Logistics and Global Commodity Chains

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Logistics and Global Commodity Chains

• Jean-Paul RodrigueAssociate Professor, Dept. of
  Economics Geography, Hofstra University, New
  York, USA
• Email ecojpr_at_hofstra.edu
• Paper available at
• http//people.hofstra.edu/faculty/Jean-paul_Rodrig
  ue

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Introduction Capital on the Move
Trimodal Container Terminal, Willebroek, Belgium
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The Emergence of Supply Chain Management
1980s
1990s
2000s
1960s
Fragmentation
Consolidation
Functional Integration
Value Capture
Demand Forecasting
Purchasing
Materials Management
Requirements Planning
Production Planning
Manufacturing Inventory
Warehousing
Warehousing
Logistics
Supply Chain Management
Materials Handling
Materials Handling
Packaging
Packaging
Inventory
Distribution Planning
Physical Distribution
Information Technology
Order Processing
Marketing
Transportation
Strategic Planning
Customer Service
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and the Setting of Commodity Chains
Commodities
Final Goods
Intermediate Goods
Parts and raw materials
Manufacturing and assembly
Distribution
Stage
Market
LTL shipping
Bulk shipping
Unit shipping
Market
Transport Chain
Flows
High volumes Low frequency
Low volumes High frequency
Average volumes High frequency
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Major Factors Driving the Integration of
Transportation with Distribution
Factor Cause Consequence
Technology 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 MA Deregulation Easier contractual agreements joint ownership
Commodity chains Globalization Coordination of transportation and production (integrated demand)
Networks Consolidation and interconnection Multiplying effect
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Changes in Global Trade
?
Acute Trade Imbalances Economic
Cycles Globalization and Production
Container yard, Port of Yantian, China
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A Changing Trade Environment
Stage Nature Function
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
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and the Cycles of International Trade
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The Cycle is Strongly Upward for Latin America
Commodities Boom
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as Well as for Eastern Europe
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International Trade Involves Acute Imbalances
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that Resulted in Imbalanced Containerized
Freight Flows
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with Imbalanced Freight Rates as Well
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Globalization Changing the Profit Structure
High
RD
Globalization
Sales / Service
Marketing
Branding
Added value
Distribution
Design
Concept
Manufacturing
Logistics
Low
Commodity chain
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As Well As Disconnecting Production and
Distribution
Core Base
Manufacturing Base
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Containerization and Global Commodity Chains
?
Containerization Intermodal Transportation Ports
and Terminal Operators
Container waiting to be loaded, Shenzhen, China
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Containerization has Integrated Different
Transport Systems
Container port
Containerization of Maritime Transport Systems
Intermodal terminal
Pendulum Services
Corridor
Containerization of Inland Transport Systems
Inland Port
Offshore hub
Intermodal and Transmodal Operations
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which Makes the Container more than a Box
Flow management (time-based), warehousing unit
Synchronization of inputs and outputs (batches)
Distribution
Production
Container
Transport
Modes, terminals, intermodal and transmodal
operations
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Connecting the Dots Intermodal Transport Chain
Composition
Last mile
Interchange
Transfer
Decomposition
First mile
Local / Regional Distribution
National / International Distribution
Transport Terminal
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Composition Pallets waiting to be loaded in a
container (APL DC - Shenzhen, China)
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Interchange Post-Panamax Containership (Le Havre)
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Interchange UPS Willow Springs Distribution
Center, Chicago
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Decomposition Unloading Containers and
Palletizing Shipments (Antwerp)
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The Worlds Largest Maritime Trade Gateways
Traffic at the 50 Largest Container Ports, 2005
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Mainly Controlled by Large Holding
Conglomerates
Major Port Holdings, 2007
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That are Following a Value Capture Strategy
Maritime Services
Port Holding
Port Authority
Port Services
Inland Services
Horizontal Integration / Vertical
Vertical Integration
Maritime Shipping
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Where the Going Gets Tough The Last Mile in
Freight Distribution
Massification
Atomization
Frequency
Capacity
REGIONAL
LOCAL
GLOBAL
HINTERLAND
Shipping Network
Corridor
Segment
Customer
Last Mile
Inland Terminal
Distribution Center
Gateway
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The China Effect and Global Commodity Chains
?
Debt and the Currency Leverage Game Production
and Distribution Dislocations Shift in the
worlds commercial balance
Empty trucks waiting to enter China, Hong Kong
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The China Effect is Mainly About Low
Manufacturing Wages
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as Well as the Largest Buyer Financing Scheme
in History
USD
for goods
Interest Rates
Unemployment
Goods
Borrowing
Investment
Bonds (IOUs)
Asset Inflation Debt
Reserves
for bonds
United States
China
USD
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Where Exchange Rates were Used as Leverage
Discount Window
Export Oriented Debasement
Closing of the Discount Window
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Integrating Commodity Chains into Containerized
Supply Chains
?
Maritime Shipping Networks Containerized
Commodities Cold Chain Logistics
Emma Maersk, 12,500 TEU, Rotterdam, Netherlands
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The Three Major Corridors of Maritime Circulation

Three Major Pendulum Routes Serviced by OOCL, 2006
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Which Implies the Emergence of Global Trade
Highways
Pacific Connector
North American Landbridge
Eurasian Landbridge
Arctic Routes
Atlantic Connector
Circum-Equatorial Maritime Highway
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The Potential of Containerization of 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.

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Where Each System has its own Advantages
Bulk (Grain, Oil) Containerized
Driving force Cost / Volume Time / Flexibility
Mode of shipment Large output Small shipments
Flows Specialized Mixed
Terminals Dedicated General Container
Markets Mass Niche
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Will Likely See the Emergence of a
Complementarity
Bulk Commodity Chain
Supplier
Customer
Port
Point-to-Point
Consolidationcenter
Complementarity
Container port
Intermodal terminal
Pendulum Services
Containerized Commodity Chain
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Commodities are more Containerized than Expected
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Leading to the Setting of New Containerized
Commodity Chains
Shipping Time between Bulk Handling and Containerization (Canadian Wheat) Shipping Time between Bulk Handling and Containerization (Canadian Wheat) Shipping Time between Bulk Handling and Containerization (Canadian Wheat) 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
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What Could be the Impacts on Commodity 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.

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Cold Chain Logistics is Getting Increasingly
Reliable
Potential integrity breach
Temperature Range
Temperature
Potential integrity breach
Time
Transport
Unloading Warehousing Loading
Transport
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Conclusion Commodities on the Move
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Adapting to a Challenging Environment with many
Opportunities

• 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.