Inland Ports (Terminals)

Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom

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1. A New Role for Inland Terminals

In many places around the world bimodal and trimodal inland terminals have become an intrinsic part of the transport system, particularly in regions having a high reliance on trade. Transport development is gradually shifting inland after a phase that focused on the development of port terminals and maritime shipping networks. There are many reasons behind this growing attention. The complexity of modern freight distribution, the increased focus on intermodal and co-modal transport solutions and capacity issues appear to be the main drivers. While trucking tends to be sufficient in the initial phase of the development of inland freight distribution systems, at some level of activity, diminishing returns such as congestion, energy consumption and empty movements become strong incentives to consider the setting of inland terminals as the next step in regional freight planning. Also the massification of flows in networks, through a concentration of cargo on a limited set of ports of call and associated trunk lines to the hinterland, have created the right condition for nodes to appear along and at the end of these trunk lines.

The evolution of inland freight distribution can be seen as a cycle in the ongoing developments of containerization and intermodal transportation. The geographical characteristics linked with modal availability and capacity of regional inland access have an important role to play in shaping this development. As maritime shipping networks and port terminal activities become better integrated, particularly through the symbiotic relationship between maritime shipping and port operations, the focus shifted on inland transportation and the inland terminal as a fundamental component of this strategy. Thus, after a phase that relied on the development of port terminals and maritime shipping networks, the integration of maritime and inland freight distribution systems has favored the setting of inland ports.

Inland port. A rail or a barge terminal that is linked to a maritime terminal with regular inland transport services. An inland port has a level of integration with the maritime terminal and supports a more efficient access to the inland market both for inbound and outbound traffic. This implies an array of related logistical activities linked with the terminal, such as distribution centers, depots for containers and chassis, warehouses and logistical service providers.

Using the term "port" to define an inland terminal is subject to debate since the inland location can effectively be a port if a barge service is concerned, but fundamentally cannot be considered a port if it involves a rail terminal. Sometimes, the term "dry port" is used to underline this nuance. Thus, there seems to be no consensus on the terminology. The reason for this lies in the multiple shapes, functions and network positions these nodes can have. However, since the inland terminal is essentially an extension of some port activities inland, the term inland port has gained acceptance. A similar issue applies with the inclusion of airport terminals, mainly the freight component, as an element of an inland port. A whole array of transport terminal infrastructures are therefore often presented as an inland port. Regardless of the terminology used, three fundamental characteristics are related to an inland node:

• An intermodal terminal, either rail or barge.
• A connection with a port terminal through rail, barge or truck services, often through a high capacity corridor.
• An array of logistical activities that support and organize the freight transited.

2. Driving Forces

Each inland port remains the outcome of the considerations of a transport geography pertaining to modal availability and efficiency, market function and intensity as well as the regulatory framework and governance. Their emergence underlines some deficiency in conventional inland freight distribution that needs to be mitigated. This mitigation includes:

• Capacity and congestion. Capacity issues appear to be the main driver of inland port development since a system of inland terminals increases the intermodal capacity of inland freight distribution. While trucking tends to be sufficient in the initial phase of the development of inland freight distribution systems, at some level of activity, diminishing returns such as congestion, energy and empty movements become strong incentives to consider the setting of inland terminals as the next step in regional freight planning.
• Hinterland access. Inland locations tend to be less serviced by intermodal transportation than coastal regions. Through long distance transport corridors, inland ports confer a higher level of accessibility because of lower distribution costs and improved capacity.
• Supply chain management. In addition to standard capacity and accessibility issues in the hinterland, an inland port is a location actively integrated within supply chain management practices. This takes many forms such as the agglomeration of freight distribution centers, container depots and logistical capabilities. The inland terminal can also become a buffer in supply chains, acting as a temporary warehousing facility. Purchasers can even be advantaged by such a strategy since they are not paying for their orders until the container leaves the terminal, delaying settlement even if the inventory is nearby and available.

The geographical characteristics linked with modal availability and capacity of regional inland access have an important role to play in shaping the emergence and development of inland ports. Each inland market has its own potential requiring different transport services. Thus, there is no single strategy for an inland port in terms of modal preferences as the regional effect remains fundamental. In developed countries, namely North America and Europe, which tended to be at the receiving end of many containerized supply chains, a number of inland ports have been developed with a focus on inbound logistics.

The setting of global supply chains and the strategy of Pacific Asian countries around the export-oriented paradigm have been powerful forces shaping contemporary freight distribution. Indirectly, this has forced players in the freight transport industry (shipping companies, terminal operators, logistics providers) to examine supply chains as a whole and to identify legs where capacity and reliability were an issue. Once maritime shipping networks and port terminal activities have been better integrated, particularly through the symbiotic relationship between maritime shipping and port operations, inland transportation became the obvious focus and the inland terminal a fundamental component of this strategy. This initially took place in developed countries, namely North America and Europe, which tended to be at the receiving end of many containerized supply chains. The focus has also shifted to considering inland terminals for the early stages of global supply chains (outbound logistics), namely in countries having a marked export-oriented function.

3. Functions within Value Chains

A functional and added value hierarchy has emerged for inland terminals. In many instances, freight transport terminals fit within a hierarchy with a functionally integrated inland transport system of gateways and their corridors, where they service three major functions:

• Satellite terminals. They tend to be close to a port facility, but mainly at the periphery of its metropolitan area (often less than 100 km), since they mainly assume a service function to the seaport facilities. They accommodate additional traffic and serve functions that have become too expensive at the port such as warehousing and distribution. Satellite terminals can also serve as load centers for local or regional markets, particularly if economic density is high, in which case they form a multi-terminal cluster with the main port they are connected to through regular rail or barge shuttle services. For gateways having a strong import component, a satellite terminal can also serve a significant transloading function where the contents of maritime containers are transloaded into domestic containers or truckloads.
• Freight distribution clusters (load centers). A major intermodal facility - load center - granting access to well defined regional markets that includes production and consumption functions. It commonly corresponds to a metropolitan area where a variety of terminals serve concomitantly intermodal, warehousing, distribution and logistics functions. These tend to take place in logistics parks and free trade zones (or foreign trade zones). The inland terminal is thus the point of collection or distribution of a regional market. The more extensive and diversified the market, the more important is the load center. If the load center has a good intermediary location, such as being along a major rail corridor, then freight distribution activities servicing an extended market will be present.
• Intermodal / transmodal facilities. Link large systems of freight circulation either through the same mode (e.g. rail-to-rail) or through intermodalism (e.g. rail-to-truck). In the later case, the inland terminal assumes the role of a load center. The origin or the destination of the freight traffic tends to be elsewhere, particularly for transmodal freight.

These functions are not exclusive, implying that inland terminals can service several functions at once. There is no single model for an inland port. For inbound or outbound freight flows, the inland terminal is the first tier of a functional hierarchy that defines its fundamental (activities it directly service) and extended (activities in indirectly service) hinterlands. Considering the potential mix of the functions of inland ports, five major criteria insure that they fulfill efficiently their role as an interface between global and regional freight distribution systems:

• Site and situation. Like any transport facility of significance, an inland port requires an appropriate site with good access to the rail or the barge terminal as well as available land for development. Access to a large population base is of importance since it will be linked to the level of import and export activities handled by the inland port. Several inland ports also have an airport in proximity which can help support an variety of freight activities.
• Repositioning. Since most long distance trade (and some domestic) is supported by containerization, there are numerous instances where a regional market imports more than it exports (or vice-versa). Under such circumstances, an inland port must provide the physical and logistical capabilities to insure that empty containers are repositioned efficiently to other markets if local cargo cannot be found.
• Cargo rotation. Whether there are imbalances in container flows or not, an inland port must insure that the inbound and outbound flows are reconciled as quickly as possible. A common way involves a cargo rotation from imports activities where containers are emptied to exports activities filling containers. For container owners, let them be maritime shipping or leasing companies, a rapid turnover of their assets is fundamental and will secure a continuous usage of the inland port.
• Support for trade. An inland port can also be a fundamental structure promoting the export sectors of a region, particularly for smaller businesses unable to achieve economies of scale on their own. Through lower costs and better accessibility, new market opportunities become possible as both imports and exports are cheaper.
• Governance. The way an inland port is owned and operated is indicative of its potential to identify new market opportunities and invest accordingly. In many cases, the commitment of a large private investor such as a port operator or a real estate developer can be perceived as a risk mitigation strategy in addition to provide expertise in the development of facilities and related activities. Sections of an inland port can be shared facilities (e.g. distribution centers) so that smaller players can get involved by renting space and equipment. This also applies to the appropriate strategies related to each stage in the life cycle of an inland terminal from its construction to its maturity where its potential has essentially been taped off. The setting of a Foreign Trade Zone (FTZ) is also an option to be considered.

4. From Intermodalism to Cluster Formation

Inland terminals have evolved from simple intermodal locations to their incorporation within logistical clusters. Inland terminals (particularly rail) have always been present since they are locations from which specific market coverage is achieved. Containerization has impacted this coverage through the selection of terminals that were servicing a wider market area. This spatial change also came with a functional change as intermodal terminals began to experience a specialization of roles based on their geographical location but also their ‘location’ within supply chains.

It can thus be seen that the functional specialization on inland terminals has been linked with cluster formation of logistical activities. Inland terminals in many cases have witnessed a clustering of logistics sites in the vicinity, leading to a process of logistics polarization and the creation of logistic zones. They have become excellent locations for consolidating a range of ancillary activities and logistics companies. In the last fifteen years, the dynamics in logistics networks have created the right conditions for a large-scale development of such logistics zones, particularly in Europe. The range of functions of inland logistics zones is wide ranging from simple cargo consolidation to advanced logistics services. Many inland locations not only have assumed a significant number of traditional cargo handling functions and services, but also have attracted many related services, such as distribution centers, shipping agents, trucking companies, forwarders, container repair facilities and packing firms.

The concept of logistics zones in the hinterland is now well-advanced in Europe. In the late 1960s and 1970s, logistics zones appeared in France, Italy and Germany, by following the concept of extended inland intermodal terminals. In the 1980s and 1990s, the number of such zones multiplied. Logistics zones are usually created within the framework of regional development policies as joint initiatives by firms, intermodal operators, regional and local authorities, the central government and or the Chambers of Commerce and Industry. Logistics zones comprising intermodal terminals and logistics sites are often referred to as freight villages.

In North America, the emergence of planned logistics zones came later as governments rarely placed much attention on these activities, outside zoning regulations at the municipal level. The general availability of land and the private nature of rail operations involved a freight distribution industry that was self-regulated in its locational choices. Cluster formation was mainly a ‘natural’ process strongly conditioned by national and regional market accessibility. A variety of private real estate promoters, often in partnership with local or state governments, built logistics or industrial parks on an ad hoc basis where land was available, inexpensive and in proximity to a major highway. This led to three major forms of North American logistics cluster dynamics:

• Near gateways where logistics clusters are strongly conditioned by warehousing parks in the vicinity of container port terminals as well as in suburban settings nearby ring roads. This is prone to the usage of satellite terminals.
• Around inland rail terminals, which took place at the same time that new facilities were being designed in a suburban setting, away from the more traditional locations nearby central business districts. This reinforce the emergence of load centers.
• Along major highway corridors that can service a large metropolitan area or a group of metropolitan areas. For instance, many distribution clusters in central Pennsylvania where establish because of the convenient access to large cities along the Boston – Washington corridor, with most of the cities accessible within 3 to 6 hours.

5. The Regional Effect and Inland Ports

Regional issues, namely how inland ports interact with their regional markets, remain fundamental as it defines their modal characteristics, their regulatory framework and their commercial opportunities. Depending on the geographical setting and the structure, governance and ownership of inland transport systems, inland terminals have different levels of development and integration with port terminals. Three regions are particularly revealing:

• Europe. It is in Western Europe that the setting of inland terminals is the most advanced with a close integration with port terminals with rail shuttles and barge services. Barge container transport in Europe has its origins in transport between Antwerp, Rotterdam and the Rhine basin, and in the last decade it has also developed greatly along the north-south axis between the Benelux and northern France. Antwerp and Rotterdam together handle about 95% of total European container transport by barge. Volumes on the Rhine have increased from 200,000 TEU in 1985 to some 1.8 million TEU in 2006, leading to higher frequencies and bigger vessels. European integration processes have permitted the setting of more natural (commercially based) hinterlands that did not exist before. Since a good share of the European market is inland, a growth in international trade required the setting of intermediary locations inland to help accommodate larger flows between ports and their hinterland. A large concentration of inland terminals can be found around the Rhine/Scheldt delta, which is Europe's most important gateway region (Antwerp / Rotterdam port cluster), and where the function of satellite terminals is prominent. Almost every European port has an inland terminal strategy as a way to secure hinterland traffic.
• North America. There have been large inland terminals in North America since the development of the continental railway system in the late 19th century. Their setting was a natural process where inland terminals corresponded to large inland market areas, commonly around metropolitan areas commanding a regional manufacturing base and distribution system. Although exports were significant, particularly for agricultural goods, this system of inland terminals was mostly for domestic freight distribution. With globalization and intermodalism two main categories of inland terminals have emerged in North America. The first is related to ocean trade where inland terminals are an extension of a maritime terminal located in one of the three major ranges (Atlantic, Gulf and Pacific) either as satellite terminals and more commonly and inland load centers (e.g. Chicago). The second category concerns inland terminals mainly connected to NAFTA trade that can act as custom pre-clearance centers. Kansas City can be considered the most advanced inland port initiative in North America as it combines intermodal rail facilities from four different rail operators, foreign trade zones and logistics parks at various locations through the metropolitan area. There is even the world’s largest underground warehousing facility, Subtropolis, where temperature stable space can be leased. Like Chicago, the city can essentially be perceived as a terminal.
• Pacific Asia. For Asia, inland terminals are almost unknown, so they can be considered to be in their infancy. Geographical characteristics, namely coastal population concentrations, and export oriented development strategies have not been prone to the setting of inland terminals. Several container depots have appeared inland as a way to improve the availability of export containers within manufacturing clusters, but containers are mainly carried by truck. It is in the case of China that resides the potential for the emergence of a network of inland terminals. As the Chinese economy moves towards a more extensive internal market intermodal rail and barge traffic will increase. Eventually, another system of inland terminals is likely to emerge in Southeast Asia, particularly along the Mekong. In light of the North American and European experiences, the question remains about how Pacific Asia can develop its own inland port strategy and regionalism. The unique geographical characteristics of the region are likely to rely much on the satellite terminal concept and inland load centers in relative proximity. For this context, the European example is more suitable. However, the setting of long distance intermodal rail corridors within China and through Central Asia is prone to the inland load center system common in North America.

The prospects for inland terminals remain positive with large continental markets like North America and Europe relying on a network of satellite terminals and load centers as a fundamental structure to support hinterland freight movements. This entailed the emergence of extended gates and with them extended forms of supply chain management in which inland terminals play an active role. As congestion increases, inland terminals will be even more important in maintaining efficient commodity chains. It can also be expected that resources will play a greater role within containerized trade with inland terminals, again underlining unique regional characteristics. This implies a set of repositioning strategies where inland terminals play a fundamental role either to improve the efficiency of this repositioning, by providing better cargo rotation opportunities, or by acting as an agent that can help promote containerized exports. Inland ports will take part of the ongoing intermodal integration between ports and their hinterland through long distance rail and barge corridors. They are likely to be more important elements within supply chains, particularly through their role of buffer where containerized consignments can be cheaply stored, waiting to be forwarded to their final destinations.

Like several stages in intermodal transport development, such as in port infrastructure, there is a potential of overinvestment, duplication and redundancy as many inland locations would like to claim a stake in global value chains. This appears to be the case in Western Europe where an abundance of inland terminals, particularly within the Rhine / Scheldt delta, is indicative of an over competitive environment and the waste of resources it implies. In North America, because of a different ownership and governance structure, the setting of an inland port, at least the intermodal terminal component, is mostly in the hands of rail operators. Each decision thus takes place with much more consideration being placed on market potential as well as the overall impact on their network structure. The decision of a rail company to build a new terminal or to expand existing facilities commonly marks the moment where regional stakeholders, from real estate developers to logistics service providers, readjust their strategies. In some instances, local governments will come with inland port strategies adjusting to existing commercial decisions in the hope to create multiplying effects.