Cost breakdown and surcharge mapping for sea freight - A study for ...

Lund Institute of Technology Department of Industrial Management and Logistics Engineering Logistics

Cost breakdown and surcharge mapping for sea freight

- A study for Tetra Laval Group

Authors:

Johan Blom & Lars Borisson

Supervisors: Per Nilsson, Global Procurement ? Ocean Freight Tetra Laval Group Transport & Travel

Everth Larsson, Professor Dorian Notman, Associate Professor Department of Industrial Management and Logistics Lund Institute of Thecnology

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Preface

The authors has during the autumn of 2008 conducted this master thesis report at Tetra Laval Group Transport & Travel with the support of the Department of Engineering Logistics at Lund University. It marks the end of the authors' time as Mechanical Engineering students, now becoming graduates.

It has been a great opportunity to get some real experience in what our engineering future may give and also the possibility to get deeply involved in a specific area of expertise. It has truly been a time of great learning and personal development.

We would like to hereby give our best appreciation and regards to the people who stood out in the contribution to the outcome of this report, Per Nilsson, our supervisor and support from Team Sea at Tetra Laval Group Transport & Travel, thank you for this great opportunity and your support in all aspects in the work of completing this report. In addition the rest of team Sea, Hans Jansson and Bj?rn Hellqvist, has contributed with their effort and time to make this report as good as possible. Professors Everth Larsson and Dorian Notman at Lund University, Faculty of Engineering has contributed with their input and view of our work and also questioned our choices when necessary.

All interviewed employees at the sea freight carriers who contributed to the work of the models and gave their valuable input in many other aspects; Bj?rn Jedvert at Maersk Line, Fredrik Magaji at MSC, Fredrik H?kansson S?ll at Hyundai, Harald Dirzowski at "K" Line, Per Josefsson at Penta Shipping and Magnus Andersson at United Arab Agencies. Pierre Cariou, Professor at World Maritime University, contributed in a great way in many of our decisions and gave us a good insight in the shipping industry and related questions for this report. Magnus Kjellberg and Jenny Persson at Geodis Wilson, who are a part of the ocean freight procurement process of Tetra Laval and who contributed to the decisions made during the process. Finally we would like to thank all employees at Group Transport & Travel for their kind and helpful attitude to us, and furthermore Robert Ingvarsson, (director, GT&T) for giving us this opportunity.

We are proud of this accomplishment and hopefully will all involved parts find this work solid and valuable. We are also hopeful that the reader of this report will find it interesting and useful.

Lund, December 13th, 2008

Johan Blom

Lars Borisson

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Abstract

Title:

Cost breakdown and surcharge mapping for sea freight

- A study for Tetra Laval Group

Authors:

Johan Blom & Lars Borisson Mechanical Engineering Graduates Lund University, Faculty of Engineering

Supervisors: Per Nilsson Global Procurement ? Ocean Freight Tetra Laval Group Transport & Travel

Everth Larsson, Professor Dorian Notman, Associate Professor Department of Industrial Management and Logistics Lund University, Faculty of Engineering

Purpose:

The sea freight industry has been confronted by a major market change, meaning that the price and surcharge cooperation within the liner shipping conference agreements in Europe has been abolished. Therefore Tetra Laval Group needs to get a better understanding of the bunker adjustment factor, currency adjustment factor and terminal handling cost, which shipping companies add to their base price, and to take control over the surcharge variations during the year. These surcharges were previously set by the liner conferences. The object of this study was to construct calculation models for the major costs that are considered possible to assess and necessary to be variable in the contracts with the sea freight suppliers. The models are not supposed to be simply theoretical, but shaped to fit Tetra Laval's way of business.

Method:

The study has been based on both statistical data and interviews in order to get theoretically correct data as well as subjective input from concerned parties. In addition to this content analysis and literature reviews was made to obtain a broad and deep understanding of relevant areas. An analysis of the gathered data was done through logical reasoning and discussion.

Conclusions: One model for Tetra Laval Bunker Adjustment Factor (BAF) surcharge updates has been constructed and implemented into sea freight contracts for 2009. One model for Tetra Laval Currency Adjustment Factor (CAF) surcharge updates has been constructed and proposed to be used internally during 2009 and adjusted to fit both Tetra Laval and all major sea freight suppliers and then implemented in 2010 years' sea freight contract. The Terminal Handling Cost (THC) is considered to stay fixed for the whole contract year in the future.

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