Government of Canada, Department of Foreign Affairs and International Trade, Inland Ports Roundtables, February 2008 Inland Ports: Perspectives for Western Canada Jean-Paul Rodrigue Associate Professor, Dept. of Economics & Geography, Hofstra University, New York, USA Van Horne Researcher in Transportation and Logistics, University of Calgary, Alberta, Canada

Global Supply Chains, Global Connections Global Freight Distribution Commodity Chains as Agents of Added Value Terminals and the Continuity of Supply Chains  Container yard, Port of Yantian, China

Traffic at the 50 Largest Container Ports, 2005

Commodity Chains; Where Value Comes From? Commodity chain Added value Low High Manufacturing R&D Globalization Distribution Design Branding Marketing Sales / Service Concept Logistics

Terminals and Supply Chains; Insuring a Continuity Suppliers Gateway Offshore Hub Customers Bottleneck Buffer DC Distribution center Inland containerized goods flow Inland non-containerized goods flow Maritime container flow Inland Terminal Gateway ‘Last mile’ ‘First mile’

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) 8

Decomposition: Unloading “Floor Loaded” Containers and Palletizing Shipments (Antwerp) 9

Transport Terminals and Inland Ports Freight Terminals The Setting of Inland Ports Free Trade Zones Translisft crane, NS Rutherford yard, PA 

Freight Transport Terminals: Operations and Added Value Core (Operations) Infrastructure Modal access (dock, siding, road), unloading areas Equipment Intermodal lifting equipment, storing equipment Storage Yard for empty and loaded containers Management Administration, maintenance, access (gates), information systems Ancillary (Added Value) Trade Facilitation Free trade zone, logistical services Distribution centers Cross-docking, warehousing, light manufacturing, temperature controlled facilities (cold chain) Storage depot Container depot, bulk storage Container services Washing, preparation, repair

Inland Terminals, Different Settings, Different Functions Port Satellite Terminal Intermodal / Transmodal Facility Freight Distribution Cluster

Profitability of Inland Terminals: Balancing Volume and Service Area Gateway Port Inland Terminal 10 km 60 km Service Area Inland corridor High volume potential and low haul costs (Ideal Case) High haul costs compensated by high volume Low volume compensated by low haul costs Bad situation with high haul costs. Limited costumers 15 km 20,000 TEU Service Area TEU Potential High Profitability Low Profitability Volume High Low

Inland Terminal Life Cycle Traffic Stage 1 Stage 2 Stage 3 PlanningMaturityDeclineGrowth Stage 4 Setting Stage 5 Subsidies / Investments Operations begin Concept Profit

Inland Ports: Different Stages, Different Concerns PhaseCharacteristics Planning Relevance and viability studies. Local support. Attraction of users and investment commitments. High risk and subsidy level. Setting Construction of terminal and distribution facilities. First users (some can be transitional). Growth Realization of market potential. Growth of traffic. Capture of additional users. Clustering effect and generation of added value. Maturity Traffic stabilization. Available space filled and/or few new users. Non-commercial activities (housing). Revenue generation optimal. Decline Change in market conditions. Departure of users. Reemergence of subsidies.

Free Trade Zones: Setting The Rules Infrastructures High level of infrastructure, such as land, transport, office space, utilities, logistics services, business services and other facilities. Regulations Streamlined to improve efficiency, including custom services, labor regulation and permits. Location High accessibility location, often close to major terminal facilities such as a port, inland terminal or an airport. Location often away from conventional industry. Trade-oriented Activities operating within the zone produce mainly or exclusively for foreign markets. Alternatively, activities distributing imported goods. Incentives Low cost land, infrastructures, tax and duty exemptions or various subsidies.

Free Trade Zones: “Bending the Rules” Custom Clearance Done inland instead of at the gateway port. Likely faster. Receiver gets further advance notice. Duties Not paid until the consignment is released and moved out of the FTZ. If transformation is performed in the FTZ, the duty class may change. Select the taxation regime. Settlement If combined with Warehousing. Vendors often not paid until the freight leaves the terminal for delivery.

North American Freight Transportation: Gateways and Corridors 18 Trimodal Container Terminal, Willebroek, Belgium Fitting in the Global Freight Picture Transpacific Connections The Hinterland Problem 

Transportation in North America: Then and Now… ThenNow Fast growth and diffusion of containerization Maturity and ubiquity Excess capacityRunning at capacity. Search for alternatives. New standards and technology (Containerization, unit trains, double stacking, 53 footers) Established practices. Diminishing returns. Segmented transportation ownership and integration Consolidation (Maritime, trucking and rail industries). Emergence of large operators. DeregulationGovernance

Two Major Transpacific Pendulum Routes Serviced by OOCL, 2006 (The Wal-Mart Express)

Balance of Containerized Cargo Flows along Major Trade Routes, (in millions of TEUs)

Container Traffic at Major Transpacific Container Ports: Mirror Images? Tokaido Yellow Sea Rim Sunan Delta Pearl River Delta Taiwan / Fujian Singapore San Pedro Bay San Francisco Bay Puget Sound Prince Rupert Ensenada

The Prince Rupert Equation… ■Increase in fuel prices Could advantage Prince Rupert. Fuel (bunker oil) account for 40% of operating costs for maritime shipping. Forces ships to slow down (10% speed drop linked with 25% reduction in fuel use). Transpacific crossing times become longer (1 or 2 days). Closer gateways thus become more attractive for shipping companies. Prince Rupert

Gateways and the Hinterland Effect Efficient Inland Freight Distribution Inefficient Inland Freight Distribution Pacific Asia North American West Coast SEZ Corridor

Main North American Trade Corridors and Metropolitan Freight Centers

Perspectives for Western Canada Inland Ports: Hype or Potential? Containerization of Commodities Chassis waiting to be picked, Corwith Rail Yard, Chicago 

A Favorable Environment for Inland Ports Transpacific Trade Strong growth (China effect) Containerization of supply chains. Long distance hinterland transportation. Gateway Congestion Limited possibility for terminal expansion. Higher port charges and lower dwell times. Problematic local and terminal gate access. Trade Imbalances Imbalanced shipping rates. Load centers for empties on backhauls to ports. Regulatory Framework Environmental constraints (Nimbyism). Labor issues. Political support (APGCI).

The Pacific Northwest: Two Main Corridors, but How Many Inland Ports?

Containers Handled by the Port of Vancouver, (in TEU)

The Potential of Containerization of Commodities Bulk Transport Container Transport Economies of scale. Low utilization levels (at most 50% due to empty backhauls). Delays for the assembly of loads. Flow concept; lower transshipment costs. Its own warehouse unit. Faster distribution (extending the realm of perishables). Leveling the playing field. Handle variety requirements. Economics ? Imbalanced container shipping rates. Rise in commodity prices. Rise in bulk freight rates.

Maritime Freight Rates (Nominal USD per TEU),

Each System has its own Advantages … BulkContainerized Driving forceCost / VolumeTime / Flexibility (3 times faster) Mode of shipmentLarge outputSmall shipments FlowsSpecializedMixed TerminalsDedicatedGeneral Container MarketsMassNiche (spot) 33

… and 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 34

Commodities are more Containerized than Expected… 35

Several Established Containerized Commodity Chains in Western Canada 36

Challenges for the Containerization of Commodities Challenge Container preparationPre-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 (integrity). WeightLimitations to about 30 tons (40 footer). 20 footer the preferable load unit (26-28 tons). Weight distributionContainership load (10-14 tons per TEU). Trade imbalances create mitigation strategies. Land consumption at port terminals Space consumption (4 times) mitigated by velocity. Existing distribution channels Considerable accumulated investments (modes & terminals). Established distribution practices. Inertia.

The Challenge of the Box: Can Local Communities Capture Value? Load center potential (commodities) Intermediacy (limited) The role of public actors Will the boxes remain empty? Container waiting to be loaded, Shenzhen, China

Taking Advantage of Local Opportunities, Subtropolis, Kansas City