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Use of Ocean Containers for Temporary Storage and Surge Capacity
Dr. Barry Prentice Department of Supply Chain Management
Transport Institute University of Manitoba
19TH ANNUAL FIELDS ON WHEELS CONFERENCE
Excess Demand Excess Supply
Aug Oct Dec Feb Apr June
Normal Peak Demand Year
High Average System Capacity
Rail car utilization
Peak Load Problem in Grain Transportation
Revenue Cap
tonne-km Quantity
Supply of Railcars
Price
Peak Demand
Off-Peak Demand
Excess Demand
Excess Supply
Q
Total Demand
Peak Load Demand with a Revenue Cap: Normal Year
Rationing Problems • Chronic Complaints • “Phantom Orders” • Inefficiency
Aug Oct Dec Feb Apr June
Excess Demand
Excess Supply Demand Surge Peak Year
High Average System Capacity
Rail car utilization
Aug Oct Dec Feb Apr June
Normal Peak Demand Year High
Average System Capacity
Rail car utilization
Revenue Cap
tonne-km Quantity
Supply of Railcars
Price
Peak Demand
Off-Peak Demand
Excess Demand
Q
Total Demand
Peak Load Demand with a Revenue Cap: Demand Surge Year
Chronic Complaints &
Finger Pointing
Limits on the Expansion of the Bulk Handling Supply Chain to Meet Unexpected Demand Surge
High Fixed Cost Network Industry • Significant Economies of Scale • Multiple Systems/System Harmonization • Long lived assets (30-50 years) • Specialized assets/no alternative uses Availability of Short Term Asset Leasing • U.S. railcars/locomotives Bottlenecks and Pinch Points • Transfer points • System synchronization
“In 2013, containers were used to transport 10 percent of total U.S. waterborne grain exports, up 2 percentage points from 2012. Approximately 61 percent of U.S. waterborne grain exports in 2013 went to Asia, of which 16 percent were moved in containers.”
Source: USDA AMS
Top Destination Markets China 41% Taiwan 14% Indonesia 13% Vietnam 7 % Malaysia 7 % Korea 5 % Thailand 4 % Japan 4 % Other 12 %
U.S. Containerized Grain Exports, January-June, 2014
Asia is the top destination for U.S. containerized grain exports—97 percent in 2013.”
Canada has growing container exports through the west coast
Could Containers Provide Temporary Storage and Transport during a Demand Surge Year?
• World supply of containers is very elastic and they can be rented on a short-term basis
• Container transport of grain would augment rather than compete with space in the bulk system
• Containers could provide temporary storage at harvest
• Containers could be brought in from east, west and south
• When the demand surge passes, all the extra containers can return to other service
11
Containerization and the Revenue Cap
The Revenue Cap creates a double disincentive for the railways to handle containerized grain
– Containers were negligible when the base of the Maximum Grain Revenue Entitlement was calculated
– Containers cost more than bulk to handle (less profitable)
– Higher rates for containers eat up the Cap faster
Future of Grain Containerization
13
• Containerized grain is growing because of cheap backhaul rates to Asia and growth of Special Crops
• Long run, competition is moving in favour of containerization – low barrier to entry, access to more buyers, just-in-time
• Bulk is protected by economies of transaction costs – documentation and inspections – but technology is advancing
• Containers offer a strategy to relieve excess inventories during demand surges