Application Portfolio Buenaventura Port Expansion by Isabel Agudelo A complete version of the application portfolio for ESD 71 Engineering system Analysis for Design December 20082Abstract This is a fictional case about a decision of capacity expansion in the Buenaventura Port in the Pacific Coast of Colombia (South America). There are many drivers of port capacity but for the purpose of this project, I selected increasing of the number port cranes as the main variable to adjust. Export container demand is the main source of uncertainty. Two types of methodology were used to analyze this project: decision analysis and lattice analysis. For the decision analysis, I made a comparison between a scenario of buying five cranes in the initial year and a scenario of buying two cranes in the first year and expand to three cranes in year five. For the lattice analysis, I maintained the same situation but the uncertainty was reduced to the demand of only one type of container. The two approaches presented a positive value of flexibility but I believe that decision analysis is a better tool for this type of project because of the level of complexity involved in the process and the number of decision variables in the real world.3Table of Contents 1 Engineering system description 4 2 Salient Uncertainties 6 3 Flexibility identification 9 4 2-Stage Decision Analysis of Alternative Designs 10 5 Lattice Analysis of Evolution of a major uncertainty 15 6 Conclusion 2741 Engineering system description Colombia is a country located in the northwest corner of Latin-America as presented in Figure 1. The country has coast in the Pacific and Atlantic Ocean. One of the major goals of Colombian government is to increase the amount of international commerce with the rest of the word. To reach this goal is very important to have the adequate logistics infrastructure related to maritime, rail, fluvial and land transportation. Colombia has limited resources to invest, so is important to make good decisions regarding this infrastructure. One of the major concerns in the maritime infrastructure is the port of Buenaventura. This port is the largest in the Colombian Pacific Coast and according to United Nations Economic Commission for Latin-America and the Caribbean (ECLAC) (2007) was the sixteenth container port in Latin-America in 2006. The port is located in Cauca Valley state in the center – west of the country. See Figure 2 and 3. Figure 3.Port location Figure 1. Colombia in Latin-America Figure 2.Cauca Valley State Buenaventura Port5According to ECLAC (2007), Buenaventura moved 622.233 TEUS1 in 2006. This is the current information about the Buenaventura port. Drivers Current Data Terminal space 2000 meters Number of terminals 14 docks Cranes 16 container cranes Source: http://www.sprbun.com Source: http://www.sprbun.com The main concern with the Buenaventura port is that Colombian economy is growing annually at rates of 6% and it was estimated that the capacity utilization of the port was 73.5% in 2005 and today this figure has passed 100%. With the expected rate of increase generated by the free trade agreements that Colombia is signing, the capacity of the port is already insufficient. 1 According to Rowlett (2004), the Twenty-foot Equivalent Unit (TEU) is an inexact unit of cargo capacity often used to describe the capacity of container ships and container terminals. It is based on the volume of a 20-foot long shipping container, a standard-sized metal box which can be easily transferred between different modes of transportation, such as ships, trains and trucks.6The main benefit of this project is to avoid Buenaventura port of becoming a bottleneck of the export process of the country and also, to evaluate the adequate moment to make the investment given the limitation of resources of the country. There are many factors that might affect the value of ports performance. Colombian economy (exports and imports) is always a challenge to define. Now, the economy is in good shape but is not isolated from the effects of the world situation, especially because this is project to focus mainly in exportation markets. 2 Salient Uncertainties Economic Uncertainty: According to the United Nations - UNCTAD – Review of Maritime Transport (2007), the growth of the world economy with special concentration on emerging economies such as an India and China had a very important effect of world trade (8% increase), this effect was also extended to maritime transport. This situation had an important effect on the growth of the world fleet starting with 1.04 billion deadweight tons (dwt) at the beginning of 2007 to an 8.6 per cent increase. In general, the situation is positive for ports in Colombia. The growth of Asia – Pacific region represents an important opportunity for Latin-American Pacific ports like Buenaventura. This also means that competition among ports to attract shipping companies is going to be even more difficult. One positive issue is the fact that the Buenaventura port is close to the Panama Canal. The Panama Canal is the main maritime route from Asia- pacific to the US east coast. Politics / Economics Uncertainty: There are a group of FTA (Free Trade Agreement) agreements is process. According to the Colombian Embassy in the US, “The economic arguments in favor of the agreement are clear, as the free trade agreement (FTA) will ensure7Colombian goods continued duty-free access to the U.S. market, and provide to U.S. exporters the same benefits”. To have FTA is positive for the port because of the increase in the use of the port for imports and exports. The uncertainty comes from the political nature of the process when is not always easy to get an approval from the two governments. Technology uncertainty: Technology advances in the maritime sector have generated the creation of bigger ships. "Panamax" ships are of the maximum dimensions that will fit through the locks of the Panama Canal. According to the Panama Canal Authority, the maximum dimensions allowed for a ship transiting the canal are: Length: 294.1 meters (965 ft), Beam (width): 32.3 meters (106 ft), Draft: 12.0 meters (39.5 ft) in tropical fresh water (the salinity and temperature of water affect its density, and hence how deeply a ship will sit in the water), Air draft: 57.91 meters (190 ft) measured from the waterline to the vessel's highest point. The uncertainty here is that new