1 Department
of Maritime Technology & Logistics, School of Logistics and Innovation
Technology, Federal University of Technology, Owerri. Email:
ask4wisdom45(at)live.com
2Department of
Maritime Technology & Logistics, School of Logistics and Innovation
Technology, Federal University of Technology, Owerri,
Nigeria. Email: theophilus.nwokedi(at)futo.edu.ng
The study analyzed the transportation cost
implications of the logistics networks of shipbuilding and repair yards in
Nigeria using the shipyards in onne, River State
shipbuilding and repair clusters. The objectives of the study was among
other things to determine determinant the input materials types that form
the determinant inventory maintained by the shipyard over the years,
evaluate the annual transportation cost implications of shipping per unit
load of inventory from the identified supply sources/inbound logistics
networks and to compare the transportation cost of shipping inventory from
alternative/multiples sources on the inbound logistics network of the
shipyard. The study used a mixed method comprised of survey which involved
the use of questionnaire as instrument for data collection, and the use of
secondary data. The analytical methods of major component data analysis,
difference of means statistical method and the Transportation-Cost
Average-Annual-Orders Relationship Analysis (TARA) were used to analyze the data obtained. It was found that about three
(3) input materials/inventory types with Eigen values greater than or equal
to 1 are the significant component inventory types which the shipyard need
to maintain higher inventories of in the store in order to limit inventory
carrying cost and adopt a favourable logistics and materials management
strategy. Marine diesel engines components (MDEC), electrical electronic
navigation systems components (EENSC) and other mechanical parts, boiler
mountings components (MPBC); each with respective Eigen values of 3.840,
1.568 and 1.230. The result also shows that the inventory items which have
less average annual order frequencies such as PSSC, EENSC, each with average
order frequency of 4.4 and 4.8 respectively, etc
imposed the greatest annual transportation cost while those with higher
annual order frequencies such as MFPF, BPTM with respective average order
frequencies of 6.2 and 6.2, etc imposed the least
annual transportation cost on the operating cost (OC) of the firm.
Furthermore, it was observed that it is cheaper to transport per TEU unit of
consignment from Germany to the shipyard by N1698840 than transporting from
Japan. The t-score is 1682.02 and p-value of 0.000 at 0.05 alpha values.
Since 0.05>0.000; it implies that the shipyard will achieve a significant
reduction in annual transportation of this ship building and repair
inventory type by sourcing from strictly from Germanyif transportation cost remains the major
or sole decision variable.
Accepted:28/10/2023
Published: 09/12/2023
*Corresponding
Author
OkonkoIfiok
E-mail: theophilus.nwokedi@ futo.edu.ng
Keywords: transport
cost, implications, logistics networks, shipyards, Nigeria.
1.0 INTRODUCTION
Shipping is known as the nucleus of
globalization. Dockyards which are the locations where shipbuilding and repairs
take place are indispensable in the development strategies of global economies
(Akasso, 2011; Alari, 2019).
The shipbuilding and repairing industry is a foremost aspect of maritime
activities and it is responsible for conception and design, construction and
delivery cum maintenance and maintenance of vessels of diverse kinds for the
conveyance of global seaborne import and export and other marine structures. Growth
in demand for shipping in global markets has resulted to the emergence of
bigger shipyards from the consolidation of several smaller and weaker
shipyards. This has ultimately led to the development of shipbuilding clusters:
in East Asia, Europe and the United States of America. These maritime clusters
have created a demand niche for themselves; East Asia dominating the market for
general cargo vessels, oil tankers and container ships, Europe leading in
construction of luxury yachts, tugboats, cruise ships and ice breakers and USA
dominating in building of naval ships (Akinlola,
2015). The place value of shipyards in the overall matrix of the global economy
is better appreciated with knowledge of the contribution of shipping to global
economy. For example, global container shipping throughput for 2020 was
USD119.4billion; this was 2.27% less than the value for 2019 which was largely
caused by the coronavirus (COVID-19) pandemic. The relevance of shipping is
obviously evident in the fact that coastal nations which serve as shipping hubs
have the most viable economies on the globe. A shipyard (or dockyard) is a facility
set up for the building and repairing of all types and sizes of vessels such as
oil tankers, container ships, RORO vessels, passenger ships, yachts, tugs,
military vessels, submarines, special vessels and other marine structures.
Barney et al (2008) and Bertram (2003) agree with the
Council of Logistics Management (2008), Logistics is that part of the supply
chain process that plans, implements and control the efficient, effective
forward and reverse 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. In an industry such as the shipbuilding and repair industry
characterized with its global nature, a critical analysis of its logistics network
is essential to give a competitive edge to the local industry in Nigeria. Strategic
analysis of logistics network is designed to reduce cost, increase client
service level and maximize profit. In the shipbuilding and repair industry, a
logistic network analysis is usually employed to compare the different sources
of supply, determine scheduling, weighing the options of producing the part in
the yard or buying finished parts, warehousing and man-hours, among other
areas. About fifty percent of the non-capital cost in shipbuilding is the cost
of materials; the percentages being higher for larger shipyards as materials
are purchased rather than being manufactured within the shipyard. Some advanced
shipbuilding industries such as China’s has evolved their logistics network to
the level of intelligent inventory which is a concept that tends to zero
inventory holding costs associated with shipyard operations(Perez-Labajos et al
2014; Akinlola, 2015). This practice has led
to emergence of Asian shipyards as giants and global destinations for new
building and repair of ships by ship-owners and operators.
In Nigeria, available local shipyards seem to
have neglected the need to strategically implement the tenets of logistics,
transport and inventory management by which logistics and inventory holdings
costs of shipyards are optimized to the benefit of the industry. The goal being
to reduce cost, optimize productivity, gain competitive edge and sustainable
improve productivity. There are about ten (10) existing shipyards in Nigeria,
only six are currently fully or partially operational (Nwokedi
and Igboanusi, 2019). The problem is not with the
number of dockyards in Nigeria; rather, the colossal problem is with the state
of these dockyards as four of these dockyards are not operational and the other
six are performing far below optimal capacity. However, there is several low
capacity dockyards engaged involved in building boats and barges for inland and
coastal shipping only. This study focuses on Starz marine Shipyard Onne, both in Rivers State to draw its inferences.The poor performance of Nigeria in the maritime and blue economy
sector could rightly be associated with her inability to develop her
shipbuilding and repair industry to a reasonable standard. The first step
towards making local shipyards competitive should be to address the problems of
high operational costs imposed by the logistics networks of the shipyards.
As a result
sourcing, acquisition and use of majority of the input resources into shipbuilding
building and repair are usually negatively influenced by paucity of funds and
poor logistics management strategies. Thus foreign firms continue to dominate
ship building and repair sector in Nigeria. One way which the shipbuilding
industries in the developed world particularly in China, South Korea, America
and Japanhas overcome challenges of
high cost of input acquisition for shipbuilding is the efficient and effective
application of logistics and inventory management systems along the shipyards
input and output supply networks. Over the years, these foreign shipyards have
been able to drastically reduce the ship building and repair costs by limiting
significantly for example, the cost of inbound logistics of delivery inputs to
dockyards from Australia, New Zealand and other geo spatial locations with
comparative advantage in supply of shipbuilding input resources. This is not
the case with Nigeria where the cost of operations of the local shipyards
remains high limiting their competitiveness. Thus, local operators in the
industry seems not to have mastery of the logistics networks of the inbound
logistics systems of the shipbuilding industry with the resultant effect of
high operating cost and limitation of competitive capability.The study therefore seeks to analyze the transportation
cost implications of the inbound logistics network of selected indigenous
shipyards with a view to developing optimal inbound logistics networks/routes
that will enable the shipyards to compete favorably with their foreign
counterparts, at least in the repair and building of small water crafts for
local use. The aim of this study therefore is to evaluate the transport cost
implications imposed by the inbound logistics networks on the operations cost
of the shipyards in order to improve the performance of the sector.
The specific
objectives of the study include:
To identify the input materials types sourced from the inbound
logistics networks that form the determinant inventory types maintained by
the shipyard higher levels in the stock over the years.
To evaluate the annual transportation cost implications of
shipping per unit load of inventory from the identified supply
sources/inbound logistics networks.
To compare the transportation cost of shipping inventory from
alternative/multiples sources on the inbound logistics network of the
shipyard.
2.0 BRIEF REVIEW OF
LITERATURE
Alari (2019) notes that there is a rational
need for Nigerian government to strengthen and give support to the development
and to the growth of the shipbuilding and repair industry because it is a core
industry that can be of great assistance to the development of the economy. The
Maritime Industry of Nigeria over the years, has grown according to the
statistics shown on the evolution of fleet in Nigeria, as such a vibrant
shipbuilding and repairing industry needs to be established to service this
fleet. Hundreds of vessels operating around Africa and the Gulf of Guinea in
particular sometimes have to travel far distances for servicing and repairs.
Most times, the few operational shipyards in Nigeria are always fully booked.
Nigeria has the competitive advantage of having those vessels serviced in her
yards rather than traveling halfway across the globe just to be serviced. Ship
technology forms the basis for competition and comparative cost advantage in
shipping trade. Shipbuilding technology is the core of a maritime nation’s
freight earning capability for foreign trade (Ekieyaibo,
O., 2018; Dettme 2000; Dye, 2019)
Akaso et al (2011) listed
promotion of trade and commerce, generation of revenue, development of related
economic activities, job creation, industrial growth, institutional
development, international relations, and enhancement of national defense as
some of the benefits accruable to the development of ship technology in Nigeria.
An active shipbuilding and repairing industry for example can provide massive
employment and boost the Gross Domestic Product (GDP) of a country. According
to George (2015), in 2013, the U.S. private
shipbuilding and repairing industry directly provided 110,390 jobs, $9.2
billion in labor income, and $10.7 billion in GDP. Including direct, indirect,
and induced impacts, on a nationwide basis, total economic activity associated
with the industry reached 399,420 jobs, $25.1 billion of labor income, and
$37.3 billion in GDP in 2013. In Europe, ship building and repairing provides
over 100,000 direct jobs for skilled manpower and generates 30 – 40 billion
Euros annually (Mickeviciene, R., 2010; Uba, 2011).
China, South Korea and Japan, the best
economies in the world seem to have an identical pattern for their rise to
global influence – shipbuilding. Petermode (2014)
ascribes shipbuilding and repairing as a major constituent of the maritime
transport industry. Stressing on the relevance of the industry to the nation’s
economy, he reiterated the particular contributions in terms of job creation,
cash flow circulation and foreign exchange. Arguably, the biggest economies in
the world are shipbuilding nations. This is by no means trying to exaggerate
the contribution of shipbuilding and repairing to GDP’s; Canada is the only
country in the 10 biggest economies of the world that is not one of the top 10
shipbuilding entities (Silver, 2020) shipbuilding is recognized as an important
and strategic industry in the European union (Europa.edu). Shipbuilding is seen
as a strategic industry due to its major due to its major contributions
industrial and defense strategic industry (Kalouptsidi,
M. 20220; Shin, K. & Ciccantell, P., 2009).
Management of material flow in shipyards
could be quite tasking due to the complexity of the entire shipbuilding
process. While shipyards may take advantage of economic order quantity (EOQ)
material purchases and multi ship building contracts to reduce cost and
ultimately increase profit; they must be aware of related costs associated with
inefficient planning and scheduling, and changes to the original baseline
during the time of the shipbuilding contract (Sarder
et al, 2010). Efficient management of materials is a key factor to the improvement
of shipyard productivity. Leading shipbuilding nations have structured their
shipbuilding industries into large clusters: hundreds of shipyards forming a
giant network. In Japan, there are about eight shipbuilding clusters with over
1,000 shipyards. About 264 of these shipyards are engaged in building vessels
of 10,000GT and above (OECD, 2016). The shipbuilding cluster in South Korea is
a sophisticated marine cluster, linking up its logistics network with the
marine equipment industry and electronics. Activities in the value-chain are
fragmented across different production units and include everything from design
to post sales (OECD, 2015). Establishing a reliable supply chain for a shipyard
is necessary to eliminate excessive cost due to delays in design, material
procurement and payments. Supply chain is even more important; given that
shipbuilding is shifting from the traditional slipway construction to modular
construction. Procurement of parts and coordination of modules for final
assembly hugely determines the efficiency of the entire system (Baroroh et al, 2020).
Solesvik (2011) posited that
inter-firm cooperation has a great potential to increase the competitive
advantage of shipbuilding companies. Such inter-firm cooperation proves
advantageous for companies by exploiting economies of scale; neutralizing
threats; managing risks; sharing costs; creating low-cost entry into and exits
from new markets and industry segments; facilitating the development of
technology standards; and managing uncertainties (Barney and Hesterly, 2008). Developing the leverage of strategic
alliances, firms can enjoy cushioned effects of market collapses and benefit
from other firms’ resources during market recovery and booms.
Alari (2019) in a holistic
view of the maritime industry recommended that government should strengthen and
support the industry in policy implementations, development of manpower and
development of business; asserting that the industry is a core one and can
greatly impact the economy. Creation of assertive policies backed by effective
implementation is a strongly recommended strategy by Osemwegie
(2019) to see to the prosperity of the Nigerian maritime industry. A
combination of innovation, new technology and skilled management is the formula
for long term prosperity of the shipbuilding industry (Hossain,
2018). He also adds that industrialization is the precondition for development
of national shipbuilding. Financial support, government involvement and
cooperation among local shipyards are other significant factors in the
improvement of national shipbuilding. According to Akinola
B., (2015), a viable maritime industry and Nigeria-flag fleet is essential to
the nation’s economic and security interests. Given that shipbuilding and ship
repairs is a core aspects of the maritime industry, national policies must
cease to neglect; rather, integrate shipbuilding and repairing as a vital
component of the transportation system.
As an entrant into the shipbuilding market,
China started as a low cost builder; backed with government support, huge
investments and cooperation with ship equipment manufacturers, their order book
grew to the largest volume worldwide in 2010 (Mickeviene,
2019). Also, by consolidating its shipyards into two large conglomerates: China
Shipbuilding Industry Corporation (CSIC) and China State Shipbuilding
Corporation (CSSC), they recorded a growth of 43% and exported ships and boats
to 159 countries in 2009 (ECORYS SCS group, 2010).
Hossain (2018) asserted that due to its multiplier
effects, the shipbuilding industry is important and strategic. In comparison to
South Korea which thrived in the 1970s on the hinges of lower labour cost, low currency value and favourable
government policies; Nigeria, characterized by a weaker currency, low labour cost and a huge availability of industrial
place-value deficit (plaguing the entire sub-Saharan region) could turn its
local shipbuilding and ship repair industry to a regional hub.
Given the
absence of sufficient local capacity since the implementation of the Cabotage Act, approximately 32,604,044 USD was lost to
foreign vessel owners and operators between 2004 and 2013. Consequently, huge
revenue could be won back to the economy by local investors if the shipbuilding
capacity is raised to provide sufficient tonnage for inland and coastal trade.
(Nwokedi & Igboanusi,
2019)
Hassan, et al
(2017) identified shipbuilding as an opportunity that can grow into a
billion-dollar industry in a single decade. Placing Nigeria on a scale with
other thriving players on the global stage like Singapore, Bangladesh and
Vietnam; Nigeria has a comparative advantage (at least regionally) in terms of
length of coastline, labour cost and currency value
to attract foreign direct investment in shipbuilding and repairs. Whereas the
global shipbuilding, repair, conversion and demolition market is highly
competitive with no less than 5,076 registered shipyards; vessel orders for dry
bulk, container, wet bulk and general cargo vessels have remained static and an
increased demand for short sea shipping favours
closer yards over distant docks (Dyer, 2019; Nevenet al, 2018).
The
availability of labour, arguably inadequate can be
tapped in by training the unskilled labour with
sufficient technical know-how for various operations. The weakness militating
against the industry does not quite challenge the opportunities can
infrastructures can be upgraded and technology updated to give it sufficient
competitive advantage.
3.0 DATA AND METHODS
This study employed the mixed research design method in
achieving the objectives of the study. It employed survey design in which
questionnaire was used as survey instrument to elicit the responses of the
operational staff of the shipyard on what constitute the key input materials to
the ship building and repair processes in the shipyard for which they maintain
inventory. The major source of each identified shipyard inventory type was also
identified. It also employed the ex-post facto research design in which
secondary data was obtained from the historical records maintained by the
shipyard on input materials/inventory ordered over the years.
The study
however employed theStarz Shipyard in Onne
Port Harcourt as a case approach towards understanding the inbound logistics
networks of shipyards in Nigeria and cost implications of each identified
inbound logistics network on the operations cost of the ship building and
repair sector in Nigeria .
3.3Study Population
The
population of the study consists of the about 115 operational staff who work in
the dock and materials management and procurement sections of the company. From
this population, samples were randomly selected and the survey instrument
delivered to each respondent for responses. For the purpose of conducting the
survey, the study adopted a purposive random sampling technique in which the
responses of workers in the operations, materials management and procurement
section of Starz marine shipyard were purposively randomly sampled. The reason
for the purposive random sampling was because these employees were the ones
that are directly involved in the procurement, handling and storage and well as
use of the materials and various inventory types in the shipyard.
3.4Sample Size
The sample
size was determined by the use of Taro Yammane
formula for determination of sample for known population that:
Where ：
n= sample size required
N = number of people in the population
e = allowable error (%) = 0.05
n = 88
The sample size consists of 88 employees in
operational, materials management and procurement section of the shipyard
randomly sampled.
88 survey
instrument/questionnaires were distributed. However, 66 of the questionnaires
representing about 75% of the distributed questionnaires were properly filled
and returned and used in the analysis.
3.1Method of Data
Analysis
The study employed various methods to analyze
the data collected. It used the principal component (PCA) method to determine
what input material types constitute the principal component materials for
which the shipyard maintains as inventory in the stock yard/warehouse. The
study also employed the modified network analysis method to present the various
sources of the input materials to shipyards and the associated cost of
transporting per TEU from the sources to the shipyard. The difference of mean
statistical toolwas used to compare
thetransportation cost implications of
sourcing input materials from alternative locations/sources,transportation cost, average number of orders
per annum relationship analysis was used to determine the annual transportation
cost implications of delivering the input materials from various
sources/locations on the operations cost of the shipyard per annum . Finally,
trend analysis was used to estimate the ordering trend of each ship building
and repair input material types per annul between 2015 and 2019.
3.1.1 Difference of Means Method
The data
collected was also analyzed using the difference of means test to estimate the
existence of significant differences between the transportation costs of
delivery per unit load of input material types sourced from multiple locations
(more than one source) to the shipyard. For example, the transportation cost of
transporting per TEU of marine diesel engines and components sourced from both
Japan (Asia) and Germany (EU) was compared for significant differences using
the different of means statistical tool. For objectives three which seeks to compare the transportation cost of
delivery per unit load of input resources sourced from multiple locations in
the logistics network was achieved by the use of the difference of means
statistical tool.
The formula is given
below:
Difference of mean Xdiff
=
Where t= t-statistics results for the
difference of means
= mean of transportation cost of delivering
per unit load of a given input material (A) from location Xf on the
logistics network
= Mean of transpiration cost of delivering per
unit load of a given input material (A) from location xL
on the logistics network
= Variance of individual parameter readings
for Xf
= Variance of parameter estimates for XL
== = N = Samples sizes
An independent
sample T-test may equally be used to estimate the significances of the
differences in the transportation costs of delivering per TEU from multiple
sources. The formula for the T-Test is shown below:
The TARA was used to estimate the annual transportation
cost effects of delivering the input material types from the various sources on
the operations cost of the shipyard. It is observed that the annual cost of
transportation (TCa)
of each input material type from the sources (logistics networks) to the
shipyard in Nigeria is a function of the average orders (AOa) of each input
material per annum and the transportation cost of per TEU/unit load (TCu)
from each logistics network to the shipyard in Nigeria. The aggregation of the
transportation costs from all the logistics networks (sources of the inputs)
per annum givesthe cumulative
transportcost implications of the
entire inbound logistics network on the annual operations cost (OCa)of the shipyard. Thus for each source of
input material, the annual transportation cost borne for deliveringall order each year is given as:
Using the above equation, we
achieved the third objective of the study and estimated the
annual transportation cost (TCa) of delivering per unit of input materials
from each logistics network (source) to the shipyard.
The aggregate
transport cost implications of the entire sourcing from the entire logistics
network per annum on the operations cost of the shipyard is obtained by using
the formula below for a total network from 1 , 2, 3, ------------ n:
Where:
TCa(1-n)= The aggregate transport cost
implications of the entire sourcing from the entire logistics network per annum
on the operations cost of the shipyard is obtained by using the formula below
for a total logisticsnetwork from 1 to
n
TCa1 = Total annual transportation
cost imposed by logistics network one (1)
TCa2 = Total annual
transportation cost imposed by logistics network two (2)
TCa3= Total annual
transportation cost imposed by logistics network three (3)
The result of the
Principal Component Analysis (PCA) shown in Table1 above shows the principal
component input material types sourced from the various inbound logistics
networks of the shipyard. The aim is to provide scientific evidence of which
input material types constitute the major component input materials that the
shipyard maintains higher levels of inventory for in the warehouse/store, given
the transportation cost, distance of the supply points and the need to avoid
stock-out situations of such input material types by the shipyard. It is
obviously important the distance of the supply sources, the cost of delivering
the inventory and the need to either shoulder of avoid inventory
carrying/warehousing costs will influence the logistics strategy of the firms
with regards to the levels and quantity of each type of input material that
will maintained and/or stocked in the store the firm. This will in turn
influence the re-order point and annual order frequency of the individual
inventory types. Thus the result of the PCA indicates that mean scores of
various categories of input materials/inventories of the firm which include
marine diesel engines & components (MDEC),electrical electronic navigation system & components (EENSC),
propulsion shafting system component (PSSC), bearings, piping & tubing
materials (BPTM), sandblasting, marine paints &pigment (SPP), steel &
aluminum hull plating materials (SAHPM),other mechanical parts, boilers & components and mooring-lines,
furniture, plastic fittings & decorative (MFPF) is0.9394, 0.8636, 0.6818, 0.3788, 0.4848,
0.6818, 0.8182 and 0.3788 respectively.
The PCA also indicate
that about three (3) input materials/inventory types with Eigen values greater
than or equal to 1 are the significant component inventory types which the
shipyard need to maintain higher inventories of in the store in order to limit
inventory carrying cost and adopt a favourable
logistics and materials management strategy. Marine diesel engines components
(MDEC), electrical electronic navigation systems components (EENSC) and other
mechanical parts, boiler mountings components (MPBC); each with respective
Eigen values of 3.840, 1.568 and 1.230.Since each has respective Eigen value greater than 0ne (Eigen
value>1), we conclude that they are the principal component inventory types
significantly maintained by the firm in higher proportions in the inbound
logistics materials stock of the firm in the store. The transportation cost
effects of the decision to maintain the above identified input stock as the
principal inventories of the firm influenced by the sources of supply of each
inventory class in the logistics network of the firm is examined in subsequent
sections of this work.
Table 2: Annual Transportation Costs of
Delivering per Unit Load of Inventory/ Input materials from each Supply
Location/Source and the implications on the Annual Operating Cost of the
Shipyard
s/n
Shipyard
inventory/input materials type(s)
Supply
Source(s)
Average
number of orders per annum
TEU/unit
load shipping cost per order (N)
Annual
shipping cost(N)
1
Propulsion
shafting system &Components (PSSC)
EU, Germany
4.4
877500
3861000
Japan
1263600
5559840
Ave.:4710420
2
Other
Mechanical parts, Boiler mountings & components (MPBC)
EU, Germany
4.8
877500
4212000
3
Marine
diesel engine & components (MDEC)
Asia, Japan
4.8
1263600
6065280
Germany, EU
877500
4212000
Ave:5138640
4
Bearings,
piping &Tubing materials (BPTM)
Locally,
Nigeria
6.4
400000
2560000
5
Sandblasting,
marine paints and pigment materials (SPP)
Asia, China
5.6
588672
3296563.2
Nigeria
400,000
2240000
Ave.:
2768281.6
6
Electrical,
electronics, navigation systems &components (EENSC)
Mooring
lines, furniture, plastic fitting and decorative materials (MFPF)
Locally(Nigeria)
6.2
400,000
2480000
Sum=
NTCa(1-n)
41.8
31,003,607.2
Source:
Author’s calculation
The result of
the findings as shown in table.2 indicates the total annual transportation cost
borne by the shipyard in conveying each input material/inventory type from the
various supply sources depicting the inbound logistics network of the shipyard
as a relationship between the average number of orders (frequency of orders) of
each inventory type per year and the cost of transporting per unit load (TEU or
truck load) of each identified inventory type between 2015 and 2019.The result indicates that a total sum of N31,
003,607.2 was borne by the shipyard as annual transportation cost of delivery
per unit load of orders of all the input materials/inventory types. The
implication is that the operating cost (OC) of the shipyard is increased by
31,003,607.2 naira each year between 2015 and 2019 as a result of the cost of
transportation of various input material/inventory types from the various
inbound logistics networks of the firms depicting the raw materials supply
locations. By implication, an aggregate sum of N155018036 was spent as
transportation cost of delivery input/inventory materials from all the inbound
logistics networks and/or supply locations to the shipyard in Nigeria.
The result also shows that the annual cost of transporting per unit
load of propulsion shafting systems & components with average order
frequency of 4.4 per annum from Germany and Japan is N3861000 and N5559810
respectively; corresponding to an annual average of N4710420. The annual
cost of transporting per unit load of marine diesel engines & components
from Japan and Germany to by the shipyard with average order frequency of 4.8
per annum is N6065280 and N4212000 respectively; corresponding to
an average transportation cost of N5138640. For electrical electronic
navigation systems & components (EENSC), the average annual cost of
delivering per TEU to the shipyard from U.S.A. and Japan in average order
frequency of 4.8 times per annum is N6308640 while the annual
transportation cost of delivering sandblasting, marine paints & pigments
from China and Nigeria to the shipyard in average annual order frequency 5.6
times is an average of N2768281.6
Similarly, the annual transportation costs borne by the shipyard in
delivering unit loads of MPBC, from Germany, MPTM from local sources, SAHPM
from China and MFPF from local sources with respective average order
frequencies of 4.8, 6.4, 4.8, and 6.2 are N4212000, N2560000, N2825626.6
and N2480000. It is observed that the inventory items which have less
average annual order frequencies such as PSSC, EENSC, each with average order frequency
of 4.4 and 4.8 respectively, etc imposed the greatest
annual transportation cost while those with higher annual order frequencies
such as MFPF, BPTM with respective average order frequencies of 6.2 and 6.2, etc imposed the least annual transportation cost on the
operating cost (OC) of the firm.
The pie chart below summarizes the aggregate transportation cost
burdens imposed by delivering ship building and repair inventory types from the
identified inbound logistics networks of the shipyard.
Fig. 4.2 Chart showing annual transport cost
of inbound inventory of Starz shipyard
Source:
Author’s calculation
Table 3 Comparing the Annual Transportation
Cost Burdens Imposed By Alternative Shipbuilding and Repair Inventory Supply
Locations on the Operating Cost of the Firm
Inventory type
Alternate sources
Mean diff. in TCa
Std. Deviation
t
Sig. (2-tailed)
Propulsion shafting systems & components
(PSSC)
JAPAN - GERMANY
1698840.00000
1428.35570
1682.020
.000
Marine diesel engines parts &components
(MDEC)
JAPAN - GERMANY
1853280.00000
14013.4315
1834.931
000
Sandblasting, marine paints &pigments
(SPP)
CHINA - NIGERIA
1056563.20000
14140.57999
105.668
.006
Electronic navigation syst. & components
(EENSC)
USA - JAPAN
486720.00000
1428.35570
481.901
.001
Source: Author’s calculation
Recall that propulsion shafting systems and
components (PSSC) is sourced by the shipyard from multiple (alternative)
locations in Japan and Germany. A comparison of the transportation implications
of delivery per unit load of this input material type from Japan and Germany
per annum, given the average annual order frequency shows a mean difference of N1698840.00
with standard deviation of 1428.355.This indicates that it is cheaper to transport per TEU unit of
consignment from Germany to the shipyard by N1698840 than transporting
from Japan. The t-score is 1682.02 and p-value of 0.000 at 0.05 alpha values.
Since 0.05>0.000; it implies that the shipyard will achieve a significant
reduction in annual transportation of this ship building and repair inventory type
by sourcing from strictly from Germanyif transportation cost remains the major or sole decision variable.
Recall also
that marine diesel engine parts and components (MDEC) are sourced from Japan
and Germany with varying annual transportation costs from each supply
source.A comparison of the
transportation cost implications of sourcing this ship inventory type from the
locations relative to the average order frequency of MDEC per annum shows a
mean difference of N1853280.000 with a standard deviation of 14013.43.
This implies that the shipyard will achieve a significant reduction in
transportation cost of taken delivery unit loads of MDEC inventory types if it
sources it solely from Germany. Sourcing from Japan imposes a higher burden of
transportation cost per TEU unit load. Thus, assuming cost of transportation to
be the major or sole decision variable for choice of source of supply of marine
diesel engines and the associated components, it is best to source it from
Germany as that yields significant reduction in transportation cost.
Similarly,
the mean difference in the transportation cost between sourcing sandblasting,
marine paints &pigment materials from China and sourcing same locally from
Nigeria is N1056563.20 with standard deviation of14140.57. The t-score
is 105668 and the p-value is 0.006 at 0.05 level of
significance (alpha-value). This implies that there is a significant
difference between the transportation cost of delivering per unit load of
sandblasting, marine paints & pigments to the shipyards when supplied from
China and Nigeria. It is best to sourced and deliver this inventory type from locally
sources as it will enable the shipyard to achieve significant reduction in
transportation cost of the consignment. The transportation cost will be reduced
by N1056563.20 when sourced from local sources than from China.
Lastly, the
shipyard with achieve a significant reduction in annual transportation cost of
electronic navigational systems & components if that inventory type is
sourced and supplied from Japan-Asia.
The bar chart
below is an illustration of comparing the annual transportation cost of supplying
unit loads of the various identified inventory types from multiple alternative
sources.
Figure 4.3:bar chart below is an illustration of
comparing the annual transportation cost of supplying unit loads of the various
identified inventory types from multiple alternative sources.
Source:
prepared by the author.
Table 4: Annual Transportation Costs of
Delivering per Unit Load of Inventory/ Input materials from each Supply
Location/Source and the implications on the Annual Operating Cost of the
Shipyard
s/n
Shipyard
inventory/input materials type(s)
Supply
Source(s)
Re-order
points (months)
Annual
shipping cost(N)
1
Propulsion
shafting system &Components (PSSC)
EU, Germany
3 months
3861000
Japan
5559840
Ave.:4710420
2
Other
Mechanical parts, Boiler mountings & components (MPBC)
EU, Germany
3 months
4212000
3
Marine
diesel engine & components (MDEC)
Asia, Japan
3 months
6065280
Germany, EU
4212000
Ave:5138640
4
Bearings,
piping &Tubing materials (BPTM)
Locally,
Nigeria
2 months
2560000
5
Sandblasting,
marine paints and pigment materials (SPP)
Asia, China
2 months
3296563.2
Nigeria
2240000
Ave.:
2768281.6
6
Electrical,
electronics, navigation systems &components (EENSC)
Mooring
lines, furniture, plastic fitting and decorative materials (MFPF)
Locally(Nigeria)
2 months
2480000
Source:
Prepared by Author
It is evident from the table above that the
sourcing strategy of the shipyard support the stocking in the warehouse of
higher volumes of input materials from logistics networks and supply points
that impose higher transportation costs on the company in order that a higher
re-order points of 3 months be reached before such inventories are re-ordered.
As the same time, input materials from logistics networks and sources with
impose less transportation cost burdens on the firm are maintained lesser in
the warehouse stocks to achieve an lower re-order points.
5.1 CONCLUSION
In
conclusion, the overall total cost of transporting unit loads of inventory via
the inbound logistics networks of the shipyard representing the inventory
supply points have influence on the annual operating cost of the firm. This in
turn affects the profitability performance of the firms and may have
consequences on her viability and operational sustainability at the long-run.
Thus necessitating the need for the analysis of the influence of the
transportation cost imposed by each supply source on the logistics network on
the operations cost of the firm.
The study in this regard has been able to determine that transporting
unit loads of all the identified inventory types from the identified supply
sources representing the inbound logistics network of the firm imposes an
annual transportation cost of N31,003607.6. It
was also found that the firm will achieve a significant reduction in
transportation cost of taken delivery of unit loads of MDEC inventory types if
it sources it solely from Germany. Sourcing from Japan imposes a higher burden
of transportation cost per TEU unit load. Thus, assuming cost of transportation
to be the major or sole decision variable for choice of source of supply of
marine diesel engines and the associated components, it is best to source it
from Germany as that yields significant reduction in transportation cost.
Similarly,
the mean difference in the transportation cost between sourcing sandblasting,
marine paints &pigment materials from China and sourcing same locally from
Nigeria is N1056563.20 with standard deviation of14140.57. The t-score
is 105668 and the p-value is 0.006 at 0.05 level of
significance (alpha-value). This implies that there is a significant difference
between the transportation cost of delivering per unit load of sandblasting,
marine paints & pigments to the shipyards when supplied from China and
Nigeria. It is best to sourced and deliver this inventory type from locally
sources as it will enable the shipyard to achieve significant reduction in
transportation cost of the consignment. The transportation cost will be reduced
by N1056563.20 when sourced from local sources than from China.
Furthermore, the shipyard with achieve a significant reduction in annual
transportation cost of electronic navigational systems & components if that
inventory type is sourced and supplied from Japan-Asia.
It is evident
from the result of the study that transportation cost effects of sourcing from
the identified supply points on the inbound logistics network of the firm
influences her inventory management strategy with regards to avoiding carrying
costs for some inventory items and shouldering carrying cost from some. It also
influenced the re-order points and annual order frequency of inventory types
used by the firm.
5.2 Recommendations
It is
recommended that:
(1)The shipyard should strive to achieve a
reduction in the cost of operation by considering achieving a reduction in
aggregate annual cost of transportation of inventory from the various sources
that offers reduced cost of transportation to the shipyard. This it can achieve
by considering first, the inventory sources on the logistics network that puts
the less transportation cost burden on the firm.
(2)Local alternative sources of supply of
inventory types such as sandblasting, painting & pigment materials should
be developed by the shipyard as this will reduce the cost of sourcing inventory
from overseas as well as support the local content development initiative of
government.
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Cite this Article: Okonko, I; Nwokedi,
TC (2023). Analysis of Transportation Cost Implications of Logistics Networks
of Nigerian Shipyards.Greener Journal of Social Sciences,
13(1): 101-113.
