CSAV Competing for INFORMS Edelman Prize

HANOVER, MD, March 21, 2011 – CSAV’s analytics team is among six finalists that will compete for the INFORMS 2011 Franz Edelman Award for Achievement in Operations Research and the Management Sciences in Chicago on April 11 at the Marriott Chicago Downtown.

The finalists for the competition, sponsored by the Institute for Operations Research and the Management Sciences (INFORMS^®), include:

CSAV (Compañía Sud Americana de Vapores) with the University of Chile for “A Strategic Empty Container Logistics Optimization in a Major Shipping Company.”

CSAV comprises seven regional offices that decide upon commercial and operational matters within their geographical influence with the aim of achieving superior service quality for the company’s clients and customers.

The container fleet of 700,000 containers, referred to as TEUs (20-foot equivalent units), is valued at approximately $2 billion and represents the second most important cost factor after fuel for vessels. The fleet plays a key role in CSAV’s strategy.

Some zones are net exporters (e.g., China), others are net importers (e.g., Saudi Arabia,), creating a major imbalance of empty containers between regions and forcing empty container repositioning. There are important issues of uncertainty, particularly in customer demand for empty containers. The company used to manage its container fleet based on decentralized decisions made by regional offices. However, the high level of interconnection required for these decisions led to significant shortcomings in container management, reflected mainly by large stocks of empty containers held to satisfy expected demand.

Because profit margins in this industry are small, it became crucial to develop an optimized policy for empty container storage and a smart strategy to reallocate them.

The team’s contribution was the development of the O.R.-based Empty Container Logistics Optimization System (ECO), which optimizes CSAV’s empty container logistics by integrating operational and commercial decisions at all regional offices.

The goal was to minimize global costs while guaranteeing high service quality. The main decisions made by ECO are (1) how and when the company should reposition empty containers to fulfill needs in specific ports and (2) the number of empty containers required to handle uncertain demand at each location and time period.

ECO is based on two decision models supported by a forecasting system. The first, an inventory model determines the safe stock level at each point. The second, a multicommodity, multiperiod network flow model supports empty container repositioning and inventory levels, thus assuring sufficient available stock to maintain flexible, quality service. With ECO in place, planners worldwide can participate in fine-tuning the optimization model and reviewing the optimized plans, leading to coordination and shared decision making.

CSAV and the University of Chile started the project in 2006. The initial version was implemented in Chile and Brazil in late 2007. The 2008 financial crisis hit the shipping industry particularly hard. CSAV decided to face the crisis by gaining a competitive advantage through excellence in the management of its container fleet, and ECO played a key role in achieving this goal. ECO was implemented globally at full speed and became operational worldwide in January 2010.

The optimization model led to significant improvements in data gathering, communications in real time, automation of data handling, and improved processes, allowing managers to make decisions with better, standardized information. ECO made it possible to make global decisions that were superior to those obtained previously by individual regions, achieving important results.

In 2010, empty container inventory stocks were reduced by 50%, and container turnover increased by 60%. CSAV saved $75 million in 2010 and expects yearly savings of another $100 million in the next two years. These results were most relevant for CSAV in overcoming the crisis and positioning itself as one of the world’s top 10 carriers. The company’s value increased 55% during 2010, surpassing the average gains of the top shipping companies listed on stock markets.

The Chilean company CSAV is the sixth largest shipping company in the world and the largest in Latin America, with operations in over 100 countries and more than 2,000 terminals and depots worldwide.

The six 2010 Franz Edelman finalists are:

1. CSAV
2. Fluor Corporation
3. The Industrial and Commercial Bank of China Limited (ICBC)
4. IHG (InterContinental Hotels Group)
5. Midwest Independent Transmission System Operator
6. New York State Department of Taxation and Finance

This is the 40^th year of the prestigious Franz Edelman competition. The winner will be announced at a special awards banquet on April 11, 2011 during the INFORMS Conference on Business Analytics & Operations Research. The conference takes place at the Marriott Chicago Downtown from April 10-12.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS^®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. INFORMS serves the scientific and professional needs of operations research analysts, experts in analytics, consultants, scientists, students, educators, and managers, as well as their institutions, by publishing a variety of journals that describe the latest research in operations research. INFORMS Online (IOL) is at www.informs.org. Further information about operations research can be found at www.scienceofbetter.org.

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