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Van Horne Institute studies relationship between increased containerization and the growth of inland ports

Posted on: June 21st, 2012




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By Theo van de Kletersteeg

The Van Horne Institute recently released a major study of trends in the containerization of commodities, and examines the relationships between the establishment and growth of inland ports, which it sees as enablers of increased containerization. The study, entitled The containerization of Commodities: Integrating Inland Ports with Gateways and Corridors in Western Canada was authored by Jean-Paul Rodrigue, Ph.D., and can be downloaded at www.vanhorne.info.

The business of container shipping lines, which own the majority of ISO shipping containers in circulation, is centered around the carriage of containers from one point of origin to another global destination. Providing containers to their customers is generally regarded as a necessary activity to facilitate customer relations, thus leveraging the returns on the carrier’s container vessels and related assets. The more effectively a carrier’s container assets are used, the greater the number of paying trips per container, thus maximizing a carrier’s revenues. However, it is a capital intensive activity that requires careful management, and does not, in general, provide incremental profits to the carriers. Accordingly, it is an activity that most carriers would rather not engage in, if they felt they had a choice.

Because of strong customer demand, carriers will allow maritime container movements to inland locations in Western and Eastern Canada, but this repositioning commonly takes place from the principal inbound locations, Toronto and Montreal. This obviously involves long repositioning distances from Western ports of entry (and thus high repositioning costs) to insure that containers unloading at import locations are made available where exports can be loaded. Over this issue, shipping companies that are servicing both the Canadian West and East coasts have the option of repositioning containers in a more cost effective way (e.g.  a  container  bound  to  Toronto  through  Vancouver  can  be  exported  through Montreal or Halifax).

Shipping lines have established domestic use programs with CN and CP where the railways are able to use a maritime container for one or two domestic repositionings as long as the containers are brought to a pre-designed location in usable condition (cleaned). This accounts for about half of the containers brought inland. The main advantage for the shipping line is that under this program it does not need to pay repositioning costs (e.g. $800 from Toronto to Vancouver) while the railway gets a container that it can use for carrying paying cargo on domestic routes.

The carriers must balance the need by their inland clients to have a high proportion of their containers railed to their inland distribution locations against their natural incentive to ensure that they are able to fill the demand for containers as quickly and efficiently as possible, and at minimum cost. Accordingly, given the cost and the complexity of managing the availability of containers, if there are export opportunities for containers arriving at a port of entry, carriers have every reason to want incoming containers to be made available for export as soon as possible. Under those circumstances, carriers are reluctant to consent to containers being transported to their final destination which takes time during which they are unable to earn ocean-carriage revenues. Accordingly, the practice of trans-loading the contents of import containers into containers for domestic transportation has emerged. This practice allows the carrier to quickly re-introduce the empty containers into the pool of containers that is available for export loading, with the original contents of the container shipped in domestic containers by truck or by rail to their destinations.

The process also works the other way around: shippers in the “hinterland” which needed to wait for available containers (which appeared to become scarcer), found ways to transport their goods to “stuffing” facilities near ports where containers were not in short supply.

The report suggests that inland ports could play a growing complementary role to the practice of trans-loading and stuffing near existing port facilities. The relative attractiveness of having traditional port distribution activities moved inland depends on a number of factors, including import/export opportunities within a reasonable radius of the inland port facility, the cost of land and its availability in and around existing seaport facilities, and the vicinity of intermodal rail connections.

The growth of inland port facilities relieves congestion at seaports, and provides increased economic opportunities in the hinterland by providing improved access to transportation and distribution facilities.

The report encourages containerization of commodities, particularly agricultural commodities, because containerization enables producers to ship in relatively small volumes. This allows producers to diversify into specialty products, potentially maximizing their business incomes, and to reach smaller customers in a greater number of client countries, thus providing market diversification which minimizes business risk.

Containerization of commodities not only encourages product and market diversification, it may make the difference between developing an export market or not developing one. Without the utilization of containers, shipments of specialty commodities in less than full vessel loads face the challenge of finding a vessel that can economically transport that commodity from the designated export port to an appropriate port near the exporter’s overseas client.

The report suggests that there are several commodity groups for which (increased) containerization is a suitable alternative to bulk shipping, particularly where it is desirable to break down transactions into smaller volumes, and where fully loaded containers do not exceed weight limits imposed by the rail carriers or the shipping lines. Currently, packaged lumber and wood pulp are the dominant commodities being exported in containers year-round. Specialty grains are seen as a particularly suitable target for increased containerization, as are pulse crops, seeds and high grade potash.

The report concludes that while containerization will never replace the advantages of bulk shipping, containerization does offer significant advantages to better serve niche producers and niche markets, and enables export opportunities where none might otherwise exist. Accordingly, the report considers con­tainerization an export-enabler. In terms of meeting the recurring challenge of availability of shipping containers, which is a necessary condition for the growth of containerization of commodities, the report considers the establishment and growth of inland ports as critical to the encouragement of maritime shipping companies to have a larger number of container assets moved inland.

The study was commissioned by the Van Horne Institute of Calgary, which was ­established to assist industry, governments and the public in addressing issues ­affecting transportation, supply chain ­management/ logistics and regulated industries that are relevant to the well-being and growth of industry and commerce.
Jean-Paul Rodrigue is a Professor at Hofstra University.


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