What is Fixed Berthing Window Concept at Container Ports and Terminals?

Container ports are dedicated container terminal handling facilities, meant exclusively for handling containerised cargo. Container ports globally have grown rapidly, in terms of number and capacity, corresponding with the growth in containerised cargo.

Since containerised cargo is different from other cargo, container ports and terminals have different operational dynamics and requirements.

This includes both the infrastructure and equipment, where the equipment required to handle containers is different from that required to handle general/ bulk cargo or cranes needed to service container vessels or storage requirements of container handling equipment and trucks.

This also holds for the planning of vessel and terminal operations, as well as commercial matters.

A concept that is popular amongst container terminals is Fixed Berthing Windows, which we will understand in this article.

Background

The foundation of container trade is built upon standardisation. This means that regardless of the nature of the commodity, once it is packed in a container, the subsequent handling, transport and logistical requirements are largely similar.

It is this standardisation that has facilitated the rapid rise of container trade, and the movement towards containerisation of commodities that were traditionally transported in bulk.

While standardisation might have made the transport process more efficient and driven a reduction in transport costs, the upfront investments required to enable container trade are significantly higher.

For container carriers, this includes investments in container equipment (with a mix of various equipment types and sizes), and container vessels of varying sizes (to serve various trades and countries), while for terminal and port operators, this includes cranes (Quay Cranes/ RTGC’s/ RMGC’s etc), as well as equipment to handle containers within the terminal (such as Reach Stackers), and finally trucks and chassis to move containers to the hinterland (or vice versa).

Further, since faster operations and cargo handling is a key benefit of containerisation, terminals need to achieve a minimum level of efficiency that can guarantee faster handling of vessels and rapid evacuation of containers.

The implications of the above factors are that ports and terminals need to ensure optimum utilisation of their assets to maximise asset turnovers and assure container carriers of a high level of operational efficiency.

Amongst assets, land – in the form of berth space – is critical, as the length of the berth determines how many vessels can be handled by the port simultaneously, and greater productivity and efficiency of port operations can increase the total number of vessels that the port can handle (with faster operations, berths are freed up quickly for the next incoming vessel and thus enable the port to handle more vessels).

Container Carrier Perspective

The way modern supply chains have evolved, reliability is more important than speed. This means that customers would prefer a stable and robust supply chain where the delivery times are standard rather than where the delivery times exhibit variation (this is because stable transit times help shippers and importers to plan their inventory of raw materials, stock of finished goods, replenishment schedules, manufacturing timelines etc with greater precision if the transit times are stable. Conversely, if the transit times vary, they will not be able to accurately plan inventory levels and production schedules).

This tendency is reflected in the container shipping business as well. It is important for container carriers to maintain schedule reliability, so they can provide a consistent level of service, wherefore it is critical for them to have the assurance that their vessels will be able to call at a certain port at a pre-decided time and depart at the specified time.

Berth Planning at Container Ports

The practice earlier amongst ports was to handle vessels on a First Come First Served basis, which meant that the port would handle vessels in the order in which they arrived at the port. While this might seem logical, it neglected the profit-maximisation aspect and did not give any options for carriers who might be willing to pay a premium for the rights to be berthed upon arrival (at a pre-decided time).

For container carriers to be able to ensure schedule integrity and adhere to published vessel schedules, it is important for them to have the assurance that they will be allocated a berth when (and if) they arrive at a time that has previously been agreed to with the port.

In the absence of such an agreement, it might well happen that when the container vessel arrives at the port, there might be a higher-than-usual number of other vessels at the port, which, under the First Come First Served method, will be given priority, which will necessitate longer waiting times for the container vessel and cause delays in its subsequent journey.

It is for this reason that container carriers are willing to pay a premium for this right.

Concept of FBW

The concept of Fixed Berthing Window has been steadily gaining ground in the ports industry and is considered a best practice, which a growing number of ports and terminals are incorporating.

Under the FBW system, ports and carriers agree on fixed berthing windows, i.e. pre-decided times when the container carrier’s vessel will arrive at the port and will berthed. This provides the carrier with the assurance that their vessel will not have to wait in a queue (provided they arrive at the stipulated time) while the port earns higher revenue by charging the carrier a premium over normal port charges.

This is a win-win situation for the ports/ terminals, carriers, and their customers, as it stabilises their supply chains at a slightly higher price, where the FBW premium is more than recompensed by other accruing benefits such as faster cargo movement, faster turnaround of vessels and equipment, higher schedule reliability levels, lower vessel waiting times, and reduced probability of delays.

Exporters and importers benefit from faster delivery times, which helps reduce inventory levels and associated costs, enables shorter cash conversion cycles, and higher turnover ratio.

Benefits of FBW to Ports and Carriers

FBW offers several advantages to all players in the supply chain, including ports, carriers, exporters and importers.

These benefits include:

A structured and coordinated approach to improve port operations
Facilitates advance Vessel, Yard and Evacuation Planning
Enables optimum utilisation of Port and Terminal assets
Faster Vessel and Cargo handling
Optimise Space management
Lower probability of bunching of vessels
Enhanced Productivity and Efficiency

Financial benefits of FBW to ports and carriers

Besides these benefits mentioned above, there are also considerable financial benefits.

To understand the financial and operational value of the FBW to carriers, let us take the hypothetical example of a port where the average waiting time for vessels is 10 days.

The idling time of 10 days not only represents lost opportunity costs (where the vessel/ assets do not generate revenue) but also has a financial impact, in terms of the OPEX that the carrier is compelled to incur without generating commensurate income.

While the OPEX is composed of many elements, some expenses will be lower while the vessel is waiting (bunker costs) while some expenses will continue to run up at the usual rate (charter costs/ crew costs etc). Despite this, even if we eliminate the bunker costs, the OPEX costs during the waiting period will be substantial.

Let us understand this by restricting our analysis to just the charter expenses. The cost of chartering a 10,000 TEU vessel is in the range of $28,000 to $35,000 per day. Basis the average waiting time of 10 days, this works out to at least $280,000, calculated on the lower end of the charter price range.

In this background, if the terminal operator were to introduce the fixed berthing window system, whereunder the carrier’s waiting time is reduced to 2 days (will actually be less than that as since the windows are fixed, the carrier is aware of when its vessel has to arrive at the port and will plan the vessels arrival accordingly, thus reducing the waiting time to the bare minimum), this would translate into savings of $224,000, besides which the higher asset utilisation levels will result in additional revenue.

Apart from the monetary benefits, the carrier is also enabled to maintain its schedule reliability and avoid delays – valuable differentiators in a highly commoditised market.

For ports, apart from the premium that they charge carriers for allocating FBW, this also offers leverage to build a long-term relationship with the bigger container carriers, to ensure a stable long-term volume pipeline, guaranteed revenues, and higher utilisation rates.

Future of FBW trend

Considering the proven efficiency gains of the FBW system and the financial benefits, the concept can reasonably be expected to gain prevalence in the forthcoming years. While the bigger ports have already adopted the FBW, mid-sized and smaller ports are also replicating this best practice, resulting in its widespread adoption.

As the pressure grows on ports to move to a more standardised way of working, attract carriers controlling greater volumes, and ensure higher utilisation levels, they will inevitably find it expedient to shift away from the First-Come-First-Served system of handling vessels, to the more structured and revenue-enhancing FBW system.

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About Author

Jitendra has over 20 years of international experience in the Container Shipping, Ports and Logistics industry, spanning 3 diverse geographies, wherein he has been involved in the commercial and strategic aspects of the container business.

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