0. 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
TIMEFRAME: 25 minutes

1. What’s in a box? Do you really know me? Growth Factors
Market Potential
What’s in a box?
Commodities in Containers
Commodity and Cold Chains
The container is more than a transport unit; a supply and commodity chain unit.

2. Growth Factors for Containerization

3. Containerization as a Diffusion Cycles: World Container Traffic ( ) and Possible Scenarios to 2015
Adoption
Acceleration
Peak Growth
Maturity
2008 -
New (niche) services
Productivity gains
Reference
Network development
Productivity multipliers
Divergence
Depression
Source: Drewry Shipping Consultants.
Niche markets
Massive diffusion
Network complexities

4. The Main Driving Forces of Containerization: The Importance of Niches
Derived Economic and income growth
Globalization (outsourcing)
Fragmentation of production and consumption
Substitution Functional and geographical diffusion
New niches (commodities and cold chain)
Capture of bulk and break-bulk markets
Incidental
Trade imbalances
Repositioning of empty containers
Induced
Transshipment (hub, relay and interlining)

5. Market Potential

6. 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
High
Raw Materials
Rubber, Cotton, Iron ore
Commodity specific
Fuels & Lubricants
Coal, Crude oil, Kerosene, Natural gas
Very limited
Animal & Vegetable Oils
Olive oil , Corn oil
Chemicals
Salt, Fertilizers, Plastics
Low to average
Manufactured Goods
Paper, Textiles, Cement, Iron & Steel, Copper
Machinery & Transport Equipment
Computer equipment, Televisions, Cars
Very high (already containerized)
Miscellaneous Manufactures
Furniture, Clothes, Footwear, Cameras, Books, Toys

7. Growth Factors behind the Containerization of Commodities
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.
Empty containers repositioning
Pools of containers available for backhauls.
But: equipment and locational mismatch

8. CRB Index (CCI), Monthly Close, 1970-2011
Paradigm shift in input costs…
Reaping the consequences of monetary policy.
Could be positive for containerization…
Source: Commodity Research Bureau.

9. Income per Capita and Perishable Share of Food Imports
“Permanent global summertime”
Source: adapted from Lufthansa Consulting,

10. The Usual Suspect: China’s Share of the World Commodity Consumption, c2009
Source: United States Geological Survey (2009), BP Statistical Review of World Energy (2009), Food and Agriculture Organization of the United Nations (2008), International Monetary Fund (2010).

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

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

13. 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
The variety factor in penetrating the commodity sector.

14. Containerized Cargo Flows along Major Trade Routes, 1995-2009 (in millions of TEUs)
Source: UNCTAD, Review of Maritime Transport, various years.
Empties; an export subsidy

15. Commodities in Containers

16. Challenges for the Containerization of Commodities
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).
Balance between retail, intermediate goods and commodities

17. Challenges for the Containerization of Commodities
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.

18. Challenges for the Containerization of Commodities
Issues
Weight distribution
Containership load (10-14 tons per TEU).
Trade imbalances create mitigation strategies.

19. Challenges for the Containerization of Commodities
Issues
Land consumption at port terminals
Space consumption (4 times more than bulk) mitigated by velocity.

20. Asymmetries between Import and Export-Based Containerized Logistics
Distribution
Center
Customer
Inland Terminal
Import-Based
Gateway
Many Customers
Function of population density.
Geographical spread.
Product customization.
Incites transloading.
High priority (value, timeliness).
Repositioning
Supplier
Export-Based
Few Suppliers
Function of resource density.
Geographical concentration.
Lower priority.
Depends on repositioning opportunities.

21. CONTAINERIZED COMMODITIES AND COLD CHAINS

22. Bulk and Containerized Commodity Chains: An Emerging Complementarity
Cost / volume driver
Low frequency
Dedicated terminals
One way flows
Bulk Commodity Chain
Supplier
Customer
Port
Point-to-Point
Consolidation center
Time / flexibility driver
High frequency
General terminals
More balanced flows
Complementarity
Container
port
Pendulum
Services
Intermodal
terminal
Containerized Commodity Chain

23. 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?
Shipping lines adapting their speed based on the reefer level of the trade lane. Point to point services.

24. Conditional Demand: Shelf Life of Selected Produce
Optimum Temperature (Celsius)
Apples
90-240
Bananas
7-28 14
Bell Peppers
12-18 10
Cabbage
14-20
Carrots
14-28
Onions
30-180
Grapes
10-25
Oranges
10-15 7
Potatoes
30-50
Strawberries
5-10
Tomatoes
7-14 12
Various other factors are also at play in addition to temperature, including moisture and ethylene sensitivity.

25. Conditional Demand: Lettuce Shelf Life by Storage Temperature

26. Temperature Integrity along a Cold Chain
Potential integrity breach
Temperature Range
Temperature
Potential integrity breach
Time
Transport
Unloading – Warehousing – Loading
Transport

27. 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
Source loading with Reefer / Maritime shipping
55-60
Gain 25 days of shelf life (10 days net gain)

28. 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.

29. Conclusion: Commodities and the Cold Chain as Value Propositions
Retail and intermediate goods
Commodities (balancing)
Cold chain (revenue)
On some trade routes, the cold chain is the main driver for growth and revenue (South America / Europe).