Transportation Summit 2011: Best Practices Shaping Global Logistics, Vancouver, BC, March 2-3 2011

Inland Infrastructure: Bulk to Container

Jean-Paul Rodrigue

Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA

Van Horne Researcher in Transportation and Logistics, University of Calgary, Canada

Inland Infrastructure: Bulk to Container

1• How inland ports fit within North

American freight distribution?

2• To what extent commodities can

be containerized?

3• How bulk and containerized

logistics can be reconciled?

Developing Inland Infrastructure: A Taxonomy of Logistics Zones

The Insertion of Inland Ports in North America: Basic Requirements

Intermodal Rail Terminal Rail Corridor to the Gateway

Logistics Activities

Inland PortCo-location

Real estate

Core Tenants

Drayage

Agglomeration

Northwest Ohio Intermodal Terminal, CSX 2011; An Inland “Port”

Main Advantages of Co-location

Factor AdvantagesReal estate Lower land acquisition costs. Higher acquisition capital. Joint

land use planning.Specialization Rail company; terminal development and operations.

Real estate promoter; logistic zone development and management.

Cargo interdependency Respective customers. Joint marketing.

Drayage Priority gate access. Shorter distances. More delivery trips. Higher reliability.

Asset utilization Better usage level of containers and chassis. Chassis pools. Empty container depots.

Information technologies

Integration of terminal management systems with inventory management systems.

Intermodal Terminals and Recent Co-Located Logistic Zones Projects

Every rail operator involved.Partnership with a major real estate developer.

Containerization Growth Factors

Derived

Economic and income growthGlobalization (outsourcing)

Fragmentation of production and consumption

Substitution

Functional and geographical

diffusionNew niches

(commodities and cold chain)Capture of bulk and break-bulk

markets

Incidental

Trade imbalances

Repositioning of empty containers

Induced

Transshipment (hub, relay and

interlining)

Growth Factors behind the Containerization of Commodities

Factor OutcomeRising demand and commodity prices

More commodities in circulation (usage of containerization to accommodate growth).New producers and consumers (marginal markets penetration).

Fluctuations and rises in bulk shipping rates

Decrease in the ratio cargo value per ton shipping rate for commodities.Volatility (rates) and risk (hedging). Search for options to bulk shipping.

Low container shipping rates

Increase in the ratio cargo value per TEU shipping rate for commodities.Relative rate stability.Containerization more attractive as an option.

Imbalances in container shipping rates

Export subsidy for return cargo.

Empty containers repositioning

Pools of containers available for backhauls.

IMF All Commodity Index and Baltic Dry Index, 2000-2010 (2000=100)

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0

100

200

300

400

500

600

700

800

900Baltic Dry Index

IMF All Commodity Index

IMF All Commodity Index and Average Container Shipping Rates, 2000-2010 (2000=100)

Jan-0

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50

100

150

200

250

300

350

400

IMF All Commodity Index

Container Shipping Rates

Bulk and Containerized Commodity Transportation: Dichotomy or Complementarity?

Bulk (Grain, Minerals, Oil) Containerized

Sectors Primary / Transformation Manufacturing / Retailing

Driving force Cost / Volume Time / Flexibility

Mode of shipment Large batches Small shipments

Frequency Low High

Flows One way More balanced

Terminals Dedicated by commodity General container

Seasonality From low (energy) to high (agriculture)

Low (retail cycles)

Exchange Markets Mass (futures / forward) Niche (spot)

Bulk and Containerized Commodity Chains

Bulk Commodity Chain

Containerized Commodity Chain

Consolidationcenter

PortSupplier Customer

Intermodalterminal

Containerport

PendulumServices

Point-to-Point

Complementarity

From Bulk to Containers: Breaking Economies of Scale

• Container as an independent load unit.• Minimal load unit; one TEU container.

Entry Barriers

• Limited differences in scale economies for a producer.

• Incremental / linear cost-volume function.

Required Volumes

• New producers (smaller).• Product differentiation.

Market Potential

Commodity Group and Containerization Potential

Category (SITC) Examples Containerization (Existing or Potential)

Food & Live Animals Meat, Fish, Wheat, Rice, Corn, Sugar, Coffee, Cocoa, Tea

Low (grains) to high (cold chain products)

Beverages & Tobacco Wine, Beer, Tobacco High

Raw Materials Rubber, Cotton, Iron ore Commodity specificFuels & Lubricants Coal, Crude oil, Kerosene, Natural gas Very limitedAnimal & Vegetable Oils Olive oil , Corn oil High

Chemicals Salt, Fertilizers, Plastics Low to averageManufactured Goods

Paper, Textiles, Cement, Iron & Steel, Copper Commodity specific

Machinery & Transport Equipment

Computer equipment, Televisions, Cars Very high (already containerized)

Miscellaneous Manufactures

Furniture, Clothes, Footwear, Cameras, Books, Toys Very high (already containerized)

Challenges for the Containerization of Commodities

Challenge IssuesContainer availability Locational and load unit availability.

Weight Limitations to about 30 tons (40 footer).20 footer the preferable load unit (26-28 tons).

Container preparation Pre-use and post-use cleaning (avoid contamination).Dedicated containers?

Container loading, unloading and transloading

Bulks difficult to load horizontally.Vertical loading / unloading (equipment).Transloading issues.Source loading.

Weight distribution Containership load (10-14 tons per TEU).Trade imbalances create mitigation strategies.

Land consumption at port terminals

Space consumption (4 times more than bulk) mitigated by velocity.

Existing distribution channels

Considerable accumulated investments.Established distribution practices.Modal shift inertia.

Containerized Cargo Flows along Major Trade Routes, 1995-2009 (in millions of TEUs)

1995

1998

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0 10 20 30 40 50 60

4.0

5.2

5.6

7.2

8.8

10.2

12.4

12.4

15.0

15.2

14.5

11.5

3.5

3.3

3.3

3.9

3.9

4.1

4.2

4.4

4.7

5.0

5.6

6.9

2.8

3.5

4.5

5.9

6.1

7.3

8.9

10.8

15.3

17.2

16.7

11.5

2.3

2.7

3.6

4.0

4.2

4.9

5.2

5.5

9.1

10.1

10.5

5.5

1.2

1.3

2.2

2.7

1.5

1.7

1.7

2.1

2.5

2.7

2.9

2.5

1.4

1.7

2.9

3.6

2.6

2.9

3.2

3.8

4.4

4.5

4.3

5.3

Asia-USAUSA-AsiaAsia-EuropeEurope-AsiaUSA-EuropeEurope-USA

Maritime Freight Rates (Nominal USD per TEU), 1993-2009

1993

-419

94-2

1994

-419

95-2

1995

-419

96-2

1996

-419

97-2

1997

-419

98-2

1998

-419

99-2

1999

-420

00-2

2000

-420

01-2

2001

-420

02-2

2002

-420

03-2

2003

-420

04-2

2004

-420

05-2

2005

-420

06-2

2006

-420

07-2

2007

-420

08-2

2008

-420

09-2

2009

-4

$0

$500

$1,000

$1,500

$2,000

$2,500

Asia - USUS - AsiaAsia - EuropeEurope - Asia

American Foreign Trade by Maritime Containers, 2009 (in TEUs)

Wal-MartTarget

Home DepotDole Food

Sears HoldingLowe's

Costco WholsaleLG Group

PhilipsHeinekenChiquita

Ashley FurnitureIkea Intl.

SamsungJC Penney

JardenGeneral Electric

Red BullNike

Whirlpool

0 200,000 400,000 600,000 800,000

684,000

441,800

278,900

225,500

216,300

195,000

166,100

149,300

127,200

118,100

116,700

90,900

90,800

81,100

79,000

77,100

76,700

74,000

72,300

60,900

Importers

America Chung NamKoch Industries

International PaperWeyerhaeuser

Newport Ch IntlDow Chemical

CargillPotential Industries

Denison Intl.Procter & Gamble

DupontJC Horizon

ExxonMobilCedarwood-Young

ShintechDelong

Sims Metal ManagementMeadwestvaco

Genesis Resource EnterprisesCellmark Group

0

200,0

00

400,0

00

600,0

00

800,00

0

259,000

120,600

120,100

112,500

110,900

103,000

90,300

90,000

86,900

78,000

74,300

72,400

70,700

68,800

66,900

65,100

60,700

58,100

54,800

51,300

Exporters

The Complexities of Inland Logistics: The “Last Mile” in Freight Distribution

Gateway Inland Terminal

DistributionCenter

Capacity

Frequency

Corridor Customer

“Last Mile”

Segment

GLOBAL HINTERLAND REGIONAL LOCAL

Shipping Network

Massification Atomization

21

2Inventory in transit1 Inventory at terminal

Distribution based on RDCs Distribution based on two gateways

Distribution based on tiered system Distribution based on local DCs

Asymmetries between Import and Export-Based Containerized Logistics

Many Customers• Function of population density.• Geographical spread.• Incites transloading.• High priority (value, timeliness).

Few Suppliers• Function of resource density.• Geographical concentration.• Lower priority.• Depends on repositioning

opportunities.

GatewayInland

Terminal

DistributionCenter

Customer

SupplierRepositioning

Import-Based

Export-Based

Conclusion: The Flipside of Reverse Logistics

A• Inland ports as key strategic infrastructures.• Principle of co-location appears the most effective.

B• Containerization of commodities a powerful niche trend.• Emerging complementarity between container and bulk.

C

• Container and bulk are asymmetric distribution systems.

• Inland ports as platforms reconciling inbound / outbound logistics.