1. International Association of Maritime Economists (IAME) 2009 Conference, Copenhagen (Denmark), June 24-26 2009 Moving Inside the Box: The Containerization of Commodities Jean-Paul Rodrigue Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA Theo Notteboom President, Institute of Transport and Maritime Management, University of Antwerp, Belgium

2. Moving from Logistics to Commodity Chains A New Growth Dynamics for Containerization Market Potential: Hype and Reality Commodities in Containers Containerized Commodity Chains

3. Containerization Growth Factors Derived (A) Economic and income growth. Globalization (outsourcing). Fragmentation of production and consumption. Substitution (B) Functional and geographical diffusion. New niches (commodities and cold chain) Capture of bulk and break-bulk markets. Incidental (C) Trade imbalances. Repositioning of empty containers. Induced (D) Transshipment (hub, relay and interlining). ABCD

4. Containers are More than Boxes… ■Looking inside the box Containerization mainly viewed from the principle of flow. Development of maritime and inland logistics: Network and service configuration. Maritime terminals and inland ports. Globalization and global production networks: Most considered perspective about the driver of container transport demand. Global supply chains. Global commodity chains: An underrepresented dimension of containerization.

5. From Logistics to Commodity Chains Gateway Intermediate hub Suppliers Customers InlandTerminal Maritime Logistics Inland Logistics Inland Logistics DC Global Supply Chain Commodity Chain

6. Bulk and Containerized Shipping: An Emerging Complementarity Bulk (Grain, Minerals, Oil)Containerized Sectors Primary / TransformationManufacturing / Retailing Driving force Cost / VolumeTime / Flexibility Mode of shipment Large batchesSmall shipments Frequency LowHigh Flows One wayMore balanced Terminals Dedicated by commodityGeneral container Seasonality From low (energy) to high (agriculture) Low (retail cycles) Exchange Markets Mass (futures / forward)Niche (spot)

7. Bulk and Containerized Commodity Chains Bulk Commodity Chain Containerized Commodity Chain Consolidation center Port Supplier Customer Intermodal terminal Container port Pendulum Services Point-to-Point Complementarity

8. Bulk and Containerized Shipping: A Convergence of Factors FactorOutcome Rising demand and commodity prices More commodities in circulation (usage of containerization to accommodate growth). New producers and consumers (marginal markets penetration). 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. Stable and declining container shipping rates Increase in the ratio cargo value per TEU shipping rate for commodities. Relative rate stability. Containerization more attractive as an option. Imbalances in container shipping rates Export subsidy for return cargo. Empty containers repositioning Pools of containers available for backhauls.

9. Continuous Commodity Index (CRB), Monthly Close, 1970-2009 (April) A B C I II 1 2 3 4 5 a b c d III

10. Continuous Commodity Index and Baltic Dry Index, 2000-2009 (2000=100)

11. Continuous Commodity Index and Average Container Shipping Rates, 1994-2009 (1994=100)

12. Container Shipping Costs and Cargo Value ProductsItems / 40 Foot ContainerRetail Value (USD)Freight / Value (%) LowHighLowHighLowHigh Clothing (low value)90,000130,000225,000520,0000.561.91 Clothing (mid range)25,00060,000500,0003,600,0000.080.86 Sports shoes18,00028,000350,0002,520,0000.120.23 Toys (low quality)20,00060,000 720,0000.407.17 Consumer electronics (small) 2,8003,600170,000430,0000.672.53 Consumer electronics (large) 24048070,000140,0002.076.14 Appliances (small)6001,20045,000100,0002.909.56 Appliances (large)10013030,00065,0004.1614.33 Furniture (assembled) 25060020,000150,0001.9321.50 Furniture (flat packed) 1,0003,00070,000360,0000.806.14 Automobile parts60015,00050,000375,0000.778.60

13. Maritime Freight Rates (Nominal USD per TEU), 1993- 2008

14. Containerized Cargo Flows along Major Trade Routes, 2007 USA 7.6 Asia 33.1 14.5 19.9 20.4 14.9 Europe 15.4 (+175%) 4.9 (+48%) Million TEUsGrowth (2000-2007) Imports (M TEUs) Exports (M TEUs) 2.7 (+23%) 4.5 (+55%) 10.0 (+178%) 17.7 (+293%)

15. Shipper Growth Factors for Containerized Grain Shipments: A Matter of Price and Availability

16. Shipping Time between Bulk Handling and Containerization (Canadian Wheat) Bulk Handling SystemDaysContainer SystemDays Farm storageStartFarm storageStart Local delivery1 1 Primary elevator40Intermodal terminal2 Rail hopper cars11Double stack train2 Export terminal19Container port2 Bulk ship15Containership11 Import terminal10Container port2 Local delivery1 1 Final customerEndFinal customerEnd Total97Total21

17. The Containerized Commodities Market ■A different market dynamic Scale economies are achieved by the shipper: Modes, terminals and corridors. Few differences in scale economies for a producer. Limited barriers to entry: The entry unit is a container load. As long as there is a containerized volume. Double benefit: Development of global niche markets where numerous small exporters may compete. New economic development venues in commodity sectors which could not previously access foreign markets.

18. Composition of the Leased Container Fleet, 2008-09 42.6% 16.7% 31.4% 27.6% 21.6% 40.7% 44.3% 15.7% 31.2% 28.9% 20.4% 40.6%

19. American Containerized Trade, 2003

20. Share of Main American International Trade Commodities Transported by Containership, 2000

21. 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 (cold chain products) Beverages & Tobacco Wine, Beer, TobaccoHigh Raw MaterialsRubber, Cotton, Iron oreCommodity specific Fuels & LubricantsCoal, Crude oil, Kerosene, Natural gasVery limited Animal & Vegetable Oils Olive oil, Corn oilHigh ChemicalsSalt, Fertilizers, PlasticsLow to average Manufactured Goods Paper, Textiles, Cement, Iron & Steel, CopperCommodity specific Machinery & Transport Equipment Computer equipment, Televisions, CarsVery high (already containerized) Miscellaneous Manufactures Furniture, Clothes, Footwear, Cameras, Books, Toys Very high (already containerized)

22. Commodity Markets: Embedding Containerization Futures / Forward ContractsSpot Trading Time frameLong to medium term (future output) Immediate delivery (commodities in a warehouse) Main actorsProducer to brokerBroker to consumer (manufacturer) VolumeLarge quantities (fixed trade units) Small to medium quantities Container Leasing agreement Master lease / Long term leaseShort term lease and empty container pools

23. Challenges for the Containerization of Commodities ChallengeIssues Container preparation Pre-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. Weight Limitations to about 30 tons (40 footer). 20 footer the preferable load unit (26-28 tons). Weight distribution Containership load (10-14 tons per TEU). Trade imbalances create mitigation strategies. Land consumption at port terminals Space consumption (4 times more than bulk) mitigated by velocity. Existing distribution channels Considerable accumulated investments (modes & terminals). Established distribution practices. Modal shift inertia.

24. Commodities in Containers ■Container preparation Containers are well adapted to handle packaged freight either directly ("floor loaded") or on pallets. Not well adapted to handle commodities in bulk. Shipment contamination: Some commodities, like grains, would require a container to be thoroughly cleaned. Require the cleaning of a container once unloaded. The usage of dedicated containers? Specialized containers exist for liquids and for refrigerated cargo.

25. Commodities in Containers ■Container loading, unloading and transloading Horizontal loading / unloading: Complex task often requiring a panel to block the back door and hold the loose cargo. Vertical loading / unloading: Require specialized handling equipment. Attractive option in situations of constant volume. Transloading: Usage of different modes to reach the load center (such as rail hopper cars). Source loading: Maintaining the integrity of some commodity chains (e.g. grains). Shipment quality and product differentiation.

26. Horizontal Bulk Loading System Source: DirectIndustry

27. Commodities in Containers ■Weight Container loads are much lighter for conventional (mainly retail) freight than for commodities: 10 to 14 tons per TEU. The shipping industry prefers using larger containers (40 footers); more volume for the same handling costs. Shipping commodities tends to rely on 20 footers: Each load around 26 to 28 tons. A 40 footer has a loading capacity of about 30 tons. Load unit mismatch.

28. Commodities in Containers ■Weight distribution Containerships designed to accommodate a specific weight load and distribution: 10 to 14 tons per loaded TEU are common operational considerations. Large commodity shipments are problematic: More than 20 tons per TEU; adjustments in the distribution of this load must be made. A containership presented with a full load of heavy containers could only by filled to 75% of its capacity. Trade imbalances: Inbound full loads of relatively light containers. Outbound heavies and empties.

29. Weight Distribution…

30. Containerized Commodity Chains ■Inertia Substantial investment in bulk handling equipment. Stakeholders reluctant to change practices. Suitability: New or expanding markets. Low volume situations. Surge in demand. ■Demand mismatches Import regions are not the same than exports regions: Imports regions: consumption related (large metropolitan areas). Exports regions: rural areas or resource extraction areas (low population densities). Cargo rotation: Permit repositioning opportunities. Mitigate the availability of containers for exports.

31. Containerized Commodity Chains ■Seasonality Attribute of many commodities. Surge in demand at specific times of the year. Seasonality has a geography: Harvesting time varies between different regions of the world. Temporal and geographical fluctuations in the repositioning of empty containers. A double-edged sword: Surge in supply (demand for containers). Drop in commodity price.

32. Conclusion: A Look Inside the Box Commodities and the Functional and Geographical Diffusion of Containerization A Complex Complementarity