Impact of Temporary Seaport Closures on Freight Supply Chain Costs

Abstract

A decision model designed to help stakeholders quantify the productivity impacts of temporary closures of a container seaport on global supply chains is presented. Such closures have many potential causes, including natural disasters, labor disruptions and shortages, and security-related disruptions. Temporary closures result in highly variable product delivery lead times and thus increase supply chain inventory management costs. The decision model is a Markov decision process that determines an optimal inventory management policy and its resultant long-run average cost for a firm operating a supply chain that uses a seaport subject to unexpected closure. Since short port closures typically lead to ships waiting to off-load containers, a simple deterministic queuing approach is used to model port freight processing dynamics. The results of a numerical study indicate that the expected length of a seaport closure more negatively affects supply chain productivity than the probability of closure, for example, causing increases in expected supply chain inventory holding and penalty costs of up to 136%. Furthermore, supply chain firms that do not properly account for port closures during inventory planning can expect significant inventory holding and penalty cost increases, which in some cases eliminate positive operating income. The results indicate the importance of contingency planning and disruption management for all stakeholders, including private firms and public agencies. In addition, results of the study point to the economic importance of investment to increase the processing capabilities of highly utilized seaports immediately following a port closure, when resultant congestion is at its worst levels.