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The Charthouse Group LOOKING INSIDE THE BOX: EVIDENCE FROM THE CONTAINERIZATION OF COMMODITIES AND THE COLD CHAIN Jean-Paul Rodrigue Dept. of Global Studies & Geography, Hofstra University, New York, USA Theo Notteboom ITMMA - University of Antwerp and Antwerp Maritime Academy, Belgium European Conference on Shipping & Ports – ECONSHIP 2011 Chios, Greece, June 22-24 2011

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Page 1: Do you really know me?

The Charthouse Group

LOOKING INSIDE THE BOX: EVIDENCE FROM THE CONTAINERIZATION OF COMMODITIES AND THE COLD CHAIN

Jean-Paul RodrigueDept. of Global Studies & Geography, Hofstra University, New York, USA

Theo NotteboomITMMA - University of Antwerp and Antwerp Maritime Academy, Belgium

European Conference on Shipping & Ports – ECONSHIP 2011Chios, Greece, June 22-24 2011

Page 2: Do you really know me?

The Charthouse Group

Do you really know me?

What’s in a box?

The container is more than a transport unit; a supply and commodity chain unit.

Growth Factors

Market Potential

Commodities in Containers

Commodity and Cold Chains

Page 3: Do you really know me?

The Charthouse Group

GROWTH FACTORS FOR CONTAINERIZATION

Page 4: Do you really know me?

The Charthouse Group

Containerization as a Diffusion Cycles:World Container Traffic (1980-2010) and Possible

Scenarios to 2015

1980 1985 1990 1995 2000 2005 2010 20150

100

200

300

400

500

600

700

800

900

1000

Milli

on T

EU Divergence

Adoption Acceleration Peak Growth Maturity

1966-1992 1992-2002 2002-2008 2008 -Reference

Depression

New (niche) servicesProductivity gains

Network developmentProductivity multipliers

Massive diffusionNetwork complexities

Niche markets

Page 5: Do you really know me?

The Charthouse Group

The Main Driving Forces of Containerization: The Importance of Niches

DerivedEconomic and income growthGlobalization (outsourcing)

Fragmentation of production and consumption

SubstitutionFunctional and geographical

diffusionNew niches

(commodities and cold chain)

Capture of bulk and break-bulk

markets

Incidental

Trade imbalancesRepositioning of

empty containers

Induced

Transshipment (hub, relay and

interlining)

Page 6: Do you really know me?

The Charthouse Group

MARKET POTENTIAL

Page 7: Do you really know me?

The Charthouse Group

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 (coffee, cold chain products)

Beverages & Tobacco Wine, Beer, Tobacco HighRaw 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 specificMachinery & Transport Equipment Computer equipment, Televisions, Cars Very high (already containerized)

Miscellaneous Manufactures

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

Page 8: Do you really know me?

The Charthouse Group

Growth Factors behind the Containerization of CommoditiesFactor Outcome

Growing availability of containers

More containers available on freight markets.Ubiquitous transport product.But: container shortage peaks and slow steaming

Rising demand and commodity prices

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

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.But: rate stability under pressure

Imbalances in container shipping rates

Export subsidy for return cargo.But: equipment mismatch

Empty containers repositioning Pools of containers available for backhauls.But: equipment and locational mismatch

Page 9: Do you really know me?

The Charthouse Group

CRB Index (CCI), Monthly Close, 1970-201119

7019

7019

7119

7219

7319

7419

7519

7519

7619

7719

7819

7919

8019

8019

8119

8219

8319

8419

8519

8519

8619

8719

8819

8919

9019

9019

9119

9219

9319

9419

9519

9519

9619

9719

9819

9920

0020

0020

0120

0220

0320

0420

0520

0520

0620

0720

0820

0920

1020

1020

11

0

100

200

300

400

500

600

700

800

Paradigm shift in input costs…Reaping the consequences of monetary policy.Could be positive for containerization…

Page 10: Do you really know me?

The Charthouse Group

Income per Capita and Perishable Share of Food Imports

0 5 10 15 20 25 30 35 40 45$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

“Permanent global summertime”

Page 11: Do you really know me?

The Charthouse Group

The Usual Suspect: China’s Share of the World Commodity Consumption, c2009

CementIron Ore

CoalPigs

SteelLeadZinc

AluminiumCopper

EggsNickel

RiceSoybeans

PopulationWheat

ChickensGDP (PPP)

OilCattle

0 10 20 30 40 50 6053.2

47.746.9

46.445.4

44.641.3

40.638.9

37.236.3

28.124.6

19.416.6

15.613.6

10.39.5

Page 12: Do you really know me?

The Charthouse Group

Continuous Commodity Index and Baltic Dry Index, 2000-2011 (2000=100)

Jan-00

Jun-00

Nov-00

Apr-01

Sep-01

Feb-02

Jul-0

2

Dec-02

May-03Oct-

03

Mar-04

Aug-04

Jan-05

Jun-05

Nov-05Apr-

06

Sep-06

Feb-07

Jul-0

7

Dec-07

May-08Oct-

08

Mar-09

Aug-09Ja

n-10Ju

n-10

Nov-10Apr-1

10

100

200

300

400

500

600

700

800

900Continuous Commodity IndexBaltic Dry Index

Page 13: Do you really know me?

The Charthouse Group

Continuous Commodity Index and Average Container Shipping Rates, 1994-2011 (1994=100)

Jan-94

Sep-94

Apr-95

Nov-95Ju

n-96Ja

n-97

Aug-97

Mar-98Oct-

98

May-99

Dec-99

Jul-0

0

Feb-01

Sep-01

Apr-02

Nov-02Ju

n-03Ja

n-04

Aug-04

Mar-05Oct-

05

May-06

Dec-06Ju

l-07

Feb-08

Sep-08

Apr-09

Nov-09

Jun-10

Jan-11

50

100

150

200

250

300Continuous Commodity IndexContainer Shipping Rates

Page 14: Do you really know me?

The Charthouse Group

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 (larger variety).

Market Potential

Page 15: Do you really know me?

The Charthouse Group

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

Empties; an export subsidy

Page 16: Do you really know me?

The Charthouse Group

COMMODITIES IN CONTAINERS

Page 17: Do you really know me?

The Charthouse Group

Challenges for the Containerization of Commodities

Challenge Issues

Container availability Locational and load unit availability.

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

27%24%

33% 6%4%

6%

Weighting Out versus Cubing Out: What is a Proper Distribution of Containerized Assets?

Composition of the Global Fleet of Containers, 2008 (26.2 M TEU)

20 Foot40 Foot40 Foot High CubeReeferRegionalOther

Balance between retail, intermediate goods and commodities

Page 18: Do you really know me?

The Charthouse Group

Challenges for the Containerization of Commodities

Challenge Issues

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.

Page 19: Do you really know me?

The Charthouse Group

Challenges for the Containerization of Commodities

Challenge Issues

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

Page 20: Do you really know me?

The Charthouse Group

Challenges for the Containerization of Commodities

Challenge Issues

Land consumption at port terminals

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

Page 21: Do you really know me?

The Charthouse Group

Asymmetries between Import and Export-Based Containerized Logistics

Many Customers• Function of population density.• Geographical spread.• Product customization.• 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

Page 22: Do you really know me?

The Charthouse Group

CONTAINERIZED COMMODITIES AND COLD CHAINS

Page 23: Do you really know me?

The Charthouse Group

Bulk and Containerized Commodity Chains: An Emerging Complementarity

Bulk Commodity Chain

Containerized Commodity Chain

Consolidationcenter

PortSupplier Customer

Intermodalterminal

Containerport

PendulumServices

Point-to-Point

Complementarity

Cost / volume driverLow frequencyDedicated terminalsOne way flows

Time / flexibility driverHigh frequencyGeneral terminalsMore balanced flows

Page 24: Do you really know me?

The Charthouse Group

The Cold Chain: A Highly Constrained Niche

Conditional demand• Each product has a specific perishability.• Shelf life and revenue.• Demand conditional to qualitative attributes.

Load integrity• Reefers as the common load unit.• Packing, packaging and preparation.• Empty backhauls.

Transport integrity• Uninterrupted integrity of the transport chain (modes, terminals

and DC).• Specialized modes (speed) and terminals?

Page 25: Do you really know me?

The Charthouse Group

Conditional Demand: Shelf Life of Selected Produce

Produce Shelf Life Optimum Temperature (Celsius)

Apples 90-240 0

Bananas 7-28 14

Bell Peppers 12-18 10

Cabbage 14-20 0

Carrots 14-28 0

Onions 30-180 10

Grapes 10-25 0

Oranges 10-15 7

Potatoes 30-50 10

Strawberries 5-10 0

Tomatoes 7-14 12

Page 26: Do you really know me?

The Charthouse Group

Conditional Demand: Lettuce Shelf Life by Storage Temperature

0 5 10 15 20 250

2

4

6

8

10

12

14

Temperature (Celsius)

Shel

f Life

(Day

s)

Page 27: Do you really know me?

The Charthouse Group

Temperature Integrity along a Cold Chain

Potential integrity breach

Temperature

Temperature Range

Potential integrity breach

Transport

Time

Unloading – Warehousing – Loading Transport

Page 28: Do you really know me?

The Charthouse Group

Reefers and Source Loading: Securing Cold Chain Integrity

Cold Transport Chain Transit Time (days) Typical Shelf Life (days)

Refrigerated truck / Cold-storage facility transloading / Air 4-5 30-35

Refrigerated truck / Cold-storage facility transloading / Maritime shipping 15-16 30-35

Source loading with Reefer / Maritime shipping 15-16 55-60

Gain 25 days of shelf life (10 days net gain)

Page 29: Do you really know me?

The Charthouse Group

Slow Steaming: Potential Impacts on Commodities and the Cold Chain

Longer transit times may compromise some cold chains.

More containerized inventory tied in transit (heavier use of modes and terminals).

More containers for the same flow capacity (10-30%?).

Lower availability of containers in the hinterland.

Page 30: Do you really know me?

The Charthouse Group

Conclusion: Commodities and the Cold Chain as Value Propositions

Retail and intermediate

goodsCommodities (balancing)

Cold chain (revenue)