2 The Future of Containerization: Box Logistics in Light of Global Supply Chains Jean-Paul RODRIGUEDepartment of Economics & GeographyHofstra University, Hempstead, New York 11549, USATheo NOTTEBOOMITMMA – University of AntwerpKeizerstraat 64, 2000 Antwerp, BELGIUM
3 Containerization, Production and Distribution Introduction: Looking Back at 50 Years of ContainerizationContainers in Global Supply ChainsChallenges to Liner Shipping NetworksPorts and Terminals: Convergence and DivergencePressures on Inland DistributionLimited attention has been placed in the role on containerization in the production and distribution processes.
4 Looking Back at 50 Years of Containerization Intermodal Integration50 years of stepwise technical improvements.Growth and DiffusionForces shaping containerization and its adoption.Peak Growth?A look at the inflection of the logistic curve.
5 Major Steps in Intermodal Integration Advanced ContainersAdvanced TerminalsRegionalizationIntermodal rail crane (1985)Doublestacking; IBCs (1985)Intermodal IntegrationDeregulation (1980s)COFC (1967)Before trying to infer about the future of containerized inland freight distribution, it is worth having a look at some key issues that 50 years of containerization have brought forward. The history of intermodal transportation and containerization is fairly well documented. There is somewhat of a contention about what truly marks the beginning of intermodal transportation. It is clear that in the late 19th and early 20th centuries that attempts were made to improve transshipments between modes, particularly between road and rail. By the early 1930s about three days were required to unload a rail boxcar containing 13,000 cases of unpalletized canned goods. With pallets and forklifts, a similar task could be done in about four hours. The goal here is not to settle the matter, but from a modern freight distribution perspective it can be argued that the introduction of pallets, particularly during WWII which demonstrated the time and labor saving benefits of using pallets, is an important stepping stone since a manageable load unit is available. The introduction of the trailer-on-flatcar (TOFC) approach in the 1950s provided a good source of income for rail companies since they were able to attract a new market segment.It is of course the advent of the container that had the largest impact on intermodal transportation. Even if 1956, with the launching of the Ideal X, can be considered as a key date, this event is of limited importance in the greater scheme of things. Capacity was very limited and the ships used were simply converted tankers (many WWII surplus) purchased at rock bottom prices; such a radical shift in transportation was considered a very risky endeavor, even among its strongest proponents. Like any technological innovation, the container faced a long period of introduction which lasted about a decade. Although significant productivity improvements were realized along the transport segments it was initially applied to (e.g. services to Hawaii and Puerto Rico), many major players were unwilling to commit substantial financial resources to convert to containerization; each was waiting things out, particularly which standard would prevail. In the mid 1960s, the adoption of standard container sizes, particularly the 20 and 40 footers, and of standard latching systems marked a significant paradigm shift and its associated surge in containerized traffic. In 1966, the first transatlantic container service was inaugurated, opening up long distance containerized trade. Soon after in 1968, the first cellular containerships were introduced and containerization started to revolutionalize both maritime and inland freight transport systems. Rail companies started to offer Container-on-Flatcar (COFC) services but their extent was limited due to high intermodal costs. For instance, 1967 saw the first containers transport on rail by Santa Fe, and also early attempts at land bridge services, but rail was slow to adopt the container. The situation was much different for maritime transportation as many players jumped in as container services began to be offered across the Atlantic and the Pacific. Thus inland freight distribution faced several hurdles as its modes, particularly rail, were heavily regulated and in many cases of public ownership. By 1980 a deregulation process was set in motion in the United State with the Staggers Act aimed at the rail industry. It improved profitability and favored the merger of existing rail companies into a system that will eventually become 6 large companies. Companies were no longer prohibited from owning across modal types, and there developed a strong impetus towards intermodal cooperation. Shipping lines in particular, began to offer integrated rail and road service to customers. The advantages of each mode could be exploited in a seamless system. Customers could purchase the service to ship their products from door to door, without having to concern themselves of modal barriers. With one bill of lading clients can obtain one through rate, despite the transfer of goods from one mode to another. Additionally, doublestacking, Inter Box Connectors (IBC; which removed the requirement for bulkheads on doublestack rail cars) and the setting of landbridges in the mid 1980s proved to be a boost to long distance inland containerized distribution. This placed pressures to introduce efficient and high volume intermodal rail cranes (1985), which played a significant role in improving intermodal rail operations. These cranes are the outcome of modifications and improvements of existing concepts to the high throughput requirements of intermodal rail terminals.Still, there are several hurdles left to overcome to insure the setting of a truly efficient inland freight distribution system. It is argued that three major issues will be addressed in the future of inland containerized transport. One is regionalization, which implies a more efficient maritime / land interface, particularly with the usage of inland freight terminals with direct connections to the port through rail or barge services. Another concerns a new generation of inland terminals that will improve the productivity, efficiency and throughput of inland distribution. A third one involves the container itself. It is worth considering what forms of improvement are likely to take place on the container. Are we going to see new container specifications in terms of size?Transatlantic (1966); Containerships (1968)Standardization (size and latching) (1965)Containerization (1956)TOFC (1950s)Pallets (1930s)Time
6 Two Processes behind Containerization: Growth and Diffusion GlobalizationGlobal containerized commodity chains (Optimal: 75% ?)RegionalizationGrowthPort / inland terminals systemsExperimental niche marketsDiffusion (Functional and Geographical)
7 Diffusion: Degree of Containerization, Selected European Ports, 1980-2005 Source: calculations based on data respective port authorities
8 The Largest Available Containership, 1970-2006 (in TEUs)
9 World Container Traffic, 1980-2005. Reaching Peak Growth? AdoptionAccelerationPeak GrowthMaturity2010(?) -(?)The graph portrays a cyclic perspective about the growth and diffusion of containerization, likely to follow a logistical curve, similar to many other transportation technologies. Four major phases are considered, adoption, acceleration, peak growth and maturity. The boundaries between difference phases are flexible and the choice made here is simply an informed guess.Adoption: Mainly concerns the early adoption of containerization by ports and maritime shipping companies. An arbitrary starting point is 1966 with the first transatlantic container services (or 1965 with the adoption of standard container sizes and latching systems) until 1992 when world container traffic reach 100 million. During that time a global containerized transportation system was gradually set in place.Acceleration. The early 1990s clearly mark a phase of acceleration of containerization, particularly with the entry of China in the global sphere of production. This implies a growth of the volume of containerized traffic, which was multiplied by a factor of 3 in a mere decade, as well as a fast diffusion of containerization in regions that were previously under-serviced.Peak growth. Coupled with a massive phase of globalization and the usage of containerization to support commodity chains, growth reach its maximal momentum. This places intense pressures of transport infrastructures to cope with this growth. Also linked with the emergence of strong imbalances in container shipping.Maturity. Implies that containerization has completed its diffusion, both geographically and functionally. Under such circumstances, growth (or decline) is mainly the outcome of changes in the level of economic activity. What would be the volume of containerized traffic when the system attains a phase of maturity? Providing such an answer is very hazardous considering the wide variety of issues involved, ranging to macro economic considerations. The fundamental assumption is based on the logistical curve which replicates phases of introduction, growth and maturity well known in the business and product life cycle theories. Looking at this history of transportation reveals that transport technology has consistently followed such a behavior. Under such circumstances, two extrapolations are presented:The high range scenario would entail an ongoing growth of international trade at a rate similar to what took place in the last decade. Low energy prices. Intensive deregulation in ownership with further consolidation. It must be said that this scenario raises serious questions concerning the amount of intermodal and modal infrastructures that would need to be brought online. Would inland transport systems, such as North America, be able to handle such volumes?The low range scenario, which can be called a divergence from current expectations, would entail a major global recession. Protectionism. High energy prices. A restructuring a manufacturing towards a more regional base.As usual, we are likely to get something in between.Source: Drewry Shipping Consultants.Divergence
10 Containers in Global Supply Chains Logistics and the Velocity of FreightIntermodalism and pull logisticsContainerized Global Production NetworksThe container as a production, transport and distribution unit
11 The Velocity of Freight: From Push to Pull Logistics Transshipment SpeedSpeed barrierFuture improvementsPull LogisticsLogistical thresholdContainerizationPush LogisticsShipment Speed
12 Containerized Global Production Networks Synchronization of inputs and outputs (batches)Flow management (time-based), warehousing unitProductionDistributionContainerTransportModes, terminals, intermodal and transmodal operations
13 Challenges to Liner Shipping Networks Liner Service Networks in TransitionReconciling frequency, direct accessibility and transit times.Schedule Integrity IssuesPort congestion as the main factor.New Intercontinental Shipping RoutesCircum-hemispheric maritime / land interface.
14 Liner Shipping Networks: Variety of Scales and Services Regional Port SystemRegional Port SystemConventional liner / break bulk servicesMainline servicesOne important element of the foreland is the structure of liner shipping services, which can be characterized in terms of port calls, volume and frequency. The conventional liner / break bulk service was a point to point venture, often involving several direct connections between regional ports as well as between port systems. Such a structure is still prevalent in bulk shipping networks and commonly involves empty backhauls.The setting of pendulum services has favored two particular types of network structures. The first is the emergence of feeder services from smaller ports to the hub port. The second is the emergence of a hierarchy of services ranging from high capacity and high frequency services between first tier ports to second and third order networks servicing smaller ports. This network hierarchy interconnects at offshore hubs.Source: Adapted from Robinson, R. (1998) “Asian Hub/Feeder Nets: The Dynamics of Restructuring,” Maritime Policy and Management, 25:Feeder servicesThird order networkFirst order networkSecond order network
15 Schedule Integrity of Liner Services on Specific Trade Routes Source: based on Drewry (2006)
16 Circum Hemispheric Rings of Circulation Pacific ConnectorNorth American LandbridgeEurasian LandbridgeArctic RoutesThe most significant offshore hubs are along the circum-equatorial highway.Atlantic ConnectorCircum-Equatorial Maritime Highway
17 Ports and Terminals: Convergence and Divergence Convergence: Terminalization and Value CaptureTerminals and commodity chains.Divergence: Planning ProcessScarcity in terminal capacity.
18 The Value Capture Process along Commodity Chains Maritime ServicesPort HoldingPort AuthorityPort ServicesInland ServicesMaritime shipping has a profit margin of only about 2%. Single operator controls the berth-to-gate operations.Maritime shipping lines moving inland to capture value. Port terminal operations. Rail and trucking operations. Distribution centers. Logistics.Vertical IntegrationHorizontal Integration / VerticalCommodity ChainMaritime ShippingPort Terminal OperationsInland Modes and TerminalsDistribution Centers
19 Delays in the Planning Process: Some Cases in Northwest Europe Development of initial plansProposed date for start operations (first phase)Earliest date for start terminal operationsLe Havre ‘Port 2000’ – France199420032006Antwerp – Deurganck Dock - Belgium199520012005Rotterdam – Euromax Terminal – the Netherlands200020042008Rotterdam – Maasvlakte II – the Netherlands199120022013/2014Deepening Westerscheldt -the Netherlands/Belgium19982008?Wilhelmshaven/JadeWeserPort - GermanyNA2010Cuxhaven - GermanyNeverDibden Bay – UKLondon Gateway – UK2009Felixstowe South – UK2007Hull Quay 2000/2005Additional factual evidence: It takes at least one year for the PANYNJ simply to agree on a strategy.
20 Some Terminal Development Options Initial situation(B)New terminaldevelopmentin existing ports(C)New terminals alongthe wider coastline(D)New terminals/portsnear existing portsSEALANDCorridorConsider the gateway / corridor paradigm.Congestion levelHighMulti-portgateway regionLow
21 Pressures on Inland Distribution Imbalances and RepositioningCoping with macro-economics and the global structure of production.Port RegionalizationImproving the maritime / land interface.Maritime GatewaysCorridors and the logistical hinterland.
22 Imbalances and Container Repositioning Strategies Container manufacturing costsHigh limit of feasible actionsHigh imbalanceRepositioning not economically feasibleUnit Repositioning CostsInternationalSource: Theofanis, Rodrigue & Boile (2007)(Overseas repositioning)Regional(Intermodal repositioning)Low limit of feasible actionsLocal(Empty interchange)Low imbalanceImbalances not considered a problemRepositioning Distance (TEU – KM)
23 Port Regionalization and the Development of Logistics Poles Logistics siteMultimodal transshipment centerCompany-specific logistics networkTransport corridorPrimary and secondary logistics zoneLANDLogistics PoleSEA
24 Gateways and the Logistical Hinterland Pacific-Asia(e.g. Pearl River Delta)North American West Coast(e.g. LA/Long Beach)LandbridgeNorth Europe(e.g. Rhine Scheldt Delta)Container port / terminalLogistics zone / siteStrongly developed corridorPoorly developed corridorMulti-port gateway region
25 Conclusion: Containerization Reaching Maturity Risks in supply chainsGrowing efforts spent at dealing with disruptions.Coexistence of shipping networksFlexibility in routing options in light of global production networks (costs / time options).Development of multi-port gateway regionsNew port hierarchies and a multiplication of the number of ports engaged in containerization.Three scales of inland containerizationContinental: high capacity long distance corridors.Regional: integration between maritime and inland transport systems.Local: advanced terminals.