A Study on Competitiveness of Sea Transport by Comparing International Transport Routes between Korea and EU

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1 A Study on Competitiveness in Shipping Transport by Volume 31 Number 1 March 2015 pp A Study on Competitiveness of Sea Transport by Comparing International Transport Routes between Korea and EU Dae-seop MOON* Dong-jin KIM** Eun-kyung LEE*** I. Introduction II. Literature Review Contents IV. Analysis on the Transport Routes by Each Factor III. Analysis on Competitiveness of the International Transport Routes with TOPSIS V. Conclusion Abstract This study analyzes competitiveness of the six Korea-Europe transport routes. For the criteria of analysis, the quantitative factors (total transport distance, total transport time, and total transport cost) and the qualitative factors (transport service, safety, and awareness) were selected and weighed. The factors were then applied to the TOPSIS technique to rank the routes based on their competitiveness. The result of TOPSIS analysis showed the priority in the routes as follows: Route 1 (Trans Korea Railway(TKR) and Trans Siberia Railway(TSR))> Route 6 (Arctic Route)>Route4(Busan-Vanino-TSR)>Route2(Busan-Vostochny-TSR)> Route3 (Busan-Vladivostok-Vostochny-TSR)> Route 5 (Suez Canal Route). Route 1 was found the most competitive, and Route 5, the most widely used sea way was ranked the lowest. In addition, the new transport routes, Route 1 and 6 are shown to be more competitive than the currently available routes, Route 2, 3 and 4. However, these routes need national level supports (rail construction for Route 1 and subsidy plan for Route 6) for the commercial use in the future. Key Words : TOPSIS, Multi Criteria, Route Selection, Improvement Policy, Fuzzy Number Copyright 2015, The Korean Association of Shipping and Logistics, Inc. Production and hosting by Elsevier B.V. All rights Reserved. Peer review under responsibility of the Korean Association of Shipping and Logistics, Inc. * Korea Railroad Research Institute, Korea, dsmoon@krri.re.kr ** Professor, Pusan National University, Korea, ssskdj@hanmail.net (Corresponding Author) *** Oglaend-System Korea, Korea, cheerupek@naver.com 1

2 I. Introduction Increase in international trading raised the importance of international transport, and the traditional single mode transport systems have changed into a multimodal transport system that uses two or more modes of transport. In addition, while the international transport networks become more complicated in such processes as creating new paths and removing existing ones, it is becoming more important to select efficient transport routes. Since the cargo volume of transport between Korea and Europe is expected to increase as the Korea EU FTA came into effect, the expectation for realization of the Trans-Korea Railway (TKR) and the national interest in the Arctic route call for developing new alternative transport routes. Recent efforts by the Korean Government pose greater expectation for connecting the TKR and the Trans-Asian Railway and test operation of Korean transporters on the Arctic route expedites realization of this new route. Therefore, being prepared for the realization of new Korea Europe transport routes requires review on such new transport routes and study on strategies and plans for developing a competitive transport system. Particularly seeing that the majority of freight between Korea and Europe is being carried mainly by sea transport through the Suez Canal (Route 5), it is highly needed to assess the competitiveness of the Arctic route (Route 6) which can be an alternative to Suez route, the intermodal routes by sea and railway (Route 2, 3, 4), and the new rail route of TKR and TSR (Route 1). In addition, a systematic study is required to determine more efficient choice among many alternative transport routes. Many of existing studies (see II. Literature Review) consist of the assessment of single transport routes or analysis on some factors, but there are not enough studies that consider various factors all together for route selection. The purpose of the study is three fold: (1) Introduce and apply the multi-criteria decision making technique to consider the critical factors (quantitative and qualitative) simultaneously for more objective route selection. (2) Determine the overall ranks in the order of competitiveness and analyze the strength and weakness of each route. (3) Based on (1) and (2), the improvement plans for routes are proposed with which the decision maker can choose the proper options depending on surroundings or preference. 2

3 Therefore, this study is intended to complement the limits in existing studies, and assesses the competitiveness of6 major transport routes between Korea and Europe. In this regard, first, we analyze quantitative and qualitative factors for international transport routes and rank the routes by applying the TOPSIS technique using the triangular fuzzy number. Second, by considering quantitative and qualitative factors separately the priorities of routes are compared in more detail. Third, focusing on the characteristics of individual routes, the competitiveness of the sea transport and the railway transport is discussed. II. Literature Review A majority of studies on Korea Europe transport routes focused on the Trans-Asian Railway routes connected with TKR, the Suez Canal route, and the Arctic route. Entering into the year 2000, studies on railway transport actively were made to analyze the effectiveness of transporting via the TKR as the TKR project progressed and drew public attention. Recently, the Government s support for the Eurasia railway project raised the possibility of the realization of the TKR. Lee and Kim (2007) and Kim and Jung (2005)studied the Trans-Asian Railway connected with TKR and proposed plans for developing the Trans-Asian Railway transportation. Lee et al. (2011) and Han (2011) analyzed the economic feasibility for using the Arctic sea route. Choi et al. (2012) and Lee et al. (2013) analyzed competitiveness of the railway transport interconnecting the TKR and the TSR, and the sea transport using the Suez Canal and the Arctic route. Recently, with the hope of the commercial voyage through Arctic sea, studies on feasibilities and economic aspects of Arctic route have been performed. Verny and Grigentin (2009) compared 5 routes(suez, Arctic, TSR, Sea & Air, Air) based on the container transport cost per TEU between Hamburg and Shanghai and showed the Arctic would be a competitive alternative to Suez. Liu and Kronbak (2010) compared Arctic with Suez considering economic factors (icebreaker fee, shipping season, bunker oil) and the competitiveness of Arctic over Suez between Rotterdam and Yokohama was performed with sensitive analysis by changing the factors; For further reference, see Han (2011).Otsuka et al. 3

4 (2013) performed feasibility study with 3 cargo types and showed Arctic route is cheaper way to save cost. The <Table 1> below shows a summary of studies that analyzed competitiveness and economic advantage for the Korea Europe transport routes considering various factors and methodologies. <Table 1> Studies on transportation routes between Korea and EU Transport Researcher Factors Method Objective routes Ha (2002) Kim and Jung (2005) Choi et al. (2012) Han (2011) TKR, TCR, TSR, TAR Sea transport Sea-Rail transport Rail TKR-TSR Sea(Suez) Sea + TSR Sea(Arctic) Sea(Suez) Sea(Arctic) geographical importance, transport distance, frequency, transport cost, port service, port cost, reliability cost, quality, time transport distance, transport time, transport cost, additional cost type of ship shipping distance ship speed cargo capacity of ship cost of ship construction Brown- Gibson Procedures AHP Comparison by factors Comparison by factors Comparative analysis Critical factor Objective factor Subjective factor Transportation mode choice using AHP analysis on the economic validity of transport routes analysis on the economic feasibility of the northern sea route Lee et al. (2013) TKR-TSR Sea(Suez) Sea + TSR Sea(Arctic) Transport distance Transport time Transport cost Entropy -TOPSIS selection of priority about transport routes using Entropy-TOPSIS As shown in <Table 1>, many of the studies compared routes by factors but failed to consider the factors (criteria) simultaneously. The Multi-Criteria Decision Making (MCDM) is an efficient decision making technique that considers multiple criteria and chooses the optimal alternative, which is used in decision making in various circumstances. Typical techniques include Entropy, AHP, TOPSIS, ELECTRE, and PROMETHEE. AHP and Entropy methods are generally used for 4

5 weighing the importance of criteria. Kim and Lee (2010) used AHP to solve the problem of selecting a third party logistics company by quantifying qualitative data, and Park et al. (2012) assessed the efficiency of container ports using a combined method of the Entropy and DEA. Kim and Kim (2012) determined a priority in work recovery in the emergency recovery process of a port information system, and Kim and Na (2011) found a solution to selecting a supplier considering such factors as quality, price, and delivery. Lee et al. (2013) used the Entropy-TOPSIS technique in evaluating the criteria for selecting transport routes and ranked them based on their competitiveness. Liu and Qiu (2010), Akyene (2012), and Shahroudi (2012) used TOPSIS for making decisions on distribution and procurement. The MCDM has been used in making decisions on various problems in logistics industry including the selection of a supplier, a location, and a transport route, etc. However, few studies on transport routes have been made compared to those on other logistics areas. Therefore, this study can be distinguished from others by 1) taking account of both the quantitative factors such as cost and time and the qualitative factors such as service and awareness, 2) reflecting the uncertainty of the decision makers subjective judgment by applying the triangular fuzzy numbers to the TOPSIS technique, and 3) reviewing the new Arctic route and the TKR railway transport by analyzing characteristics (the weakness and strength) of each factor. Based upon the results, the competitiveness of the Suez and the Arctic route is visualized by comparing with existing transport routes. III. Analysis on Competitiveness of the International Transport Routes with TOPSIS 1. Analyzing Factors 1) Selecting Factors To analyze competitiveness of the routes in the international transport network, we first select the major factors that affect the efficiency of a transport route. By considering studies on the factors for transportation and consulting experts on trade, major factors were hierarchically classified as shown in <Fig. 1>. 5

6 The factors related to transport route selection were classified into quantitative factors represented by numerical data and qualitative factors that reflect decision makers personal opinions. The quantitative factors are cost, time, and distance, whereas qualitative factors consist of three major factors such as transport service, safety, and awareness, which are further classified into sub-factors. See <Table 2>. 2) Weighing Factors To determine the weight of each factor, a survey of 22 transport workers and experts was conducted. Characteristics of respondents based on their length of service are shown in the <Table 3>. <Figure 1> Factors for international multi-modal transport routes selection International multi-modal transport routes selection Quantitative factors Qualitative factors Transport distance Transport time Transport cost Transport Service Safety Awareness reliability flexibility transport freight information frequency service transport safety freight safety transport transport route mode awareness awareness Alternative Route 1 Route 2 Route 3 Route N <Table2> The definitions of multi-criteria Criteria Definition Transport distance total distance required for transportation Transport time total time required for transportation Transport cost total cost required for transportation reliability on-time delivery of transport mode ability to react to a change in environment of freight Transport flexibility transportation service transport frequency transport frequency within a certain period freight information service providing real-time information in freight transport transport safety ability to prevent accidents on transport mode and routes Safety freight safety ability to prevent damage or theft of freight transport route awareness degree to which the transport route is perceived Awareness transport mode awareness degree to which the transport mode is perceived 6

7 A Study on Competitiveness in Shipping Transport by <Table3>Characteristics of respondents Experience (years) Number of respondents Remarks 1~5 years 8 6~10 years 7 Over 10 years 7 railway and sea transport workers and experts Quantitative factors were taken from data of existing studies. To take account of the uncertainty of the respondents personal opinions into the qualitative factors, the survey employed the linguistic expression of Aminand Razmi (2009) which was converted into the triangular fuzzy numbers (TFNs). <Figure 2> shows the conversion of seven linguistic expressions, VL, L, ML, M, MH, H, and VH, into TFNs. <Figure 2> Linguistic expressions and the fuzzy numbers <Table4> shows TFNs corresponding to individual linguistic representations. For example, if a factor is low, it can be converted into (0, 1, 3). <Table4> Linguistic variables linguistic variables TFN(triangular fuzzy number) VL Very Low (0,0,1) L Low (0,1,3) ML Medium Low (1,3,5) M Medium (3,5,7) NH Medium High (5,7,9) H High (7,9,10) VH Very High (9,10,10) Source: Aminand Razmi (2009) Based on the answers from respondents and <Table 4>, the linguistic variables of the qualitative factors are converted into TFNs, which were defuzzifiedto single numbers using the following Equation (1). 7

8 Defuzzified Number = where, ( ) is Triangular Fuzzy Number. To calculate the weights of the factors, the following Equation (2) was used, and the results were shown in <Table 5>. Weight of a factor j (Wj) = where, Wij= weight of decision maker i on factor j and k is the number of decision makers. The result shows that the weights of the factors are in the order of transport cost > transport time > transport service = safety > transport distance > awareness. <Table5> The importance weights of factors (criteria) Quantitative factors Qualitative factors Transport service Safety Awareness Criteria Transport distance Transport time Transport cost reliability (0.05) flexibility (0.04) transport frequency (0.04) freight information service (0.04) transport safety (0.09) transport transport freight route mode safety awareness awareness (0.08) (0.06) (0.06) Weight Analysis of Competitiveness of KoreaEurope Transport Routes 1) TOPSIS Method The TOPSIS was used to determine the order of competitiveness of individual transport routes. The symbols for TOPSIS are defined as follows: n: The number of routes m : The number of factors(criteria) A i : Routei C i :factor(criterion) j

9 A Study on Competitiveness in Shipping Transport by E ij : The value ofc i froma i W j : The weight of a factor j N ij : The normalization value of E ij V ij : The weighted normalized performance rating V + : The best solution(value) V - : The worst solution(value) : The distance of V + : The distance of V - : The final preference value Firstly, normalize the value of the factorj of a routei as shown in the Equation (3). Apply the weights of factors to the normalized matrix to get the weighted normalized performance rating as shown in the Equation (4). Using Vij, determine the best solution and the worst solution to each factor as shown in the Equation (5). where, B is benefit related factors and C is cost related factors. Calculate the distances of the best solution and the worst solution as shown in the Equation (6) and (7). 9

10 Finally, the preference value of each alternative routeis obtainedusing Equation (8) and the route with the largest value is ranked first. 10 2) Selecting Routes The 6 different transport routes used in the study are from Choi et al. (2012), where Busan of Korea and Berlin of Germany are the start and the end point for each route. Details of individual routes are as shown in the <Table 6>. <Table6> The transport routes from Busan to Berlin Mode of transportation Transport routes Rail Route 1 TKR - TSR Route 2 Busan - Vostochny Port - TSR Sea+Rail Route 3 Busan - Vladivostok Port - Vostochny - TSR Route 4 Busan - Vanino Port - TSR Route 5 Busan - Suez - Europe Sea Route 6 Busan - Arctic Ocean - Europe Route 1 interconnects TKR and TSR, which draws public attention due to its higher efficiency than the existing routes. Route 2, 3, and 4 are sea railway combined transport routes that go through Russian ports to TSR. Route 5 is a sea route passing through the Suez Canal that covers the most of Korea Europe transport and Route 6 is the Arctic route. The main problem for Route 6 is the availability of about 3 months a year for transport due to the glacier on the way and icebreakers needed. However, because of the distance and the time shorter than those of the Suez route,

11 Arctic route is a very attractive alternative sea way to Suez. Individual routes are shown on a map as follows: <Figure 3> International transport routes between Busan and Berlin For the calculation of each routes competitiveness, the data for the distance, time, and cost are used from Choi et al. (2012) and Lee et al. (2011) (See Table 7). <Table 7> Quantitative data of criteria Transportation routes Total transport distance (km) Total transport time (days) Total transport cost (USD/20ft) Route 1 TKR - TSR 12, ,200 Route 2 Busan - Vostochny- TSR 12, ,016 Route 3 Busan - Vladivostok - Vostochny - TSR 12, ,016 Route 4 Busan - Vanino - TSR 11, ,416 Route 5 Busan - Suez - Europe - Berlin 20, ,665 Route 6 Busan - Arctic Ocean - Europe - Berlin 12, ,995 11

12 3) Analysis Result Using the TOPSIS technique on the six routes considering both the quantitative and qualitative factors the overall ranks are Route 1 > Route 6> Route 4 > Route 2 > Route 3 > Route 5 (see Figure 4). That is, the trans-continent railway transport using TKR TSR shows the highest competitiveness, while the most frequently used Sea transport passing through the Suez Canal shows the lowest competitiveness. Route 6 using the Arctic route is ranked second in competitiveness. Regardless of practical restraints in realizing the routes, Route 1 and 6 showed the highest competitiveness among other existing routes(route 2, 3, 4, and 5). Of the sea railway combined transports, Route 4 that passes Vanino Port is ranked top, followed by Route 2 passing Vostochny Port, and Route 3 passing Vladivostok and Vostochny Ports. <Figure4> The result of TOPSIS (V*) IV. Analysis on the Transport Routes by Each Factor 1. The Comparison by Quantitative and Qualitative Factors In this section, the routes analyzed and ranked in two ways: (1) by considering the quantitative factors only and (2) by considering the qualitative factors only. Firstly, competitiveness analysis of the routes by considering only the quantitative factors ranked the routes in the order of 12

13 Route 1 > Route 6> Route 4 > Route 2 > Route 3 > Route 5, which shows the same results as the case where all factors are considered (see Fig. 4). On the other hand, when considering only the qualitative factors, the results showed that, except Route 1, all routes were ranked differently. As shown in <Table 8>the Route 5(Suez) is ranked second, which implies that it greatly surpasses the other routes in qualitative factors. Routes <Table 8> Comparison by factors Quantitative Quantitative factors Qualitative factors + Qualitative factors Route (1)* (1) (1) Route (4) (4) (3) Route (5) (5) (4) Route (3) (3) (6) Route (6) (6) (2) Route (2) (2) (5) NOTE: figure = V*, ( ) = priority Route 6 (Arctic route), previously second, is now ranked as low as fifth when considering the qualitative factors, which shows that it has the strength in quantitative factors. Although Route 5 is uncompetitive in terms of the quantitative factors, it at present enjoys the largest share of transport market because it meets the high standard of qualitative factors. 2. The Relative Comparison by Each Factor The above section analyzed competitiveness by grading the routes based on factor types (qualitative and quantitative ones). This section examines competitiveness of the routes by each factor and shows the rank on a single factor basis. For this purpose, using Equations (3), (9), and (10) evaluate the routes based on the relative comparison for each factor as shown below. In case of the quantitative factors, the lower the value is, the higher the competitiveness is (Cost factors). In case of the qualitative factors, the 13

14 higher the value is, the higher the competitiveness is (Benefit factors). 1) Quantitative Factors The relative comparison of routes for quantitative factors is represented in <Figure 5>. Transport distance shows that competitiveness of sea- rail transport (Routes 2, 3, 4) is higher than others, while transport time shows that Arctic sea (Route 6) is much higher than others. Finally, competitiveness of railway transport (Route 1) is highest on transport cost. <Figure 5> The relative comparison in routes (quantitative factors) i 2) Qualitative Factors - Transport Service In case of transport service, competitiveness of railway transport (Route 1) is highest on three factors; reliability, transport frequency, freight information service, and for flexibility sea transport (Route 5) is highest. 14

15 A Study on Competitiveness in Shipping Transport by <Figure6> The relative comparison in routes (transport service) - Safety Transport safety shows railway transport (Route 1) is highest, but freight safety shows sea transport (Route 5) is highest. <Figure7> The relative comparison in routes (safety) - Awareness In case of awareness, sea transport (Route 5) and railway transport (Route 1) are higher than others. 15

16 <Figure8> The relative comparison in routes (awareness) Below is the summary of characteristics of routes based on the above analyzed results. -Route 1: This trans-continent railway transport route has competitiveness in most of factors. - Route 2 and 3: Of the sea railway combined transport routes, Route 2 and 3 show strength in transport distance, transport cost, and safety in transit, but have weakness in transport time, flexibility, and freight information service. - Route 4: Having lower transport mode awareness than that of Route 2 and 3, this route receive slow grades in transport frequency and safety among the sea railway combined transport routes. Therefore, if Route 1 is implemented, Route 2, 3, and 4 will require improved transport service, safety, and raised awareness. - Route 5: Using the most widely used path (the Suez Canal), this route is competitive in qualitative factors such as reliability, flexibility, freight safety, and awareness, but weak in the quantitative factors such as transport distance, time, and cost when compared with other routes. The high evaluation of the credibility in flexibility of transport and freight safety may come from the fact that this route is the most widely used at present, with a highly positive awareness of the route. Maintaining Route 5 s transport market share requires establishing a transport system that covers its weakness described above. - Route 6: The new Arctic route, compared with Route 5, has strength in transport distance and the transport time, but has weakness in cost and all of the qualitative factors. Especially, the cost and safety are shown to be the lowest of other routes. 16

17 A Study on Competitiveness in Shipping Transport by V. Conclusion This study analyzed competitiveness of the six Korea Europe transport routes. For the analysis, the quantitative factors (transport distance, transport time, and transport cost) and the qualitative factors (transport service, safety, and awareness) are considered and weighed. The weighted factors were applied to the TOPSIS technique considering various criteria simultaneously to rank the routes based on their competitiveness. The result of TOPSIS analysis showed the priority in the routes: Route 1 > Route 6> Route 4 > Route 2 > Route 3 > Route 5 in order. Route 1 using TKR TSR was found the most competitive, whereas Route 5, the Suez was ranked lowest. In addition, the new transport routes, Route 1 and 6 are more competitive than the currently available routes, Route 2, 3, and 4. This suggests that the new routes will create positive effect as alternatives to existing routes. Also, by conducting sensitivity analysis to the quantitative and qualitative factors, we could see the ranking of competitiveness changed. Considering the quantitative factors only resulted in the same ranking of competitiveness as the one with all factors taken into consideration. Analyzing with the qualitative factors only changed the ranks of all routes except Route 1. With these results, we can identify positive and negative factors of individual transport routes and enhance their competitiveness. Route 1 has the highest competitiveness and thus may become an excellent alternative to existing transport routes when realized in the future. However, for the use of the Route 1, two Koreas (South and North) should improve the political relations and the North bound railway construction needs to be supported at the national level by South Korea. Route 2 to Route 4 are basically Russia s far east ports-tsr routes, where cargo handling capability of the ports is beyond their capacity due to increased import/export cargo volume and old aged equipments. Russia, as a way of solving this problem, started the Najin- Hasan project in 2006 connecting Najin port of North Korea to Hasan of Russia with railway and finished in With the completion of the project Russia is expecting the cargo from East-Pacific region as well as the Far East countries, i.e., Two Koreas, Japan, China, etc. to be transported on TSR route through 17

18 Najin port. Along this plan the common weaknesses (reliability, flexibility, and awareness) of these routes are also expected to be overcome. Route 5, using the Suez Canal is the most well known and highly competitive in qualitative factors such as service and awareness, but weak in quantitative factors such as long distance and high cost. However, to survive the competition, time and cost should be greatly resolved to maintain competitive edge over the routes. The Arctic route (Route 6)is the newest and strong alternative to replace the Route 5 in the future to come with advantages in time and distance over Route 5. It, on the other hand, has many constraints in transporting and is uncompetitive due to weakness in safety, frequency of transport, and awareness. Especially, with the inherent disadvantage of limited shipping period (summer time) and high Russia s ice breaker escort fee, the commercial use of the route requires more time and cost reduction. Recently, Korean government issued subsidy policy for the ship owners using the route which may move up the time for Arctic sea operation. Thus, as a potential transport route in the future, the qualitative factors need improvement. For further research, the scope of the study may be expanded by considering more realistic alternative routes such as China routes(tcr, TMGR routes) and routes with different origins-destinations, establishing transportation model to determine the optimal transport quantity, and applying better weighing method to measure the weights of criteria in more objective way. Also, more criteria should be selected for complicated transport network. * Acknowledgements This work was supported by a 2-Year Research Grant of Pusan National University (2014) Date of Contribution ; August 15, 2014 Date of Acceptance ; March 1,

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