 4. Flexibility in terminal design will be explored with literature research and survey methods. This survey method is proposed to acquire a notion of perspective from stakeholders in the business. The survey should convey questions about measuring and the value of flexibility

Chapter 5 indicates which characteristics are important when making a prognosis on the amount of flexibility needed in the terminal. I will try to connect this notion with the uncertainty in the trade market using literature studies and possible Monte Carlo models. These characteristics should also be discussed with specialists and an idea was to incorporate a brainstorm session of which the results can provide the needed parameters. Chapter 6 will finalize this report with the recommendations and conclusions on this topic.

2.5 Deliverables

This research will result in three objects: A report, and a presentation and an executive summary of the report. The report will enclose the following three subjects, which can be seen as the answers to the above mentioned research questions.

 A comparison of preventive and reactive engineering cost for switching commodities at a container terminals

 A list of possible constructions elements which should be incorporated in the design if there is a high possibility of future flexibility.

 List of parameters that define the mentioned flexibility possibility The process towards this report will result in 3 official preparatory documents

 Kick-off document  Mid Term Report  Green Light Report

2.6 Timeline

Table 2.1 shows the timeline that I have in mind during the Master thesis. Week 37, 46, 2 ,19, 23 represent key dates or tollgates. These dates will be fixed on Wednesdays and appointments will be scheduled in September. The blue weeks correspond to weeks in which I am out of office .

P lanning: Month:

Monday date: 1 8 15 22 29 5 12 19 26 3 10 17 24 1 8 15 22 29 5 12 19 26 2 9 16 23 2 9 16 23 30 6 13 Week at APMT: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Week numbers from calendar 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 P hase

P roblem Introduction reading Exploration Find research focus/method;

P reliminary K ic koff meeting Approac h Chapter 1 - Introduction Flexibility Chapter 4 - Theory

Write Conceptualisation Report O ffic ial K ic koff meeting Analysis Chapter 2 - Construction Container

Chapter 2 - Construction Bulk & Bunkering Gap Analysis Chapter 3 - Difference Between C2 Writing Write Midterm

Midterm Meeting Improving Improving Analyze Phase Results Chapter 5 & 6 - Adding Flexibility

Write Green Light Report Green Light Meeting Finalisation Adjust and Finalise report

Prepare Presentation Graduation

April February March November

September Oktober December January

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The Flexibility of Container Terminals 8

3. References

APM Terminals . (2014). Corporate Brochure. The Hague: APM Terminals. APM Terminals. (2013). Sustainability Report . The Hague: APM Terminals.

Bauer, T. K., Bredtmann, J., & Schmidt, C. M. (2013). Time vs. Money. European journal of political Economy, 80-94.

de Gijt, J. G. (2010). History of quay walls. Delft: Delft University of Technology.

Dekker, S., Verhaeghe, R., & Wiegmans, B. (2011). mically-efficient port expansion strategies: an optimal control approach. Tansportation Research Part E: Logistics and Transportation Review, 204-215.

Dinwoodie, J., Landamore, M., & Patrick, R.-M. (2014). Dry bulk shipping flows to 2050: Delphi perceptions of early career specialist. Technological Forecasting and Social Change, 64-75.

Drewry Shipping Consultantds ltd. (2013). Maritime Research. London: Drewry Corp.

International Maritime Organization. (2012). International Shipping Facts and Figures. London: Maritime Knowlede Center.

Lee, C. B., Wan, J., Shi, W., & Li, K. (2014). A cross-country study of competitiveness of the shipping industry . Transport Policy , Online .

Notteboom, T., & Rodrigue, J. (2009). The future of Containerizatio: Perspectives from Maritime and Inland Freight Distribution. GeoJournal, 7-22.

Royal Haskoning. (2014, August Monday). Container Terminals . Retrieved August monday, 2014, from RoyalHaskoningDHV: www.royalhaskoningdhv.com/en-gb/markets/container-terminals/32 Smissaerts, C. (2014, July 22). Port Knowledge. (PieterLeo, Interviewer)

Taneja, P. (2013). The Flexible Port . Delft : Techinsche Universiteit Delft, UNESCO-IHE.

Taneja, P. (2014). Port Flexibility. Ports and Waterways 2 (p. Lecture 1). Delft: Delft University of Technology.

Thanapoulou, H. A. (1998). What price the flag? The terms of competitiveness in shipping. Marine Policy , 359-374.

Wilmsmeier, G., Tovar, B., & Sanchez, R. J. (2013). The evolution of container Terminal productivity and efficiency under changing economic enviroments. Research in Transportation Business & Management, 50-66.

Incorporating flexibility in terminal design Planning vs. Reacting, A Cost Comparison