Container project yields cost savings, environmental and operational benefits for tobacco firm

24 October 2013

Significant cost saving and sustainable business practice are just some of the benefits that tobacco firm British American Tobacco South Africa (BATSA) achieved as a result of a container triangulation initiative implemented in partnership with Imperial Logistics group company Imperial Cargo Solutions.

BATSA forms part of the British American Tobacco Group of Companies, which operates in more than 180 countries worldwide. The company’s Heidelberg factory employees 900 people, and is regarded as a strategic site, contributing a substantial percentage to the Group’s profits.

The problem

The manufacturing of cigarettes and other tobacco related products in South Africa requires numerous materials, including raw tobacco, filters, wrapping and packaging materials. Many of these elements are sourced and imported from around the globe. The final tobacco products are then exported from SA to various end markets.

The import of the different elements required by BATSA, and the export of its final tobacco products, is undertaken by shipping lines, with the Durban port primarily used as the point of entry and exit.

The high logistics costs involved in the inbound supply chain include shipping line charges; road transport of containers from Durban to BATSA’s facility in Heidelberg; road transport of empty containers to the shipping line container facility in City Deep; and empty container return fees. “In addition, should a container be returned later than the agreed time, demurrage charges would be applied,” explains Wayne Petersen, logistics service centre manager at BATSA.

Some of the logistics costs involved in the export of BATSA’s products through container logistics include the road transport costs for the collection of empty containers from City Deep, to be loaded at the Heidelberg factory; road transport costs from Heidelberg to Durban; port fees; and export shipping line charges.

Together, Imperial Logistics and BATSA investigated ways to reduce the total cost and environmental impact of logistics in a supply chain driven by imports and exports relying on container logistics.

The solution

Since a limited number of shipping lines are contracted to BATSA for the shipping of import and export containers, an obvious solution to the company’s high container-related logistics costs was to retain imported containers after offloading, and then convert these containers for export purposes.

Investigation into this revealed that substantial savings could be achieved, since various costs could be eliminated by taking a more holistic view of import and export operations. These costs included the road transport of empty containers to the shipping line’s container facility in City Deep; empty container return fees; and road transport costs for the collection of empty containers from City Deep to be loaded at BATSA’s Heidelberg factory.

“By implementing this solution, BATSA would also minimise the risk of incurring demurrage costs for the late returns of empty containers,”Petersen stresses.

“The process of converting import containers to export containers is referred to as ‘container triangulation’,”Petersen explains.

The challenges

Several key areas had to be considered in detail during the implementation of this project. “It was necessary to analyse and understand import and export volumes on an annual basis,” Petersen notes. “Container quality also had to comply with the relevant quality standards for the transportation of finished goods / cigarettes. The contractual agreements between BATSA and the relevant shipping lines were taken into consideration, along with the administrative processes required to convert import containers to export containers. Buy-in from all the role players was critical – especially the shipping lines. Regular communication with the shipping lines ensured that the process of container triangulation and BATSA’s desire to implement this process was explained in full. The shipping lines also had various requirements, which had to be fulfilled before container triangulation could commence,” he reveals. “These requirements ranged from signed contractual agreements to verbal understanding between the relevant parties.”

The outcome

BATSA enjoyed immediate cost savings after this project commenced and the first imported containers were converted to export containers after offloading and inspection.

Petersen elaborates: “Over a one year period, a total of 324 containers were triangulated, which resulted in significant cost savingsto BATSA. The triangulation process is ongoing, and with the business having on average 1 600 imported containers and 1 800 exported containers per annum, it is evident that only a small portion of the potential savings have been captured during the first year of operations.”

In addition to financial gains, BATSA is also reaping operational benefits as a result of container triangulation. “We now have the ability to execute urgent order requests from end markets, since we have a ‘pool’ of available containers,” Petersen says. “BATSA’s export OTIF (on-time in-full) compliance has also been boosted. There is less risk of containers not being available during peak periods, as we retain the imported containers,” he explains. “Forty foot containers are generally in very high demand in the Gauteng area, and availability could not always be assured in the past.

“A key benefit from an environmental point of view is that substantially less distances are travelled to collect or return empty containers,”he adds. “During the first year of container triangulation, we have cut heavy vehicle travelling distance by approximately 45 000km!”

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