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
Moving from Logistics to Commodity Chains
A New Growth Dynamics for Containerization
Market Potential: Hype and Reality
Commodities in Containers
Containerized Commodity Chains
Containerization Growth Factors
A
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).
B
C
D
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.
From Logistics to Commodity Chains
Suppliers
DC
Gateway
Inland
Logistics
Intermediate
hub
Maritime
Logistics
Inland
Terminal
Inland
Logistics
Customers
Global
Supply
Chain
Commodity
Chain
Bulk and Containerized Shipping: An Emerging
Complementarity
Bulk (Grain, Minerals, Oil)
Containerized
Sectors
Primary / Transformation
Manufacturing / Retailing
Driving force
Cost / Volume
Time / Flexibility
Mode of shipment
Large batches
Small shipments
Frequency
Low
High
Flows
One way
More balanced
Terminals
Dedicated by commodity
General container
Seasonality
From low (energy) to high
(agriculture)
Low (retail cycles)
Exchange Markets
Mass (futures / forward)
Niche (spot)
Bulk and Containerized Commodity Chains
Bulk Commodity Chain
Supplier
Port Point-to-Point
Customer
Consolidation
center
Complementarity
Container
port
Pendulum
Services
Intermodal
terminal
Containerized Commodity Chain
Bulk and Containerized Shipping: A Convergence of
Factors
Factor
Outcome
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.
Continuous Commodity Index (CRB), Monthly Close,
1970-2009 (April)
C
B
A
I
II
a
1
III
c
b
2
3
d
4
5
Continuous Commodity Index and Baltic Dry Index,
2000-2009 (2000=100)
Continuous Commodity Index and Average
Container Shipping Rates, 1994-2009 (1994=100)
Container Shipping Costs and Cargo Value
Products
Items / 40 Foot Container
Retail Value (USD)
Freight / Value (%)
Low
High
Low
High
Low
High
Clothing (low value)
90,000
130,000
225,000
520,000
0.56
1.91
Clothing (mid range)
25,000
60,000
500,000
3,600,000
0.08
0.86
Sports shoes
18,000
28,000
350,000
2,520,000
0.12
0.23
Toys (low quality)
20,000
60,000
60,000
720,000
0.40
7.17
2,800
3,600
170,000
430,000
0.67
2.53
240
480
70,000
140,000
2.07
6.14
Appliances (small)
600
1,200
45,000
100,000
2.90
9.56
Appliances (large)
100
130
30,000
65,000
4.16
14.33
250
600
20,000
150,000
1.93
21.50
1,000
3,000
70,000
360,000
0.80
6.14
600
15,000
50,000
375,000
0.77
8.60
Consumer
electronics (small)
Consumer
electronics (large)
Furniture
(assembled)
Furniture (flat
packed)
Automobile parts
Maritime Freight Rates (Nominal USD per TEU), 19932008
Containerized Cargo Flows along Major Trade
Routes, 2007
Million TEUs
Growth (2000-2007)
15.4 (+175%)
4.9 (+48%)
19.9
14.9
Asia
33.1
USA
10.0 (+178%)
7.6
17.7 (+293%)
4.5 (+55%)
Imports (M TEUs)
20.4
Europe
2.7 (+23%)
14.5
Exports (M TEUs)
Shipper Growth Factors for Containerized Grain
Shipments: A Matter of Price and Availability
Shipping Time between Bulk Handling and
Containerization (Canadian Wheat)
Bulk Handling System
Days
Container System
Days
Farm storage
Start
Farm storage
Start
Local delivery
1
Local delivery
1
Primary elevator
40
Intermodal terminal
2
Rail hopper cars
11
Double stack train
2
Export terminal
19
Container port
2
Bulk ship
15
Containership
11
Import terminal
10
Container port
2
Local delivery
1
Local delivery
1
Final customer
End
Final customer
End
Total
97
Total
21
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.
Composition of the Leased Container Fleet, 2008-09
40.6%
40.7%
31.2%
31.4%
16.7%
21.6%
15.7%
42.6%
27.6%
44.3%
20.4%
28.9%
American Containerized Trade, 2003
Share of Main American International Trade
Commodities Transported by Containership, 2000
Commodity Group and Containerization Potential
Category (SITC)
Examples
Food & Live Animals
Meat , Fish , Wheat, Rice , Corn , Sugar,
Coffee, Cocoa , Tea
Containerization (Existing or
Potential)
Low (grains) to high (cold chain
products)
Wine , Beer , Tobacco
High
Rubber, Cotton, Iron ore
Coal, Crude oil, Kerosene, Natural gas
Commodity specific
Very limited
Olive oil , Corn oil
High
Salt, Fertilizers, Plastics
Low to average
Beverages &
Tobacco
Raw Materials
Fuels & Lubricants
Animal & Vegetable
Oils
Chemicals
Manufactured
Goods
Machinery &
Transport
Equipment
Miscellaneous
Manufactures
Paper, Textiles, Cement, Iron & Steel, Copper Commodity specific
Computer equipment, Televisions, Cars
Very high (already containerized)
Furniture, Clothes, Footwear, Cameras,
Books, Toys
Very high (already containerized)
Commodity Markets: Embedding Containerization
Futures / Forward Contracts
Spot Trading
Time frame
Long to medium term (future
output)
Immediate delivery (commodities in
a warehouse)
Main actors
Producer to broker
Broker to consumer (manufacturer)
Volume
Large quantities (fixed trade
units)
Small to medium quantities
Container
Leasing
agreement
Master lease / Long term lease
Short term lease and empty
container pools
Challenges for the Containerization of Commodities
Challenge
Issues
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.
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.
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.
Horizontal Bulk Loading System
Source: DirectIndustry
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.
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.
Weight Distribution…
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.
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.
Conclusion: A Look Inside the Box
Commodities and the Functional and
Geographical Diffusion of Containerization
A Complex Complementarity