The Railway Association of Canada (RAC), Annual The Railway Association of Canada (RAC), Annual Rail-Government Interface (RGI) Meeting, Ottawa, Rail-Government Interface (RGI) Meeting, Ottawa, May 15, 2007 May 15, 2007

Ten Global Trends Impacting Ten Global Trends Impacting North American Rail Freight North American Rail Freight DistributionDistribution

Jean-Paul RodrigueAssociate Professor, Dept. of Economics & Geography, Hofstra University, New York, USA

Email: ecojpr@hofstra.eduPaper available at:http://people.hofstra.edu/faculty/Jean-paul_Rodrigue

A Shift from Derived to Integrated Transport Demand

The nature of distribution has changedThe nature of distribution has changedFrom push to pull logisticsFrom push to pull logistics

Transportation and distribution jointly plannedTransportation and distribution jointly planned

Container yard, Port of Yantian, ChinaContainer yard, Port of Yantian, China

Commodity Chains and Added Value

Commodity chain

Adde

d va

lue

Low

High

Manufacturing

R&D Globalization

DistributionDesign

Branding Marketing

Sales / Service

Concept Logistics

From Push to Pull Logistics

Supplier Supplier Supplier

Manufacturer

Customer

Distributor

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Manufacturer

Distributor

Customer

3PL

Returns / Recycling Point-of-sale data

Freight flow

Push Pull

The “China Effect” has Profoundly Changed Global Freight Distribution

The location of production has changedThe location of production has changedGlobal production networksGlobal production networks

Shift in the world’s commercial balanceShift in the world’s commercial balance

APL Distribution Center, Shenzhen, ChinaAPL Distribution Center, Shenzhen, China

Traffic at the 50 Largest Container Ports, 2004

Dubai

Tacoma

Santos

Jeddah

Durban

Seattle

Salalah

Oakland

Colombo

Melbourne

Long Beach

Charleston

Nhava Sheva

Los Angeles

New York/New Jersey

Kobe

TokyoOsaka

BusanNingbo

Nagoya

Manila

Dalian

Yantian

Tianjin

Keelung

Yokohama

ShenzhenShanghai

Quingdao

Singapore

KaohsiungHong Kong

GuangzhouPort Kalang

Laem Chabang

Tanjung Priok

Tanjung Pelepas

LeHavre

Hamburg

Antwerp

Valencia

Rotterdam

Barcelona

Algeciras

Felixstowe

Gioia Tauro

Bremen/Bremerhafen

Pacific Asia Europe

Traffic 2004 (TEU)

Less than 2 million

2 to 4 million

4 to 7 million

7 to 10 million

More than 10 million

Miami

Tacoma

Fraser

Boston

Seattle

Oakland

Houston

Halifax

Savannah

PortlandMontreal

Gulfport

Vancouver

Baltimore

Palm Beach

Long Beach

Charleston

New Orleans

Los Angeles

Philadelphia

Jacksonville

Hampton Roads

Wilmington (NC)

Wilmington (DE)

Port Everglades

New York/New Jersey

Less than 0.5 M

0.5 to 1 M

1 M to 2 M

2 M to 3 M

More than 3 M

Container Traffic at Major North American Ports, 2005 (TEU)

Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Sectors of American Imports of Asian Goods Through Maritime Container Shipping, 2004 (in TEUs)

0 300,000 600,000 900,000 1,200,000 1,500,000 1,800,000

Big box retailer

Furniture

Electronics

Appliances

Auto parts

Tires

Shoes

Toys

Electrical equipment

Machinery

Textiles

Apparel

Significant Imbalances in Trade and Freight Distribution

Imbalanced freight flowsImbalanced freight flowsThe empty container problemThe empty container problem

Empty trucks waiting to enter China, Hong KongEmpty trucks waiting to enter China, Hong Kong

World’s 10 Largest Exporters and Importers, 2005

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800

Germany

United States

China

Japan

France

Netherlands

United Kingdom

Italy

Canada

Belgium

Billions of $US

Imports

Exports

Balance of Containerized Cargo Flows along Major Trade Routes, 1995-2006 (in millions of TEUs)

-18

-16

-14

-12

-10

-8

-6

-4

-2

01995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006

Europe/USA

Asia/Europe

Asia/USA

Containers Handled by the Port of Vancouver, 1997-2006 (in TEU)

0.1

1.0

10.0

100.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Rat

io

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Mill

ions

Loaded (inbound) Empty (inbound)

Loaded (outbound) Empty (outbound)

Loaded Ratio (Outbound / Inbound) Empties Ratio (Outbound / Inbound)

Private Global Freight Operators

The value capture of global supply chainsThe value capture of global supply chainsGlobal port holdings & 3PLGlobal port holdings & 3PL

Positioning of intermodal assetsPositioning of intermodal assetsGaining a foothold in major gatewaysGaining a foothold in major gateways

““Maersk Sealand” Locomotive, Landers Yard (NS), ChicagoMaersk Sealand” Locomotive, Landers Yard (NS), Chicago

Commodity Chain

The Value Capture Process along Commodity Chains

Port Holding

Port

Aut

horit

y

Maritime Services

Inland Services

Port Services

Horizontal IntegrationVertical Integration

Maritime Shipping

Port Terminal Operations

Inland Modes and Terminals

Distribution Centers

Pacific Asia Europe

APM Terminals

Dubai Ports World

Hutchison Port Holdings

Port of Singapore Authority

Eurogate

Stevedoring Services of America

Dedicated Maritime Container TerminalsMajort Port Holdings, 2007

Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Miami

Boston

Houston

Halifax

Savannah

PortlandMontreal

Gulfport

Vancouver

Baltimore

Palm Beach

Charleston

New Orleans

Philadelphia

Jacksonville

Hampton Roads

Wilmington (NC)

Wilmington (DE)

Port Everglades

New York/New Jersey

Tacoma

Fraser

Seattle

Oakland

Long BeachLos Angeles

Container Port Traffic and Ownership of Major Rail L ines, 2005

Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Port Traffic in TEU (2005)

Less than 300,000

300,000 to 500,000

500,000 to 1,000,000

1,000,000 to 3,000,000

More than 3,000,000

Burlington Northern Sante Fe (BNSF)

Canadian National (CN)

Canadian Pacific (CP)

CSX Transportation (CSXT)

Ferromex (FNM)

Kansas City Southern (KCS)

Norfolk Southern (NS)

Union Pacific (UP)

Other

Redefinition of the Maritime / Land Interface

Port regionalizationPort regionalizationInland terminalsInland terminals

Rail integrated with port operationsRail integrated with port operations

““Emma Maersk”, 12,500 TEU, Rotterdam, NetherlandsEmma Maersk”, 12,500 TEU, Rotterdam, Netherlands

Port Inland Distribution Network and Freight Clusters

Intermodal Integration is Still in its Early Stages

Expansion and diffusion to new marketsExpansion and diffusion to new marketsAdvanced containersAdvanced containers

Container waiting to be loaded, Shenzhen, ChinaContainer waiting to be loaded, Shenzhen, China

World Container Traffic, 1980-2005, and Guesses for up to 2020

0

100

200

300

400

500

600

700

800

900

1000

1980 1985 1990 1995 2000 2005 2010 2015 2020

Mill

ion

TEU

Higher Costs for Inland Freight Distribution

Peak oilPeak oilCongestionCongestionModal shiftModal shift

Chassis waiting to be picked, Corwith Rail Yard, ChicagoChassis waiting to be picked, Corwith Rail Yard, Chicago

World Annual Oil Production (1900-2005) and Peak Oil (2010 scenario)

0

5

10

15

20

25

30

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Bill

ions

of b

arre

ls

Actual

2010 Peak

The World’s Largest Oil Fields, 2005

Oil Field Output (MBD) % of national output

Status

Ghawar (Saudi Arabia) 4.5 40% Possibly declining

Cantarell (Mexico) 2.0 60% Declining

Burgan (Kuwait) 1.7 68% Declining

DaQing (China) 1.0 40% Possibly declining

Level of Congestion of the Interstate Highway System

Transmodal Operations: The Next Frontier in North American Rail Distribution

Advanced rail terminalsAdvanced rail terminalsHigher throughputHigher throughput

Translisft crane, NS Rutherford yard, PATranslisft crane, NS Rutherford yard, PA

Calumet (NS)

Global I (UP)

Joliet (BNSF)

Cicero (BNSF)

Global II (UP)

Corwith (BNSF)

Bensenville (CP)

Yard Center (UP)

59th Street (CSX)

Bedford Park (CSX)

Moyers Gateway (CNIC)

Willow Springs (BNSF)63rd Street (NS)

Canal Street (UP)

Landers / Hanjin (NS)

47th/51st Street (NS)

Number of Lifts at Major Intermodal Rail Terminals , Chicago, 2005

Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra UniversitySource: US National Transportation Atlas

Other

CN (Canadian National)

CPRS (Canadian Pacific)

BNSF (Burlington Northern Santa Fe)

CSXT (CSX Transportation)

NS (Norfolk Southern)

UP (Union Pacific)

Lake Michigan

Number of Lifts

Less than 40,000

40,000 to 200,000

200,000 to 350,000

350,000 to 500,000

More than 500,000

0 10 205 Miles

Simulation of a Direct Transmodal Rail Operation

Thruport: Full and Hybrid Configurations

CRANE #1

CRANE #1

Full

Hyb

rid (2

-1)

Regina

Calgary

Memphis

Chicago

Winnipeg

St LouisKansas City

Minneapolis

Dallas / Fort Worth

Houston

Savannah

Montreal

Vancouver

Charleston

Hampton Roads

New York/New Jersey

Tacoma

Seattle

Oakland

Long BeachLos Angeles

Potential Location of Major Transmodal Rail Facilities:Maritime Gateways and Inland Hubs

Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Maritime Rail Gateway

Transmodal Rail Hub

Time Factors more Embedded Within Rail Operations

Improving the velocity of freightImproving the velocity of freightRail distribution as an element of supply chainsRail distribution as an element of supply chains

UPS Willow Springs Distribution Center, ChicagoUPS Willow Springs Distribution Center, Chicago

Logistics and the Acceleration of Freight

Push Logistics

Shipment

Transshipment

Pull Logistics

Containerization

Speed barrier

Logistical threshold

Logistical Improvements, Manufacturing Sector, 1960s to 2000s

35

25

7

4 30

2

4

6

8

10

12

14

16

18

20

1960s 1970s 1980s 1990s 2000s

% o

f GDP

0

5

10

15

20

25

30

35

40

Days

Logistics Costs (% GDP)

Inventory Costs (% GDP)

Cycle Time Requirements (days)

The American Economy is Essentially Bankrupt

““Flipper Central”, Phoenix, Arizona (or any neighborhood near you)Flipper Central”, Phoenix, Arizona (or any neighborhood near you)

Debt and asset inflationDebt and asset inflationMisallocation of capitalMisallocation of capital

Currency leverageCurrency leverageFuture growth expectations compromisedFuture growth expectations compromised

The “Perpetual Motion” Machine: The Dynamics of the World’s Most Significant Trade Relationship

Goods

Bonds (IOUs)

Asset InflationDebt

Reserves

Interest RatesUnemployment

$ for goods

$ for bonds

United StatesChina USD

USD

BorrowingInvestment