The Terminalization of Supply Chains: North American and European Perspectives Theo NOTTEBOOM Institute of Transport and Maritime Management Antwerp (ITMMA), University of Antwerp, Antwerp, Belgium Jean-Paul RODRIGUE Department of Economics & Geography Hofstra University, Hempstead, New York 11549, USA

The Terminalization of Supply Chains North America: The Corridor Effect Europe: The Gateway Effect Comparative Logistics: Terminalization and the Move Inland

A. North America Gateways and Corridors The Rail Transportation Question

Imports and Exports at Selected US Gateways, 2005 Figure 4. Source: Bureau of Transport Statistics.

Main North American Trade Corridors and Metropolitan Freight Centers A North American lattice of trade corridors where freight distribution is coordinated by major metropolitan freight centers (MFC) has emerged in the recent decades. While MFCs are significant markets, they also command distribution within the market areas they service as well as along the corridors they are connected to. They thus have a significant concentration and logistics and intermodal activities at specific locations. The ongoing accumulation of these activities has led in many cases to the creation of “central freight districts”. The extent of the market area of a MFC is mainly a function of the average length of domestic truck freight haul, which is around 550 miles (880 km). Like many segments of the North American economy and territory, globalization and integration processes, namely NAFTA, have impacted on the nature and function of continental production, consumption and distribution. For international trade, the gateways of this system are major container ports along coastal areas from which long distance trade corridors are accessed. About a third of the American trade took place within NAFTA in 2000, mainly through land gateways (ports of entry) that are gateways in the sense that they are obligatory points of transit commanding access to the United States. For truck and rail flows, virtually no intermodal activities take place at land gateways, although several distribution centers nearby borders and along corridors. Land gateways are dominantly servicing an import function, expanded under NAFTA trade, and connected to corridors of continental freight circulation. These include three main longitudinal (north, central and south) and four latitudinal (west coast, central, NAFTA and east coast) axes. The NAFTA Corridor links the two largest land gateways of North America, Detroit, Michigan and Laredo, Texas. It dominantly relies upon trucking as about 65% of the value of the NAFTA trade is serviced by this mode. However, it is far from being a continuous corridor as northbound flows of Mexican imports and the southbound flows of Canadian imports dwindle as the distance from their respective borders increases. The equilibrium point is around the Tennessee / Kentucky range, past which the respective flows are very small. About a third of the volume involves auto parts produced in Southern Ontario and in the Maquiladoras of Mexico, which are used for low-cost car manufacturing in the Southeast states.

Alameda Corridor CBD UP & BNSF Railyards UP & BNSF Railyards Thruport Mid-Corridor Trench (10 miles) The Alameda Corridor is a 20-mile-long rail high capacity freight expressway linking the port cluster of Long Beach and Los Angeles to the transcontinental rail terminals near downtown Los Angeles. It was built to provide a better rail access to the San Pedro port cluster which is the most important in North America both in terms of the volume and value of its containerized traffic; they handle about 70% of the American West Coast containerized traffic. The Alameda Corridor consists in a series of bridges, underpasses, overpasses and street improvements that separate rail freight circulation from local road circulation. The outcome is a higher level of efficiency of both systems. The main engineering achievement of the corridor in a 10 miles long 33 feet deep trench that virtually removes the rail infrastructure from the local communities. Construction started in April 1997 and the corridor began operations in April 2002. From an operational standpoint, the Alameda Corridor is jointly used by BNSF (Burlington Northern Santa Fe; 40%) and Union Pacific (60%) railway companies, the two major railroad operators in the American West. Their rail yards, Hobart (BNSF) and East Los Angeles (UP), handled respectively 1.3 million and 345,000 lifts in 2005. About 30% of the port transshipment traffic is handled through Alameda, implying that still 70% of the freight traffic involves trucks using local roads. Typical transit times between the port and downtown Los Angeles rail yards have been reduced from 2-6 hours (depending on congestion) to a reliable 45 minutes with average train speeds of 40 miles per hour. Traffic is not uniform and corresponds to the arrival of containerships in the port cluster. In spite of its numerous advantages, the corridor did not perform as expected as competition from trucking is stronger than expected. The slow start the corridor is facing can be attributed to the following: Locally bound freight flows. About 80% of all freight tonnage originating in Southern California stays in the region. For international trade, Southern California is the destination of nearly 25% of all inbound cargo coming through the ports. Another 25 to 35% of the cargo temporarily transits through Southern California as part of a value-added process within commodity chains. Thus 50 to 60% of all inbound cargo is not very suitable to be carried through the Alameda Corridor. Because of the implied lower costs and shorter transit times, local and regional shippers find it more convenient to haul freight directly from the port cluster. Relative transport costs. The trucking industry has experienced a lot of rationalization since the Alameda project was planned in the 1980s with the emergence of large carriers efficiently managing their distribution and lowering their costs. The anticipated comparative advantage of using the corridor has not fully materialized, making it cheaper and easier to move containers by truck than by train. Corridor fees are about $16 per TEU for a full container and $4 per TEU for an empty container. Relocation of the bottleneck. Travel time reduction provided by the corridor could be offset by congestion at other rail terminals up the chain, starting at downtown Los Angeles. For some cargo, particularly time sensitive freight, a direct haul by truck from the port cluster to an inland intermodal facility is more efficient than using the Alameda Corridor. For instance, the Intermodal Container Terminal Facility (ICTF) is located just 5 miles from the port and performed 626,000 rail lifts in 2005. It is mainly used for containers trucked to and from the port in a more time effective way than the corridor. High intermodal costs. It is a well known fact in transport economics that due to rather high intermodal costs, rail starts to have cost advantages for distances of more than 1,000 miles. This enables rail operators to amortize these intermodal costs. In addition, drayage and terminal handling for the Alameda Corridor add 8 to 24 hours compared to trucking. Intermodal rail operations have limited activities for distances under 750 miles. The corridor thus represents an unusual distance for regular intermodal freight distribution. Freight distribution centers. There is a large concentration of FDCs in the Los Angeles metropolitan area performing their value added functions (sorting, assembling, packing, etc.). The great majority of those FDCs were designed to accommodate trucks. For these activities using the Alameda Corridor would imply additional costs and delays. In addition, several distribution centers are receiving international containers trucked from the port. They are then unloaded and their contents placed in 53 or 48 foot domestic containers, which are trucked back to a rail yard and shipped to their final destination. Domestic containers are easier to handle on the national intermodal transport system in addition to have a greater capacity. The Alameda corridor thus represents an unusual intermodal system for freight distribution. Its long term success leans mainly on an efficient Thruport both at the port cluster and at the rail yards. If transshipment costs and delays can be reduced, the corridor could gather additional traffic and fulfill the role it was designed for. The Alameda Corridor has a maximum capacity of more than 150 train trips per day while in 2006 there were about 55 trains per day using the corridor. A plateau appears to be emerging in the growth of traffic, underlining the operational limits of the Alameda corridor. This is a classic inertia phase in modal shift as users are reluctant to abandon an existing mode and existing freight distribution practices. The corridor is also facing the transshipment reality of the San Pedro ports where for each loaded container exported, three are imported. Source: http://www.acta.org/ Port of Los Angeles Port of Long Beach Port of Long Beach Port of Los Angeles Port Cluster

The Extended Gateway of the Ports of Los Angeles / Long Beach Intra-terminal On-dock rail yards Non-local destination Alameda Corridor 16% Near-dock rail yards Non-local destination 13% Marine Terminal Rail Off-dock rail yards Non-local destination 13% Transload facility Off-dock rail yards Non-local destination 22% Warehouse Source: Port of Long Beach. Transload facility Local destination 34% Warehouse Non-local destination 2% Truck

North American Rail System The North American rail transport system shows a high level of integration, particularly for the Canadian and American systems. It goes beyond what NAFTA reflects, since it is simply a trade agreement. The main growth factor for rail in recent years have been linked with a growth in international containerized trade, particularly across the Pacific, large quantities of utility coal moving out of the powder river basin and a growth of the Mexican trade.

Major Rail Corridors Improved since 2000 Transcon (BNSF): $US 2 billion Crescent (NS): $US 2 billion Southeast (CSX): $US 250 million Heartland (NS): $US 260 million Meridian (NS/KCS): $US 300 million Mexico (KCS): $US NA Sunset (UP): $US 2 billion. Source: DANIEL MACHALABA, “New Era Dawns for Rail Building”, Wall Street Journal, February 13, 2008; Page A1

Average Speed of Class I Railroads, 1945-2004 Source: Association of American Railroads (2005) “Analysis of Class I Railroads.”

Average Freight Train Length, United States Source: AAR (2007) National Rail Freight Infrastructure Capacity and Investment Study, September. http://www.aar.org/PubCommon/Documents/natl_freight_capacity_study.pdf

Container Dwell Times at BNSF Rail Terminals Departure Return Free Dwell Time (Days) Additional Charge (per day) Loaded Loaded (same shipper) 6 $25 Loaded (different shipper) 3 Empty 1 $25/$50 (after 10 days) Source: BNSF Intermodal Rules and Policies Guide (2005). http://www.bnsf.com/markets/intermodal/pdf/2005_Intermodal_R&PG.pdf

BNSF’s Three Tier Terminal System, 2007 Facility Group Facility Free Dwell Time (days) Charge (per day) 1 Kansas City, KS Los Angeles, CA Memphis, TN $150 2 Alliance, TX Atlanta, GA (Fairburn) Chicago (Cicero), IL Houston, TX Oakland Intl. Gateway, CA San Bernardino, CA Seattle, WA (SIG) St. Louis, MO St. Paul, MN Stockton, CA 3 Albuquerque, NM Amarillo, TX Billings, MT Birmingham, AL Chicago (Corwith), IL Chicago (Willow Springs), IL Denver, CO Dilworth, MN El Paso, TX Fresno, CA Harvard, AR Logistics Park Chicago, IL New Orleans, LA Omaha, NE Phoenix, AZ Portland, OR South Seattle, WA Spokane, WA $100 Kansas City: A major inland hub halfway between the gateway of LA and the continental hub of Chicago.

Automated Transfer Management System for Truck-Rail Transfers Source: Mi-Jack Products

B. Europe

Average Dwell Times at Major European Container Terminals (in days) Characteristics Bremen Hamburg Rotterdam Antwerp La Spezia Gioia Tauro Import dwell vessel – truck 6,4 7,4 Export dwell truck – vessel 4,6 5,6 Import dwell vessel – train 6,5 7,5 Export dwell train – vessel 4,7 5,7 Import dwell vessel – barge 4,1 5,1 Export dwell barge – vessel 4,3 5,3 Transshipment dwell -

Case studies Europe – Rhine-Scheldt Delta Container transferium Extended gate (satellite) Initiated by POR TCT Venlo Extended gate (rail-based) for ECT/HPH 17

Container transferium

TCT Venlo – extended gate of ECT/HPH

Examples of cases JVC Belgium + TCT Belgium: extended DC for JVC, extended gate for ECT Four day rule Free time Rotterdam = 5 days Free time TCT Belgium = 21 days Full containers at TCT = part of stock to JVC Belgium

Source: Flanders Institute for Logistics

Logistics clusters in the province of Limburg (region of Flanders, Belgium) Source: BCI, 2007

Node typology in the province of Limburg (region of Flanders, Belgium) Source: BCI, 2007

C. Comparative Logistics: Inland Terminals and the Move Inland What are the main differences and similarities? Differences: Modes (Truck/Rail vs. Truck/Barge). Ownership (Private vs. Public/Private). Similarities: Function (import based). Is there a distinct North American (or European) terminalization? Due to externalities (congestion, environment) Europe shows a more advanced terminalization. Dwell time pressures indicate a more constraining terminalization in North America.