Fall Summit, HSH Nordbank, Hamburg, Germany, November 15, 2007
Logistics and Global Logistics and Global Commodity ChainsCommodity Chains
Jean-Paul RodrigueAssociate Professor, Dept. of Economics & Geography, Hofstra University, New York, USA
Email: [email protected] available at:http://people.hofstra.edu/faculty/Jean-paul_Rodrigue
Introduction: Capital on the MoveIntroduction: Capital on the Move
Trimodal Container Terminal, Willebroek, BelgiumTrimodal Container Terminal, Willebroek, Belgium
Changes in Global TradeChanges in Global Trade
Global Production Networks and Global Production Networks and Commodity ChainsCommodity Chains
The “China Effect” and Global The “China Effect” and Global Commodity ChainsCommodity Chains
Integrating Commodity Chains into Integrating Commodity Chains into Containerized Supply ChainsContainerized Supply Chains
2
The Emergence of Supply Chain The Emergence of Supply Chain Management…Management…
Demand Forecasting
Purchasing
Requirements Planning
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Packaging
Inventory
Distribution Planning
Order Processing
Transportation
Customer Service Strategic Planning
MaterialsMaterialsManagementManagement
PhysicalPhysicalDistributionDistribution
LogisticsLogistics Supply ChainSupply ChainManagementManagement
Information Technology
Marketing
1980s1980s 1990s1990s 2000s2000s1960s1960sFragmentation Consolidation
Warehousing
Materials Handling
Packaging
Functional Integration Value Capture
3
Flo
ws
Flo
ws M
arke
t
Transport Chain
Parts and rawmaterials
Manufacturingand assembly Distribution
… … and the Setting of Commodity Chainsand the Setting of Commodity Chains
Mar
ket
Sta
ge
Sta
ge
Bulk shippingBulk shipping Unit shippingUnit shipping
High volumesLow frequency
Low volumesHigh frequency
LTL shippingLTL shipping
Average volumesHigh frequency
4
CommoditiesCommodities Final GoodsFinal GoodsIntermediate GoodsIntermediate Goods
Major Factors Driving the Integration of Major Factors Driving the Integration of Transportation with DistributionTransportation with Distribution
FactorFactor CauseCause ConsequenceConsequenceTechnology Containerization & IT Modal and intermodal
innovations; Tracking shipments and managing fleets
Capital investments
Returns on investments Highs costs and long amortization; Improve utilization to lessen capital costs
Alliances and M&A
Deregulation Easier contractual agreements; joint ownership
Commodity chains
Globalization Coordination of transportation and production (integrated demand)
Networks Consolidation and interconnection
Multiplying effect5
Changes in Global TradeChanges in Global Trade
Acute Trade ImbalancesAcute Trade ImbalancesEconomic CyclesEconomic Cycles
Globalization and ProductionGlobalization and Production
Container yard, Port of Yantian, ChinaContainer yard, Port of Yantian, China6
A Changing Trade Environment…A Changing Trade Environment…
StageStage NatureNature FunctionFunction
Until the 1970s Immobile factors of production
Cope with scarcity
Late 20th century Mobility of factors of production
Promote economic efficiency
Early 21st century Global production networks
Added value within commodity chains
7
… … and the Cycles of International Tradeand the Cycles of International Trade
Changes in the Value World’s Merchandise Trade, Production and GDP, 1950-2005 (in %)
-10
-5
0
5
10
15
20
25
30
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Total Merchandise Trade
World GDP
World Merchandise Production
8
The Cycle is Strongly Upward for Latin The Cycle is Strongly Upward for Latin America…America…
Latin American Trade (1995-2005) Billions USD
0
50
100
150
200
250
300
350
400
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Exports
Imports
9
Commodities BoomCommodities Boom
… … as Well as for Eastern Europeas Well as for Eastern Europe
Share of World Trade, Eastern Europe (1995-2005)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Exports
Imports
10
International Trade Involves Acute International Trade Involves Acute Imbalances…Imbalances…
World’s 10 Largest Exporters and Importers, 2005
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Germany
United States
China
Japan
France
Netherlands
United Kingdom
Italy
Canada
Belgium
Billions of $US
Imports
Exports
11
… … that Resulted in Imbalanced Containerized that Resulted in Imbalanced Containerized Freight Flows …Freight Flows …
Balance of Containerized Cargo Flows along Major Trade Routes, 1995-2006
-18
-16
-14
-12
-10
-8
-6
-4
-2
01995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006
Europe/USA
Asia/Europe
Asia/USA12
… … with Imbalanced Freight Rates as Wellwith Imbalanced Freight Rates as Well
Maritime Freight Rates (USD per TEU), 1993-2006
$0
$500
$1,000
$1,500
$2,000
$2,500
1993
-4
1994
-2
1994
-4
1995
-2
1995
-4
1996
-2
1996
-4
1997
-2
1997
-4
1998
-2
1998
-4
1999
-2
1999
-4
2000
-2
2000
-4
2001
-2
2001
-4
2002
-2
2002
-4
2003
-2
2003
-4
2004
-2
2004
-4
2005
-2
2005
-4
Asia - US
US - Asia
Asia - EuropeEurope - Asia
Globalization; Changing the Profit Structure… Globalization; Changing the Profit Structure…
Commodity chain
Adde
d va
lue
Low
High
Manufacturing
R&D GlobalizationGlobalization
DistributionDesign
Branding Marketing
Sales / Service
ConceptConcept LogisticsLogistics
14
… … As Well As Disconnecting Production and As Well As Disconnecting Production and DistributionDistribution
Manufacturing Base
Core BaseDistribution Marketing / RetailR&D
15
Containerization and Global Commodity Containerization and Global Commodity ChainsChains
ContainerizationContainerizationIntermodal TransportationIntermodal Transportation
Ports and Terminal OperatorsPorts and Terminal Operators
Container waiting to be loaded, Shenzhen, ChinaContainer waiting to be loaded, Shenzhen, China16
Containerization has Integrated Different Containerization has Integrated Different Transport Systems …Transport Systems …
17
Containerization of Maritime Transport SystemsContainerization of Maritime Transport Systems
Containerport
Containerization of Inland Transport SystemsContainerization of Inland Transport Systems
Intermodalterminal
PendulumServices
Intermodal and Transmodal OperationsIntermodal and Transmodal Operations
Corridor
Offshorehub
InlandPort
… … which Makes the Container more than a which Makes the Container more than a BoxBox
ContainerContainer
ProductionProduction DistributionDistribution
TransportTransport
Modes, terminals, intermodal and transmodal operations
Flow management (time-based), warehousing unit
Synchronization of inputs and outputs (batches)
18
Connecting the Dots: Intermodal Transport Connecting the Dots: Intermodal Transport ChainChain
CompositionComposition
Transfer
InterchangeInterchange
DecompositionDecomposition
Local / Regional Distribution
National / International Distribution
Transport Terminal
‘‘First mile’First mile’
‘‘Last mile’Last mile’
19
Composition: Pallets waiting to be loaded in a Composition: Pallets waiting to be loaded in a container (APL DC - Shenzhen, China)container (APL DC - Shenzhen, China)
Interchange: Post-Panamax Containership (Le Interchange: Post-Panamax Containership (Le Havre)Havre)
Interchange: UPS Willow Springs Distribution Interchange: UPS Willow Springs Distribution Center, ChicagoCenter, Chicago
22
Decomposition: Unloading Containers and Decomposition: Unloading Containers and Palletizing Shipments (Antwerp)Palletizing Shipments (Antwerp)
23
The World’s Largest Maritime Trade The World’s Largest Maritime Trade Gateways…Gateways…
Dubai
Tacoma
Santos
Jeddah
Seattle
Salalah
Oakland
Colombo
Savannah
Melbourne
Long BeachCharleston
Nhava Sheva
Los Angeles
Hampton Roads
New York/New Jersey
Kobe
Tokyo
BusanXiamen
Ningbo
Nagoya
Manila
Dalian
Tianjin
Keelung
Yokohama
Shenzhen Shanghai
Quingdao
Singapore
Kaohsiung
Hong KongGuangzhou
Port Kalang
Ho Chi Minh
Laem Chabang
Tanjung Priok
Tanjung Pelepas
LeHavre
Hamburg
Antwerp
Valencia
Rotterdam
Barcelona
Algeciras
Felixstowe
Gioia Tauro
Bremen/Bremerhafen
Pacific Asia Europe
TEU
Less than 2 million
2 to 4 million
4 to 7 million
7 to 10 million
More than 10 million
24
Traffic at the 50 Largest Container Traffic at the 50 Largest Container Ports, 2005Ports, 2005
… … Mainly Controlled by Large Holding Mainly Controlled by Large Holding Conglomerates … Conglomerates …
Pacific Asia Europe
APM Terminals
Dubai Ports World
Hutchison Port Holdings
Port of Singapore Authority
Eurogate
Stevedoring Services of America
Dedicated Maritime Container Terminals
25
Major Port Holdings, 2007Major Port Holdings, 2007
Commodity Chain
… … That are Following a “Value Capture” That are Following a “Value Capture” StrategyStrategy
Port HoldingPort HoldingPort
Au
thori
tyP
ort
Au
thori
ty
Maritime Services
Inland Services
Port Services
Horizontal Integration / VerticalVertical Integration
Maritime Shipping
Port Terminal Operations
Inland Modes and Terminals
Distribution Centers
26
Where the Going Gets Tough: The “Last Mile” Where the Going Gets Tough: The “Last Mile” in Freight Distributionin Freight Distribution
GatewayGateway Inland Inland TerminalTerminal
DistributionDistributionCenterCenter
Capacity
Frequency
CorridorCustomerCustomer
“Last Mile”
Segment
GLOBALGLOBAL HINTERLANDHINTERLAND REGIONALREGIONAL LOCALLOCAL
Shipping Network
MassificationMassification AtomizationAtomization
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Empty trucks waiting to enter China, Hong KongEmpty trucks waiting to enter China, Hong Kong
The “China Effect” and Global Commodity The “China Effect” and Global Commodity ChainsChains
Debt and the Currency Leverage GameDebt and the Currency Leverage GameProduction and Distribution DislocationsProduction and Distribution DislocationsShift in the world’s commercial balanceShift in the world’s commercial balance
28
The “China Effect” is Mainly About Low The “China Effect” is Mainly About Low Manufacturing Wages…Manufacturing Wages…
Major Components to Price Reductions by the Chinese Manufacturing Sector, 2005
39.4%
16.7%
16.0%
11.4%
8.6%
3.1%
2.4%
2.3%
0% 10% 20% 30% 40% 50%
Wages
Export Industry Subsidies & Preferences
Industrial Network Clustering
Undervalued Currency
Counterfeiting & Piracy
Foreign Direct Investments
Lax Health & Safety Regulations
Lax Environmental Regulations
29
… … as Well as the Largest Buyer Financing as Well as the Largest Buyer Financing Scheme in History…Scheme in History…
Goods
Bonds (IOUs)
Asset InflationDebt
Reserves
Interest RatesUnemployment
$ for goods
$ for bonds
United StatesUnited StatesChinaChina USD
USD
BorrowingInvestment
30
… … Where Exchange Rates were Used as Where Exchange Rates were Used as LeverageLeverage
Yuan Exchange Rate (per USD), 1981-2007
0
1
2
3
4
5
6
7
8
9
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Yuan per USDReal per USD
31
Discount WindowDiscount WindowExport OrientedExport Oriented
DebasementDebasement Closing of the Closing of the Discount WindowDiscount Window
““Emma Maersk”, 12,500 TEU, Rotterdam, NetherlandsEmma Maersk”, 12,500 TEU, Rotterdam, Netherlands
Integrating Commodity Chains into Integrating Commodity Chains into Containerized Supply ChainsContainerized Supply Chains
Maritime Shipping NetworksMaritime Shipping NetworksContainerized CommoditiesContainerized Commodities
Cold Chain LogisticsCold Chain Logistics
32
The Three Major Corridors of Maritime The Three Major Corridors of Maritime Circulation …Circulation …
Fos
Tokyo
Genoa
Ningbo
Hamburg
Shanghai
Le Havre
KaohsiungHong Kong
Singapore
Barcelona
Rotterdam
Port Kelang
Southampton
Laem Chabang
OaklandLos Angeles
NorfolkNew York
Charleston
Origin Destination Transit Time (days)Southampton New York 8New York Norfolk 2Norfolk Charleston 2Charleston Rotterdam 10Rotterdam Hamburg 2Hamburg Le Havre 2Le Havre Southampton 1
Origin Destination Transit Time (days)Tokyo Kaohsiung 4Kaohsiung Shekou 1Shekou Laem Chabang 4Laem Chabang Singapore 3Singapore Kaohsiung 3Kaohsiung Los Angeles 11Los Angeles Oakland 4Oakland Tokyo 9
Origin Destination Transit Time (days)Port Kelang Genoa 14Genoa Barcelona 2Barcelona Fos 2Fos Singapore 15Singapore Hong Kong 4Hong Kong Shanghai 2Shanghai Ningbo 2Ningbo Shekou 2Shekou Hong Kong 1Hong Kong Singapore 4Singapore Port Kelang 133
Three Major Pendulum Routes Serviced by OOCL, 2006Three Major Pendulum Routes Serviced by OOCL, 2006
… … Which Implies the Emergence of Global Which Implies the Emergence of Global Trade HighwaysTrade Highways
Equator
North American Landbridge
Eurasian Landbridge
Circum-Equatorial Maritime Highway
Arctic Routes
Atlantic Connector
Pacific Connector
34
The Potential of Containerization of The Potential of Containerization of Commodities …Commodities …
■ For bulk transport• Economies of scale confer a net benefit.• Specialization:
• Low utilization levels and time delays for the assembly of loads.• At most 50% due to empty backhauls, but much lower in reality.
• Containerization:• Flow concept; lower transshipment costs.• Its own warehouse unit.• Faster distribution (extending the realm of perishables).• Levels the playing field, particularly in view of established commodity
shippers.• Respective benefits for bulk and container carriers.• Handle variety requirements.
• Rise in commodity prices makes them increasingly suitable for containerization.
35
… … Where Each System has its own Where Each System has its own Advantages …Advantages …
Bulk (Grain, Oil)Bulk (Grain, Oil) ContainerizedContainerized
Driving force Cost / Volume Time / Flexibility
Mode of shipment Large output Small shipments
Flows Specialized Mixed
Terminals Dedicated General Container
Markets Mass Niche36
… … Will Likely See the Emergence of a Will Likely See the Emergence of a ComplementarityComplementarity
Bulk Commodity Chain
Containerized Commodity Chain
Consolidationcenter
PortSupplier Customer
Intermodalterminal
Containerport
PendulumServices
Point-to-Point
ComplementarityComplementarity
37
Commodities are more Containerized than Commodities are more Containerized than Expected …Expected …
US Containerized Trade, 2003
0
5,000
10,000
15,000
20,000
25,000
Total Imports Exports
Thou
sand
TE
U Food
Consumer products
Technology products
Capital equipment
Raw materials
38
… … Leading to the Setting of New Leading to the Setting of New Containerized Commodity ChainsContainerized Commodity Chains
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 2139
What Could be the Impacts on Commodity What Could be the Impacts on Commodity Markets?Markets?
■ Containerization and commodity markets• Futures / forward contracts are often conditioned by the
capacity for delivery.• What would be the impacts of containerization on this market
structure?• A contract could involve the allocation of containers.
• What type of “price discovery” this would entail.• From futures to spot markets?• Transportation flexibility will increase financial flexibility.
40
Cold Chain Logistics is Getting Increasingly Cold Chain Logistics is Getting Increasingly ReliableReliable
Potential integrity breachTem
pera
ture
Temperature Range
Potential integrity breach
Transport
Time
Unloading – Warehousing – LoadingTransport41
Deep Freeze
Frozen
Chill
Pharmaceutical
"Banana"
-30 -20 -10 0 10 20
Deep Freeze
Frozen
Chill
Pharmaceutical
"Banana"
Degrees Celcius
Conclusion: Commodities on the Move…Conclusion: Commodities on the Move…
42
… … Adapting to a Challenging Environment with many Adapting to a Challenging Environment with many OpportunitiesOpportunities
■ Global trade• Imbalances and dislocations.
■ Global commodity chains• Added value and value capture.
■ The “China Effect”• Trade and financial process.
■ Containerized commodity chains• Opportunities to rectify imbalances.• Setting of new commodity chains.
■ Global prospects• Positive for commodities.• New markets and investment opportunities.
43