International Association of Maritime Economists International Association of Maritime Economists (IAME) 2009 Conference, Copenhagen (Denmark), (IAME) 2009 Conference, Copenhagen (Denmark), June 24-26 2009June 24-26 2009

Moving Inside the Box:Moving Inside the Box:The Containerization of The Containerization of CommoditiesCommodities

Jean-Paul RodrigueAssociate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA

Theo NotteboomPresident, Institute of Transport and Maritime Management, University of Antwerp, Belgium

Moving from Logistics to Commodity ChainsMoving from Logistics to Commodity Chains

A New Growth Dynamics for ContainerizationA New Growth Dynamics for ContainerizationMarket Potential: Hype and RealityMarket Potential: Hype and Reality

Commodities in ContainersCommodities in ContainersContainerized Commodity ChainsContainerized Commodity Chains

Containerization Growth FactorsContainerization Growth Factors

Derived (A) Economic and income growth.Globalization (outsourcing).Fragmentation of production and consumption.

Substitution (B) Functional and geographical diffusion.New niches (commodities and cold chain)Capture of bulk and break-bulk markets.

Incidental (C) Trade imbalances.Repositioning of empty containers.

Induced (D) Transshipment (hub, relay and interlining).

AA BB CC DD

Containers are More than Boxes…Containers are More than Boxes…

■ Looking inside the box• Containerization mainly viewed from the principle of flow.• Development of maritime and inland logistics:

• Network and service configuration.• Maritime terminals and inland ports.

• Globalization and global production networks:• Most considered perspective about the driver of container transport

demand.• Global supply chains.

• Global commodity chains:• An underrepresented dimension of containerization.

From Logistics to Commodity ChainsFrom Logistics to Commodity Chains

GatewayGateway

IntermediateIntermediatehubhub

SuppliersSuppliers

CustomersCustomers

Inland Inland TerminalTerminal

MaritimeLogistics

InlandLogistics

InlandLogistics

DCDC

GlobalSupplyChain

CommodityChain

Bulk and Containerized Shipping: An Emerging Bulk and Containerized Shipping: An Emerging ComplementarityComplementarity

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 ChainsBulk and Containerized Commodity Chains

Bulk Commodity ChainBulk Commodity Chain

Containerized Commodity ChainContainerized Commodity Chain

Consolidationcenter

PortSupplier Customer

Intermodalterminal

Containerport

PendulumServices

Point-to-Point

ComplementarityComplementarity

Bulk and Containerized Shipping: A Convergence of Bulk and Containerized Shipping: A Convergence of FactorsFactors

Factor Outcome

Rising 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.

Stable and declining 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.

Continuous Commodity Index (CRB), Monthly Close, Continuous Commodity Index (CRB), Monthly Close, 1970-2009 (April)1970-2009 (April)

A

B

C

I

II

12 3

4 5

ab c

d

III

Continuous Commodity Index and Baltic Dry Index, Continuous Commodity Index and Baltic Dry Index, 2000-2009 (2000=100)2000-2009 (2000=100)

Continuous Commodity Index and Average Continuous Commodity Index and Average Container Shipping Rates, 1994-2009 (1994=100)Container Shipping Rates, 1994-2009 (1994=100)

Container Shipping Costs and Cargo ValueContainer Shipping Costs and Cargo Value

Products Items / 40 Foot Container Retail Value (USD) Freight / Value (%)

Low High Low High Low High

Clothing (low value) 90,000 130,000 225,000 520,000 0.56 1.91

Clothing (mid range) 25,000 60,000 500,000 3,600,000 0.08 0.86

Sports shoes 18,000 28,000 350,000 2,520,000 0.12 0.23

Toys (low quality) 20,000 60,000 60,000 720,000 0.40 7.17

Consumer electronics (small) 2,800 3,600 170,000 430,000 0.67 2.53

Consumer electronics (large) 240 480 70,000 140,000 2.07 6.14

Appliances (small) 600 1,200 45,000 100,000 2.90 9.56

Appliances (large) 100 130 30,000 65,000 4.16 14.33

Furniture (assembled) 250 600 20,000 150,000 1.93 21.50

Furniture (flat packed) 1,000 3,000 70,000 360,000 0.80 6.14

Automobile parts 600 15,000 50,000 375,000 0.77 8.60

Maritime Freight Rates (Nominal USD per TEU), 1993-Maritime Freight Rates (Nominal USD per TEU), 1993-20082008

Containerized Cargo Flows along Major Trade Containerized Cargo Flows along Major Trade Routes, 2007Routes, 2007

USAUSA

7.6

AsiaAsia

33.1

14.5

19.9

20.4

14.9

EuropeEurope

15.4 (+175%)

4.9 (+48%)

Million TEUs Growth (2000-2007)

Imports (M TEUs)

Exports (M TEUs)2.7 (+23%)

4.5 (+55%)

10.0 (+178%)

17.7 (+293%)

Shipper Growth Factors for Containerized Grain Shipper Growth Factors for Containerized Grain Shipments: A Matter of Price and AvailabilityShipments: A Matter of Price and Availability

Shipping Time between Bulk Handling and Shipping Time between Bulk Handling and Containerization (Canadian Wheat)Containerization (Canadian Wheat)

Bulk Handling System Days Container System Days

Farm storage Start Farm storage Start

Local delivery 1 Local delivery 1

Primary elevator 40 Intermodal terminal 2

Rail hopper cars 11 Double stack train 2

Export terminal 19 Container port 2

Bulk ship 15 Containership 11

Import terminal 10 Container port 2

Local delivery 1 Local delivery 1

Final customer End Final customer End

Total 97 Total 21

The Containerized Commodities MarketThe Containerized Commodities Market

■ A different market dynamic• Scale economies are achieved by the shipper:

• Modes, terminals and corridors.• Few differences in scale economies for a producer.• Limited barriers to entry:

• The entry unit is a container load. • As long as there is a containerized volume.

• Double benefit:• Development of global niche markets where numerous small

exporters may compete.• New economic development venues in commodity sectors which

could not previously access foreign markets.

Composition of the Leased Container Fleet, 2008-09Composition of the Leased Container Fleet, 2008-09

42.6%

16.7%

31.4%

27.6%

21.6%

40.7%

44.3%

15.7%

31.2%

28.9%

20.4%

40.6%

American Containerized Trade, 2003American Containerized Trade, 2003

Share of Main American International Trade Share of Main American International Trade Commodities Transported by Containership, 2000Commodities Transported by Containership, 2000

Commodity Group and Containerization PotentialCommodity Group and Containerization Potential

Category (SITC) ExamplesContainerization (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)

Commodity Markets: Embedding ContainerizationCommodity Markets: Embedding Containerization

Futures / Forward Contracts Spot Trading

Time frame Long to medium term (future output)

Immediate delivery (commodities in a warehouse)

Main actors Producer to broker Broker to consumer (manufacturer)

Volume Large quantities (fixed trade units) Small to medium quantities

Container Leasing agreement

Master lease / Long term lease Short term lease and empty container pools

Challenges for the Containerization of CommoditiesChallenges for the Containerization of Commodities

Challenge Issues

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

Container loading, unloading and transloading

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

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

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 (modes & terminals).Established distribution practices.Modal shift inertia.

Commodities in ContainersCommodities in Containers

■ Container preparation• Containers are well adapted to handle packaged freight either

directly ("floor loaded") or on pallets.• Not well adapted to handle commodities in bulk.• Shipment contamination:

• Some commodities, like grains, would require a container to be thoroughly cleaned.

• Require the cleaning of a container once unloaded.• The usage of dedicated containers?• Specialized containers exist for liquids and for refrigerated

cargo.

Commodities in ContainersCommodities in Containers

■ Container loading, unloading and transloading• Horizontal loading / unloading:

• Complex task often requiring a panel to block the back door and hold the loose cargo.

• Vertical loading / unloading:• Require specialized handling equipment.• Attractive option in situations of constant volume.

• Transloading:• Usage of different modes to reach the load center (such as rail

hopper cars).• Source loading:

• Maintaining the integrity of some commodity chains (e.g. grains).• Shipment quality and product differentiation.

Horizontal Bulk Loading SystemHorizontal Bulk Loading System

Source: DirectIndustry

Commodities in ContainersCommodities in Containers

■ Weight• Container loads are much lighter for conventional (mainly

retail) freight than for commodities:• 10 to 14 tons per TEU.

• The shipping industry prefers using larger containers (40 footers); more volume for the same handling costs.

• Shipping commodities tends to rely on 20 footers:• Each load around 26 to 28 tons.• A 40 footer has a loading capacity of about 30 tons.

• Load unit mismatch.

Commodities in ContainersCommodities in Containers

■ Weight distribution • Containerships designed to accommodate a specific weight

load and distribution:• 10 to 14 tons per loaded TEU are common operational

considerations.• Large commodity shipments are problematic:

• More than 20 tons per TEU; adjustments in the distribution of this load must be made.

• A containership presented with a full load of heavy containers could only by filled to 75% of its capacity.

• Trade imbalances:• Inbound full loads of relatively light containers.• Outbound heavies and empties.

Weight Distribution…Weight Distribution…

Containerized Commodity ChainsContainerized Commodity Chains

■ Inertia• Substantial investment in bulk handling equipment.• Stakeholders reluctant to change practices.• Suitability:

• New or expanding markets.• Low volume situations.• Surge in demand.

■ Demand mismatches• Import regions are not the same than exports regions:

• Imports regions: consumption related (large metropolitan areas).• Exports regions: rural areas or resource extraction areas (low

population densities).• Cargo rotation:

• Permit repositioning opportunities.• Mitigate the availability of containers for exports.

Containerized Commodity ChainsContainerized Commodity Chains

■ Seasonality• Attribute of many commodities.• Surge in demand at specific times of the year.• Seasonality has a geography:

• Harvesting time varies between different regions of the world.• Temporal and geographical fluctuations in the repositioning of empty

containers.• A double-edged sword:

• Surge in supply (demand for containers).• Drop in commodity price.

Conclusion: A Look Inside the BoxConclusion: A Look Inside the Box

Commodities and the Functional andCommodities and the Functional andGeographical Diffusion of ContainerizationGeographical Diffusion of Containerization

A Complex ComplementarityA Complex Complementarity