Haslam College of Business - Trimming Freight Rates Through Transshipping

Brian Conry (ProMBA ’17) developed a more cost-effective and environmentally-friendly way for his organization to ship bauxite from Atlantic-based mines to Pacific-based customers. Read about the thesis-like challenge he faced to complete the ProMBA program.

CHALLENGE: Bauxite, the main commercial mineral from which aluminum oxide is extracted and aluminum is produced, is a hot commodity in China. For one of the world’s largest bauxite producers, moving bauxite from South American mines to customers in China traditionally required shipping in Panamax vessels (the mid-size cargo ships capable of passing through the lock chambers of the Panama Canal). Since traditional Panama vessels only can carry 55,000 metric tons of bauxite at a time, meeting customer demand required multiple vessels. This inefficient shipping method came at a high cost, which the bauxite producer’s Pacific-based customers no longer were willing to absorb.

PROJECT: For his Organizational Action Project, Professional MBA student Brian Conry, supervisor of maritime operations for the bauxite producer, focused on developing a more cost-effective and environmentally-friendly way for his organization to ship bauxite from Atlantic-based mines to Pacific-based customers.

PROCESS: Conry compared the freight costs of traditional shipping methods with transshipping, that is, routing the bauxite load from smaller vessels to a larger one during the transportation process. He determined that shipping via a single large Capesize bulk carrier (able to carry 170,000 metric tons at a time) could save approximately a $2 per metric ton, giving his organization a sizeable advantage over its competitors. Since Capesize bulkers are too big to load directly at riverbank mines and restricted ports, Conry’s plan involved a transshipping system where the loads from three Panamax vessels are reloaded onto a single Capesize bulker in an intermediate transshipment zone. The Capesize then completes the long ocean voyage to the Pacific destination.

RESULTS: Conry’s plan is being implemented and is expected to save $5.6 million in shipping costs over the first year. In addition to the freight savings, the benefits of transshipping bauxite include scheduling improvements, increased vessel loading efficiency, increased sales, and better market position. “Shipping costs are getting more and more expensive,” adds Conry. “Our Chinese customers can buy in the Pacific region but the quality of the bauxite is poor. Transshipping keeps costs low enough for our Pacific customers to choose the high-quality bauxite.”

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