International Multimodal Conference, Windsor, May
5-6 2009
Transportation, Supply Chains
and the First Crisis of
Globalization
Jean-Paul Rodrigue
Associate Professor, Dept. of Global Studies &
Geography, Hofstra University, New York, USA
If an Economist was a MD…
“Well, the reason why you had an hearth
attack was because your heart stopped
beating. You needed more blood, so I did a
transfusion. You should be just fine as long
as you go back to a high fat and sugar diet.”
1) Shallow diagnostic (“credit crunch”)
2) Wrong treatment (pumping “money”)
3) Confusing the cause for the solution (debt)
The Peculiar Foundations of Keynesian Economics,
or at Least What it Became…
“Debt is wealth you can default on.
Privatize the profits and socialize the
losses. To solve a problem created by
too much debt all you need is to borrow
more money… or issue more credit.
Don’t blame me…”
He should have
known better…
How Can Someone Behave Rationally When Lied
To? (or Misinformed)
1) Self interest bias
2) Cognitive dissonance
“Lehman is a takeover target…I upgrade
to buy”. Dick Bove, banking analyst at
Ladenburg Thalmann on Aug. 21, 2008
“In today's regulatory environment, it's
virtually impossible to violate rules...it's
impossible for a violation to go
undetected, and certainly not for a
considerable period of time.” Bernard
Madoff
The First Crisis of Globalization
CAUSES
Monetary system (fractional
reserve banking, fiat
currencies)
SYMPTOMS
Debt, asset inflation
CONSEQUENCES
Misallocations (bubbles)
Production
Consumption
Distribution
Bubblenomics: A Misallocation Engine
Price / Credit
Bubble-derived
demand
Unit
Bubble-derived
supply
B
Normal trend
A
Demand: Transfer of future demand into the present (from A to B)
Supply: Misallocations because of new expectations about the future
Time
Bust-derived
supply
Bust-derived
demand
Blowing Bubbles: From Technology to Commodities
500.0
450.0
400.0
NASDAQ (Jan 1998=100)
350.0
TOL (Jan 2003=100)
300.0
BDI (Jan 2006=100)
250.0
200.0
150.0
100.0
50.0
0.0
Jan-98
Tech / Stock Bubble
Jan-99
Jan-00
Commodities / Trade
Bubble
Housing Bubble
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Globalization 2000-2008: A Bubble?
International Seaborne Trade and Exports of Goods, 1955-2007
14
13
Seaborne Trade (billions of tons of goods loaded)
12
Exports of Goods (trillions of current $US)
11
10
9
8
7
6
5
4
3
2
1
0
Impact of Recessions on Consumption, Production
and Trade
Significant
Consumption
A – Basic Goods
B – Discretionary Goods
C – Durable Goods
D – Capital Equipment
E – Luxury Goods
Severity
Decline
None
Low
Value of Goods
High
Trade and Production
Significant
1 – Futures Indexes
2 – Production
3 – Container Volumes
4 – Value of Trade
Decline
None
Sequence
1) Futures Indexes: The Current Trend is Strongly
Deflationary…
14000
12000
^DJI
BDI
13000
10000
12000
8000
11000
10000
6000
9000
4000
8000
2000
7000
6000
0
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09
May-08
70
Jun-07
Jul-06
Aug-05
Sep-04
90
Oct-03
Nov-02
Dec-01
Jan-01
Feb-00
Mar-99
Apr-98
May-97
Jun-96
Jul-95
Aug-94
Sep-93
Oct-92
Nov-91
Dec-90
Jan-90
2) Production of Durable Consumer Goods, United
States, 1990-2009 (2002 = 100)
110
100
Globalization
Trumps NAFTA
80
-25.8%
60
50
2) Annual Light Vehicle Sales, United States, January
2008 – April 2009 (millions)
16
Imported
Domestic
14
12
-36.8%
10
-22.9%
8
6
4
-42.3%
2
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
0
3) Changes in Container Traffic at Some Major Ports,
2008-2009 (Preliminary)
Volume (M TEU,
2008)
Volume changes in 2009
compared to the same months in 2008
Singapore
29.9
Jan+Feb 2009: -19.7%
Hong Kong
24.2
Jan+Feb 2009: -22%
Shanghai
27.9
Jan+Feb 2009: -19.7%
Rotterdam
10.8
January-March 2009: -16%
Antwerp
8.6
January-March 2009: -16.3%
Hamburg
9.7
Jan+Feb 2009: -27.5%
New York
5.3
Jan+Feb 2009: -11.7%
Los Angeles
7.8
Jan+Feb 2009: -20.9%
Vancouver
2.5
Jan+Feb 2009: -21.5%
Montreal
1.5
Jan+Feb 2009: -15.5%
Asia
Europe
North America
Mar-09
Oct-08
May-08
Dec-07
Jul-07
Feb-07
Sep-06
Apr-06
Nov-05
Jun-05
Jan-05
Aug-04
Mar-04
Oct-03
May-03
Dec-02
Jul-02
Feb-02
Sep-01
Apr-01
Nov-00
Jun-00
Jan-00
Aug-99
Mar-99
Oct-98
May-98
Dec-97
Jul-97
350,000
Feb-97
400,000
Sep-96
Apr-96
Nov-95
Jun-95
Jan-95
3) Port of Los Angeles (Monthly TEUs), 1995-2009:
Falling Off a Cliff…
450,000
Out Empty
Out Loaded
In Loaded
300,000
250,000
200,000
150,000
100,000
50,000
0
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
Jan-88
20
Jan-87
Jan-86
Jan-85
4) Monthly Trade between China and the United
States, Billions of USD (1985-2009)
35
5
30
0
25
-5
Exports
Imports
Balance
-10
15
-15
10
-20
5
-25
0
-30
Intermodal Transportation and Finance: The Double
Edged Sword of Leveraging and Deleveraging
Leveraging
Deleveraging
Capital
intensiveness
Intermodal transportation highly
capital intensive (modes, terminals
and equipment).
Amortization over longer periods.
Overcapacity (compounded by
economies of scale).
Redundancy.
Financial firms
involved in
ownership and
operations
Intermodal transportation as an
investment class.
Capital scale factor.
Disintermediation (dumb money)
Lower returns.
Consolidation?
Financing
international
transactions
Letters of credit.
90% of international trade
transactions.
Inventory stuck in transit (drop in
demand and financing).
More stringent conditions.
Shipping
derivatives
Hedge against risk of fluctuations
(rates, bunker prices, vessel
prices, scrap prices, interest rates,
and foreign exchange rates).
Unwinding positions in a frozen
market.
From a Credit Storm to a Macroeconomic Storm
Credit Storm
Macroeconomic
Storm
Transactions and investments.
Difficulty of clearing international
trade transactions.
Undue drop in freight volumes.
Decline in aggregate demand.
Clearing excess capacity.
Beware of Future Expectations: The Fallacies of
Linear Thinking
Dumb Money at Work?
Date
Transaction
2005
DP World takes over CSX World
Terminals
Early 2006 PSA acquires a 20% stake in HPH
Mid 2006
DP World acquires P&O Ports
Mid 2006
Goldman Sachs Consortium acquires
ABP
End 2006 AIG acquires P&O Ports North America
Early 2007 Ontario Teachers’ Pension Fund
acquires OOIL Terminals
Mid 2007
RREEF acquires Maher Terminals
Price compared to
EBITD
14 times
17 times
19 times
14.5 times
24 times
23.5 times
25 times
EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
Global Bulk and Container Fleet Partially
Immobilized (Singapore, January 2009)
April 2009; 10.5% of the global container fleet idle (1.4 Million TEU)
TEU Range
Number of Ships
7,500 and up
10
5,000 to 7,499
53
3,000 to 4,999
88
2,000 to 2,999
113
1,000 to 1,999
135
500 to 999
87
Total
486
Cars Accumulating at the Long Beach Port Terminal,
December 2008
Empty Containers Piling, Hong Kong, February 2009
Coping with the Perfect Storm: Supply Chain
Rationalization
(Creative Destruction): The destruction is taking place, time to get creative…



Flows
Rectifying disequilibrium
Changes in network configuration
Infrastructure
Soft pressures on hard assets
Productivity through innovation
Governance
Logistics within public policy and
regional planning
Value capture and competitiveness
Safety and security
A paradigm shift for intermodal transportation in
North America
Old Paradigm
New Paradigm
Fast growth and diffusion of
containerization
Massive investments
Maturity
Revolution (new standards,
practices and technologies)
Increasing returns
Evolution (incremental changes)
Diminishing returns
Rationalization
Consolidation (maritime, rail and Control of supply chains
trucking). Emergence of global
operators
Deregulation
Governance
Flows: Deleveraging the Supply Chain

Revisiting Growth Expectations
Trade Imbalances: Unwinding Distortions
Container yard, Port of Yantian, China
World Container Traffic, 1980-2008. Reaching Peak
Growth?
Adoption
1000
1966-1992
Acceleration
Peak Growth
1992-2002
2002-2010(?)
Maturity
2010(?) -
900
Reference
800
Million TEU
700
Divergence
600
500
Depression
400
300
200
100
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
Global Freight Distribution System
Options for the Foreland and Hinterland
Inland Freight
Distribution
Capacity deployment
Pricing strategies
Market structure
Potential to scale back
Flexible containerized assets
The search of balanced
distribution options
Maritime Freight
Distribution
Foreland (Shipping Network)
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)
Geographical Levels of Empty Container
Repositioning
Hinterland
Regional
Repositioning
Inter-Regional
Repositioning
(coastal / fluvial)
Foreland
Port
Depot / Inland terminal
Freight Distribution Cluster
Cargo Rotation
Infrastructure: Towards Intermodal Integration

The Last Mile is Not Going Away…
Massification versus Atomization
NS Rutherford Inland Terminal, Pennsylvania
Hinterland Logistics: The Realm of the “Last Mile”
(or the “First Mile”)
Massification
Atomization
Frequency
Capacity
GLOBAL
Shipping Network
Gateway
HINTERLAND
REGIONAL
Corridor
Segment
Inland
Terminal
LOCAL
Distribution
Center
Customer
“Last Mile”
The Largest Available Containership, 1970-2008 (in
TEUs)
The Evelyn Maersk (12,500 TEU)
Massification of Inland Terminals: Automated
Transfer Management Systems
Governance: Freight Distribution within Public
Policy

Gateways, Corridors and Freight Clusters
PPP: Assessing Risk and Opportunities
Security Trumping Trade
Trimodal Container Terminal, Willebroek, Belgium
Main North American Trade Corridors and
Metropolitan Freight Centers
1) Efficient repositioning
2) Cargo rotation
3) Export market
The Three Main Gateways of North America
Gateway
System
Gateways
Total
share (%)
Imports / Exports ($
billions) 2005
Southern
California
Port of Los Angeles, Port of Long
Beach, Los Angeles International
Airport, Otay Mesa (Port of Entry)
18.3%
$270.9
$85.5
New York /
New Jersey
JFK International Airport, Port of
New York / New Jersey
13.1%
$191.9
$88.9
Detroit /
Windsor
Detroit (Port of Entry), Huron (Port
of Entry)
9.8%
$106.3
$92.4
Gateway Governance: Complex Convergence
Compliance
Rent seeking
Public
PPP
Productivity
Private
Externalities
Supply Chain Security Dimensions
Cargo contents
Insure that contents are what is stated on the bill of lading.
May involve direct (opening the container) or remote
(scanning or probing) inspection.
Cargo integrity
Contents remain unchanged from origin to destination.
Detect unauthorized access to the cargo.
Any change monitored and recorded (locks, alarms or
probes).
Route integrity
No deviation from the scheduled route.
Cargo remains within secure modes and locations
(terminals and distribution centers).
Information integrity
Authenticated and verifiable information about cargo.
Supply Chain Security Measures
Procedural security
measures
Introduction and removal of goods in the supply chain
(recorded and verifiable).
What needs to be done to insure security along the
transport chain (monitoring and inspections).
Physical security
measures
Facilities (terminals, distribution centers) and conveyances
(modes) used for security.
Secure premises.
Identification for access.
Employee security
measures
People dealing with the supply chain subject to screening
and background checks.
Information systems
security measures
Protection of the information integrity.
Tiers for information access.
Secure transactions.
Bottom line: A matter of trust
The Calm after the Storm: Lessons to be Learned
Through Creative Destruction




Rebalancing of the global economy
From growth to rationalization
The regionalization of globalization
Logistics clusters