Over the weekend I watched a very interesting Science Channel program on network theory (yes, I know I need to get out more…).  Basically, a group of mathematicians had been able to write a mathematical equation that represents the game Six Degrees of Kevin Bacon.  For those that aren’t familiar with the game, someone proposes an actor or actress and you trace them back to Kevin Bacon by the movies they have appeared in.  The hypothesis is that every actor/actress can be linked back to Kevin in six or fewer movies.  According to the program I watched, the Kevin Bacon game ends up being a very good proxy for other naturally occurring “networks” including the World Wide Web, intra-cellular communications, pandemics, and the US power grid .  Each node within these networks is linked to each other node in a surprisingly few connections.

One trend that emerged out of their research was that in randomly created networks there emerge major “hubs” that shrink the relationships between nodes and enable fewer degrees of separation.  In any given network, you can remove many of the less influential nodes and the network continues to operate well.  If you remove one of the hubs, the network begins to break down.

What I found especially interesting about this is that the hubs occur in multiple, randomly created networks.  It doesn’t matter if the network is microscopic (cellular), operated by viruses (pandemics), or man made (power grid).  The hub and spoke structure ends up being the absolute most efficient way to distribute information.  Now if we jump to the real estate world, will the same hub and spoke structure emerge in supply chain strategies?  Does the world only need a few key, hub warehousing cities and then a vast network of spokes?  What are the qualities that will help a location emerge as a supply chain hub?  Are their locations we consider hubs today that are evolving out of “hub” status?  

And consider the East Coast port situation.  There are a number of ports trying to emerge as the “hub” of the east coast. What are the qualities that will make a Jacksonville emerge over a Charleston?  How vast is the networked web of nodes and how many hubs are needed?

Science, math and nature have told us that hub and spoke is the most efficient way to set up networks.  How effective has the US been at following their lead when we set up our supply chains?  Thoughts?  Anyone care to share a good example of a hub and spoke supply chain that they think works particularly well?

Logistics Management ran an article today entitled, “Ocean cargo/global logistics: U.S. Seaports compete for declining inbound vessel calls“.  The first line of the story reads, 

Shipping analysts are saying that the days of “mega” U.S. seaports may be behind us, as more marginal ocean cargo gateways capture share.

I think that announcing the death of the US “mega” seaport may not only be premature, but dead wrong.  Certainly, there will be changes in the shipping patterns to the US.  We see this every day through service changes, new partnerships and slot sharing agreements.  However, I believe what you are seeing is not a shift away from “mega” ports, but a shift towards new “mega” ports.  

Let’s be clear, the US doesn’t have too many “mega” ports to begin with.  Basically, it’s LA and Long Beach right now.  The trend that Moreland Advisors is seeing, and the trend that our clients our seeing is a shift away from the West Coast ports to East Coast ports.  Some recent analysis indicates that up to 25% of the business that currently calls on the West Coast will transfer to the East Coast in the next 8-10 years.  The enlarged Panama Canal, new Suez services, as well as the improved capacities and intermodal capabilities have helped to drive this paradigm shift.  Also, don’t forget that 75% of the US population lives on the Eastern side of the US.  It’s pretty basic, if you have the option, put the goods as close to the people as possible.

Our contention is not that the “mega” port is dying, but that it is moving.  We expect to see 1, maybe 2, East Coast hubs emerge from the fray.  Economically, it just makes sense to use bigger ships and call on fewer ports.  Why pay multiple port and harbor pilot fees, and incur the additional time delays, if you don’t have to?  This becomes especially critical when you consider that many of the US ports are tidally constrained and shippers are facing the prospect of steaming to a new port only to have to wait until high tide to unload (or low tide to get under bridges).  We are in an era where efficiencies and cost cutting is critical and we believe that benefits the new hub, or “mega” ports, not the smaller niche ports.

How can this:

affect this:

Well it can in more ways than you’d think.  The animal pictured above is the Right Whale.  The Right Whale is a species of baleen whales growing up to 18m long and weighing upwards of 100 tons.  The beleaguered creature earned it’s name because whalers thought it was the “right” one to hunt due in large part to the fact that they float when they are killed.  These creatures live in three distinct areas of the world, one of which is the Western North Atlantic ocean, near the East Coast of the US.  In the spring and summer they live up around New York, and in the summer they head to Georgia and Florida – much like many snowbirds.

This annual migration puts them directly in the path of some of the busiest shipping lanes the US has to offer.  In fact, the leading cause of death for a Right Whale is a ship strike.  As you can imagine, hitting a 100 ton animal doesn’t leave the ship feeling too great either.  However, ships can be repaired, whales can’t.  In 2006, several conservation groups sued the NOAA and prompted them in 2008 to impose a cap on ship speeds when they are 23 miles (20nm) from a major US east coast port.  During the whale season (varies by port), the ship captains must maintain a vessel speed less than 10 knots when they are within this 23 mile radius.  January 2009 was the first time when an area was affected by the new regulations.

A typical ship speed for a container vessel would be closer to 25-26 knots.  This reduction in speed means it takes longer to reach our east coast ports.  In the shipping business, time is money and efficiency is everything.  Several of the east coast ports are “river ports” where ships must steam upriver once they reach the coast.  Those steaming speeds are typically closer to 6 knots.  As shipping lines evaluate where to bring their ships, the amount of time it takes to reach each port will certainly be a consideration.  It’s too early to tell, but you would think that the east coast ports, and the river ports specifically, may find themselves at somewhat of a disadvantage.