Multi countries consolidation in Commercial port Free Trade Zones for small and medium sized logistics service providers Prof. Yang, Yi-Chih National Kaohsiung Marine University 1
content 1. Introduction to commercial port FTZs 2. Advantages of commercial port FTZs 3. Business models of commercial port FTZs 4. Performance of commercial port FTZs 5. Definition of Multi Countries Consolidation 6. Advantages of MCC in commercial port FTZs 7. Current status of MCC in commercial port FTZs 8. Implications of MCC in commercial port FTZs
1 Introduction to commercial port FTZs The Chinese Taipei government promulgated the Act for the Establishment and Management of Free Trade Zones in 2003 to induce multi-national enterprises and logistics service providers to operate value-added logistics services in free trade zones. Chinese Taipei 's free trade zones are intended to encourage private enterprises via various tax and duty incentives to re-export or transship cargo with valueadded processing out of international seaports or airports, and thereby boost national economic growth and the country's foreign trade surplus. 3
Establishment of Free Trade Zones was deemed as one of important projects under the slogan of Challenge 2008 prioritize development project of the National The preferential incentives for Tenant Company entering in the FTZ illustrated: Goods to be transported from overseas into a free trade zone. Machineries and equipment to be transported from overseas into a free trade zone. For the goods to be sold by a business entity in a tax zone or a bonded area. FTZ can benefit companies in many respects. 4
According to Article 1 of Act for the Establishment and Management of Free Trade Zones enacted in July 2003 revealed establishment objective of commercial port Free Trade Zone were aimed for: developing the mode of operation for a global logistics and management systems, effecting aggressive promotion of trade liberalization and internationalization, facilitating the smooth flow of personnel, goods, finance, and technology, upgrading the national competitive power, furthering the national economic development
According to aforementioned act Chinese Taipei government assigned port authority planned and formulated management regulations Keelung Port FTZ was designated by Executive Yuan in the same year of 2004. Kaohisiung port FTZ and Taichiung Port FTZ were designated in the same year of 2005. Suao port FTZ was designated in 2010 Taipei port FTZwas designated in 2012 Anping port FTZ was designated in 2013
Current situation of commercial port FTZs
Designated Area of Keelung port FTZ
Designated Area of Kaohsiung port FTZ
2.Advantages of commercial port FTZs 10
3.Busines Model of commercial port FTZS 11
3.1 Automobiles Assembling case in commercial port FTZs Local 12
3.2 Oil rig assembling case in commercial port FTZs 13
3.3 Bulk cargos transship case in commercial port FTZs 14
3.4 Maritime Express case in commercial port FTZs 15
3.5 Multi countries consolidation case in commercial port FTZs Chinese Taipei 16
4. Performance of commercial port FTZs 4.1 Trade volume statistics for commercial port FTZs in 2007-2016 Unit: Tonnage Total Keelung Port Kaohsiung Port Taichung Port Taipei Port Suao Port Anping Port Taoyuan Airpot 2007 706,866 9,780 44,096 625,138 22,192 - - 5,660 2008 1,479,695 18,332 90,663 1,331,802 28,255 - - 10,642 2009 1,299,776 9,902 281,857 960,405 31,823 - - 15,789 2010 3,357,780 10,130 382,343 2,666,240 276,840 - - 22,227 2011 4,075,850 29,891 424,832 2,903,101 696,620 11-21,395 2012 10,179,897 48,919 584,020 9,151,353 373,003 6-22,598 2013 9,893,637 63,598 522,972 8,410,601 868,430 38-27,998 2014 8,092,681 64,596 614,547 6,234,467 1,150,519 20-28,531 2015 8,837,362 27,464 745,183 6,960,017 1,082,166 16-22,516 2016 13,888,144 10,711 769,733 11,804,546 1,275,999 42 7,548 19,565 17
Unit: tonnage Trade volume statistics for commercial port FTZs 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 Total Keelung Port Kaohsiung Port Taichung Port Taipei Port Suao Port Anping Port Taoyuan Airpot 2,000,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 18
4.2 Trade value statistics for commercial port FTZs in 2007-2016 Unit:1000TWD Total Keelung Port Kaohsiung Port Taichung Port Taipei Port Suao Port Anping Port Taoyuan Airpot 2007 62,401,223 1,955,116 3,853,323 12,616,843 5,235,276 - - 38,740,665 2008 116,123,804 4,149,331 6,930,318 40,492,710 6,723,476 - - 57,827,969 2009 143,467,705 940,190 10,440,068 22,406,017 9,621,750 - - 100,059,681 2010 282,968,190 1,768,214 20,453,936 61,113,543 33,870,487 - - 165,762,010 2011 302,642,970 4,824,815 20,906,616 90,962,505 59,291,811 5,638-126,651,586 2012 501,929,095 12,894,525 30,014,540 290,536,409 56,499,354 4,478-111,979,788 2013 555,881,168 14,066,783 28,564,398 271,144,644 74,903,278 14,725-167,187,341 2014 586,396,507 15,393,419 41,088,083 216,821,574 93,861,386 9,923-219,222,121 2015 626,375,643 6,487,041 59,874,512 167,312,663 89,646,232 8,091-303,047,105 2016 674,656,775 2,613,525 69,539,638 206,430,173 69,806,965 19,945 404,167 325,842,361 19
1000TWD Trade value statistics for commercial port FTZs in 2007-2016 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 Total Keelung Port Kaohsiung Port Taichung Port Taipei Port Suao Port Anping Port Taoyuan Airpot 100,000,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20
The Five Major Innovative Industries and New South Bound Policy 21
5.Definition of Multi-Country Consolidation the demand for Multiple Country Consolidation (MCC) grows rapidly. Logistics service providers collect less than container-load cargoes from different countries, consolidate them into containers in the hub port and transport the containers to their destinations respectively. MCC combined cargo from different countries into same destinations by implementing logistics services including assembling, simple processes, packing, and labeling to increase cargos added value.( Chen and Tsai, 2009) 22
Multi-Country Consolidation (MCC) referrers to the foreign container (cargoes) shipped to the domestic port, as the import manifest declaration on same packed status without any opening or repacking action, to undertake unsnuffing container and transport cargoes to the warehouse, and to apply for transshipment declaration and to implement goods consolidation from different region and export to final destination. (Ministry of Finance, 2014). 23
Evolution of MCC in Commercial Port Free Trade Zone According to customs act article 20-1 stipulated that the manifest may be submitted to Customs by the registered freight forwarder. Customs declaration for transshipment and transited goods may also be filed by the registered freight forwarder. In the past, MCC operations could only be carried out in commercial port s transshipment warehouse by shipping companies. Since 2014 October Customs administration deregulated customs act to allowed that freight forwarder could handle mcc business and apply for customs declaration for transshipment and transited goods. 24
Aims of MCC in commercial port FTZs To expand the cargo source of commercial ports, To attract mega ships berthing, and further active port operations, To increase employment opportunities, To establish Chinese Taipei s commercial ports as Western Pacific transshipment logistics and distribution center. 25
MCC concept in the sea port 26
6. Advantages of Multi-Country Consolidation in commercial port FTZs Multi-Country Consolidation (MCC) is a cost-effective solution that consolidates your cargo from different countries of origin to build Full Container Loads (FCL). MCC is most suitable for companies that import light volumes of goods from multiple countries but want to take advantage of the more economic FCL freight rates. As a result of the advent of the large-scale container ships, Carriers may employ Hub and Spoke Network model in order to maximize their profit by calling at hub ports often in stead of calling at feeder ports. 27
MCC will enhance the utilization of resources and reduces the transportation cost. Logistics service providers are able to increase their business volume and revenue through MCC. MCC provides a solution for companies to save ocean freight cost by reducing the number of individual LCL shipments. LCL shipments are considerably expensive, and the costs of multiple LCL shipments from various countries can be high. With MCC, you can take advantage of the more economic FCL freight rates to maximise cost effectiveness in your supply chain 28
7. Current status of MCC in commercial port FTZs Until 2016 Taiwanese custom authority permitted 12 logistics service providers and 7 container freight stations (3 located in port of Keelung and 4 in port of Kaohsiung )for qualified MCC industry. In 2016 logistics service providers had applied for MCC business with a total trade volume of 270.4 tons, included machinery, electronic parts, bulk cargo and other goods, transited from China via Taiwan ports to Southeast Asia, Northeast Asia, Australia, the United States and Europe and other countries. 29
7.1 Issues of MCC in commercial port FTZs Ministry of Finance in Chinese Taipei estimated that MCC can introduce 500,000 to 600,000 tons of foreign transshipment goods every year, with an increase of employment number of about 2,000 people. In effect, In 2016 a total of MCC trade volume was accounted for 270.4 tons in comparison with primary anticipated number in terms of 50,000-60,000 tons issued by MOF, it represented that a large gap between real number and estimated number. 30
7.2 Problems of MCC in commercial port FTZs (1) Import, export goods and transshipment goods must be separated from the warehouse, the goods should be required to apply for customs clearance and escort, increase operating time and cost if movement across various warehouse. (2) in the port outside the container terminal to apply for D8 declaration (foreign goods into the storage warehouse), export declaration by D5 (bonded goods export). import and export goods are not only required transport costs but also plus two times number of customs declaration to increase high operating cost of MCC business. 31
(3) The absence of sufficient MCC warehouses in the some port FTZs will result in the inability to carry out multi-country and transshipment operation in the port area, the goods will still be transported to the container freight station for loading operations. Eventfully, Port FTZ area is more inconvenient for custom clearance operations than the bonded area. (4) According to the current legal provisions, the sea and air freight forwarder shall not transmit the submanifest information, that is, transshipment cargo and freight forwarder shall not be listed as the consignee. Therefore, the freight forwarder can not handle consolidation operation of transshipment goods as well as shipping company. 32
(5) if transshipment goods are adopted as general import and export goods for customs clearance operations, import and export declarations are requiring the declaration of detailed items of goods ( transshipment goods only showed in bill of lading name). As each area customs recognitions on MCC are different, it has been resulted in the operation difficulties without standard of process. (6) Transshipment goods are recognized as general import and export goods for customs clearance operations, the Customs authority would implement the inspection, it will not only increase the cost of inspection, bust also need at least one week lead time, finally the goods will be the lack of time effect. 33
7.3 Solutions of MCC in Taiwan port FTZs Several solutions to deal with aforementioned issues presented by logistics service providers. (1). deregulation of MCC laws and regulations After the renewal of Article 20-1 of the Customs Act Law on August 20, 2014, the MCC operation has finally been based on the source of law. The freight forwarder can declare the cargo manifest directly to the customs and to handle transshipment related matters. 34
The government authority continue to increase the MCC operating regulations and related measures, including Management regulation on freight forwarder by customs, Management regulation on container freight station by customs, Operation guideline for transshipment cargo customs clearance and management, etc. 35
(2) Establishment of public warehousing The Public Warehousing provides MCC, FTZ service, forwarder, repacking and shipping/distributing service. 36
(3) Construction of MCC information platform MCC information platform features include MCC and Transshipment operating applications, message inquiries and print forms, shipping order management and account number Management and so on. 37
Flow chart of MCC information platform 38
8. Implications of MCC case for logistics service providers 1. To improve economic of scale for MCC cargoes MCC business in commercial port FTZs has not yet formed economies of scale, it has arisen in high operating costs per unit in Kaohsiung port in comparison with Singapore, Hong Kong and Pusan. such as truck cost, stuffing and unstuffing charge, storage charge(refer to Table 8.1). 在說明 39
Table 8.1 comparison of international commercial ports MCC business based on operating costs unstuffing charge Transship Custom Declaration fees Storage charge Kaohsiung Hong Kong Singapore Pusan NTD380/CBM USD12.55/CBM Import NTD1750 USD 57.79 Export NTD1000 USD 33.02 (1)Import storage: NTD20-30/CBM +forklift operation NTD55/CBM+EDI NTD50/set (2) Export warehouse storage: NTD12/CBM +in warehouse tally fee NTD55/CBM+ Out warehouse tally NTD55/CBM HKD60/CBM USD 7.7/CBM HKD10/shipment USD1.29/shipment Import: Free time 4 days, Export: 7days, Transship: 14 days, no other storage charge USD10CBM NIL NIL Storage charge for over free time 14 USD4.5CBM(Same warehouse) USD11/CBM(different Warehouse) USD10/Shipment Their own warehouse will absorb cost. Warehouse movement charge Warehouse movement charge +Customs escort cost+ truck cost about NTD3000-5000/shipment USD99.07-165.12/shipment 1. No warehouse movement charge for same warehouse 2. Truck cost for different warehouse movement NIL 1. No warehouse movement charge for same warehouse 2. Truck cost +Unstuffing charge for different warehouse movement Stuffing charge NTD 110/CBM USD 3.63/CBM USD 9/CBM USD 10/CBM USD 6.5/CBM 40
2.To enhance the global logistics network relationship MCC business needs freight forwarder involved in oversea supply chain network for value added logistics service, freight forwarder has to offer their customer all over the world by virtue of oversea branch company or local agency to cooperative in consolidation business. Meanwhile, freight forwarder has to set up good partnership relationship with oversea stakeholders including custom broker, truck company, warehouse operator, shipping company and customs office to form just in time to delivery the final destination. 41
3. To provide differentiated services Freight forwarder has higher product homogeneity in the service industry, for different customer needs, sailing route characteristics to provide different MCC services, to improve service quality, to avoid price competition in order to improve market share, but also in order to have a better profit performance. For example, based on market segmentation, freight forwarder could provide specific goods for MCC including cold chain, high tech, medicine and fruits. In additional to diversified investment, freight forwarder could set up warehouse, truck company, custom broker and other value added logistics industry sector. 42
4. To seek high frequency of sailing route service The MCC is involved in multi-country consolidation cargoes if international commercial port operating MCC business port basically need to in possession of ocean-going routes and high frequency of ship berthing time, such as MCC cargoes transportation from the Los Angeles to Manila via Kaohsiung will need more across pacific shipping routes; MCC cargoes consolidated from Haiphong to Hamburg via Kaohsiung will need Asia-European route service. As table 8.2 shown shipping route, Kaohsiung Harbor with a total of 125, Keelung Port with 54, so Kaohsiung port could offer freight forwarder to have more options of shipping frequency selection for MCC cargoes in comparison Keelung. 43
Table 8.2 Statistics of shipping route number in commercial port FTZs 44
5.To lessen movement cost across warehouse The container freight station application for MCC conditions are more stringent according to customs regulations stipulated they need to separate storage space for MCC goods in a warehouse and needs to set up 24 hours CCTV to monitor MCC goods, a few CFS operators hope to apply for MCC license, such as in Kaohsiung port only 5 companies in 2017. Owing to high frequency of movement costs across MCC and No-MCC warehouse, it will arisen much trucking cost+ handling cost+ storage cost. The government should provide incentives to encourage CFS to register in MCC license to reduce movement cost across warehouses. 45
6. To ensure the safety of goods Best warehouse facility, warehouse management capability and cargo safety are the key for development of MCC business, whereas the present most of this industry prefer to use old warehouse to carry out bulk cargo storage, inventory control, cargo tracking and safety management which are lagged behind the customer's expectations. Freight forwarder should pay attention to on-time distribution rate, cargo tracking and safety management. Besides, it is of important to keep good relationship with shipping company and CFS to increase customer confidence and to avoid the unnecessary cargo claim and compensation. 46
7. To develop a customized information system MCC has the characteristics of internationalization and centralization, not only in response to different industries and individual customer all over the world to meet with their requirements of designing unique transportation process, but also need to integrate the supply chain management. The freight forwarder can also use the information system to integrate and analysis the data of each business, and to identify customer needs and cargoes features in advance to formulate and implement transportation process, CFS operation, custom clearance, inbound and outbound port, and other value added logistic service. 47
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