The Asia Pacific Gateway and Corridor Initiative: Toronto Workshop, June 17-18 2010

Extending the Gateways: Logistic Zones in North American Freight Distribution

Jean-Paul Rodrigue

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

What Drives Supply Chain Management?

Added Value Efficiency Control

World’s Major Gateway Systems and Hinterland Structure, 2006

39 Gateway Regions90% of the World’s Freight TransportPearl River Delta: 16.7%

Coastal concentrationLandbridge connections

Inland concentrationCoastal gateways

Coastal concentrationLow hinterland access

Logistics Zone

Extending the Gateways: Two Dimensions

Gateway

Logistics Zone

On-dock and near dock

Satellite terminal

A

A

BC

Logistics Zone

Corridor

B-C

Logistics Zone

Gateway / Port Regionalization (A)• Satellite terminals and logistics zones.• Maritime / land interface.Inland Port (B-C)• Corridor development.• Regional load centers.

The Complexities of Inland Logistics: The “Last Mile” in Freight Distribution

Gateway Inland Terminal

DistributionCenter

Capacity

Frequency

Corridor Customer

“Last Mile”

Segment

GLOBAL HINTERLAND REGIONAL LOCAL

Shipping Network

Massification Atomization

Logistics Zone

Logistics Zone

On-dock and near dock

Satellite terminalA

Logistics Zone

Corridor

B-C

Logistics Zone

Extending the Gateway Through Governance Changes

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

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

Something Strange Happened on the Way to the Terminal…

Networks

TerminalsWarehousingOutdoor

StoragePort terminalsRail terminalsAirports

Energy

Roads / linesRights of way

Distribution centersCross-docking

Freight VillageTransportation Storage

1

2

2 Inventory in transit1 Inventory at terminal

Containerization Growth Factors: Which Opportunities are Left?

Derived / Organic (A)

Economic and income growth.Globalization (outsourcing and global sourcing).Fragmentation of production and consumption.

Substitution (B) Functional and geographical diffusion.New niches (commodities and cold chain)Capture of bulk and break-bulk markets.

Incidental (C) Trade imbalances.Repositioning of empty containers.

Induced (D) Transshipment (hub, relay and interlining).

A B C D

American Foreign Trade by Maritime Containers, 2008 (in TEUs): The Trade Fundamentals

Wal-MartTarget

Home DepotSears Holding

Dole FoodCostco Wholsale

Lowe'sLG Group

PhilipsChiquita

HeinekenIkea

Ashley FurnitureGeneral Electric

JardenSamsungRed Bull

NikeJC Penney

Whirlpool

0 200,000 400,000 600,000 800,000

Importers

America Chung NamWeyerhaeuser

CargillKoch Industries

International PaperDow Chemical

DupontPotential Industries

Procter & GambleMeadwestvaco

Cedarwood-YoungArcher Daniels Midland

BASFDelong

ExxonMobilJC Horizon

DenisonCGB Enterprises

Sims Metal ManagementNewport Chinternational

0 200,000 400,000 600,000 800,000

Exporters

Asymmetries between Import and Export Containerized Logistics

Many Customers (Importers)• Function of population density.• Geographical spread.• Incites transloading.• High priority.

Few Suppliers (Exporters)• Function of resource density.• Geographical concentration.• Lower priority.• Depends on repositioning

opportunities.

GatewayInland

Terminal

DistributionCenter

Customer

SupplierRepositioning

Distribution Network Configurations for Containerized Import Cargo

Type Supply ChainGateway-based Few mass market goods (economies of scale in distribution).

Few very specialized goods (economies of scale in warehousing).Little if any transformations.Transloading.

Tiered-based Mix of retail goods coming through a few gateways.Some customization.Large suppliers and large retailers (Big Box).Transloading, Postponement and Cross-docking.

Regional distribution centers

Complex set of goods coming from numerous suppliers (e.g. automotive parts).Regional variation of the nature and extent of demand.

Local distribution centers Time sensitive bulky cargo (e.g. perishables).Low lead times.City logistics.

Distribution based on RDCs Distribution based on two gateways

Distribution based on tiered system Distribution based on local DCs

Optimal Location and Throughput by Number of Freight Distribution Centers

Functional Relations between Inland Terminals and their Hinterland

InlandTerminal

Logistics activities

Retailing and manufacturingactivities

I II III

Tier I Tier II Tier III

FLOWS & INTEGRATION

Logistics Pole

Freight Region

Added Value Activities Performed at an Extended Gateway

Activity FunctionsConsolidation / 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.

Inland Terminals as Foreign Trade Zones (FTZ)

Custom Clearance

Done inland instead of at the gateway port.Likely faster (less congestion).Consignment can stay for an unlimited amount of time in the FTZ.Consignee gets further advance notice that shipment is ready.

Duties Not paid until the consignment is released and moved out of the FTZ (storage).Deferred if goods moved to another FTZ.If transformation is performed in the FTZ, the duty class may change (Select the taxation regime).Not paid for damaged, defective or obsolete goods.

Settlement Vendors often not paid until consignments leave the facility for delivery (Delay settlement).Remove damaged or defective products from the settlement.

Savannah Logistics Cluster

NS Near Dock Intermodal Terminal

ContainerTerminals

Port Industrial Park

CrossroadsIndustrial Park

HomeDepot

Wal-Mart

TEC

North Point Real Estate Savannah RiverInternational Trade Park

IkeaTarget

Raritan Center, New Jersey

Port of New York (20km) ►

Raritan Center

Heller Industrial Park Port Raritan

BNSF Logistics Park, Chicago (Extended Gateway of LA / LB)

BNSF

Inte

rmod

al Y

ard

Distribution Centers

Wal-Mart

Mae

rsk

CaliforniaCartage

Chica

go (6

0km) ►

CenterPoint-KCS Intermodal Center, Kansas City

KCS

Inte

rmod

al Y

ard

Reta

il

Phase 1

Phase 2

Phase 3Phase 4

Phas

e 5

Kans

as C

ity (2

5 km

) ►

Rickenbacker Global Logistics Park, Columbus Ohio

NS Intermodal Terminal

Colu

mbu

s (1

5km

)►Rick

enback

er Inter

national A

irport

Intermodal Campus

Rail Campus

Air Cargo Campus

North Campus

Gateway Campus

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

Then, this must be lunacy…

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

Container Traffic Handled by North American Ports, 1990-2008 and Projections up to 2015

Pacific CoastAtlantic CoastGulf of Mexico

Share of the Northeast Asia – U.S. East Coast Route by Option

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

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

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

TorontoLower aggregate demand.The “curse” of economies of scale.Response from West Coast ports.Response from railways (East vs. West).New gateways (Canada: CN, Mexico: KCS).Response from terminal operators.Response from Caribbean transshipment hubs.Costs (fuel prices and Panama Canal toll rates).Competition from Suez and the Mediterranean.Regionalization of production.

Extending the Gateways

1- Regional Division of Distribution2- Functional, Managerial and Governance

Changes3- Potential paradigm shifts