Grand Alliance will realign its 10 fixed-day weekly transpacific trade service network after the Panama Canal expansion project. An integer programming model is developed to determine the optimal service network design that minimizes total operating costs. The model results show that Grand Alliance should deploy different vessel types on services based on cargo volume and eliminate the PAX service. Cargo diversion from the Port of LA/LB is estimated to be around 3% with 50% of divertible cargo diverted to other ports. Further research is needed on additional factors like export demand and rail capacity constraints.

1. Grand Alliance Trans-
Pacific Trade Service
Network Realignment
After The Completion of
Panama Canal Expansion
Project
David Sun
California State University,
Long Beach May 2012

2. 2
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
USWC
US GULF
USEC
TOTAL 25 Ports
US containerized import cargo
in the past and present
Source: Zepol Corporation

3. 3
Source: WTO Secretariat
Outlook in the future
Volume of world merchandise exports, 1990-2013a indices, 1990=100

4. 4IHS Global Insight

5. 5
Adjusted Forecast for POLA & POLB
Tioga Group & IHS Global
Insight, 2009

6. 6
• Bleak short term trade and freight transport outlook, but conditions for
strong long term growth in freight and passenger transport, freight
volume could quadruple by 2050. (Transport Outlook 2012, OECD)
• World trade expanded in 2011 by 5.0%, a sharp deceleration from the
2010 rebound of 13.8%, and the growth will further still to 3.7% in 2012.
(Press Release, WTO 2012)
• World Trade has touched the bottom and is returning to growth though
the rate is modest.
• Panama Canal will double its cargo tonnage in 2025 (PCA, 2006) and now
is undertaking the US$5.25B expansion project which will allow the
12500TEU new super Panamax vessel passing through.
Introduction and motivation

7. 7
• US Gulf Ports and East Coast Ports are also deepening their ports
and adding cargo handling equipments to welcome the new Panama
Canal era.
• Port LA/LB will reach 16.9 M TEU in 2015 & 34.6 M TEU in 2030.
(Tioga Group and IHS Global Insight, 2009)
• Grand Alliance has ordered total 28 ULCS in 2010 and 2011, which
will be due for delivery in 2014 (Alphaliner)
• Grand Alliance will realign its total 10 fixed-day weekly transpacific
trade service after the completion of Panama Canal expansion project
powered by the trade growth.

8. 8
Previous studies
• Some papers addressed container import shipment
to the US from the importers’ point of view.
• Some papers addressed the network design issues
from the ocean carrier’s perspective.
• Few studies quantified the service network design
incorporating with the expanded Panama Canal.
• Even fewer studies used 0-1 integer programming.

9. 9
Model outline
Objective Function:
Min. total operating cost =
∑∑ (At-Sea Cost + In-Port Cost + Canal Toll)*Xij
+ ∑∑ (Rail Cost)*Yab
Xij = 1 if the vessel type i on service loop j is selected,
otherwise 0.
Yab = rail volume from Port a to destination b.

10. 10
• Grand Alliance number of available vessels.
• Grand Alliance number of Panamax vessels after 2014.
• Space allocation for each port BEA.
• Average vessel load factor.
• Transit time for each service loop.
• In-Port time for each type of vessel on each service loop.
• Container vessel operating cost for each type of vessel.
• US Rail and Canada cost per TEU.
• Demand for each BEA including divertible inland BEA after
diversion.
Data/Parameters:

11. 11
• Vessel type deployed on each service loop.
• Number of West Coast service routes.
• Number of East Coast service routes via
Panama Canal.
• Number of East Coast service routes via
Suez Canal.
• TEU shipped by US and Canada rail.
Variables: (51 binary variables + 37 rail volume variables left)

12. 12
•Number of available vessel for each service loop.
•Number of available new Panamax vessel for all water service.
•Port entrance channel depth, berth depth, and terminal handling
capacity constraint.
•Discharging port space allocation constraints.
• New Panama Canal constraints.
•TEU shipped <= Port/Terminal handling capacity.
•TEU shipped by Grand Alliance >= Total demand.
•TEU shipped to each port BEA >= each port BEA demand.
•TEU shipped to each inland BEA >= each inland BEA demand.
•Binary variable constraints.
•Service loop multiple exclusive constraints.
Constraints: (total 55 constraints)

13. 13
• GA will maintain its current market share.
• Current vessel speed/transit time/number of vessel deployed on
each service loop is optimal.
• Vessel deployment on transpacific trade is the 1st priority.
• Port handling cost per TEU are the same across the US
and Canada ports.
• No number of Panama transit constraints after the expansion.
• The current cost structure will carry over.
• Possible rail capacity constraints after expansion will not
cause cargo diversion from Port LA/LB, but a matter of
waiting time.
Assumptions:

14. 14
Service Loop
Service Loop Mutually Exclusive
Constraints
Total Annual Volume
Carried Total Demand for GA in 2015
SSX 1 2,762,500 2,634,682
NWX 1
CCX 1 Objective Function
PNX 1 Annual Operation cost
SCX 1 607,206,374.64
AEX 1
NCE 1
PAX 0
IEX 1
SCE 1
Port of Discharge Servicing Loop
Total Annual Volume
Carried Coastal BEA Demand
50% Divertible Cargo
Diverted
LA/LB SSX+CCX+SCX 1,192,848 1,130,589
OAK CCX+SCX+PAX 33,703 9,880
SEA/TCM NWX+PNX+PAX 99,450 90,244
VCR
NWX+PNX
397,800 393,713
NY/NJ AEX+NCE+PAX+IEX+SCE 729,300 718,109
NFK AEX+NCE+PAX+IEX+SCE 51,935 43,384
SAV AEX+NCE+PAX+IEX+SCE 143,098 127,268
CHS IEX+SCE 56,908 48,100
HFX AEX+PAX 57,460 46,280
2,762,500 2,607,567
Model Results and Implementation (service network realignment only)

15. 15
Service
Loops
Curent Vessel
Deployment
2012 (TEU)
2015 Vessel Deployment Summary (TEU)
Without
Cargo
Diversion
Divertible
Cargo
Diverted
Divertible
Cargo
Diverted
Divertible
Cargo
Diverted
Divertible
Cargo
Diverted
Divertible
Cargo Diverted
Divertible
Cargo Diverted
20% 30% 40% 50% 60% 70%
AEX 5800 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7001
CCX 6500 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 4501~5000
IEX 4500 4001~4500 4001~4500 4001~4500 4001~4500 4001~4500 4001~4500 4001~4500
NCE 4800 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000
NWX 8800 6001~7000 4501~5000 4501~5000 4501~5000 4501~5000 4501~5000 4501~5000
PAX 4800 Eliminate Eliminate Eliminate Eliminate Eliminate Eliminate Eliminate
PNX 8000 4501~5000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000 6001~7000
SCE 5000 5501~6000 5501~6000 5501~6000 5501~6000 5501~6000 5501~6000 5501~6000
SCX 6500 8501~9000 8501~9000 8501~9000 8501~9000 8501~9000 8501~9000 8501~9000
SSX 8100 12001~13000 12001~13000 12001~13000 12001~13000 12001~13000 12001~13000 12001~13000
Service Network Realignment Summary

16. 16
Should PAX service be eliminated ?

17. 17
A bonus from the data analysis of intermodal rail
shipment at Port OAK and LA/LB
Origin Destination
Total Rail
Volume in
2015
GA Rail
Volume in
2015
GA Rail Volume After Divertible Cargo Diverted
20% 30% 40% 50% 60% 70%
Oakland
(163)
New York (10) 8,115 1,258 1,006 880 755 629 503 377
Atlanta (40) 15,124 2,344 1,875 1,641 1,407 1,172 938 703
Houston (131) 17,152 2,659 2,127 1,861 1,595 1,329 1,063 798
LosAngeles/Long
Beach(160)
New York (10) 24,161 3,745 2,996 2,621 2,247 1,872 1,498 1,123
Atlanta (40) 106,972 16,581 13,265 11,606 9,948 8,290 6,632 4,974
New Orleans (83) 2,767 429 343 300 257 214 172 129
Memphis (73) 1,107 172 137 120 103 86 69 51
Houston (131) 303,303 47,012 37,610 32,908 28,207 23,506 18,805 14,104
Total Divertible Cargo Diverted from LA/LB 14,208 21,312 28,416 35,520 42,624 49,728
Percentage of Total Divertible Cargo in Terms of The Total Intermodal Rail
Cargo Volume 17.27%
Percentage of Divertible Cargo Diverted in Term of
The Total Volume in LA/LB 1.22% 1.83% 2.44% 3.05% 3.66% 4.26%

18. 18
• Grand Alliance should realign its current transpacific trade
service network including the vessel deployment based on the
optimal solution.
• New Super Panamax vessel (12000~13000TEU) may not be an
optimal choice on all water service.
• In the most probable scenario, the cargo diversion rate from
Port of LA/LB will be about 3%.
• Further research would include the US export demand, empty
equipment repositioning cost, possible cargo diversion caused by
rail capacity constraints, and hub-and-spoke strategy for all water
service.
Conclusions and further research