The Impact of Temporary Seaport Closures on Freight Supply Chain Costs

We present a decision model designed to help policy-makers understand the disruptive impact of temporary closures of a container seaport on the supply chains that it supports. Such closures may have numerous possible causes, but security-related disruptions are of particular relevance today. Importantly, temporary closures result in highly variable product delivery leadtimes, increasing inventory management costs for supply chain operators. We develop a Markov decision model for the inventory management problem faced by a firm operating an international supply chain utilizing a seaport that may unexpectedly close. Since short port closures typically lead to ships waiting to offload containers, we use a simple deterministic queuing approach to model port freight processing dynamics. The model is used to determine the likely impact of both the probability of a seaport closure and also the expected closure duration on the optimal inventory management policy and its associated long-run average cost for a firm. The results of a numerical study indicate that the expected length of a seaport closure more negatively affects a firm’s supply chain productivity than the probability of closure, for example, causing increases in the expected daily holding and penalty costs of up to 136%. Furthermore, firms that fail to plan for port closures may expect large annual cost increases. These results have important implications for the cooperation between government agencies and businesses in contingency planning and disruption management. Additionally, the computational study highlights the importance of government investments that increase the processing capabilities of highly utilized seaports. Lewis, Erera, and White 3