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Global Transportation and Logistical Risks Research Paper


Abstract

The global transportation and logistics industry is among the most important industries the world. The implication therefore is that global trade is possible. The study identifies six major aspects of risk in global transportation and logistics ranging from inadequate security to logistics volatility.

Land congestion and lack of inventory have also been discussed as significant risks in the industry. Consequently, different companies have found varying ways of going round the problems. Using a specific company (Maersk), investigations are possible into the measures adopted to mitigate the risks.

The company was used for the analysis because it ensured on-time vessel arrival and departure at accuracy levels of more than 90%. Another factor that has been significant in the industry is the introduction of newer technologies and methods that have enabled the organization to supplement its daily activities.

Introduction

Throughout the centuries, human beings have interacted with their counterparts in various parts of the world. The major contributor to the contact is trade. With the introduction of better modes of transportation over the previous centuries, global trade has grown tremendously.

The advent of globalization and technological innovation means that the time taken for people in different corners of the world to make transactions has been significantly reduced.

The most commonly used mode of transportation in international trade is maritime transport, which has dominated the industry for centuries (Maclachlan, Hart, & Bucknill, 1923, p.78).

Apart from the success that the international trade enjoys, the major challenges it experiences include the risks associated with global transportation and logistics. A number of them have been established with about six being significant. The six range from security to logistics volatility.

However, different logistic companies have found innovative ways of dealing with them. One such company is Maersk, which enjoys dominance in the market.

In this research paper, focus is made on global transportation and logistical risks associated with international trade. Maersk Company is used to demonstrate how logistical companies are dealing with the risks together with the new technologies and methods that have been adopted as intervention strategies.

Maersk

Maersk, which is legally known as A.P. Moller – Maersk Group, is a business conglomerate with its headquarters in Denmark carrying out trade in various sectors of business around the world (Middlemiss, 2005, p. 7).

It is listed as the biggest supply vessel and container ship operator in the world with its dominance being evident in various parts of the planet (Levinson, 2006, p. 36). The company has offices in over 130 countries employing over a hundred thousand employees globally (Maclachlan, Hart, & Bucknill, 1923, p.78).

Since the company is involved in global logistics and trade, it is important to evaluate some of the measures that it has put in place to mitigate the global logistical risks and challenges ensuring on-time vessel arrivals and departures at accuracy levels of more than 90%.

The problems facing global logistics will therefore be discussed with the measures that Maersk has put in each. The company has diversified the global economy by producing reliable means of global transportation and thus facilitating international trade.

Lack of security

The issue of security has been a key challenge in many companies and institutions. With the evident advanced technologies that businesses have adopted to carry out operations and transactions, it suffices to acknowledge the insecurity that has been associated with the same.

Therefore, insecurity is one of the challenges that Maersk faces in global transportation and logistics. The company has thus invested heavily to guarantee the safety of her trade interests. As Miller (2012) argues, piracy has traditionally been considered as the single largest threat to international shipping.

However, with improved security and patrols in the international waters coupled with better equipped transport systems, the threat had been contained over the last century. The international routes used in shipping have ensured that traffic is concentrated on specific areas that are easy to secure.

Piracy however resurfaces along the gulf of Somalia with this matter posing a threat to trade between the east and the west (Geiss, & Petrig, 2011, p. 19: Taussig, 1927).

The company also faces security challenges in the countries in which the offices and operations are located. The company has thus laid down a framework to deal with it.

According to Geiss and Petrig, “progress has been made on the legal framework for prosecuting pirates, but the issue remains largely unsolved” (2011, p. 18). Maersk has put a number of measures to guarantee the security of the shipping vessels and their crew.

To counter the piracy threat, the company carried out the transport on the pirate-infested areas as part of the convoys protected by navy ships patrolling the area (Middlemiss, 2005, p. 9).

The other strategy employed is sailing of the company’s vessels far from the cost of countries such as Somalia, which are known for piracy (Middlemiss, 2005, p. 9).

The company also continuously updates its “comprehensive set of security instructions for ships that transit the Gulf of Aden or the Somali Basin” (Geiss, & Petrig, 2011, p. 19).

Another way that the company participates in security of her operations is through being a member of the Customs-Trade Partnership Against Terrorism (C-TPAT) program, which it has actively participated in since 2002 (Levinson, 2006, p. 36).

The company has also set up measures to assure the security of her employees in the region where its offices are located with a security office existing in each of these countries. The security of the goods in transit is also assured with the company insuring any of the items for loss within transit.

Volatility

According to Wood, “The shipping industry has historically been highly cyclical experiencing significant volatility in vessel values, freight rates, and shareholder returns…It is highly affected by changes in the international economic and political environment” (2002, p. 56).

The same situation is evident in Maersk with the company having to deal with the rampant changes in prices and values of its commodities.

Some of the contemporary factors that have contributed to volatility in the market that Maersk is engaged in include the increasing regulation, risk of piracy as stated above, volatility and uncertainty of the financial markets, and environmental concerns (Wood, 2002, p. 52).

Though there have been a number of technological breakthroughs in the same industry, Greve and Hansen states, “these have added to a very challenging business environment that puts even experienced shipping executives to the test” (2007, p. 267).

Maersk has found a number of ways of dealing with this challenge. It has managed to stay relevant in the industry with observed profitability. The industry has been restructured to mitigate the effects that are associated with the volatility.

The company has also invested heavily in technological innovations to improve efficiency and performance (Levinson, 2006, p. 37). Strict audits are made seasonally in the market and the company braches to ensure that the management is in a position to make well-informed decisions in trade engagements.

Land Congestion

Maersk is involved in the operation of ports around the world in addition to the transport of cargo across oceans. With the introduction of containerization of goods during transport, the need to have container terminals developed. These container terminals occupy vast areas of land and space.

The space is used to store and stack the containers after unloading and before loading on the transport ships. The containers that are unloaded from the ships are then transported inland for further storage and distribution.

Brooks states that, although containerships spend significantly less port time, “The growth of containerized trade and their larger capacity have placed pressures on existing terminals to expand laterally” (2002, p. 33).

For the ports that had adequate land to expand laterally, the problem has had little impact on their operation, but those with little or no land experienced this problem to a greater scale (Levinson, 2006, p. 38).

Maersk has over the years developed effective solutions for this problem thus helping it to maintain the lead as a major global logistics company. The company has invested in offshore terminals.

This strategy has enabled it to move its operations from the traditional coastal areas, which are now congested following the wake of the global trade growth (Brooks, 2002, p. 31). According to observers, the offshore terminals tend to be less crowded with provisions for future expansion being present (Levinson, 2006, p. 36).

The company has also invested in technological innovations, which enable the stacking of containers in large numbers. The move has ensured efficient use of land where there is less land available for expansion. The storage of the containers is computerized in the terminal thus reducing the time taken to move the containers.

Lack of Inventory

Lack of inventory has affected many small and large companies in the global logistics and transport industry with millions of shillings being lost as a result. Maersk has invested heavily in many components of the global trade. It owns a number of companies, which are directly involved in the industry.

The company has a large number of assets globally with ports and ships being in the list to ensure that the company is better positioned to compete as compared to her competitors in the same industry.

Among some of the activities that the company is involved in include the shipping of goods all over the world, operation of the terminals, which it owns and runs, and oil and gas mining activities (Maclachlan, Hart, & Bucknill, 1923, p.78).

The group has interests in other areas of trade including banking, air transport, retail activities and operation of tankers, and offshore shipping service. The company also has a stake in the oil industry. It oversees the drilling of oil in a number of places thus enabling it to have a strong base in terms of resources.

Newer Technologies

As stated above, newer technologies in the global transportation and logistics industry have benefited the industry in a number of ways. However, it has also presented a challenge to the companies that are enlisted in the industry. Maersk has emerged as a market leader in the industry.

One of the strategies that it utilizes is efficient use of technology in the operations. The company has invested in the latest state of the art shipping services besides owning some of the latest models of ships (Brooks, 2002, p. 33).

Unlike some of the other companies in the industry, which face new technologies as a threat to their operations, the company has invested heavily in the acquisition of new technologies mainly in the reduction of pollution associated with the industry (Greve, & Hansen, 2007, p. 267).

The company installed environmentally safe systems in the ships that it runs. The strategy has ensured a better environmental profile compared to her competitors.

Aside from utilizing new technology in the market, the company is also dedicated to the development of technology to enable it to improve its operations (Krugman, 1990, p. 16).

Other technologies that the company utilizes in the transportation and logistics industry include modernized and computerized systems of tracking goods, unloading, and even in the storage. The technologies have ensured that the company is the leader in the world in the same industry.

Adopted Methodologies

To ensure the survival of a company in the global transportation and logistics industry, it has to adopt special methodologies geared towards this goal. Virtually all companies in this industry, including Maersk, have adopted unique methodologies to facilitate their activities.

A major method that has been adopted by almost all companies is the use of containers in the transportation of the goods as a strategy to reduce the time taken in transportation (Clausen, 2013, p. 27). The figure below show the company’s ship loaded with containers.

Maersk’s ship loaded with containers

Source: (Greve & Hansen, 2007)

The companies have also invested in large and faster ships as evidenced above meaning that more of the bulky goods are transported. The companies have also adopted economies of scale in their interactions thus contributing to the lowering of operational costs in the industry.

Most of the companies have invested in different areas in the industry. The method has enabled them to have a continuous supply of profits to be invested in the industry. In fact, the use of containers has led to increased revenue for the company as evidenced by the findings below:

Use of Container and the Revenue Obtained
Net Revenue Net Result
2011 2012 2011 2012
25108 27118 -553 461

Source: (Greve & Hansen, 2007)

It has also assured them security and survivals if any of the areas are affected financially. The companies have also diversified the industry by investing in all the other support sectors such as the packing of the goods, delivery to the final user, the railway and road system, and other industries (Wood, 2002, p. 56).

This argument means that the costs used in the transport have been reduced with the efficiency increasing over time. A single company in the industry has not adopted these methods, but Maersk leads the rest in the implementation.

Conclusion

In conclusion, several risks face the global transportation and logistics industry. They have over the past affected returns in the industry. Some of the risks identified include insecurity, lack of inventory, inadequate land to expand, and volatility. Different companies have adopted different ways of dealing with the risks.

One such company is Maersk. The company is a leader in the industry employing thousands of people in over a hundred countries. It has put in place measures to mitigate the threats associated with the above risks.

Some of the new technologies that the company has adopted have been discussed together with the methodologies adopted by companies in the industry.

Reference List

Brooks, R. (2002). Maritime transport. Northampton, MA: Edward Elgar Pub.

Clausen, U. (2013). Efficiency and logistics. Berlin: Springer.

Geiss, R., & Petrig, A. (2011). Piracy and armed robbery at sea: the legal framework for counter-piracy operations in Somalia and the Gulf of Aden. Oxford: Oxford University Press.

Greve, M., & Hansen, W. (2007). Container shipping and economic development a case study of A.P. Moller – Maersk in South East Asia. Copenhagen: Copenhagen Business School Press.

Krugman, R. (1990). Rethinking international trade. Cambridge, Mass.: MIT Press.

Levinson, M. (2006). The box: how the shipping container made the world smaller and the world economy bigger. Princeton, N.J.: Princeton University Press.

Maclachlan, D., Hart, L., & Bucknill, T. (1923). A treatise on the law of merchant shipping. London: Sweet and Maxwell.

Middlemiss, L. (2005). Maersk line. Gateshead: Shield Publications.

Miller, A. (2012). Modern-day piracy. Detroit: Greenhaven Press.

Taussig, W. (1927). International trade. New York: Macmillan.

Wood, F. (2002). International logistics. New York: AMACOM.

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