1. Context

Containerized freight is commonly characterized by the movement of manufactured goods and parts, which has substantially benefited from the conferred mobility in terms of spatial flexibility and distribution efficiency. Still, this sector has reached maturity in terms of its containerization implying that changes are derived from the ebb and flows of commercial activity and much less to its geographical and functional diffusion. Many global supply chains a fully containerized.

It can be argued that a subsequent phase of containerization will relate to commodities, which represent a notable market potential being realized. Both transport systems, bulk and containerized, have a role to play implying that the containerization of commodity chains is more likely to be a process based on complementarity than of competition. It is clear that for several commodities such as grain, steel and coal,  containerization will at best perform a niche role in the total volume handled. Both are likely to benefit. Thus, two major commodity chains will be in operation, each having its own characteristics:

• Bulk commodity chains. These chains are commonly based on the specialization of terminals, often by specific commodity since each require specialized handling and storage facilities. There is also the issue of empty return movements as modes carrying commodities do so in only one direction. Thus, from a transportation perspective, this distribution system is prone to inefficiencies and has a level of usage which is in theory 50%, but lower in reality.

• Containerized commodity chains. They are increasingly been used and it is becoming a matter of embedding commodity flows with the containerized freight distribution system. This would mainly concern niche markets where product separation (e.g. different grades of grain in smaller batches) and delivery time are more important. The containerized commodity chain, likes it bulk counterpart, also faces the empty movement challenge. However, considering the current structure of international trade, a higher integration of commodities in containerized freight distribution would actually play a positive role in mitigating imbalances.

2. Potential Markets

The degree of market penetration of containerization remains to be assessed as some commodities are already fully containerized, while other could be more containerized than they already are. For instance, 95% of all European coffee imports are containerized. Many raw materials and food products are in the process of being containerized, which is starting to account for a notable share of international trade. There is thus an existing and thriving containerized commodity market. Because of vested interests, in terms of accumulated infrastructure investment and long standing practices, many opportunities could be captured by small enterprises over niche markets (high quality grains, organics, etc.). The container confers little differences in scale economies for a producer (for the shipper this is obviously another matter), particularly since containerized shipping networks are now fairly well established. For instance, farmers (or cooperatives) may develop their own markets by sending small loads through regular containerized supply chains. Yet, more attention should be placed on analyzing the potential, particularly the time and flexibility benefits, for the containerization of commodity markets.

A major factor behind the containerization of commodities resides in global trade imbalances. For instance, the opportunity created by trans-pacific trade imbalances has yet to be better captured by the North American commodity sector. The same applies for the European commodity sector in terms of the imbalanced Pacific-Indian-Mediterranean routes. More recently, the rise in charter rates for bulk carriers has favored a shift towards containerization simply because of advantageous cost differences. This rise is mainly linked with the growth of global commodity trade, putting pressures on bulk transportation. For many, containerization became a suitable alternative in light of surging bulk costs. Empty container repositioning is also creating opportunities for the containerization of commodities, making available a large pool of empty containers that can be filled for backhauls.

Containerization may also have an impact on the commodity markets themselves. Commodity futures are a legally binding agreement, made at a futures exchange, to buy or sell a commodity or financial instrument at some point in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on a trading floor as traders get more accurate information about future market conditions as they unfold. Forward contracts are cash contracts in which a seller agrees to deliver a specific commodity to a buyer sometime in the future. Forward contracts, in contrast to futures contracts, are privately negotiated.

According to these definitions, the function of distribution could play a significant role in the setting of futures or forward contracts. With the containerization of some commodity markets, a contract could involve the allocation of empty containers to provide the fulfillment capacity at a specified point in time. It would require the setting of container storage facilities near terminals (particularly rail) that would be able to release containers accordingly. This could reduce the expected time frame of a futures contract, making it closer to a “spot” (on demand) market contract. Containerization is thus likely to accelerate the resolution of commodity market contracts. A higher level of integration between commodity markets and freight distribution is to be expected.

3. Current Issues

Because of the nature of the freight it handles, the containerization of commodities creates an unique set of challenges. They mainly include:

• Container preparation. Containers are well adapted to handle packaged freight either directly ("floor loaded") or on pallets. This is another matter for commodities, particularly bulks. Some, like grains, would require a container to be thoroughly cleaned before being loaded to avoid any form of shipment contamination. Others would also require the cleaning of a container once unloaded so it can be used for other purposes. The usage of dedicated containers is also a possibility as it would reduce preparation costs, but likely imply empty movements and high repositioning costs.
• Container loading, unloading and transloading. Containers are dominantly loaded horizontally either manually or with fork lifts. Loading a container horizontally with bulk is a complex task often requiring a panel to block the back door and hold the bulk freight. Alternatively, containers can be flipped vertically to be loaded or unloaded but this require specialized handling equipment. The usage of different modes to reach the load center (such as rail hopper cars) or the switch from domestic (53 footer) to maritime (40 footer) containers require a transloading operation, which represents additional costs. Some commodity chains, such as grains, also benefit if the integrity is maintained from the origin to the destination. This requires the source loading of containers.
• Weight. Weight is a major issue as container loads are much lighter for conventional (mainly retail) freight. The shipping industry has adapted to this characteristic and prefer using larger containers (40 footers) as they offer more volume for the same handling costs. Shipping commodities such as grain tends to rely on 20 footers (one TEU) for the simple reason that they can each load around 26 to 28 tons while a 40 footer, because of structural integrity issues, has a loading capacity of about 30 tons, but this load occupying twice the shipping volume.
• Weight distribution. Containerships are designed to accommodate a specific weight load and distribution. Figures of 10 to 14 tons per TEU are common in operational considerations. If presented with a significant container volume of more than 20 tons per TEU, adjustments in the distribution of this load must be made. Under normal circumstances where there is an equilibrium between inbound and outbound traffic, a containership presented with a full load of heavy containers could only by filled to 75% of its capacity. This can be mitigated by considering the current structure of trade imbalances in North America with much of the containers leaving West Coast ports being empty. A scenario implying a full distribution of containers loaded with commodities and empties is thus applicable.
• Land consumption at port terminals. Bulk commodities can be stored at port terminals in a relatively compact manner. The same volume of containerized commodities can consume as much as 4 times the terminal space. Still, this could be mitigated if the loading process takes place inland either at a load center or at a satellite terminal. Additionally, the intermodal velocity of containerized freight tends to reduce its spatial imprint.
• Existing distribution channels. The transport of commodities is already characterized by substantial investment in bulk handling equipment, both for modes and terminals. There is thus a lot of accumulated inertia in existing distribution channels making stakeholders reluctant to change practices. The containerization of commodities can thus be more suitable for new or expanding markets, or in low volume situations.