091809Import Supply Chains - Made in China, sold in the...

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Unformatted text preview: Made in China, sold in the United States: How our goods get to us Prof. Rob Leachman University of California at Berkeley September 18, 2009 Introduction Before 1960, almost all of the goods consumed in America were made in America. America Now, most of our "consumer goods" are made in Asia (principally China) Why did this happen? y pp September 18, 2009 Rob Leachman Made in China, Sold in the USA 2 The costs of consumer goods Relative Costs of Made in USA vs. Made in China 100 90 80 Relativ cost ve 70 60 50 40 30 20 10 0 Made in USA Made in China 1960 Made in China today 38% less Transportation and Inventory p y Workers Materials September 18, 2009 Rob Leachman Made in China, Sold in the USA 3 The costs of consumer goods Relative Costs of Made in USA vs. Made in China 100 90 80 Relativ cost ve 70 60 50 40 30 20 10 0 Made in USA Made in China 1960 Made in China today 38% less Transportation and Inventory Workers Materials September 18, 2009 Rob Leachman Made in China, Sold in the USA 4 The costs of consumer goods Relative Costs of Made in USA vs. Made in China 100 90 80 Relativ cost ve 70 60 50 40 30 20 10 0 Made in USA Made in China 1960 Made in China today 38% less Transportation, Warehousing, I W h i Inventory t Labor Materials September 18, 2009 Rob Leachman Made in China, Sold in the USA 5 Part I: How transport costs were reduced 1. Freight became containerized. Rob Leachman Made in China, Sold in the USA September 18, 2009 6 Containerization Before the 1950s, all ocean freight was shipped loose or in various small boxes pp It took more time to load and unload a ship that it did to cross the ocean! 1951 First container ship is built in Denmark All freight is shipped in same kind of large box Much less time and effort to load and unload September 18, 2009 Rob Leachman Made in China, Sold in the USA 7 Intermodal shipping 1956 An American named Malcolm McLean starts th fi t i t t t the first intermodal shipping company d l hi i The same container moves on ships, trains and trucks Much less time and effort to move shipment inland from the port 1958 Sea Land, based in New York (headed by Malcolm McLean), and Matson Navigation, based in San Francisco, become the first big intermodal shipping companies September 18, 2009 Rob Leachman Made in China, Sold in the USA 8 How were transport costs reduced? 2. Freight shipping became intermodal. September 18, 2009 Rob Leachman Made in China, Sold in the USA 9 How were transport costs reduced? 3. In 1977, Southern Pacific Railroad of San Francisco invents th d bl -stack container t i i t the double t k doublet i train. September 18, 2009 Rob Leachman Made in China, Sold in the USA 10 Comparison of container trains European container train: 48 containers Chinese container train: 72 containers American double-stack container train: doubletrains hauling 280 containers are common from W t C f West Coast t Mid t to Midwest, some h l as t haul many as 380 containers September 18, 2009 Rob Leachman Made in China, Sold in the USA 11 How transport costs were reduced 4. 4 America increased the size of our trucks and containers The contents of 5 marine containers fit into 3 domestic containers o a September 18, 2009 Rob Leachman Made in China, Sold in the USA 12 Comparison of containers Marine container (average) Length: 40 feet (some are 20 feet, some are 45 feet) Inside width: 96 inches Height: 8 feet or 9 feet Cubic capacity: About 2,400 or 2,680 cubic feet Length: 53 feet (some older ones are 48 feet) Inside width: 102 inches Height: 9 feet Cubic capacity: About 4,000 cubic feet Rob Leachman Made in China, Sold in the USA 13 Domestic container September 18, 2009 Today's freight transport equipment Marine containers Steamship vessels 20 foot, 40 foot and 45 foot lengths 1,000 up to 5,000 containers Transcon trains are 8,000 12,000 feet long, 280-380 280containers per train Double-stack railroad trains Double Domestic containers and trailers 48 f t and 53 f t l foot d foot lengths th September 18, 2009 Rob Leachman Made in China, Sold in the USA 14 Transport p Equipment (cont.) Port terminals Transfer between ship and truck or p train Rail intermodal terminals Transfer between truck and train Sh t t k t i Short truck trips September 18, 2009 Rob Leachman Made in China, Sold in the USA 15 Dray tractors Marine stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 16 Marine stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 17 Domestic stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 18 Domestic stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 19 Domestic stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 20 Domestic stack train September 18, 2009 Rob Leachman Made in China, Sold in the USA 21 How many containers come from y Asia to USA? In 2005, more than 6 million containers were shipped from Asia to the USA That's almost 120,000 containers per week! September 18, 2009 Rob Leachman Made in China, Sold in the USA 22 How many container ships come y p from Asia, and where do they go? In 2007, 78 container ships came from Asia to North America each week. week Most of these ships made stops at several ports in North America. They unloaded most of their containers at the first stop ... Rob Leachman Made in China, Sold in the USA September 18, 2009 23 First stop for the 78 ships per week p p p Pacific Northwest ports: 15 ships Oakland: 4 ships Los A L Angeles l and Long Beach: 39 ships Mexico: 1 ship Through the Panama Canal to East Coast or Gulf Coast ports: 20 ships September 18, 2009 Rob Leachman Made in China, Sold in the USA 24 What's in the containers? Furniture & B ddi F it Bedding Electronics Machinery Toys, Games & Sporting Goods Toys Clothing Auto Parts & Motorcycles Plastic Goods Steel Goods Shoes and Boots Leather Goods (Handbags) ( g ) Rubber Goods Wooden Goods All other Commodity Source: PIERS, WTA and PMA 2005 data d d September 18, 2009 Percent of Total Volume 17.1% 17 1% 8.3% 8.0% 7.5% 7 5% 6.8% 6.1% 5.0% 3.9% 3.5% 2.4% 3.3% 2.3% 26.0% Rob Leachman Made in China, Sold in the USA 25 Furniture & Bedding Electronics & Electrical Eqpt Machinery h Toys, Games & Sports Eqpt Motorcycles & Auto Parts Plastic goods Apparel - not knitted Steel goods Footwear Rubber goods Misc manufactured goods Leather goods a good Wooden goods Apparel knitted All Other Total September 18, 2009 Commodity 2005 distribution of imports by commodity through U.S. West Coast Ports TEUs (1000s) 1,489 877 838 700 592 446 407 363 357 303 293 229 210 172 1,900 9,135 Avg $ per cu ft 7.87 39.55 51.40 17.02 24.64 14.63 14 63 26.30 15.43 24.91 24 91 14.37 22.94 16.14 6 8.24 51.71 22.66 Source: PIERS, WTA and PMA data. 26 Rob Leachman Made in China, Sold in the USA Figure 2. Value Distribution of 2005 Asia - US p Waterborne Containerized Imports 22.00% 20.00% 18.00% 100.00% 90.00% 80.00% 80 00% Raw Data Smoothed Data Cum % (Raw Data) Cum % (Smoothed Data) 60.00% Perce entage of To TEUs otal 16.00% 14.00% 12.00% 70.00% 50.00% 10.00% 40.00% 8.00% 6.00% 4.00% 2.00% 0.00% 0.0 4.0 4.0 8.0 8.0 12.0 12.0 16.0 16.0 - 20.0 20.0 24.0 24.0 28.0 28.0 - 32.0 32.0 36.0 36.0 - 40.0 40.0 44.0 44.0 48.0 48.0 - 52.0 - > 56.0 52.0 56.0 30.00% 20.00% 10.00% 0.00% Declared Value ($ per Cu. Ft.) September 18, 2009 Rob Leachman Made in China, Sold in the USA 27 Who is importing all those goods p g g from Asia? Importer I t Estimated avg. E ti t d value per cu ft WalWal-Mart $15 Home Depot $9 Target $20 Sears/KSears/K-Mart $20 Ikea $9 Lowe s Lowe's $9 Costco $20 Ashley Furniture $9 September 18, 2009 Rob Leachman Made in China, Sold in the USA PIERS 2004 Volume (TEUs) 576,000 301.200 202,700 186,000 100,000 100,000 100 000 73,040 70,180 28 Source: PIERS Data published in Journal of Commerce What did it cost to ship in 2007? Steamship line charges $400 + $0.30 per container nautical-mile nauticalRailroad charges $200 + $0.75 per container-mile container($200 + $0.90/mile for domestic box) Local dray costs $200 - $400, long-distance longtrucking costs $1 96/ il ki $1.96/mile TransTrans-load to domestic boxes costs $400 Total bill Shanghai Chicago: $3,805 ($1.50 per cubic foot), $4,088 if trans-load ($1.60 per cu. ft.) transRob Leachman Made in China, Sold in the USA 29 September 18, 2009 Part II: How inventory costs were reduced Today a child's bicycle made in China and bought from a "big-box" retail store in the bigbig box USA costs about $60. If you b that same bi l in Asia today, it buy th t bicycle i A i t d will cost about the same or more. H can this be? How hi b ? Rob Leachman Made in China, Sold in the USA September 18, 2009 30 An inventory problem Suppose there are 10 Target stores in the Bay Area. Suppose each store sells 500 bicycles per week. k Suppose a marine container can hold 100 bicycles. How many containers does Target need to ship to each store each week? 500 / 100 = 5 September 18, 2009 Rob Leachman Made in China, Sold in the USA 31 The inventory problem (cont.) yp ( ) So suppose each week Target ships 5 containers pp g p of bicycles from a factory in China to each of the 10 Target stores in the Bay Area. g y Target's bicycle factory is located in a small town in China Each week trucks leave the China. factory and drive to the port in Shanghai. How many trucks should leave each week with containers of bicycles for the Bay Area stores? 5 x 10 = 50 September 18, 2009 Rob Leachman Made in China, Sold in the USA 32 The inventory problem (cont.) (cont ) The Evergreen ship from Shanghai to Oakland g s p o S a g a o Oa a d runs once per week. Suppose 49 containers get on the ship, but one truck breaks down en route to the port and so one container misses the ship! It will have to get on the Evergreen ship to Oakland leaving Shanghai next week. So 9 stores will receive 5 containers but one store containers, will receive only 4, and it won't get the missing container until a week later. later September 18, 2009 Rob Leachman Made in China, Sold in the USA 33 The inventory problem (cont.) (cont ) One store will not receive 100 bicycles on time. What can Target do to make sure all the kids can buy bicycles? E Every store could carry an i t ld inventory of 100 extra t f t bicycles. How many is that in total? 10x100 1 000 10 100 = 1,000 extra bicycles bi l That's expensive! Is there a better way? September 18, 2009 Rob Leachman Made in China, Sold in the USA 34 The inventory solution Suppose the 50 containers are not shipped directly to transthe stores but instead are shipped to a trans-loading warehouse near Tracy or Stockton September 18, 2009 Rob Leachman Made in China, Sold in the USA 35 The inventory solution (cont.) (cont ) At the warehouse, suppose we unload all , pp 49x100 = 4,900 bicycles the bicycles from the 49 marine containers that made it onto the ship p 3 domestic containers can hold the same as 5 marine containers So the contents of 50 marine containers will fit in (50)x(3/5) = 30 domestic containers September 18, 2009 Rob Leachman Made in China, Sold in the USA 36 The inventory solution (cont.) (cont ) Suppose we re-load the 4,900 bicycles re4 900 into 30 domestic containers, 3 going to each of the 10 stores That is, 4,900/10 = 490 bicycles delivered to each sto e store Now how many bicycles are missing from each store? sto e? 500 490 = 10 September 18, 2009 Rob Leachman Made in China, Sold in the USA 37 The inventory solution (cont.) (cont ) Now each store only needs to carry an inventory of 10 extra bicycles We just saved Target 10x100 10x10 = 1,000 100 = 900 1 000 bicycles in the Bay Area alone! September 18, 2009 Rob Leachman Made in China, Sold in the USA 38 How inventory costs were reduced This clever inventory management scheme is called Consolidation-Deconsolidation Consolidation- It is an American invention of the 1990s (and a good e ample of Ope ations Research) example Operations Resea ch) And this is why made-in-China bicycles are made-incheaper to buy in the USA than in Asia! September 18, 2009 Rob Leachman Made in China, Sold in the USA 39 Made in China, Sold in the USA China In the USA we are the richest people on earth, yet we can buy goods for the lowest prices in the th world ld This is because of great American inventions: F i ht shipments are containerized and intermodal Freight hi t t i i d di t d l Our trains are double-stacked double Our domestic containers and trucks are bigger we bigger, can make 3 trips instead of 5 Our inventory is managed very cleverly September 18, 2009 Rob Leachman Made in China, Sold in the USA 40 Trouble on the horizon Pollution near the ports is terrible Hardly anyone one in the USA wants to be a truck driver, draymen make little money driver Fuel costs are rising rapidly The USA is out of freight transportation capacity; even apart from fuel costs, transportation costs are rising The US currency is declining y g September 18, 2009 Rob Leachman Made in China, Sold in the USA 41 The Port and Modal Elasticity Study y y Southern California Association of Governments (SCAG) is the metropolitan planning organization (MPO) for Southern California The MPO decides how all government funds for transportation are allocated to proposed projects SCAG contracted Leachman & Associates LLC to conduct "elasticity analyses" p y y predicting changes g g in import flows as a function of new infrastructure and/or container fees September 18, 2009 Rob Leachman Made in China, Sold in the USA 42 Elasticity Analyses Suppose the public buys clean trucks, builds dedicated truck lanes, new rail terminals, main tracks and grade separations. Suppose fees are charged to use the new infrastructure. Will importers s ay a d pay, or will imports po e s stay and o po s be re-routed via other ports? reRob Leachman Made in China, Sold in the USA September 18, 2009 43 The Elasticity Models y Long-Run Model (2005) Long Considering total transportation and inventory costs, optimizes supply chains for the 83 largest actual importers and 19 "generic" importers (representing small importers) Tallies predicted container flows by port and landside channel Re-run model to predict changes in flows in response Reto changes in rates or fees and/or to changes in container flow times Long-run model takes mean and standard deviation of Longcontainer flow times by channel as given and fixed input data September 18, 2009 Rob Leachman Made in China, Sold in the USA 44 The Elasticity Models (cont.) (cont ) Short-Run Model (2009) Short Instead of fixed container flow times, infrastructure is fixed in model Input data expanded to include port infrastructure d t (t i f t t data (terminals, crew-shifts, i l crew- hift acreage) and railroad data (trackage, terminal (trackage, acreage and crew-shifts) crew Queuing models are used to calculate p predicted container flow times September 18, 2009 Rob Leachman Made in China, Sold in the USA 45 Long Run vs. Short-Run Models vs Short Short-run: What happens if nobody Shortspends any money on new infrastructure or more staffing (beyond the assumed input to model) Long-run: What happens if everyone Longspe ds spends as much money as necessary to uc o ey ecessa y o maintain container flow times when there is opportunity to increase market share pp y September 18, 2009 Rob Leachman Made in China, Sold in the USA 46 Basic Model Setup USA divided into 21 regions. For each importer, a single regional distribution center (RDC) receives all imports g consumed in that region The fraction of total imports destined to each region is made proportional to the purchasing power (income per capita * population) in each region Each importer is assumed to practice a uniform supplyp p supplypp y chain strategy across its portfolio of products, optimized for the average declared value of its imports We consider the 83 largest real importers and 19 "generic proxy" importers to represent the rest Only the top 83 are large enough to consider practicing consolidation de-consolidation supply-chain strategies desupplySeptember 18, 2009 Rob Leachman Made in China, Sold in the USA 47 Basic Model Setup (cont.) (cont ) 11 ports included in model: Prince Rupert, Vancouver, Seattle - T V S ttl Tacoma, Oakland, LA O kl d Long Beach, Lazaro Cardenas, Houston, Savannah, Charleston, Norfolk, NY-NJ NY DirectDirect-ship marine boxes to RDCs Direct-ship marine boxes using only West Coast ports DirectConsolidate De-consolidate "5 corners" DeConsolidate De-consolidate "4 corners" DeConsolidate De-consolidate on each coast DeConsolidate De-consolidate all at LA-LB DeLARob Leachman Made in China, Sold in the USA 48 Alternative supply-chain strategies considered: supply- September 18, 2009 Modeling inventory costs Two types of inventory costs are influenced by choice of supply channel: i fl db h i f l h l Pipeline stocks Proportional to transit time and value of goods Safety stocks at destinations Proportional to value of goods Square root function of lead time, variability in lead time and sales forecast error over lead time Square root function of volume to other destinations that is consolidated Rob Leachman Made in China, Sold in the USA 49 September 18, 2009 Inventory formulas Pipeline stock p ( L)( D) Safety stock at destination DCs Safet Standard deviation of nation-wide forecast nationerrors: D 1.25( MAD) (1.25)(MAPE)( D) S.D. at one of N equal-volume DCs: equal- D / N September 18, 2009 Rob Leachman Made in China, Sold in the USA 50 Inventory formulas Basic textbook formula for standard deviation of inventory level (given demand rate D, standard deviation of demand D , lead time L, standard deviation of lead time L , review interval R ) 2 2 ( L R) D D 2 L Safety stock formula (k): 2 2 k ( L R) D D 2 L Rob Leachman Made in China, Sold in the USA September 18, 2009 51 Safety stock formulas (cont ) (cont.) Total system safety stock for consolidation through a depot (LC) then de-consolidation de(LDC) in the case L = 0 (Eppen & Schrage, ), i th (E S h 1981): 2 2 (k ) ( LC ) D ( N ) 2 ( LDC R )( D / N ) September 18, 2009 Rob Leachman Made in China, Sold in the USA 52 Lead times LAO Asian factory order until vessel booked LAW across the water to port of entry LNA across North America from port of p entry to destination distribution center (DC) L = LAO + LAW + LNA September 18, 2009 Rob Leachman Made in China, Sold in the USA 53 Total system safety stock Direct-shipping strategy: Direct- pp g gy Single DC: 2 2 2 k ( LAO LAW LNA R) D D 2 ( LAW LNA ) N equal-volume DCs: equal2 2 2 2 (k ) L AO D N 2 ( L AW L NA R)( D / N ) N 2 ( D / N ) 2 ( LAW LNA ) September 18, 2009 Rob Leachman Made in China, Sold in the USA 54 Total system safety stock (cont ) (cont.) Trans-load strategy Trans Trans-load at one port: Transp 2 2 2 (k ) ( L AO ) D ( L AW ) D ( N ) 2 ( LNA R)( D / N ) ( N ) 2 ( D / N ) 2 ( 2 L AW N 2 LNA ) Trans-load at M ports: Trans2 (k ) LAO ( M )( LAW ) ( N )( LNA R) D D 2 ( M 2 2 LAW LNA ) N September 18, 2009 Rob Leachman Made in China, Sold in the USA 55 Comparison of total safety stock Trans-load at M ports: Trans2 (k ) LAO ( M )( LAW ) ( N )( LNA R) D D 2 ( M 2 2 LAW LNA ) N Direct shipping: 2 2 2 (k ) LAO ( N )( LAW LNA R) D D 2 ( LAW LNA ) September 18, 2009 Rob Leachman Made in China, Sold in the USA 56 Impact of consolidation Nation-wide N ti id Order Placed with Asian Factory Allocate Order to Destinations, Book Vessels Arrive at Dest'n Port Depart Dest'n Port Arrive at Dest'n DC Direct shipping: 75-100 days Nation-wide Order Placed with Asian Factory 25-40 days 1-5 days 1-10 days Arrive at Dest'n DC Allocate Order to T/L Ports Ports, Book Vessels Allocate to Dest n Dest'n DCs 3 Days Before Vessel Arrival Depart Dest'n Port Trans-loading: T l di 75-100 days 22-37 days 5-9 days 1-9 days September 18, 2009 Rob Leachman Made in China, Sold in the USA 57 Impact of consolidation p Choosing inland U.S. destination from Asia is done 4 to 7 weeks ahead d t k h d But choosing inland U.S. destination just prior to arrival at the U.S. port of entry is done 1 to 2 weeks ahead By means of consolidation (and trans-loading), transsales forecast errors and lead time risks for multiple destinations may be pooled over 3 to 5 weeks September 18, 2009 Rob Leachman Made in China, Sold in the USA 58 Impact of consolidation For the case of weekly shipping from Asia and 6% average error in nationwide one-week-ahead sales one-weekforecasts, consolidation, de-consolidation and transdetransloading ff d l l di affords large, nation-wide retailers an 18-20% nation- id ti t il 18reduction in their total pipeline plus safety stock inventory (compared to direct shipping from Asia) Even considering the extra transportation expense, total cost savings to the US economy is about $1.1 billion per year No inventory reduction afforded for small or regional eta e s retailers September 18, 2009 Rob Leachman Made in China, Sold in the USA 59 Calculated Supply Chain Strategies 82 large importers: g p If declared value > $22 per If declared value > $12 per ft., trans-load at 4 corners trans If declared value > $11 per ft., transft trans-load at 5 corners If declared value < $11 per boxes via cheapest channel cu. ft., trans-load all at LA transcu. ft. and < $22 per cu. cu. ft. and < $12 per cu. cu. ft., direct-ship marine direct- Generic (small or regional) importers: If declared value > $33 per cu. ft., import via only West C Coast ports, otherwise use ports on both Coasts h b hC September 18, 2009 Rob Leachman Made in China, Sold in the USA 60 Supply Chains in Practice Large importers of furniture and bedding (Home Depot, g p g( p , Ikea, Ikea, Lowe's, Ashley, Cost-Plus): Ship marine boxes via Costcheapest channel to regional distribution centers (RDCs) Large importers of electronics, toys, appliances or auto parts (Samsung, Matsushita, Toyota): Ship everything to Port f LA/LB, trans-l d to domestic boxes at import P t of LA/LB t trans-load t d ti b ti t warehouse in the hinterland of the ports Large big-box retailers (Wal-Mart Target, Sears/K-Mart): big(Wal-Mart, Target Sears/KPractice "4 Corners" or "5 Corners" strategies, transtransloading in hinterland of 4-5 ports g 4- p September 18, 2009 Rob Leachman Made in China, Sold in the USA 61 Acknowledgments and Disclaimer I would like to express my gratitude to many organizations that assisted this study POLB and MARAD for Customs data Various importers, steamship lines, IMCs, 3PLs and dray p p y companies for transportation and handling rates BNSF and Union Pacific for RR traffic and container counts, container dwell and transit times, terminal acreages Various port terminal operators for volume, dwell time, acreage l f l d ll and crew-shift data crew- HOWEVER, none of these organizations were involved in model d d l development, analysis or formulation of findings, l t l i f l ti f fi di which are the independent work of the author. These organizations should not be assumed to endorse the Elasticity M d l El i i Models nor any findings of this study. fi di f hi d Rob Leachman Made in China, Sold in the USA September 18, 2009 62 Analysis Using the Elasticity Models 2006-7 Base Case (no new container fees) 2006 Future scenarios: Near-term Likely, NearLikely Optimistic, Pessimistic Both Long-Run and Short-Run Elasticity LongShortcalculations were made September 18, 2009 Rob Leachman Made in China, Sold in the USA 63 Characteristics of Base-Case BaseSolution ~ 34% of Asia - USA imports are fA i i t subjected to consolidation deconsolidation supply-chain management supplypractices ~ 52% of imports routed via San Pedro Bay ~ 29% routed via East or Gulf Coast September 18, 2009 Rob Leachman Made in China, Sold in the USA 64 BaseBase-Case Model vs. Reality 2006 Actual Port shares LA-LB Other West Coast All-Water LA-LB mix Regional IPI Trans-load USA West Coast mix Regional IPI Trans-load 55.0% 20.0% 25.0% Solution to Short-Run Base-Case Model 52.4% 19.0% 28.5% Solution to Long-Run Base-Case Model 52.0% 19.0% 29.0% 21.0% 43.0% 36.0% 22.5% 42.0% 35.5% 22.7% 41.1% 36.2% 46.0% 27.9% 41.9% 30.2% 28.1% 41.2% 30.7% Note: Asia-US imports via Canada and Mexico are excluded from 2006 Actual Asiastatistics b t i l d d in Model statistics. Actual West Coast IPI was 42.7% in 2007 t ti ti but included i M d l t ti ti A t lW tC t 42 7% i and 41.4% in 2008. Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 65 Resulting breakout of import g p volume by strategy Direct-ship marine boxes: 66.3% Direct Using ports on both coasts: 54.9% Using West Coast ports only: 11.4% Consolidate Deconsolidate: 33.7% Using ports on b h coasts: 27.6% both Using San Pedro Bay only: 6.1% Import mix at San Pedro Bay: Direct-ship: 56.9% (42.0% IPI) Direct Consolidate Deconsolidate: 43 1% (35.5% trans-load) 43.1% (35 5% transSeptember 18, 2009 Rob Leachman Made in China, Sold in the USA 66 Figure S-1. Comparative Short-run and Long-run Elasticities of IPI, Transloaded and Local Imports via San Pedro Bay in the Base-Case Scenario 100% 90% Total - short-run % of Zero-Fee Base-cas Imports se Total long-run T t l-l 80% 70% 60% IPI - short-run IPI - long-run 50% 40% 30% 20% 10% 0% $0 $50 $100 $150 $200 Local (goods consumed within region) Transloaded < $28 per cu ft - short-run Transloaded < $28 per cu ft - long-run Transloaded > $28 per cu ft - short-run and short run long-run Fee Value per FEU at San Pedro Bay Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 67 Future Scenarios Analyzed y Near-term likely add rail terminal at Tacoma, Nearreduce gap between IPI and domestic rail rates by $0.10 g p y$ per cu ft to East Coast points and by $0.05 per cu ft to Midwestern points, and rates via Southern Cal to certain points reduced to be more competitive Optimistic I same as Near-term likely plus: BNSF Near- SCIG terminal opened, all-water rates raised by 10% p , ally SCIG terminal opened, large importers' share increased to 50% rates dropped by 10% Optimistic II same as Near-term likely plus: BNSF Near- Pessimistic same as 2006 Base Case plus all-water allSept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 68 Figure S-2. Short-Run Elasticities of Imports via the San Pedro Bay Figure S-2. Short-Run Elasticities of Imports via San Pedro Bay Ports Ports in Future Scenarios 120% 110% Total - Optimistic I Total - Optimistic II % of Zer Fee Base-ca Total Impo ro ase orts 100% 90% 80% 70% 60% Total - Near-term Likely Total - Base Case Total Pessimistic T t l - P i i ti Transload - Optimistic I 50% 40% 30% 20% Transload - Optimistic II Transload - Near-term Likely Transload - Base Case 10% 0% $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Transload - Pessimistic Fee Value per FEU at San Pedro Bay Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 69 Figure S 3 Long Run Elasticities of Imports via the San Bay Ports S-3 Long-Run Figure S-3. Long-Run Elasticities of Imports via San PedroPedro Bay Ports in Future Scenarios 150% 140% Total - Optimistic I Total - Optimistic II Total - Near-term Likely Total - Base Case Total - Pessimistic Transload - Optimistic I Transload - Optimistic II Transload - Near-term Likely Transload - Base Case Transload - Pessimistic $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 % of Zero Fe Base-case Total Imports ee T 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Fee Value per FEU at San Pedro Bay p y Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 70 What s going on here What's The IPI business at SPB is highly elastic. There are alternative ports with comparable costs for the steamship lines. Fees make this volume go down. down The trans-load business is more inelastic, but transthe amount of diversion depends strongly on scenario: Pricing by the RRs (IPI vs. domestic, So Cal vs. PNW) vs domestic vs Pricing by the steamship lines and by the Panama Canal authority Market share of the large importers Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 71 Impact of Congestion Relief p g Program The Long-Run Elasticity of the Near-term Likely LongNearScenario was re-computed assuming a Major reCongestion Relief Program is in place: C ti R li f P i i l Double-bottom drays using dedicated truck lanes Doublefrom ports to trans-loading and warehousing districts trans 2005 Inland Empire Rail Plan fully implemented, Alameda Corridor and port connections fully built out Port and rail terminals fully staffed Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 72 Long-Run Elasticity of Imports via San Pedro Bay Ports, 2006 Base-Case Scenario vs. Near-Term Likely Scenario Supplemented with Major Congestion Relief S l d i hM j C i R li f 130% 120% % of Zero-Fee 2006 Base-c o 2 case Imports s 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Total - Congestion Relief Total - Base Case Transload - Congestion Relief Transload - Base Case IPI - Congestion Relief IPI - Base Case Fee Value per FEU at San Pedro Bay Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 73 Observations Trans-load import volumes exceed the 2006 TransBase Case volumes until container fees rise to about $225 per FEU (was $150 per FEU without congestion relief) Moderate fees + Major Congestion Relief is attractive for the Trans-loaded imports Trans- But IPI volume exceeds Base-Case IPI volume Baseonly until about $50 per FEU Fees + Congestion Relief is not attractive for the IPI imports Total volume exceeds Base-Case volume until Baseabout $150 per FEU Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 74 What should Southern California do? The Public Policy choice: Do not charge container fees, don't improve g , p the infrastructure, don't clean up the environment, promote the IPI volume Improve the infrastructure for trans-loaded transimports, promote the trans-load business, transclean up the environment, charge container l th i t h t i fees, let the IPI volume go Leachman and Associates LLC Port and Model Elasticity Study Sept 17, 2009 75 Potential Policy Changes Promoting y g g Option 2 Encourage and facilitate warehousing and transtransloading closer to the ports (e.g, Carson, (e.g, Compton, T C t Torrance) rather than out i the ) th th t in th Inland Empire or further away Encourage and facilitate the railroads to operate domestic stack train service out of rail terminals near the ports (ICTF SCIG) (ICTF, Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 76 Another Public Policy Question Should all containers pay the same fee, or should the fee depend on the landside infrastructure th t i utilized? i f t t that is tili d? Analysis assumed all import boxes pay the same fee, i.e., i e it assumed a lot of cross-subsidization cross With differentiated fees, there would be more IPI volume and less trans-loaded volume trans- Sept 17, 2009 Leachman and Associates LLC Port and Model Elasticity Study 77 Press Journal of Commerce, Sept. 19, 2005: " controversiall study by the Southern California Association of Governments "A d b h S h C lf fG says a $200 per FEU fee wouldn't cause widespread diversion of high-value highimports that are trans-loaded into domestic trailers or containers for inland transdistribution - as long as the money is spent on infrastructure improvements. improvements." "Shippers are unnerved by the report, because of the magnitude of the perpercontainer fees and the fact that it comes at a time when the California Legislature is considering such fees, whose advocates include the Los Angeles Economic Development Commission. "SCAG dropped a big bomb into this debate," said Robin Lanier, executive director of the Waterfront Coalition, a WashingtonWashington-based organization that represents the nation's largest shippers and retailers on transportation matters." matters. "Tony Minyon, national logistics manager at Toyota Motor Sales USA, said Minyon, importers regularly perform calculations similar to those found in the SCAG study to determine whether they should trans-load or ship direct." transRob Leachman Made in China, Sold in the USA September 18, 2009 78 Politics The Lowenthal Bill proposing a fee of $100 per Bill, container, passed the California legislature in 2009. The fee proceeds would be used for environmental mitigation and infrastructure improvement. Proponents of the bill claimed my study said diversion would not be a problem. Th governor vetoed th bill. The t d the bill His staff said my study said there would be too much diversion. diversion September 18, 2009 Rob Leachman Made in China, Sold in the USA 79 Thank you for your attention September 18, 2009 Rob Leachman Made in China, Sold in the USA 80 ...
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