Fall Summit, HSH Nordbank, Hamburg, Germany, November 15, 2007 Logistics and Global Commodity Chains Jean-Paul Rodrigue Associate Professor, Dept. of Economics & Geography, Hofstra University, New York, USA Paper available at:

Introduction: Capital on the Move Trimodal Container Terminal, Willebroek, Belgium     Changes in Global Trade Global Production Networks and Commodity Chains The “China Effect” and Global Commodity Chains Integrating Commodity Chains into Containerized Supply Chains 2

The Emergence of Supply Chain Management… Demand Forecasting Purchasing Requirements Planning Production Planning Manufacturing Inventory Warehousing Materials Handling Packaging Inventory Distribution Planning Order Processing Transportation Customer Service Strategic Planning MaterialsManagement PhysicalDistribution Logistics Supply Chain Management Information Technology Marketing 1980s1990s2000s1960s FragmentationConsolidation Warehousing Materials Handling Packaging Functional IntegrationValue Capture 3

Flows Market Transport Chain Parts and raw materials Manufacturing and assembly Distribution … and the Setting of Commodity Chains Market Stage Bulk shipping Unit shipping High volumes Low frequency Low volumes High frequency LTL shipping Average volumes High frequency 4 Commodities Final Goods Intermediate Goods

Major Factors Driving the Integration of Transportation with Distribution FactorCauseConsequence Technology Containerization & ITModal and intermodal innovations; Tracking shipments and managing fleets Capital investments Returns on investmentsHighs costs and long amortization; Improve utilization to lessen capital costs Alliances and M&A DeregulationEasier contractual agreements; joint ownership Commodity chains GlobalizationCoordination of transportation and production (integrated demand) Networks Consolidation and interconnection Multiplying effect 5

Changes in Global Trade Acute Trade Imbalances Economic Cycles Globalization and Production  Container yard, Port of Yantian, China 6

A Changing Trade Environment… StageNatureFunction Until the 1970sImmobile factors of production Cope with scarcity Late 20 th centuryMobility of factors of production Promote economic efficiency Early 21 st centuryGlobal production networks Added value within commodity chains 7

… and the Cycles of International Trade 8

The Cycle is Strongly Upward for Latin America… 9 Commodities Boom

… as Well as for Eastern Europe 10

International Trade Involves Acute Imbalances… 11

… that Resulted in Imbalanced Containerized Freight Flows … 12

… with Imbalanced Freight Rates as Well

Globalization; Changing the Profit Structure… Commodity chain Added value Low High Manufacturing R&D Globalization Distribution Design Branding Marketing Sales / Service Concept Logistics 14

… As Well As Disconnecting Production and Distribution Manufacturing Base Core Base Distribution Marketing / Retail R&D 15

Containerization and Global Commodity Chains Containerization Intermodal Transportation Ports and Terminal Operators  Container waiting to be loaded, Shenzhen, China 16

Containerization has Integrated Different Transport Systems … 17 Containerization of Maritime Transport Systems Container port Containerization of Inland Transport Systems Intermodal terminal Pendulum Services Intermodal and Transmodal Operations Corridor Offshore hub Inland Port

… which Makes the Container more than a Box Container Production Distribution Transport Modes, terminals, intermodal and transmodal operations Flow management (time-based), warehousing unit Synchronization of inputs and outputs (batches) 18

Connecting the Dots: Intermodal Transport Chain Composition Transfer Interchange Decomposition Local / Regional Distribution National / International Distribution Transport Terminal ‘First mile’ ‘Last mile’ 19

Composition: Pallets waiting to be loaded in a container (APL DC - Shenzhen, China)

Interchange: Post-Panamax Containership (Le Havre)

Interchange: UPS Willow Springs Distribution Center, Chicago 22

Decomposition: Unloading Containers and Palletizing Shipments (Antwerp) 23

The World’s Largest Maritime Trade Gateways… 24 Traffic at the 50 Largest Container Ports, 2005

… Mainly Controlled by Large Holding Conglomerates … 25 Major Port Holdings, 2007

Commodity Chain … That are Following a “Value Capture” Strategy Port Holding Port Authority Maritime Services Inland Services Port Services Horizontal Integration / VerticalVertical Integration Maritime Shipping Port Terminal Operations Inland Modes and Terminals Distribution Centers 26

Where the Going Gets Tough: The “Last Mile” in Freight Distribution Gateway Inland Terminal DistributionCenter Capacity Frequency Corridor Customer “Last Mile” Segment GLOBAL HINTERLAND REGIONALLOCAL Shipping Network MassificationAtomization 27

Empty trucks waiting to enter China, Hong Kong The “China Effect” and Global Commodity Chains Debt and the Currency Leverage Game Production and Distribution Dislocations Shift in the world’s commercial balance  28

The “China Effect” is Mainly About Low Manufacturing Wages… 29

… as Well as the Largest Buyer Financing Scheme in History… Goods Bonds (IOUs) Asset Inflation Debt Reserves Interest Rates Unemployment $ for goods $ for bonds United States China USD Borrowing Investment 30

… Where Exchange Rates were Used as Leverage 31 Discount Window Export Oriented Debasement Closing of the Discount Window

“Emma Maersk”, 12,500 TEU, Rotterdam, Netherlands Integrating Commodity Chains into Containerized Supply Chains Maritime Shipping Networks Containerized Commodities Cold Chain Logistics  32

The Three Major Corridors of Maritime Circulation … 33 Three Major Pendulum Routes Serviced by OOCL, 2006

… Which Implies the Emergence of Global Trade Highways North American Landbridge Eurasian Landbridge Circum-Equatorial Maritime Highway Arctic Routes Atlantic Connector Pacific Connector 34

The Potential of Containerization of Commodities … ■For bulk transport Economies of scale confer a net benefit. Specialization: Low utilization levels and time delays for the assembly of loads. At most 50% due to empty backhauls, but much lower in reality. Containerization: Flow concept; lower transshipment costs. Its own warehouse unit. Faster distribution (extending the realm of perishables). Levels the playing field, particularly in view of established commodity shippers. Respective benefits for bulk and container carriers. Handle variety requirements. Rise in commodity prices makes them increasingly suitable for containerization. 35

… Where Each System has its own Advantages … Bulk (Grain, Oil) Containerized Driving forceCost / VolumeTime / Flexibility Mode of shipmentLarge outputSmall shipments FlowsSpecializedMixed TerminalsDedicatedGeneral Container MarketsMassNiche 36

… Will Likely See the Emergence of a Complementarity Bulk Commodity Chain Containerized Commodity Chain Consolidation center Port Supplier Customer Intermodal terminal Container port Pendulum Services Point-to-Point Complementarity 37

Commodities are more Containerized than Expected … 38

… Leading to the Setting of New Containerized Commodity Chains Shipping Time between Bulk Handling and Containerization (Canadian Wheat) Bulk Handling SystemDaysContainer SystemDays Farm storageStartFarm storageStart Local delivery1 1 Primary elevator40Intermodal terminal2 Rail hopper cars11Double stack train2 Export terminal19Container port2 Bulk ship15Containership11 Import terminal10Container port2 Local delivery1 1 Final customerEndFinal customerEnd Total97Total21 39

What Could be the Impacts on Commodity Markets? ■Containerization and commodity markets Futures / forward contracts are often conditioned by the capacity for delivery. What would be the impacts of containerization on this market structure? A contract could involve the allocation of containers. What type of “price discovery” this would entail. From futures to spot markets? Transportation flexibility will increase financial flexibility. 40

Cold Chain Logistics is Getting Increasingly Reliable Potential integrity breach Temperature Temperature Range Potential integrity breach Transport Time Unloading – Warehousing – LoadingTransport 41

Conclusion: Commodities on the Move… 42

… Adapting to a Challenging Environment with many Opportunities ■Global trade Imbalances and dislocations. ■Global commodity chains Added value and value capture. ■The “China Effect” Trade and financial process. ■Containerized commodity chains Opportunities to rectify imbalances. Setting of new commodity chains. ■Global prospects Positive for commodities. New markets and investment opportunities. 43