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

Non academic title:

THE PANAMA CANAL EXPANSION: WHAT’S UP DOC?

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

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…

50 Mexico United States Canada 40 30 20 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Main Export-Oriented Regions and Shipping Routes Servicing North America Southeast Asia South Asia East Asia Westbound Route

q E a u to r

Eastbound Route Landbridge Panama Route

At the Crossroads… Which Value Proposition for the Caribbean?

3) East coast capacity issues 1) Strong margins, but many not large enough to justify dedicated services 4) Last segment in import based supply chains 2) Interlining between the America’s coastal systems

What Drives Supply Chain Management? Control Freaks

Offshoring Costs / time / reliability Internalize efficiency

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

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

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

3,0% 2,1% 2,0% 4,6% 1,5% 0,9% 1,8% 2,0% 2,0% 11,3% 15,1% 20,8% 23,6% 33,8% 38,2% 40,1% 42,0% 43,0% 85,7% 82,8% 77,2% 71,8% 64,6% 60,9% 58,1% 56,0% 55,0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 Suez Canal Panama Canal Intermodal

Supply Chain Differentiation: Pick Your Preference Factor Costs (38%) Time (12%) Reliability (43%) Issues

Stability of the cost structure.

Relation with the cargo being carried.

Lower costs expectations by the Panama Canal expansion.

Influence inventory carrying costs and inventory cycle time.

Routing options in relation to value / perishability.

No/limited time changes with the expansion.

Stability of the distribution schedule.

Reliability can mitigate time.

No/limited reliability changes with the expansion.

Slow Steamin’: What Hath You Brought Us?

Slow Steaming:

12 Prince Rupert Vancouver 13 Seattle / Tacoma Oakland 13 Los Angeles 14

More WC transloading More inventory in transit

4 8 Transit Times from Shanghai and North American Routing Options (in Days) 5 5 5 5 8 Dallas Chicago 3 Atlanta Toronto 26 New York 25 Norfolk Savannah/Charleston 25 28 Houston 19 Lazaro Cardenas 22 Panama

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

100 90 80 70 60

Current

The Toll Conundrum: Financial pressures versus maritime shipping pressures

50

Expansion (unconstrained)

40 30 20 10

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?

0 0

Adapted from A. Ashar (2009)

100 200 300 400

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

500

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

Vancouver

$2,300

$2,110 Montreal

$4,040

$3,950 New York

$3,700

$1,830 Los Angeles

$2,620

$1,400

Inbound rates: function of distance Outbound rates: function of trade imbalances

$3,510

$2,560 Houston

$1,300

$2,100 Inbound Outbound

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

4 1 7 6 3 2

Multi-port gateway regions 1. San Pedro Bay 2. Northeastern Seaboard 3. Southwestern Seaboard 4. Puget Sound 5. Southern Florida 6. Gulf Coast 7. Pacific Mexican Coast

5 The Caribbean Gateway?

(RIMS)

Selected MOU between the Panama Canal Authority and American Gulf and East Coast Ports Port Authority Antwerp Port Authority Mississippi State Port Authority at Gulfport Jacksonville Port Authority Alabama State Port Authority Maryland Port Administration Broward County’s Port Everglades Department Port of Palm Beach South Carolina State Ports Authority Port Authority of New York and New Jersey Virginia Port Authority Georgia Port Authority Port of Houston Date

September 2010 August 2010 April 2010 April 2010 June 2009 August 2009 December 2009 July 2006 None specific except as identified by the MOU.

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.

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.

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

Container and cruise segments. South Gate Complex. Inland Port Complex project.

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

September 2003 June 2003 June 2003 July 2003

Nature

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

None specific except as identified by the MOU.

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

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

Deepening of the Savannah River from 42 to 48 feet (completed by 2014).

None specific except as identified by the MOU.

Governance Changes in Port Authorities

Conventional Port Authority

•

Planning and management of port area.

•

Provision of infrastructures.

•

Planning framework.

•

Enforcement of rules and regulations.

•

Cargo handling.

•

Nautical services (pilotage, towage, dredging).

Expanded Port Authority

Added Value Activities Performed at an Extended Gateway Activity Consolidation / Deconsolidation Functions

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 Postponement

Change in to load unit (Maritime / Domestic).

Consolidation, deconsolidation and transloading commonly mixed.

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 Direct Central Atlantic South Atlantic / Gulf North Atlantic Transshipment North Atlantic Central Atlantic South Atlantic / Gulf Caribbean Transshipment Triangle Circum-Equatorial Central Atlantic South Atlantic / Gulf North Atlantic

Emerging Global Maritime Freight Transport System

The Caribbean Transshipment Market

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

Conclusion: The Complexities of Divergence

Aggregate demand changes, structure of production Supply chain diversification and differentiation, economies of scale, Slow steaming

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

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