Functional Integration of Maritime Supply Chains

Functional Integration of Maritime Supply Chains

Source: Rodrigue, J-P (2006) “Challenging the Derived Transport Demand Thesis: Issues in Freight Distribution”, Environment & Planning A, Vol. 38, No. 8, pp. 1449-1462.

The efficiency of freight distribution is linked with the level of functional integration along supply chains. It is dependent not only on physical flows generated by its various functions (manufacturing, physical distribution, after-sales service) but on how well each element is linked with the others. Since transportation is a core component in this process of functional integration and economies of scale in distribution, the emergence of “megacarriers” involved in numerous segments of the transport chain can be seen as a logical process.

In a push logistics context, freight distribution was highly fragmented and was assumed by different entities ranging from maritime shipping lines, shipping and customs agents, freight forwarders, and rail and trucking companies. Regulations were often preventing multimodal ownership, underlining this fragmented state. Moving freight from one part of the supply chain to the other involved additional costs and delays, either administrative or physical (namely intermodal) in nature. With an increasing level of functional integration, many intermediate steps have been removed.

Mergers and acquisitions have permitted the emergence of large logistics operators that control many segments of the supply chain, a process supported by the development of economies of scale in distribution. Carriers can offer comprehensive services, including cargo handling and information processing. Technology also plays a significant role in this process, with information technologies enabling better control of the process and intermodal integration enabling better control of the flows. Another significant outcome has been that maritime and land distribution systems have become closely integrated, with some transport companies involved in both.

The control of the supply chain through functional integration challenges derived demand as the concerned actors (3PLs and megacarriers) can anticipate and regulate freight flows. These integrators behave in a manner reflecting that they are not responding to a derived demand, but with a view to controlling their respective supply chains and answering the needs of their customers, if not actually shaping them, or at least the time sequence at which they are serviced.