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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
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
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GROWTH FACTORS FOR CONTAINERIZATION
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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
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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)
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MARKET POTENTIAL
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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)
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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
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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…
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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”
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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
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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
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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
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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
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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
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COMMODITIES IN CONTAINERS
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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
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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.
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Challenges for the Containerization of Commodities
Challenge Issues
Weight distribution Containership load (10-14 tons per TEU).Trade imbalances create mitigation strategies.
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Challenges for the Containerization of Commodities
Challenge Issues
Land consumption at port terminals
Space consumption (4 times more than bulk) mitigated by velocity.
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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
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CONTAINERIZED COMMODITIES AND COLD CHAINS
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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
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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?
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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
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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)
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Temperature Integrity along a Cold Chain
Potential integrity breach
Temperature
Temperature Range
Potential integrity breach
Transport
Time
Unloading – Warehousing – Loading Transport
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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)
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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.
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Conclusion: Commodities and the Cold Chain as Value Propositions
Retail and intermediate
goodsCommodities (balancing)
Cold chain (revenue)