CSAV: Strategic Empty Container Logistics Optimization in a Major Shipping Company
The Problem
The Chilean company Compañía Sud Americana de Vapores (CSAV) is the sixth largest shipping company in the world and the largest in Latin America, with operations in over 100 countries and more than 2,000 terminals and depots worldwide. CSAV’s aim is to achieve superior service quality for the company’s clients and customers.
Whereas some shipping zones are net exporters (e.g., China), others are net importers (e.g., the United States), which creates a major imbalance of empty containers between regions and forcing empty container repositioning. There are important issues of uncertainty, particularly in customer demand for empty containers. The company used to manage its container fleet based on decentralized decisions made by regional offices. However, the high level of interconnection required for these decisions led to significant shortcomings in container management, reflected mainly by large stocks of empty containers held to satisfy expected demand. Because profit margins in this industry are small, it became crucial to develop an optimized policy for empty container storage and a smart strategy to reallocate them.
The Analytics Solution
The team’s contribution was the development of the analytics-based Empty Container Logistics Optimization System (ECO), which optimizes CSAV’s empty container logistics by integrating operational and commercial decisions at all regional offices. The goal is to minimize global costs while guaranteeing high service quality. The main decisions made by ECO are (1) how and when the company should reposition empty containers to fulfill needs in specific ports and (2) the number of empty containers required to handle uncertain demand at each location and time period.
ECO is based on two decision models supported by a forecasting system. The first, an inventory model determines the safe stock level at each point. The second, a multi-commodity, multi-period network flow model supports empty container repositioning and inventory levels, thus assuring sufficient available stock to maintain flexible, quality service. With ECO in place, planners worldwide can participate in fine-tuning the optimization model and reviewing the optimized plans, leading to coordination and shared decision making.
The Value
The project had an impact that was both wider and deeper than originally intended. The requirements of the optimization model led to significant improvements in data gathering, communications in real time, automation of data handling, and improved processes, allowing managers to make decisions with better, standardized information. ECO made it possible to make global decisions that were clearly superior to those obtained previously by individual regions.
In 2010, empty container inventory stocks were reduced by 50%, and container turnover increased by 60%. CSAV saved $56 million in 2010 and expects yearly savings of another $56 million in the next two years. The company’s value increased 55% during 2010, surpassing the average gains of the top shipping companies listed on stock markets.
