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repo auction
1. Executive Summary
NOL/APL currently offers a comprehensive suite of IT/E-commerce products for its customers. Our Homeport interactive website for instance, allows our customers to generate reports on their shipments, print electronic Bills of Lading, make bookings online, track their shipments and view shipping schedules and tariff rates. These web products have no doubt enhanced our interactions with our customers. They, however, do not provide an effective / efficient channel for NOL/APL to liquidate our perishable product – vessel slots.
Auctions, an established method of commerce for generations, are an effective way to expedite the disposal of items that need liquidation or a quick sale. They offer trading opportunities for both buyers and sellers that are not available in conventional channels.
In this document, we are proposing the use of an auction facility on Homeport to sell containers awaiting empty repositioning. The auction site will specifically target at those customers who are able and will be tempted to bring forward their transportation needs with lower freight prices. The auction facility will serve to induce shippers to bring forward their transportation needs by offering the prospect of lower ocean freight prices at corresponding risks of equipment acquisition failure . It will also allow NOL/APL a greater opportunity for moving containers that would otherwise be moved empty, laden.
The IT infrastructure of the auction site will be made up of four main systems, namely, CCMS, CBART, an auction database and an Internet auction application. CCMS and CBART together will provide the informational foundation for the auction. The auction database (3rd Tier) and Internet application (2nd Tier) will serve as the main engine of this business proposition. The customer interface (1st Tier) will reside on Homeport.
This auction site is expected to create various revenue enhancement opportunities and potential cost savings for NOL/APL and our customers respectively.
Base on the principle of risks and returns, we believe that this auction site will not cannibalise our normal contractual arrangements with our clients based on the simple principle of risks and returns. In normal contractual arrangements, clients are guaranteed of the availability of APL ocean transportation services. The risk of equipment acquisition failure is very low and shippers should expect to pay more for not bearing this risk. They thus earn a lower margin/return on their box of cargo. Similarly, under an auction condition, bidders willing to bear the risks of equipment acquisition failure can expect to earn a higher margin/return on their box of cargo by paying a lower rate per container.
The target customers for this auction site will be NOL/APL’s current customers (based on STAR data pulled from CCMS). During the initial phases, only registered customers with Homeport are allowed to bid at the auction. The frequency of the auction will not be high, especially during the initial phases. Base on current NOL/APL repositioning volumes, the auction can be conducted once a month.
A minimum bid price will be specified for each specific container. A minimum bid price is necessary to avoid reverse auction. Bidders can remain anonymous throughout the bidding process and only the highest bidding price will be published. Each bid will close five days before vessel sail and the successful bidder will receive a confirmation via the web/email.
2. Business Concept and Proposition
Container repositioning refers to the movement and relocation of empty containers from one port to another for the purpose of fulfilling demand at the latter port. Container repositioning is necessary as a result of an imbalance in the supply and demand of containers. Consider the following scenario:
Port of Loading A Port of Discharge B
No. of empty containers available : 10 No. of empty containers available : 5
No. of containers bound for port B (laden) : 5 No. of containers demanded : 12
No. of surplus containers : 5 No. of containers in deficit : 7
Assumptions : All laden containers from Port A can be unstuffed in time at Port B for outbound movement.
The above scenario illustrates a surplus situation at Port A. Five of the ten empty containers at Port A are going to be moved laden to Port B. This imbalance in supply and demand of containers at Port A means that five containers will have to lie idle and unutilised. There is, on the contrary, a deficit situation at Port B. The number of containers needed (12) is more than what is available (5), leaving ‘revenue untapped’.
Even after turning around the five laden containers from Port A, Port B is still short of two containers. A feasible solution is therefore to reposition two of the five empty containers from Port A to Port B. If the surplus containers are not repositioned, they will not only be lying idle but also incurring costs such as ground rent, maintenance and repairs and opportunity costs.
If we move two of the empty containers from Port A to Port B, along with the five laden containers, Port B will be able to have an additional seven containers at its disposal. This offsets the deficit at Port B and allows APL to fulfil the entire demand at Port B.
However, moving the containers empty means that not only is there no customer bringing in the revenue of moving this container, APL is bearing the cost (both fixed and variable) of moving these containers. As such, if we can, we should always strive to move the containers laden instead of empty. Moving them laden at minimum revenue will allow APL to at least cover the variable cost if not the fixed costs of moving these containers.
To fulfil the above proposition, we need to induce the demand for transportation service from Port A to Port B. One strategy is to induce customers to bring forward their transportation need by reducing the price of moving a container from Port A to Port B i.e. subjecting it to market forces.
Business Proposition: Create an auction site for customers to bid for the containers that would otherwise have to be moved empty.
3. Feasibility and Strategic Analysis
The current repositioning of containers yields the following drawbacks:
§ Empty repositioning § Low container utilisation
§ Costs incurred are high § Turns per year are low
§ No revenues § Containers over 30 days
The auction site will allow the containers the opportunity to be moved laden and generate the revenues to reduce the negative cost impact of repositioning. It will serve well to create the revenue enhancement opportunities and potential cost savings for NOL/APL and our customers respectively. They include:
Revenue Enhancement for NOL/APL : Cost Savings for Customers :
§ Revenues earned § Lower prices
§ Repositioning costs recovered § More efficient rate approval process
§ Optimising equipment utilisation
§ Turns per year improved
3.1. Potential Revenue Enhancements for NOL/APL
Profit and Loss Improvements
Let’s consider the repositioning of containers within Asia. The current minimum cost of repositioning a dry 20’ container from Tokyo to Singapore is ~USD200 (for surcharges such as bunker adjustment factor and terminal handling charges). Let’s assume ~ 1,000 dry 20’ containers were repositioned empty from Tokyo to Singapore every year. The total cost of repositioning these containers were:
Total cost of repositioning = 1,000 containers x USD200
...
1. Executive Summary
NOL/APL currently offers a comprehensive suite of IT/E-commerce products for its customers. Our Homeport interactive website for instance, allows our customers to generate reports on their shipments, print electronic Bills of Lading, make bookings online, track their shipments and view shipping schedules and tariff rates. These web products have no doubt enhanced our interactions with our customers. They, however, do not provide an effective / efficient channel for NOL/APL to liquidate our perishable product – vessel slots.
Auctions, an established method of commerce for generations, are an effective way to expedite the disposal of items that need liquidation or a quick sale. They offer trading opportunities for both buyers and sellers that are not available in conventional channels.
In this document, we are proposing the use of an auction facility on Homeport to sell containers awaiting empty repositioning. The auction site will specifically target at those customers who are able and will be tempted to bring forward their transportation needs with lower freight prices. The auction facility will serve to induce shippers to bring forward their transportation needs by offering the prospect of lower ocean freight prices at corresponding risks of equipment acquisition failure . It will also allow NOL/APL a greater opportunity for moving containers that would otherwise be moved empty, laden.
The IT infrastructure of the auction site will be made up of four main systems, namely, CCMS, CBART, an auction database and an Internet auction application. CCMS and CBART together will provide the informational foundation for the auction. The auction database (3rd Tier) and Internet application (2nd Tier) will serve as the main engine of this business proposition. The customer interface (1st Tier) will reside on Homeport.
This auction site is expected to create various revenue enhancement opportunities and potential cost savings for NOL/APL and our customers respectively.
Base on the principle of risks and returns, we believe that this auction site will not cannibalise our normal contractual arrangements with our clients based on the simple principle of risks and returns. In normal contractual arrangements, clients are guaranteed of the availability of APL ocean transportation services. The risk of equipment acquisition failure is very low and shippers should expect to pay more for not bearing this risk. They thus earn a lower margin/return on their box of cargo. Similarly, under an auction condition, bidders willing to bear the risks of equipment acquisition failure can expect to earn a higher margin/return on their box of cargo by paying a lower rate per container.
The target customers for this auction site will be NOL/APL’s current customers (based on STAR data pulled from CCMS). During the initial phases, only registered customers with Homeport are allowed to bid at the auction. The frequency of the auction will not be high, especially during the initial phases. Base on current NOL/APL repositioning volumes, the auction can be conducted once a month.
A minimum bid price will be specified for each specific container. A minimum bid price is necessary to avoid reverse auction. Bidders can remain anonymous throughout the bidding process and only the highest bidding price will be published. Each bid will close five days before vessel sail and the successful bidder will receive a confirmation via the web/email.
2. Business Concept and Proposition
Container repositioning refers to the movement and relocation of empty containers from one port to another for the purpose of fulfilling demand at the latter port. Container repositioning is necessary as a result of an imbalance in the supply and demand of containers. Consider the following scenario:
Port of Loading A Port of Discharge B
No. of empty containers available : 10 No. of empty containers available : 5
No. of containers bound for port B (laden) : 5 No. of containers demanded : 12
No. of surplus containers : 5 No. of containers in deficit : 7
Assumptions : All laden containers from Port A can be unstuffed in time at Port B for outbound movement.
The above scenario illustrates a surplus situation at Port A. Five of the ten empty containers at Port A are going to be moved laden to Port B. This imbalance in supply and demand of containers at Port A means that five containers will have to lie idle and unutilised. There is, on the contrary, a deficit situation at Port B. The number of containers needed (12) is more than what is available (5), leaving ‘revenue untapped’.
Even after turning around the five laden containers from Port A, Port B is still short of two containers. A feasible solution is therefore to reposition two of the five empty containers from Port A to Port B. If the surplus containers are not repositioned, they will not only be lying idle but also incurring costs such as ground rent, maintenance and repairs and opportunity costs.
If we move two of the empty containers from Port A to Port B, along with the five laden containers, Port B will be able to have an additional seven containers at its disposal. This offsets the deficit at Port B and allows APL to fulfil the entire demand at Port B.
However, moving the containers empty means that not only is there no customer bringing in the revenue of moving this container, APL is bearing the cost (both fixed and variable) of moving these containers. As such, if we can, we should always strive to move the containers laden instead of empty. Moving them laden at minimum revenue will allow APL to at least cover the variable cost if not the fixed costs of moving these containers.
To fulfil the above proposition, we need to induce the demand for transportation service from Port A to Port B. One strategy is to induce customers to bring forward their transportation need by reducing the price of moving a container from Port A to Port B i.e. subjecting it to market forces.
Business Proposition: Create an auction site for customers to bid for the containers that would otherwise have to be moved empty.
3. Feasibility and Strategic Analysis
The current repositioning of containers yields the following drawbacks:
§ Empty repositioning § Low container utilisation
§ Costs incurred are high § Turns per year are low
§ No revenues § Containers over 30 days
The auction site will allow the containers the opportunity to be moved laden and generate the revenues to reduce the negative cost impact of repositioning. It will serve well to create the revenue enhancement opportunities and potential cost savings for NOL/APL and our customers respectively. They include:
Revenue Enhancement for NOL/APL : Cost Savings for Customers :
§ Revenues earned § Lower prices
§ Repositioning costs recovered § More efficient rate approval process
§ Optimising equipment utilisation
§ Turns per year improved
3.1. Potential Revenue Enhancements for NOL/APL
Profit and Loss Improvements
Let’s consider the repositioning of containers within Asia. The current minimum cost of repositioning a dry 20’ container from Tokyo to Singapore is ~USD200 (for surcharges such as bunker adjustment factor and terminal handling charges). Let’s assume ~ 1,000 dry 20’ containers were repositioned empty from Tokyo to Singapore every year. The total cost of repositioning these containers were:
Total cost of repositioning = 1,000 containers x USD200
...
Posted by: Garrick Christian
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