The Future of Freight Transportation: Technological and Commercial Forces

1
The Future of Freight Transportation
Technological and Commercial Forces

• Dr. Jean-Paul Rodrigue
• Dept. of Economics Geography
• Hofstra University
• Hempstead, NY
• http//people.hofstra.edu/faculty/jean-paul_rodrig
  ue/

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Outline

• (Second) Guessing Future Freight Trends
• Why freight transportation is difficult to
  forecast?
• Technological Forces
• Cycles, rationalization and the limit to
  economies of scale
• Commercial Forces
• Globalization and the squeeze on the profit
  margin
• Geographical Adjustments
• Linking the gateways developing inland freight
  distribution

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(Second) Guessing Future Freight Trends

• Prediction and forecasting often a futile
  exercise
• Economic systems are not physical systems.
• The future is not what it used to be.
• Linearly thinking versus non-linear processes
• Extrapolation of current trends to assume future
  conditions.
• Rarely works and leads to misallocation of
  resources.
• Bubbles are classic examples
• Stock market and tech (1995-2000).
• Real estate (2001-2006?).
• Implications
• If the future cannot be predicted accurately, the
  current freight distribution systems must be able
  to cope with changes.
• Issues of adaptability and flexibility.

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Why freight transportation is difficult to
forecast?

• Bound to the macro-economic condition of the
  global economy
• Shifting comparative advantages.
• De-industrialization, relocation and
  re-industrialization.
• Dislocation of trade flows.
• Financial leverage asset inflation and debt.
• How will this unravel?
• The bursting of asset inflation.
• Cyclical drop in international trade.
• Limited changes in origins and destinations.
• Inflation (hyperinflation?).

5
U.S. Trade in Goods and Services - Balance of
Payments, 1970-2005 (billions of US)
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Containerized Cargo Flows along Major Trade
Routes, 2000-2003 (in millions of TEUs)
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Why freight transportation is difficult to
forecast?

• Freight companies are private entities
• Profit driven seeking to maximize the utility of
  their customers.
• Control many segments of the supply chain
• Multi-level and multi-modal ownership (MA).
• Control costs and risks.
• Insure reliability of distribution.
• Decide the allocation of freight distribution
• Which routes, modes and terminals.
• Strategies and decisions kept confidential.
• Growing leverage towards public entities.
• Challenges conventional public policy.

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Why freight transportation is difficult to
forecast?

• Several freight markets
• Variety of commodities
• From raw materials, energy, to high value and
  perishable goods.
• Each has its own commodity chain.
• Variety of transport modes
• From container transportation to air cargo.
• Different terminals.
• Variety of stakeholders
• Private and public operators (port authorities).
• Cost-based versus time-based.

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Top Commodity Groups Ranked by Value Per Ton,
United States, 2002
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Why freight transportation is difficult to
forecast?

• Several value-added activities involved
• Transportation (rates).
• Warehousing (inventory).
• Transfer (intermodal).
• Logistics (supply chain management).
• Volatility
• Security Indirect tax and additional delays.
• Energy prices Peak oil and energy transition?

11
World Annual Oil Production (1900-2004) and
Estimated Resources (1900-2100)
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Real Price of Oil and Major Disruptions in World
Oil Supply, 1950-2005 (projections to 2012)
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Technological Forces

• Cyclic character of transport innovations
• Innovations lead to a wave of development.
• Introduction
• Private entrepreneurs and innovators.
• Growth
• Fast adoption.
• Often involves a paradigm shift event.
• Maturity
• Maximal spatial coverage.
• Government involvement (investment, regulations,
  etc.)
• Rationalization/obsolescence
• Diminishing returns (Segment or system-wide).
• A mix of regulations (protect public interests)
  and deregulations (increase productivity).
• Our current freight transport systems are in a
  phase of rationalization.

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Growth of the US Transport System, 19th 21st
Century
4
Canals
Paradigm shift
1825
Peak year
1836
3
Rail
2
Roads
Air
1869
1913
1969
Maglev
1825
1836
1891
1946
2001
1
?t 55 years
?t 65 years
?t 70 years
?t 30 years
0
1800
1850
1900
1950
2000
2050
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Cargo Handled by the Top 5 US Container Ports,
1985-2003 (in TEUs)
16
Length of the Interstate Highway System (in
miles), 1959-2003
17
Rail Track Mileage and Number of Class I Rail
Carriers, United States, 1840-2003
18
US Household Penetration of Telecommunications,
1920-2005
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Technological Forces

• Implications of rationalization
• Economies of scale
• Larger containerships.
• Double-stacking.
• Large high-throughput distribution centers.
• Concentration in gateways and corridors.
• Pressures on transshipment and inland
  distribution.
• Supply chains
• Flexibility and adaptability.
• Growing functional integration.

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Five Generations of Containerships
First Generation (1956-1970)
TEU
Length
Draft
135 m
500
Converted Cargo Vessel
lt 9 m lt 30 ft
200 m
Converted Tanker
800
Second Generation (1970-1980)
10 m 33 ft
1,000 2,500
215 m
Cellular Containership
Third Generation (1980-1988)
250 m
3,000
11-12 m 36-40 ft
Panamax Class
290 m
4,000
Fourth Generation (1988-2000)
Post Panamax
275 305 m
4,000 5,000
11-13 m 36-43 ft
Fifth Generation (2000-?)
Post Panamax Plus
13-14 m 43-46 ft
5,000 8,000
335 m
21
Channel Depth at Selected North American Ports,
1998 (in feet)
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Commercial Forces

• What is the market telling us?
• Globalization works fine, as long as people are
  trading for different goods. But when they begin
  competing for the same market with the same
  goods, someone's going to be out of a job. It's
  all very well for the Chinese to grow rice and
  Americans to grow wheat. They can trade with each
  other. But when they both produce
  cars...somebody's going to lose. Denning (2005)
• The US is losing comparative advantages in a wide
  array of industrial and service sectors.
• Competitive devaluation fooling ourselves.

23
Share of Global GDP Growth, 1995-2002
24
Changes in the Value Worlds Merchandise Trade,
Production and GDP, 1960-2003 (in )
25
Increases in U.S. Commercial Freight Shipments
andRelated Growth Factors, 19932002
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Changes in the Relative Importance of Logistical
Functions in Distribution Systems
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Conventional and Contemporary Arrangement of
Goods Flow
Conventional
Raw Materials Parts
Manufacturing
Distribution
Customers
Local Distribution
Raw Materials
National Distribution
Regional Storage
Retailers
Storage
Contemporary
Supply Chain Management
Customers
Raw Materials
Distribution Center
Manufacturing
Retailers
Material flow (delivery)
Core component
Information flow (order)
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Geographical Adjustments

• What changes in transport?
• Flows (including its direction).
• Origins.
• Destinations.
• Modes used.
• Gateways
• Land Commonly a simple transit function with
  logistics and manufacturing activities.
• Air Linked with an important metropolitan area
  and with regional air / road connections.
• Maritime Large terminals with strong high
  capacity inland connections (rail and road).

Land
Logistics
Manufacturing
Border
Air
Maritime
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Major Modal US Gateways, 2003
30
NAFTA Truck Flows, 2003
31
Road Volume to Capacity Ratio, 1998
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Geographical Adjustments

• Multimodal integration of freight transport
• Operational limitations.
• Problem of modal dependence (80 trucking).
• Geographical specialization of modes, modal shift
  and freight diversion.
• Entropy and energy
• Maintaining the cohesion and productivity of
  freight distribution.
• Growing disorder and energy costs.
• Urban/Suburban Supply Chains
• Coping with the last mile.
• Difficulties to maintain just-in-time and timely
  supply.
• High distribution costs.
• Adaptation of modes and delivery times.

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Geographical Adjustments

• Efficient coastal freight distribution system
• Coastal transportation so far unaffected by
  deregulation.
• Trashing the Jones Act.
• Efficient inland freight distribution system
• Gateway strategies.
• Corridor strategies.

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Port Inland Distribution Network
Albany
Syracuse
Boston
Hartford / Springfield
Worcester / Framingham
Davisville
New Haven
I95/New Jersey
New York
Reading
Potential Regional Barge Port
Philadelphia
Hanover
Inland Rail Terminal
Wilmington
Camden
LO/LO Barge Service
Inland Rail Route
Baltimore
Freight Cluster
Washington
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Conclusion

• Technological forces
• Rationalization of freight distribution.
• No paradigm shift in sight.
• Commercial forces
• Global trade imbalances (flows).
• Congestion at gateways.
• Stressed freight distribution capacities.
• Paradigm shift imminent (energy).
• Proactive transport policies
• Leads to misallocations.
• Damage the economy, initiatives and innovations.
• Government policies listening to the freight
  market.