The Role of Value-Added Services That Provided by Logistics Centers in Ports in Economic Growth

Arab Academy For science, Technology & Maritime transport The role of value-added services that provided by Logistics centers in ports in economic growth In Partial Fulfillment of the Requirements For the Master Degree of International transport and logistics By Mohamed Fathi Abu tabl Research supervisor: Professor Mohamed EL Fayuomi Date: 5/01/2013 Table of Contents 1-INTRODUCTION3 2-Background in the literature4 2. 1-General view of value added services (VAS) and its history in ports4 2. 2- Types of value-added services4 2. 3- how logistics centers affected the economic growth in Netherlands6 – Methodology, data collection method and reliability of the study7 3. 1- Methodology, data collection method7 3. 2- reliability and the ability to repeat the study:7 4- Data analysis and results9 4. 1-accuracy of the study9 4. 2- Correlation analysis10 5-The conclusion11 List of references12 LIST OF ABBREVIATIONS13 List of Figures14 List of tables14 1-INTRODUCTION Now a days logistics play a significant role in our fast-moving environment, and have great significant economic impacts, If we take USA as example the total logistics U. S. ost increased from 78 billion $ in 1960 to 1,183 billion $ in 2005 as per (Murphy and Wood, 2007), According to council of supply chain management professionals (CSCMP) the Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements (CSCMP, http://cscmp. org/about-us/supply-chain-management-definitions ,2012).

So according to this definition the logistics is not only about the flow of physical goods but also services and information that may add value to the transported goods, So in recent years there was a trend to increase value-added services in ports through new logistics centers as a part of the logistics chain especially in the developed countries to gain a competitive advantage over other ports, in this research my objective is trying to answer the following questions: * Does really value-added services in ports has a positive effect on countries revenues? Does value added services in ports has a significant effect in creating new jobs? * Is it worthy for developing countries to invest in these services to reach to economic prosperity? This value added activities include Assembly, packaging, localizing and customizing, installation and instruction, quality control and testing of products and other services that can be provided through logistics centers in ports, In this research I will use quantitative method to analyze data about some ports like Bremen ports in Germany, Rotterdam in Netherland and Singapore in the pursuit of answering previous mentioned questions. -Background in the literature 2. 1-General view of value added services (VAS) and its history in ports There are many definitions for (VAS) let’s take a look at this definition as per a study conducted by Supporting Association for Maritime Education and Research (MOTK), Institute of Shipping Economics and Logistics (ISL), Centre for Maritime Studies (CMS) : (The content and meaning of value added services vary according to definers and points of view.

As for an example, from the wider economic perspective, a port as a whole may be considered a logistics value added service. On the other hand, logistics value added services can be defined as only those services, which are not actual logistics (transportation, warehousing and handling of goods) services. When defined in this way, logistics services include, for example, weighting, repairing, customs and documentation.

Hence value added services are services, which are related to products only. In this study value added services are defined as follows: Logistics value added services are services that are used in the supply chain generating added value to the transported goods (such as by modifications or manipulations) and/or to the whole supply chain for the benefit of the owner of the goods and for the efficiency of the supply chain.

Basic transportation, transshipment and warehousing are excluded. IT-services also play an important role in added services, for example in the constitution and locating of goods. (http://www. logvas. com/fileadmin/Logvas/Final_Reports_06/1_VAS_Driven_potentials_01. df, 2013) As per previous mentioned definition the (VAS) is any tangible benefits added to the product its self, indeed, from my point of view it can include the transportation process its self as it adds intangible value to the product by moving it from one place with low value to another place with higher value, for instance transportation of cars manufactured in Europe with specific characteristics doesn’t needed in Europe like strong air condition system and anti-heat components to another place needs this specifications like Gulf area, So in this case the product has been transported from low-value place to higher value for the same product, So the transportation process doesn’t add any tangible value to the product, Meanwhile adds intangible value.

For the purpose of this study I will not consider the transportation process as a value added activity as this is a traditional service of the carriers, freight forwarders and logistics centers, I will narrow my research on other recent (VAS) conducted by the logistics centers in the ports and will emphasis on its positive effect on the countries’ economy. VAS is strongly significant to differentiate the services provided by different ports by creating a competitive advantage in the favor of the ports which have a VAS or better VAS, which can be illustrated in Figure 1. 2. 2- Types of value-added services There are many studies and publications talked about VAS I will try to combine the best two of them, to mention some of VAS that can be provided by the logistics centers in ports: Figure 1, Matrix of competitive advantage (UNESCAP, 2013, VALUE-ADDED SERVICES OF LOGISTICS CENTRES IN PORT, publication2194_ch3) – Assembly: this type of activity arose as a result of the need to decrease the travelling frequency from the warehouses to the factories; in this case the logistics center has a semi manufacturing facility inside or near ports to assemble some types of machines. 2- Packaging and labeling: logistics centers also can offer the packing process for the loose cargo and co-packing if the customer needs to replace the packaging of the supplier by the packaging and label for his company, also price tags and promotion materials can be added to the product.

3- Localizing and customizing: this type of service is focusing on customer needs in specific area, as the logistics center can customize some specifications of the product to suit the requirements of specific country. – Repair, installation and instructions: these services are a part of a semi-manufacturing process that can be provided by a logistics center, they can offer a repair for old machines or cars in some cases the logistics center may collaborate with third party to finish this, also installation of old or new machines before or after the final delivery to the ultimate customer, and finally the logistics center may play a customer service role by introducing the ultimate customer with needed instructions through call centers. 5- Quality control service: It includes inspection for the products for any defaults or damages and to make sure that the products are in the right condition. Above types are paraphrased from (http://www. logvas. com/fileadmin/Logvas/Final_Reports_06/1_VAS_Driven_potenti als_01. pdf, 2013), and (UNESCAP, 2013, VALUE-ADDED SERVICES OF LOGISTICS CENTRES IN PORT, publication2194_ch3) 2. – how logistics centers affected the economic growth in Netherlands Besides the new jobs that is created as a result of establishing a new logistics centers a study concluded that on average one European Logistics Center (ELC) resulted in 3 extra indirect foreign investment projects in the Netherlands and according to the study this is the case of 51% of ELCs, The reverse is far less frequent-only 17 per cent of ELCs were created following the establishment of other international activities by the companies concerned which can be illustrated in figure 2, the study covered the period (1960-1993), (UNESCAP, 2013, VALUE-ADDED SERVICES OF LOGISTICS CENTRES IN PORT, publication2194_ch3)

Figure 2 Developments in ELCs international activities (UNESCAP, 2013, VALUE-ADDED SERVICES OF LOGISTICS CENTRES IN PORT, publication2194_ch3) 3- Methodology, data collection method and reliability of the study 3. 1- Methodology, data collection method I made my analysis based on the quantitative methods, I used Bremen Ports in Germany as a base of my analysis, I tried to find the correlation between the no of logistics centers that have been established that offer VAS related to cars (like repairing, assembly, painting, storing and inspection) and the flow of cars over time, the time span of my analysis covered the period from 1980 to 2010 steps of my analysis and data collection method as follow: I got the data about total No. f Logistics centers that offer VAS related to cars from VIA Bremen which is a union of all services of the port and logistics community, I got only the names of the companies, I made my study on the whole population 28 companies. ( Via Bremen, http://www. via-bremen. com/90_2, 2013) 1- I got the data about the year of establishment of each company from the Portal of the justice authorities of the federal and state governments of Germany, I excluded Three companies from my study as (Hyundai Merchant Marine GmbH), (K-Line and RTI Fahrzeughandel Reinhard Trostmann)  are not in the register, So the total companies included in my study are 25 companies, I summarized my findings in table 1. ( Common register portal of the German Federal states, 2013, https://www. handelsregister. de/rp_web/mask. do;jsessionid=ADB2514DA1093F0FCFE36A9CF0FA2BC9. tc02n03? Typ=e) – From table 1 I summarized the total No. of LCs in 1980,1985,1990,1995,2000,2005,2010 as illustrated in table 2. 3- I got the statistics data of No. of Seaborne Vehicles Traffic at Bremen ports through years 1980,1985,1990,1995,2000,2005,2010 from ( annual brochure 2011 of Bremen ports) as illustrated in table 3, I used the total loaded and discharged vehicles as the VAS can be done before or after arrival of the cargo. ( Bremen ports http://www. bremenports. de/en/location/statistics/port-facts-and-figures, annual brochure, Facts ;amp; Figures 2011, 2013) 4- I used Microsoft Excel for the results of my analysis. 3. 2- reliability and the ability to repeat the study:

The data sources I used for the main data for analysis is highly reliable, and all the data collection methods and analysis I used in this study are self evident and can be repeated easily. Table 1: (Logistics centers in Bremen ports and the year established) Logistics center name| Year established| BWG Reimer GmbH ;amp; Co. KG Spedition und Logistik| 1950| Agility Logistics GmbH| 1957| BLG AutoTransport GmbH ;amp; Co. KG| 1961| PWL – Peter W. Lampke GmbH ;amp; Co. KG| 1967| Stute Verkehrs-GmbH| 1970| IPSEN LOGISTICS GmbH| 1977| UniCar GmbH| 1982| Truck ;amp; Speditionsservice GmbH| 1983| Hoegh Autoliners GmbH| 1985| BLG CarShipping GmbH ;amp; Co. KG| 1987| Interglobal Shipping GmbH| 1992| Rhenus AG ;amp; Co. KG| 1994| Weserport GmbH| 1995| Karl Gross Internationale Spedition GmbH| 1996| Cross Trans Service GmbH| 1996|

BLG AutoTerminal Bremerhaven GmbH ;amp; Co. KG| 1997| BLG LOGISTICS GROUP AG ;amp; Co. KG| 1997| E. H. Harms GmbH ;amp; Co. KG Automobile-Logistics| 1999| EGERLAND Car Terminal GmbH| 1999| Wallenius Wilhelmsen Logistics AS – German Branch| 1999| BLG AutoTec GmbH | 2004| LESCHACO (Lexzau, Scharbau GmbH ;amp; Co. KG)| 2006| BLG AUTOMOBILE LOGISTICS GmbH ;amp; Co. KG| 2007| LPL Automotive GmbH| 2010| NMT Deutschland GmbH| 2010| Table 2: No. of logistics centers over the years in Bremen ports Years| No. of logistics centers| 1980| 6| 1985| 9| 1990| 10| 1995| 13| 2000| 20| 2005| 21| 2010| 25| Table3: Seaborne Vehicles Traffic at Bremen ports by Number Year| Discharged| Loaded| Total| 980| 144,937| 156,875| 301,812| 1985| 203,536| 305,773| 509,309| 1990| 413,140| 293,713| 706,853| 1995| 391,351| 411,193| 802,544| 2000| 441,813| 658,173| 1,099,986| 2005| 611,806| 1,034,000| 1,645,806| 2010| 403,830| 1,227,613| 1,631,443| 4- Data analysis and results 4. 1-accuracy of the study I made my study based on Bremen ports in Germany as a case that can be applied in any country, when other factors are constant or alike, and if the other factors like economic stability and political situation in other countries are not close may the study be applied but with a lower percentage of success, In my analysis I tried to find the correlation between the No. f logistics centers that have been established that offer VAS related to Vehicles (like repairing, assembly, painting, storing and inspection) in Bremen ports and the flow of Vehicles over time (time span of 30 years) based on the assumption that as the cargo flow increases as a result of establishing new logistics centers that will result in more cargo handling, services, revenues and more new jobs and eventually more economic growth.

Sure there will be another direct factors that will affect the increase of cargo, the most important one is establishing or expansion of new car terminal, the Auto Terminal has been established on 1970s (before study time span) and the first expansion for cars handling was in 2005 as construction began on the Osthafen expansions to provide urgently-needed space for handling of automobiles in the Port of Bremerhaven as per World port source, http://www. worldportsource. com/ports/review/DEU_Port_of_Bremerhaven_2764. hp, 2013 ,2013 and this factor will not have a significant effect on the study as it will have only effect on 16% of the time span of 30 years , the other direct factor that may increase the flow of cars is establishing an industrial park near the Port of Bremerhaven in 1999 as per World port source, http://www. worldportsource. com/ports/review/DEU_Port_of_Bremerhaven_2764. php, 2013 , but we can’t consider this as another factor, Because establishing industrial Park needs more logistics centers to operate and this is reflected in increasing the No. of LCs from 13 in 1995 to 20 in 2000 as per table2, the last factor that has a significant negative effect is world financial crisis in 2008, although it is an indirect factor but it had a significant effect on the flow of cargoes all over the world and this is reflected in decreasing the flow of cargo from 1. 645. 06 cars in 2005 to 1. 631. 443 In 2010, and fortunately this will not affect greatly in our study, because it will affect only 6% of our time span, So in my point of view the correlation will be highly accurate. 4. 2- Correlation analysis As per table one, two and three the correlation between find the correlation between the No. of logistics centers that have been established that offer VAS related to Vehicles (like repairing, assembly, painting, storing and inspection) in Bremen ports and the flow of Vehicles over time (time span of 30 years) will be as follow:  | No. of logistics centers| Total loaded and discharged cars| No. of logistics centers| 1| |

Total loaded and discharged cars| 0. 961295822| 1| So the correlation will be 0. 961295822 and it is a very strong positive correlation. We can present the data graphically between these 2 variables as shown in figure3 as x axis represent total No. of logistics centers over 30 years and y axis represent the total loaded and discharged cars through the same time span. Figure3: Total loaded and discharged cars in Bremen ports over time For further illustration we can represent total No. of LCs over the time span as shown in figure 4 Figure4: Total No of logistics centers provide VAS related to cars over 30 yeasr in Bremen ports 5-The conclusion

From the analysis in the previous chapter there is a very strong positive correlation between the No. of logistics centers that have been established that offer VAS related to Vehicles (like repairing, assembly, painting, storing and inspection) in Bremen ports and the flow of Vehicles, So we can conclude that the more logistics centers that provide VAS increases in the ports the more the cargo related to this services flows, the more cargo handling, and more cargo handling will result in more services, more jobs, more revenues and more economic growth, and in other previous studies as mentioned in Ch2 this may lead also to more indirect foreign investment.

This theory may be applied to another advanced country successfully and may be applied to any developing country as a boost for the economic growth. I recommend other researchers to do the same analysis in other developing countries. List of references B Bremen ports, http://www. bremenports. de/en/location/statistics/port-facts-and-figures, annual brochure, Facts ;amp; Figures 2011, 2013 C Council of supply chain management professionals (CSCMP), 2012, http://cscmp. org/about-us/supply-chain-management-definitions Common register portal of the German Federal states, 2013, https://www. handelsregister. de/rp_web/mask. do;jsessionid=ADB2514DA1093F0FCFE36A9CF0FA2BC9. tc02n03? Typ=e M Murphy and Wood, 2007, Contemporary Logistics ninth edition, Ch1 S

Supporting Association for Maritime Education and Research (MOTK), Institute of Shipping Economics and Logistics (ISL) and Centre for Maritime Studies (CMS), (2006), ANALYSIS OF VAS DRIVEN POTENTIALS AND ELABORATION OF STRATEGIC APPROACHES (Study), ANALYSIS OF VAS DRIVEN POTENTIALS AND ELABORATION OF STRATEGIC APPROACHES, http://www. logvas. com/fileadmin/Logvas/Final_Reports_06/1_VAS_Driven_potentials_01. pdf, 2013 U UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND PACIFIC (UNESCAP), VALUE-ADDED SERVICES OF LOGISTICS CENTRES IN PORT AREAS, publication 2194, Ch3, http://www. unescap. org/ttdw/Publications/TFS_pubs/pub_2194/pub_2194_ch3. pdf, 2013 V Via Bremen http://www. via-bremen. com/90_2, 2013 W World port source, http://www. worldportsource. com/ports/review/DEU_Port_of_Bremerhaven_2764. php, 2013