How Did Containerization Shape US – Port Markets?

We often take for granted the opportunists and choices afforded to us through globalization.  But the irony is that most people do not necessarily understand how containerization not only changed ports and shipping by landside competition and port market areas.

For example, here is a great video on the development of containerization from TED- Called “How Containerization Shaped the Modern World”. (Which is in contrast to a text based approach used by the World Shipping Council.  One can see the spread of containerization trades through the world’s ports here.

But not only did containerization change the physical movement of cargo, it changed how that cargo could be handled across modes.   Years ago the lack of adequate landside transportation to inland regions limited a shipper’s choice in determining which ports to use.  Even today, some region around a given port is considered to be “local or captive”, as the cost of using another port and shipping the product may be prohibitive.  For example, a shipper based in Washington State would not ship his containers through a California port only to reposition these containers back to Seattle if a service to Seattle was available at a viable cost.  In contrast, discretionary cargo can be handled at multiple ports. Data on the top 25 ports in the U.S. are posted here.

A port’s competitive position is defined by the markets that the port serves.  The old axiom “ships go where the cargo is” is highlighted by the growth of certain ports, such as New York, Los Angeles/Long Beach, which have large local markets for containerized services, but also for ports along the gulf coast for their proximity to petroleum sources.  Before containerization, ports had natural inland hinterlands that generated and received cargo.

If the cargo can be handled efficiently at more than one port, the shipper and/or carrier can choose which port best suits their unique needs, as is the case with shipments destined to Chicago from Asia. In the U.S., shippers can route the cargo through the U.S. west coast or east coast, depending upon service and costs requirements. The balance of local versus discretionary cargo has shifted over the past twenty years.  The adoption of intermodalism, the deregulation of the U.S. transportation system in the 1980’s, and innovations in logistics management have placed additional demands upon the transportation system, but have also opened up new markets for various ports.

Since the 1980s, railroad reforms (including the Staggers Act) made it possible for railroads to engage in expanded services to international shippers and other logistics firms.  The result is that rail intermodal traffic, consisting of both domestic and international containerized freight (Container on Flat car (COFC) or Trailer on Flat Car (TOFC)), is becoming one of the leading commodities carried on the U.S. rail network.  The majority of the containers move on the U.S. in the double stock COFC format, which allows for basically a doubling of rail capacity when compared to TOFC operation.  The increasing share of intermodal rail movements has been supported by trucking companies and other integrated carriers as railroads have begun offering more consistent and reliable services.

Today, intermodalism, combined with global supply chains, allows shippers more options in selecting production-distribution activities, including how these supply chains utilize gateway ports. Shippers primarily route cargo with the goal of maximizing the returns on their transportation dollar (this applies equally to intermodal or general cargo operations). The chief concerns in selecting a particular route involve price and service, but other factors are equally important. Some of these factors are: what types of  vessels call a particular port, what additional services are available in a  port area, the availability of rail or inland connections, and how does the  port fit it to existing distribution patterns. However, the flexibility shippers now enjoy means to some extent ports have lost some of their monopoly power. Today, ports are part of a larger system and the lengthening of supply chains (due to globalization) implies the relative importance of each node becomes diminished by the growth of alternative routings between markets.

While intermodalism did not develop because of investment by shippers, these groups have profited from the additional service and options intermodalism provides them.  The costs associated with developing transportation activities are partially absorbed by the transportation industry, as evidenced by the historically poor rates of returns on transportation assets.  Thus, shippers want speed and reliability, but expect these services at competitive prices.   Over time, the costs of logistics as a share of Gross Domestic Product has fallen to roughly 17% in the early 1980s to roughly 8% of the U.S. economy in 2009 ( Council of Supply Chain Management Professionals, 2010).  This has occurred at the same time the growth in total U.S. spending on transportation for all modes exceeded $1.1 Trillion dollars.

Today, containerization is not necessarily about logistics and cargo, but how will we handle the larger ships now plying the world’s oceans?  There are many things that have to be considered when preparing a terminal for a larger berth, including equipment, terminal capacity and marshalling areas, but also the potential for the ship to physically arrive at a port. While the Panama Canal expansion is underway, many ports in the U.S. are struggling to get deeper channels, which means that vessels can call U.S. ports with more cargo, thus lowering per unit costs to shippers.  AT the same time, we are concerned about the simple lack of dredging, especially in the Mississippi, which can reduce cargo, and add costs to U.S. firms exporting.

In many ways, one man, with vision can change the world, but it takes others who are able to  embrace new  ideas and technologies for change to really occur and a lot of people to support how these innovations can continue to benefit a nation long after they have been initially adopted.

 

 

 

 

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