Caribbean Shipping Association Annual General Meeting, Montego Bay (Jamaica), October 11-13 2010

Global Supply Chains, Maritime Transportation and the Caribbean Transshipment Market:The Challenges of Growth and Rationalization

Jean-Paul Rodrigue

Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA

Van Horne Researcher in Transportation and Logistics, University of Calgary, Canada

THE PANAMA CANAL EXPANSION: WHAT’S UP DOC?

Non academic title:

Factors Impacting North American Freight Distribution in View of the Panama Canal Expansion

Macroeconomic Factors

Operational Factors Competitive Factors

Aggregate demand changes

Structure of production changes

Supply chain diversification and

differentiation

Economies of scale in shipping

Shipping costs structure

Slow steaming

Response from East and West coast ports

Response from railways

New gateways

Response from Suez Canal and Med

transshipment hubs

Container Traffic at North American Ports, 1980-2009: This was supposed to be impossible…

1980

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

2008

2009

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000MexicoUnited StatesCanada

Equa

tor

Main Export-Oriented Regions and Shipping Routes Servicing North America

Landbridge

Westbound Route

Eastbound Route

PanamaRoute

East Asia

South AsiaIndifference Point

Southeast Asia

At the Crossroads… Which Value Proposition for the Caribbean?

- +

4) Last segment in import-based supply chains

1) Strong margins, but many not large enough to justify dedicated services

2) Interlining between the America’s coastal systems

3) East coast capacity issues

What Drives Supply Chain Management? Control Freaks

Added Value Efficiency Control

OffshoringCosts / time /

reliabilityInternalize efficiency

Diversification: Routing Options between Pacific Asia and the American East Coast

Intermodal (60%) All Water (40%)

Western Canada (5%)

Pacific Northwest(20%)

Pacific Southwest(75%)

Mexico(?%)

Via Suez (5%)

Via Panama (95%)

Pacific Asia / American East Coast

Share of the Northeast Asia – U.S. East Coast Route by Option: Transition Already Completed?

1999 2000 2001 2002 2003 2004 2005 2006 20070%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

85.7% 82.8%77.2%

71.8%64.6% 60.9% 58.1% 56.0% 55.0%

11.3% 15.1%20.8%

23.6% 33.8% 38.2% 40.1% 42.0% 43.0%

3.0% 2.1% 2.0% 4.6% 1.5% 0.9% 1.8% 2.0% 2.0%

Suez CanalPanama CanalIntermodal

Supply Chain Differentiation: Pick Your Preference

Factor Issues

Costs (38%) Stability of the cost structure.Relation with the cargo being carried.Lower costs expectations by the Panama Canal expansion.

Time (12%) Influence inventory carrying costs and inventory cycle time.Routing options in relation to value / perishability.No/limited time changes with the expansion.

Reliability (43%) Stability of the distribution schedule.Reliability can mitigate time.No/limited reliability changes with the expansion.

Slow Steamin’: What Hath You Brought Us?

28

25

26

25

19

13

14

12

13

22

5

5

5 3

4

8

8

5

Vancouver

Seattle / Tacoma

Prince Rupert

Oakland

Los Angeles

Lazaro Cardenas

Panama

Houston

Savannah/Charleston

Norfolk

New YorkChicago

DallasAtlanta

Toronto

Slow Steaming:More WC transloadingMore inventory in transit

Transit Times from Shanghai and North American Routing Options (in Days)

The Toll Conundrum: Potential Diversion between Intermodal and AWR for Asian Imports

0 50 100 150 200 250 300 350 400 450 5000

10

20

30

40

50

60

70

80

90

100

Cost Differential (Premium per TEU per Day Saved, USD)

Mar

ket S

hare

of A

ll-W

ater

Rou

te (%

)

Expansion (unconstrained)

The Toll Conundrum:Financial pressures versus maritime shipping pressuresCurrent

Adapted from A. Ashar (2009)

Expansion (constrained)Toll increases have already captured 40% of the potential savings of the expansion.The appeal of revenue maximization (NOT traffic maximization).

Yield management?

Shipping Rate from Shanghai for a 40 Foot Container, Mid 2010

$2,300$2,110

Vancouver

Los Angeles

Houston

New York

Montreal

$1,300$2,100

InboundOutbound

$2,620$1,400

$3,510$2,560

$3,700$1,830

$4,040$3,950

Inbound rates: function of distanceOutbound rates: function of trade imbalances

The North-American Container Port System and its Multi-Port Gateway Regions

1

2

6

5

4

3

7

Multi-port gateway regions1. San Pedro Bay2. Northeastern Seaboard3. Southwestern Seaboard4. Puget Sound5. Southern Florida 6. Gulf Coast7. Pacific Mexican Coast

The Caribbean Gateway?(RIMS)

Selected MOU between the Panama Canal Authority and American Gulf and East Coast Ports

Port Authority Date Nature Antwerp Port Authority September

2010Share expertise in the handling of Post-Panamax vessels, including rolling gate locks and tug boats.

Mississippi State Port Authority at Gulfport

August 2010 None specific except as identified by the MOU.

Jacksonville Port Authority April 2010 None specific except as identified by the MOU.Alabama State Port Authority April 2010 Port improvements to capture the anticipated traffic growth. ASPA completed

in 2008 a US$300 million container terminal at Mobile in partnership with APM and CMA CGM.

Maryland Port Administration June 2009 Fund a 500-foot berth at Seagirt Marine Terminal in operation when the Panama Canal expansion project is completed in 2014. The Port of Baltimore is currently one of only two US East Coast ports with a 50-foot draft.

Broward County’s Port Everglades Department

August 2009 (Port Everglades). Increase its capacity to handle larger ships. Develop the cruising industry with a new terminal for large cruise ships (2009).

Port of Palm Beach December 2009 Container and cruise segments. South Gate Complex. Inland Port Complex project.

South Carolina State Ports Authority

July 2006 (Charleston). None specific except as identified by the MOU.

Port Authority of New York and New Jersey

September 2003

Dredging projects to 50 feet. New on dock rail facilities. Bayonne Bridge clearance.

Virginia Port Authority June 2003 Construction of the new APM terminal at Hampton Roads. Setting of the heartland corridor. Virginia Inland Port.

Georgia Port Authority June 2003 Deepening of the Savannah River from 42 to 48 feet (completed by 2014).Port of Houston July 2003 None specific except as identified by the MOU.

Governance Changes in Port Authorities

Landlord

Regulator

Operator

• Planning and management of port area.

• Provision of infrastructures.

• Planning framework.

• Enforcement of rules and regulations.

• Cargo handling.• Nautical services

(pilotage, towage, dredging).

Landlord

Regulator

Operator

Terminal Operator(s)

Cluster Governance

• Service Efficiency• Logistical Integration

• Infrastructure and Growth

Management• Terminal-City

Integration

Conventional Port Authority Expanded Port Authority

Added Value Activities Performed at an Extended Gateway

Activity Functions

Consolidation / Deconsolidation

Inventory management practices.Cargo consolidated (or deconsolidated) into container loads (paletization).Attaining a batch size (group of containers) fitting a barge or a train shipment.Breaking down batches so that they can be picked up by trucks.

Transloading Change in to load unit (Maritime / Domestic).Consolidation, deconsolidation and transloading commonly mixed.

Postponement Opportunity to route freight according to last minute and last mile considerations (dwell time).Buffer within a supply chain.

Light transformations Forms of product and package transformations (packaging, labeling).Customization to national, cultural or linguistic market characteristics.

Major Rail Corridors Improved since 2000

Conventional

NorthAtlantic

CentralAtlantic

South Atlantic / Gulf

Direct

Transshipment Circum-Equatorial

NorthAtlantic

CentralAtlantic

South Atlantic / Gulf

CaribbeanTransshipmentTriangle

NorthAtlantic

CentralAtlantic

South Atlantic / Gulf

Emerging Global Maritime Freight Transport System

The Caribbean Transshipment Market

The “curse of economies of scale”Jones Act + 24 hour ruleAnchoring footloose traffic

Conclusion: The Complexities of Divergence

Aggregate demand changes, structure

of production

Supply chain diversification and

differentiation, economies of scale,

Slow steaming

Response from East and West coast ports, hinterland factors, tolls

Panama Canal

Expansion

Macroeconomic Factors

Operational Factors

Competitive Factors

No expansion: High impact (trend reversal)Expansion: Maintaining existing trends (AWR)

Panama

Caribbean

USA

Asia

Europe

Canal