論文 / 著書情報
Article / Book Information
題目(和文)
Title(English)

Mechanism of bulk cargo containerization

著者(和文)

松田琢磨

Author(English)

Takuma Matsuda

出典(和文)

学位:博士(学術),学位授与機関:東京工業大学,
報告番号:甲第11001号,
授与年月日:2018年9月20日,
学位の種別:課程博士,
審査員:花岡 伸也,山下 幸彦,阿部 直也,朝倉 康夫,福田 大輔,手塚 広一郎

Citation(English)

Degree:Doctor (Academic),
Conferring organization: Tokyo Institute of Technology,
Report number:甲第11001号,
Conferred date:2018/9/20,
Degree Type:Course doctor,
Examiner:,,,,,

学位種別(和文)

博士論文

Type(English)

Doctoral Thesis

Powered by T2R2 (Tokyo Institute Research Repository)MECHANISM OF BULK CARGO CONTAINERIZATION（バルク貨物コンテナ化のメカニズム）

by

TAKUMA MATSUDA

Submitted to the Department of International Development Engineeringin Partial Fulfillment of the Requirements for the Degree of
DOCTOR OF PHILOSOPHY
at
Tokyo Institute of Technology
Tokyo, Japan

Examination Committee:
Professor, Shinya Hanaoka (chairperson)
Professor, Yasuo Asakura
Professor, Koichiro Tezuka, Nihon University
Associate Professor, Naoya Abe
Associate Professor, Daisuke Fukuda
Associate Professor, Yukihiko Yamashita

SEPTEMBER 2018
© 2018 Tokyo Institute of Technology – All rights reserved

Abstract
Prior to containerization, consumer goods shipped by sea were termed “general cargo.” With
the development of containerization in the 1960s, the transportation of cargo changed
dramatically, leading to the global phenomenon known as the “container revolution.” The
impact of containerization has been enormous because it not only reduces transport costs but
also improves the safety and reliability of transportation and promotes international trade.
Although containerization progressed after standardization in the late 1960s, progress slowedin the 2000s. Both academics and practitioners recognized that this was primarily the resultof the completion of the process of conversion from general cargo. Therefore, it is important
to increase container cargo in the future by exploiting niche markets and goods that are not
traditionally carried by container shipping. Thus a focus on bulk cargo containerization(BCC) is essential.
Further, BCC can also lead to increased efficiency in container shipping because it helps toalleviate differences between outbound and inbound freight and it reduces the cost of
returning empty containers to the export port. Thus, promoting BCC is of great significancein terms of increasing both the freight revenue and efficiency of container shipping
companies.
The primary purpose of this dissertation is to observe how containerization of bulk cargotakes place and the factors that are involved in promoting this mode of transport. To this end,
the author attempts to identify both the macroeconomic and microeconomic factors affecting
BCC. Macroeconomic factors include the status of various economies and their infrastructure,
while microeconomic factors include specific BCC decision-making entities, therelationships between those decision-making entities, and the structure of the decisionmaking process. In addition, various research hypotheses are tested and policy measures
aimed at promoting BCC are proposed.
First, the factors involved in promoting BCC in the East Asia region are analyzed using
cluster analysis and simultaneous equation modeling. Then, based on interviews withpractitioners, the decision-making structure is examined. Second, using a calculation basedon the consignee’s cost function and the container shipping company’s profit function, BCC
selection factors, decision-making processes, and proposed BCC promotion measures areanalyzed. It is found that cost reduction for consignees plays a significant role in promoting
BCC. Further, a combination of policies in relation to other factors, including cargo handlingcosts, procedural expenses, and improved container port and equipment performance isnecessary if BCC is to be promoted. The findings also indicate that it is essential to focus on
characteristics such as demand size.

iiAcknowledgements
I would like to express my profound gratitude and sincere appreciation to my supervisor,
Professor Shinya Hanaoka, for his time, patient guidance, constructive suggestions,encouragement, and trust in supporting my research activities since I commenced work at theTokyo Institute of Technology.
I would also like to express my profound gratitude and sincere appreciation to AssistantProfessor Tomoya Kawasaki for his suggestion that I write this dissertation and his
enthusiastic encouragement. His patient assistance has been continuous since we werecolleagues at the Japan Maritime Center, and his support has been indispensable to myresearch activity.
I would also like to thank my committee members, Professor Yasuo Asakura, Associate
Professor Daisuke Fukuda, Associate Professor Naoya Abe, and Associate Professor
Yukihiko Yamashita for their generous support and valuable comments and guidance. I am
especially thankful to Professor Koichiro Tezuka of Nihon University for undertaking to be
a committee member and always providing generous support in various ways.
Great appreciation and sincere thanks are also due to all my supervisors and colleagues at theJapan Maritime Center, not only for their consideration of my research but also for theirfinancial support. In particular, I would like to express my sincere gratitude to my fellow
researchers Hideyuki Nakamura, Setsuo Nomura, and Seijiro Morimoto for allowing me toengage in my doctoral research activities and encouraging me despite their own burdens.
I would also like to extend my sincere thanks to my friends Kuniharu Sato, Hisayoshi Imai,
Yutaka Watanabe, Yuan Yuan, and Satomi Tanaka for providing me with support andencouragement, not only throughout my years of study but also through other times ofdifficulty. I was only able to complete my work because of them.
Finally, I express my profound gratitude to my family. My father, Ryozo Matsuda, my wife,
Yasuko, and my sons, Yushi and Satoshi, have provided me with unfailing support andencouragement, and have displayed endless patience throughout my years of study andthrough the process of researching and writing this dissertation. This accomplishment would
not have been possible without them. Thank you.

iii

Table of Contents
Title page ................................................................................................................................... i
Abstract .................................................................................................................................... ii
Acknowledgements ................................................................................................................. iii
Table of Contents .................................................................................................................... iv
List of Tables .......................................................................................................................... vii
List of Figures.......................................................................................................................... ix
Abbrebiation ............................................................................................................................. x

1

INTRODUCTION
1.1 Background....................................................................................................................... 2
1.2 Research Objectives ......................................................................................................... 6
1.3 Study Scope ..................................................................................................................... 7
1.4 Dissertation Outline ......................................................................................................... 8

2

THE CURRENT STATUS OF CONTAINER SHIPPING OF BULK CARGO
2.1 Introduction .................................................................................................................... 12
2.2 Diffusion of Containerization ......................................................................................... 12
2.3 Stagnation of Containerization ....................................................................................... 17
2.4 Imbalances in Container Shipping .................................................................................. 18
2.5 Bulk Cargo as Additional Container Cargo .................................................................... 20
2.6 Transportation Processes for Bulk Shipping and Container Shipping ........................... 23
2.7 Current Status of BCC .................................................................................................... 28
2.7.1 Trends in Containerization ................................................................................... 28
2.7.2 Containerization by Commodity Group............................................................... 30
2.7.3 Containerization and the Value of Commodities ................................................. 33
2.7.4 Containerization and Trade Routes ...................................................................... 34
2.8 Benefits of BCC ............................................................................................................. 36
2.9 Chapter Conclusion ....................................................................................................... .39

iv

3

REVIEW OF PREVIOUS STUDIES
3.1 Introduction .................................................................................................................... 42
3.2 Literature on the Progress of Containerization ............................................................... 42
3.3 Literature on the Recent Stagnation of Containerization ............................................... 45
3.4 Literature on the Effect of Trade Imbalances ................................................................. 45
3.5 Literature on the Benefits of BCC .................................................................................. 46
3.6 Factors Affecting the Choice of Transportation Mode ................................................... 47
3.7 Chapter Conclusion ........................................................................................................ 49

4

ECONOMETRIC ANALYSIS OF BULK CARGO CONTAINERIZATION IN EAST ASIA
4.1 Introduction .................................................................................................................... 52
4.2 Cluster Analysis.............................................................................................................. 53
4.2.1 Data and Variables ............................................................................................... 53
4.2.2 Result of Cluster Analysis ................................................................................... 54
4.3 Outline of Simultaneous Equation Model ...................................................................... 59
4.3.1 Model Formulation ............................................................................................... 59
4.3.2 Notes on the Analysis .......................................................................................... 61
4.3.3 Explanatory Varibles, Dependent Variables, and Data........................................ 63
4.4 Result of the Simultaneous Equation Modeling ............................................................. 69
4.4.1 Results for Seaborne Trade .................................................................................. 69
4.4.2 Results for Relative Freight Rates ....................................................................... 71
4.4.3 Results for Containerization Rates....................................................................... 73
4.5 Chapter Conclusion ........................................................................................................ 77

5

DECISION-MAKING STRUCTURE REGARDING THE CHOICE BETWEEN BULK AND
CONTAINER TRANSPORT
5.1 Introduction .................................................................................................................... 81
5.2 Outline of the Interview Survey ..................................................................................... 81
5.2.1 Interviewees ......................................................................................................... 81
5.2.2 Survey Questions ................................................................................................. 83
5.3 Decision-Making Factors Regarding BCC ..................................................................... 84
5.3.1 Decision-making Factors of Interest to Shipping Companies / Logistics Companies/ Shippers / Consignees ................................................................................................... 84v

5.3.2 Decision-Making Factors that are Mainly of Interest to Shipping Companies .... 88
5.3.3 Decision-Making Factors that are Mainly of Interest to Consignees ................... 89
5.4 Main Decision-Making Agents in Relation to BCC and their Behavior ........................ 90
5.5 Summary of the Survey and Chapter Conclusion........................................................... 92

6

COST ANALYSIS OF BULK CARGO CONTAINERIZATION
6.1 Introduction .................................................................................................................... 96
6.2 Decision-Making Agents, Cost and Profit for BCC ...................................................... 97
6.2.1 Decision-Making Agents and Behaviors ............................................................. 97
6.2.2 Consignee’s Cost Structure ................................................................................ 101
6.2.3 Profit Structure of a Container Shipping Company .......................................... 103
6.3 Conditions Necessary to Realize BCC ......................................................................... 104
6.4 Data Analysis................................................................................................................ 106
6.5 Calculations ................................................................................................................. 112
6.6 Sensitivity Analysis ...................................................................................................... 116
6.7 Incentives for Container Shipping Companies ............................................................. 120
6.8 Chapter Conclusion ...................................................................................................... 121

7

CONCLUSION
7.1 Summary....................................................................................................................... 123
7.2 Clarification of the Mechanism Underlying BCC ........................................................ 123
7.3 Practical Applicability .................................................................................................. 125
7.4 Limitations and Future Research .................................................................................. 128

References ............................................................................................................................ 129

Appendix I per capita GDP of Developed Countries and Developing Countries .............. 135
Appendix I Detailed Cluster Analysis Result ..................................................................... 137
Appendix II Containerization Rates for Various Routes by Cluster ................................... 139
Appendix III Questionnaire Used in Interview Survey ........................................................ 145

vi

List of Tables
Table 2.1 Specifications of Standard Containers ...............................................................................................14
Table 2.2 Waves of Containerization, 1970–2010 .............................................................................................16
Table 2.3 Container Cargo Trade Imbalances for Each Interregional Route in 2017 ........................................19
Table 2.4 Commodity Unit Values and Average Containerization Rates in 2017 .............................................34
Table 2.5 Containerization Rates between Various Areas in 2000 ....................................................................35
Table 2.6 Containerization Rates between Various Areas in 2017 ....................................................................35

Table 4.1 Results of the Cluster Analysis ..........................................................................................................55
Table 4.2 Rough Classification of Goods for Cluster Analysis .........................................................................55
Table 4.3 Differences in Containerization Rate between the Result of Cluster Analysis and Average of Each
Route ...................................................................................................................................................................63
Table 4.4 Data Outline and Summary Statistics ................................................................................................64
Table 4.5 Estimation Results for Seaborne Trade ..............................................................................................70
Table 4.6 Estimation Results for Relative Freight Rates ...................................................................................72
Table 4.7 Estimation Results for Containerization Rates ..................................................................................74

Table 5.1 Main Questions in the Survey ............................................................................................................83
Table 5.2 Import Costs in Various Regions (USD/container) ...........................................................................86

Table 6.1 Data used for Consignee Cost Calculation ......................................................................................109
Table 6.2 Data for Calculation of Container Shipping Company Profits and Parameters Setting ...................111
Table 6.3 Total Logistics Cost/Ton by Goods and Destinations......................................................................113
Table 6.4 Total Logistics Cost/Ton Comparison of Cost Items by Destination ..............................................113
Table 6.5 Total Logistic Cost/Ton Comparison for the Los Angeles-Shanghai Route (Soybeans) .................114
Table 6.6 Comparison of Average and Median Containerization Rates by Goods and Destinations in 2017 ..115
Table 6.7 Container Freight Rates, Procurement Costs, THCs and Differences in Profits by Routes .............120

Table A.I.1 Nominal per capita GDP of Developed Countries and Developing Countries Classified by IMF...........................................................................................................................................................................136
Table A.II.1 Detailed Classification of Goods Included in the Cluster Analysis ..........................................148
Table A.III.1 Containerization Rates by Route for Cluster 1 ........................................................................140
Table A.III.2 Containerization Rates by Route for Cluster 2 ........................................................................140
Table A.III.3 Containerization Rates by Route for Cluster 3 ........................................................................141
Table A.III.4 Containerization Rates by Route for Cluster 4 ........................................................................141
Table A.III.5 Containerization Rates by Route for Cluster 5 ........................................................................142vii

Table A.III.6 Containerization Rates by Route for Cluster 6 ........................................................................142
Table A.III.7 Containerization Rates by Route for Cluster 7 ........................................................................143
Table A.III.8 Containerization Rates by Route for Cluster 8 ........................................................................143
Table A.III.9 Containerization Rates by Route for Cluster 9 ........................................................................144
Table A.III.10

Containerization Rates by Route for Cluster 10 ....................................................................144

Table A.IV.1 Challenges and Specific Issues regarding BCC .........................................................................148

viii

List of Figures
Figure 1.1 Global Containerization Rate ..................................................................................................................3
Figure 1.2 Global Growth in Container Ship Capacity, Container Cargo Trade, Average Ship Capacity and Numberof Container Ships.......................................................................................................................................................4
Figure 1.3 Organization of Dissertation ...................................................................................................................9

Figure 2.1 Standardized Containers (Left : 20 feet, Right : 40 feet ) .....................................................................14
Figure 2.2 Adoption of Containerization following Container Standardization.....................................................15
Figure 2.3 Bulk Shipping and Container Shipping Processes ................................................................................23
Figure 2.4 Country Grain Elevator in Champaign County, Ohio ...........................................................................24
Figure 2.5 Grain Elevator in Vancouver ................................................................................................................24
Figure 2.6 Bulk Carrier “CAPE HAYATOMO” ...................................................................................................24
Figure 2.7 Workers Loading Imported Soybeans onto Trucks at a Port in Nantong, China ..................................25
Figure 2.8 Container Transloading Facility in Los Angeles...................................................................................26
Figure 2.9 Malt Packed in a Container Using a Liner Bag.....................................................................................26
Figure 2.10 Containers Hauled by Train at Long Beach, California ......................................................................26
Figure 2.11 Container Ship “ONE COMMITMENT” ...........................................................................................27
Figure 2.12 Containerization Rates from 2000 to 2017 .........................................................................................29
Figure 2.13 Average Containerization Rate for Each Commodity over the Period 2008–2017 and Growth Rate
Compared with that for the Period 2000–2007 .........................................................................................................31
Figure 2.14 Relationship between Commodity Unit Values and Containerization Rates in 2017 .........................33
Figure 2.15 Examples of Identity Qualified Bulk Cargo........................................................................................38

Figure 5.1 Liner Bag (top), Container Loader (bottom left), and Container Tilter (bottom right) .........................85
Figure 5.2 Decision-Making Factors Encouraging the Promotion of BCC ............................................................92

Figure 6.1 Decision-Making Process in the Selection of Bulk Shipping or Container Shipping ...........................98
Figure 6.2 Conditions for Realizing BCC........................................................................................................105

Figure 6.3 Routes to Shanghai .............................................................................................................................106
Figure 6.4 Routes to Yangon................................................................................................................................107
Figure 6.5 Sensitivity Analysis of Frequency of Shipping ...................................................................................116
Figure 6.6 Sensitivity Analysis of Changes in the Purchase Price .......................................................................117
Figure 6.7 Sensitivity Analysis of Changes in the Base Rate ..............................................................................118
Figure 6.8 Sensitivity Analysis of Changes in Period until Cargo is Consumed .................................................119ix

Abbreviation
ASEAN
BCC
BDI
CAC
CFS
CIF
EU
FAK
FCA
FE
FEU
FIO
FOB
GDP
GMO
ICT
IMF
IS
ISIC
JPY
LA
LPI
ME
MT
OD
PSW
SITC
TEU
THC
UNCTAD
USD
WB
WTI

Association of Southeast Asian Nations
Bulk Cargo Containerization
Baltic Dry Index
Central America and the Caribbean
Container Freight Station
Cost, Insurance and Freight
European Union
Freight All Kinds
Free Carrier
Far East
Forty-Foot Equivalent Unit
Free in Out
Free on Board
Gross Domestic Product
Genetically Modified Organism
Information and Communications Technology
International Monetary Fund
Indian SubcontinentInternational Standard Industry Classification
Japanese Yen
Los Angeles
Logistics Performance Index
Middle East
Metric Ton
Origin and Destination
Pacific South West
Standard International Trade Classification
Twenty-Foot Equivalent Unit
Terminal Handling Charge
United Nations Conference on Trade and Development
United States Dollar
World BankWest Texas IntermediatexCHAPTER 1
INTRODUCTION

1

1.1 Background
Since the container revolution of the 1960s, containerized cargo shipping has continued toincrease worldwide. Until container shipping commenced, flexible, multi-deck general cargo
carriers with appropriate handling equipment usually carried goods such as consumer
products, which were called “general cargo.” The cargo was loaded mainly by humans, inwhat was a labor-intensive process.

A container transportation system enables cargo to be carried in rectangular containers thatare of standard size throughout the world. Containers are stored in yards on quays, fromwhich they are loaded onto container ships. A container transportation system enables
significant savings in terms of the energy required for loading and unloading of vessels andshortens the vessels’ mooring time. Further, because the containers are of uniform shape andsize, it has become possible to send them directly from the shipper to the consignee using not
only ships but also a variety of other means of transport such as rail and road. This not only
dramatically reduces the cost of cargo transport but also improves the safety and reliabilityof transportation, thus significantly promoting international trade.

Containerization has also been recognized as a driving force behind globalization. Drucker(2007) noted that container shipping was indispensable in relation to the tremendous
expansion in world trade from the 1960s to the 2000s. In addition, Krugman (2009)
commented in a lecture that “When we think about technology that changes the world, we
think about glamorous things like the Internet. But if you try to figure out what happened toworld trade, there is a strong case to be made that it was containers.”

As container shipping has become established, the proportion of cargo carried in containers
has also increased. The weight-based ratio of container shipping to all global ocean cargo(containerization rate1) rose from 4.5% in 1986 to 14.6% in 2008 and the transportation of

1

Before the development of containerization, cargo freight rates varied depending on the nature of the cargo,even when the size and weight were the same. However, with the development of containerization, in cases2general goods such as consumer products, which were the initial focus of the increase incontainer cargo, increased significantly until the first half of the 2000s.

However, growth in the containerization rate has stagnated since the latter half of the 2000s,
and the rate was still only 15.8% in 2017 (see Figure 1.1). A primary reason for this stagnationis that containerization of general cargo, which had been central to the increase in container
cargo, has now become standard. Rodrigue and Notteboom (2015) argue that althoughcontainerization of general cargo was increasing until 2007, there has been no change sincethen, particularly in developed countries.

Containerization Rate
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

0.0%

Year
Figure 1.1 Global Containerization Rate
Source: Clarksons Research Shipping Intelligence database
where no dangerous goods are involved, even if the contents differ, the calculation of freight (FAK rate) per
container is constant, with shipping companies mainly taking into account cargo volume rather than cargo value.
The value-based containerization rate, defined as the value of container cargo divided by the value of all
seaborne trade cargo, seems to be an inappropriate measure for containerization because it tends to correlatewith other economic factors such as the foreign exchange rate and the oil price. Thus, the decision was made touse the weight-based containerization rate in this dissertation.

3

The existence of imbalances in cargo movements between mainhaul2 and backhaul is also a
fundamental problem in container shipping. This imbalance has increased since the latter halfof the 1990s because of the structural changes in global production networks. In 2017, theimbalance in the container trade volume amounted to 34.7 million TEU, or 21.4% of global
containerized transportation via interregional routes. With container shipping, it is essential
to maintain schedules, and thus it is more difficult to resolve this imbalance than in the caseof bulk shipping. Of the overall operating expenses of container carriers, 5–8% arerepositioning expenses, and the financial burden for the container shipping industry as awhole is between 15 and 20 billion USD (Sanders et al., 2016).

Index (1996=100)
800
700
600
500
400
300
200
100
0

Container Ship Capacity

Container Cargo Trade

Average Ship Capacity

Number of Container Ships

Year

Figure 1.2 Global Growth in Container Ship Capacity, Container Cargo Trade, Average
Ship Capacity and Number of Container Ships
Source: Clarksons Research Shipping Intelligence database2

The term “mainhaul” does not appear in many English dictionaries. However, this term is often used bypractitioners to indicate the direction of trade that is larger in volume. For example, the mainhaul for thecontainer trade route between East Asia and North America refers to the route (or direction) from East Asia to
North America. The antonym for “mainhaul” is “backhaul.” Thus, the backhaul for the above route is the
direction from North America to East Asia.

4

Moreover, as shown in Figure 1.2, container ship capacity is growing, in terms of bothaverage capacity and ship numbers. In 1996, the average container ship capacity was 1,527
TEU and there were 1,911 ships. However, by 2017, the average capacity was 3,895 TEU
and there were 5,151 ships. This growth in shipping capacity has been much faster than thatof container cargo trade, resulting in an excess supply of container shipping. Hence, container
shipping companies are suffering from the deterioration in market conditions as a result of
shrinking margins for container cargo and increased supply. Therefore, container shipping
companies, container terminal operators, and other industry participants involved in logistics
are seeking new types of container cargo.

To mitigate the problems related to container shipping, it is necessary to either reduce thesupply of container transportation services or expand the demand for container transportation
services. However, a decline in the supply of services will lead to a reduction in international
trade, which will reduce profits. Therefore, a solution that increases the demand for containertransportation services is preferable. Rodrigue and Notteboom (2015) argue that it is crucial
to develop niche markets and acquire commodities that have not previously been transported
by container. One possibility is bulk cargo containerization (BCC), which is the focus of thisdissertation.

BCC involves the use of shipping containers to freight cargo that is usually transported bybulk carriers, and is receiving increasing attention from both practitioners and academics asa potential solution to the problems currently confronting container shipping. BCC not only
has the potential to increase the volume of cargo shipped by container but also offers an
opportunity to increase efficiency because the principal types of cargo that can be freighted
using BCC are also likely to be backhauled (UNCTAD, 2013). However, to the best of theauthor’s knowledge, there have been no previous studies adopting a holistic approach to BCC
and proposing a mechanism for BCC. Therefore, this dissertation seeks to answer thefollowing questions to clarify the mechanism by which BCC might emerge.

The first question relates to the potential of BCC from the macroeconomic perspective. Thatis, what are the potential benefits and challenges of an increase in container shipping as a5result of BCC? The second question involves the decision-making structure. That is, who isengaged in the decision-making process and what factors are important to them in theirdecision-making regarding the preferred transportation mode. The third question relates tothe potential of BCC from the microeconomic perspective. That is, do decision-makers have
incentives to containerize bulk cargo, and if so, what methods should be used to promote
BCC?

1.2 Research Objectives
The primary purpose of this dissertation is to identify the mechanism underlying BCC, thatis, how BCC takes place and the most effective methods of promoting this mode of transport.
To this aim, both macroeconomic and microeconomic factors related to BCC are examined.
Macroeconomic factors include the status of various countries’ economies and infrastructure,
while microeconomic factors include specific decision-making entities, the relationships
between those entities, and the structure of the decision-making process. Therefore, thedissertation proceeds in terms of research objectives 1 to 3 presented below. In addition,
policy measures to promote BCC based on the results of the analysis are proposed.

Research Objective 1:
Conducting an econometric analysis and identifying the macroeconomic factors related
to promoting BCC as an important background for decision-making by agents.
-

Classification of traded goods to analyze trends toward containerization.

-

Development of an econometric model taking into account simultaneity and endogeneity
to identify the macroeconomic factors related to container shipping in East Asia.

Research Objective 2:
Identifying the decision-making agents and factors affecting the change intransportation mode between bulk shipping and container shipping.
-

Analysis of factors affecting decision-making by practitioners in relation to BCC using
an interview-based survey.

6-

Organization of these decision-making factors and the decision-making structure
regarding BCC into a hypothesis related to Research Objective 3.

Research Objective 3:
Assessing whether decision-makers have economic incentives to execute BCC bycomparing their costs and profits-

Assessment of the choice of transport mode by backhaul consignees between bulk andcontainer shipping based on total costs including purchase costs, tariffs, and changes inthe value of the goods.

-

Assessment of the choice of services offered by container shipping company based on
total profits from both mainhauling and backhauling.

1.3 Study Scope
The scope of this dissertation involves containerization, including the recent stagnation andtrade imbalances that have occurred, and the choice between container shipping and bulk
shipping.

BCC is not a new form of containerization but it is not widely used and focused among
practitioners. Thus, clarification of the mechanism underlying BCC adds to the literature on
containerization, and is a contribution of this dissertation. To derive the mechanism
underlying BCC, the structure of BCC is analyzed based on both macroeconomic andmicroeconomic factors. That is, the impact of economic conditions and infrastructure,decision-making entities regarding BCC, the relationships between those entities, and thestructure of the decision-making process are examined. This contributes to the literature
regarding maritime economics and logistics studies because it clarifies the mechanism
underlying containerization as it enters a new stage.

It is worth noting that there are other means of increasing container cargo. For example, thedevelopment of a supply chain using refrigerated (reefer) containers facilitates the transportof foodstuffs, medicines, chemicals, and beverages (Rodrigue and Notteboom, 2015). These7

innovations have added value to containerized transportation, especially among developed
countries. However, the volumes of these products are significantly less than those of bulk
cargo, and sometimes reefer containers are used to backhaul bulk cargo3. In addition, BCC
could be used to alleviate this imbalance when establishing a cold transport chain. Therefore,
BCC is the focus of this dissertation.

Further, regarding the choice of transport mode, previous studies have tended to focus on a
choice between maritime container transport and air transport because of similarities in thetypes of products and contracts involved. Although numerous practitioners have addressed
the changing trends in containerization, there has been a lack of research on the choice oftransport mode. Therefore, it is important not only from an academic perspective but also forpractitioners to find the boundary or threshold of the change in transport mode between bulk
shipping and container shipping. Research on BCC provides useful information in relation to
the acquisition of new types of cargo and the selection of the appropriate transport mode.

1.4 Dissertation Outline
The dissertation is divided into seven chapters, as shown in Figure 1.3. Chapter 1 provides
the background, problem statement, and purpose and objective of the dissertation.

Chapter 2 outlines the current status of containerization in general and the containerizedshipping of bulk cargo in particular. First, the status of containerization in terms of diffusionand stagnation is reviewed. Then, the current problem in terms of container shipping, tradeimbalances, and repositioning is stated. Next, the containerization of bulk cargo is introduced
as a potential new cargo source. Then, the current status of containerization in terms of typesof goods, value, and routes is outlined. Finally, the characteristics and benefits of BCC arepresented. Also, in Chapter 2, a preliminary analysis of the current situation regarding BCC

3

Tank containers are not used to backhaul bulk cargo because tank containers are usually dedicated to specificgoods such as wine or chemical products. Thus, in many cases shippers or consignees own these containers, andtake repositioning costs into account in advance.

8

is conducted, and this is used as a reference for the analyses conducted in Chapter 4 and later
chapters.
Chapter 1
Background, Problem Statement, Objectives

Preliminary Analysis (Objective 1)
Chapter 2
The Current Status of Container Shipping of Bulk Cargo
Chapter 3
Review of Previous Studies

Macroeconomic
Aspect of BCC(Objective 2)

Microeconomic
Aspect of BCC(Objective 3)
Chapter 5
Decision-making Structure Regarding
the Choice between Bulk and Container
Transport

Chapter 4
Econometric Analysis of BCC in East Asia

Chapter 6
Cost Analysis of BCC

Chapter 7
Conclusion

Figure 1.3 Organization of Dissertation
Chapter 3 presents a review of the literature concerning containerization and international
trade issues, the benefits of containerization, and previous studies on BCC. The literature
regarding choice of transportation mode is also reviewed because BCC is related to the choice
between bulk shipping and container shipping.

Chapter 4 examines the macroeconomic aspect of BCC by identifying factors that should
encourage containerization in intra-East Asian trade. First, an analysis of intra-East Asianseaborne trade is conducted using k-means clustering to identify trends toward9containerization of various commodities on various trade routes. Then, an analysis isconducted using simultaneous equation modelling to identify the critical factors that promote
containerization in each cluster. In Chapter 4, the relationship between the macroeconomic
environment and containerization in its aggregated form is considered using econometricanalysis. In other words, the background is provided for the decision-making analyses thatare conducted in Chapters 5 and 6.

Chapter 5 examines the decision-making structure in relation to BCC using an interviewbased survey. The decision-making factors related to shipping companies, logistics
companies, and shippers are summarized, and the primary decision-makers in relation to
BCC are identified based on the survey results. The measures necessary to promote BCC arethen identified.

Chapter 6 presents a core part of the analysis regarding the decision-making structure in
relation to BCC. Based on the results presented in Chapter 5, the incentives for consignees
and container shipping companies are analyzed to identify the decision-making process andkey factors in the selection of BCC, as well as proposed BCC promotion measures.

Chapters 5 and 6 present the factor analysis undertaken in Chapter 4 in more detail bydecomposing the results into those relating to individual decision-makers. In Chapter 5, basedon interviews with practitioners, the decision-making factors relating to individual decisionmakers in relation to BCC are shown, and the decision-making structure is illustrated. In
Chapter 6, the results of Chapter 5 are used as the basis for analysis and the hypotheses thatare constructed based on the results presented in Chapter 5 are verified.

Chapter 7 provides concluding remarks and discusses the practical applicability of thefindings of the dissertation and areas for future work.

10CHAPTER 2
THE CURRENT STATUS OF CONTAINER SHIPPING OFBULK CARGO

11

2.1 Introduction
Because ships are suitable for mass transport, they are indispensable in international trade.
In 2017, maritime transport accounted for 69.4% of global trade based on weight, and 54.4%
based on value. Containerization of maritime cargo has advanced since the middle of the 20th
century, and has played a critical role in strengthening the global economy.

The reason that BCC, which is the subject of this dissertation, is attracting increasing
attention is that containerization has expanded rapidly over the last half century, while theamount of cargo that can be transported in containers has stagnated. Thus, BCC provides anopportunity for containerization in the future. This chapter outlines the current situation
regarding BCC in relation to the progress of containerization. Then, the stagnation of growthin containerized cargo and the significant factors in relation to this problem are outlined. Next,
the problem of imbalance is described. Imbalance is also a problem with bulk carriers, but
the problem is even greater for container ships that must adhere to tight schedules and carrycontainers on their return journey, regardless of whether they contain cargo. The emergenceof bulk cargo as a potential new source of cargo that can reduce this imbalance for container
shipping companies is described. Then, the current bulk cargo transportation process and thecontainer shipping process are examined to illustrate the difference between thesetransportation modes. Next, the current status of containerization in general and BCC in
particular are presented. Finally, the advantages of BCC for both shipping companies andshippers/consignees are outlined.

2.2 Diffusion of Containerization
Stopford (2009) outlined the situation prior to the introduction of containerization. Until the
1960s, when containerization began to spread, shipping companies operated flexible multideck carriers fitted with handling equipment. Flexibility was important because the ships had
to transport various types of cargo in combination with passengers. This business was laborintensive, time-consuming, and complicated. Moreover, cargo was frequently damaged.
After WWII, as international trade began to increase, exporters/importers began to demand12international transport services that were faster, more reliable, and safer. The solution to thisproblem was “containerization,” which standardized the transport of general cargo by using
containers. By standardizing the cargo unit, the shipping company could invest inmechanized systems and facilities that increased productivity.

One benefit of containerization was to increase the efficiency of cargo handling and port
operations. From April 1956, when the Ideal-X, the first ship to carry containers, departed
from New Jersey bound for Houston carrying 58 35-foot containers, there was an ongoing
reduction of costs. The estimated loading cost for the Ideal-X was 15.8 cents per ton, whereas
the estimated loading cost for cargo not packed into containers was $5.90 per ton at that time
(Bernhofen et al., 2016). In addition, Bernhofen et al. (2016) pointed out that the laborproductivity of the port, which was 0.627 tons per person per hour in 1959, increased sharply
to 4,234 tons per hour by 1976. As the efficiency of loading and unloading improved, it
became possible to use larger vessels for transportation of cargo by containerization, and as
a result, the average size of vessels increased.

The ability to establish an intermodal system (seamless transportation by land and sea) is
another benefit of containerization. The spread of the multimodal system has made it easier
to distribute production bases and establish global supply chains. For example, parts
processed in Southeast Asia can be sent to China for assembly and then exported to Japan,
Europe, and the United States (US). This has reduced transportation costs and expanded
global trade. In this regard, Levinsohn (2006) stated that “Transportation has become soefficient that for many purposes, freight costs do not much effect economic decisions.”

Despite these benefits, the adoption of this new system was somewhat slow in the beginning(Rua, 2014; Guerrero and Rodrigue, 2012). By 1968, containerized trade was still minimal,
accounting for less than one million TEUs or 1% of total trade (Fenton et al., 2018). Shippers
were unwilling to adopt the new system immediately, preferring to wait until they were surethat containerization would prevail and an industry standard for containers and their handling
had been established (Koech, 2013). In 1964, dimensions of 10 feet, 20 feet, 30 feet, and 40
feet long, and eight feet high and eight feet wide were approved as ISO standards, and then13

in 1966, a height of 8 feet 6 inches was added (see Figure 2.1 and Table 2.1). The prevailing
American standards became the international standards, and from this point on leasing
companies began to order large numbers of containers, leading to the rapid development ofcontainerization (Watanabe et al., 2008). Adoption followed an S-shaped pattern andoccurred throughout the world during the 1970s and 1980s. By 1983, almost 90% of countries
had constructed at least one container port (see Figure 2.2).

Figure 2.1 Standardized Containers (Left : 20 foot, Right : 40 foot )Source: Mr. Tomohide Nogaki of Japan Shipowners’ Association

Table 2.1 Specification of Standardized Containers
Size

LengthWidth

HeightWeightLoad limit

Capacity

(mm)

(mm)

(mm)

(kg)

(kg)

(m3)

20 foot

5,898

2,352

2,393

2,300

21,70033.0

40 foot

12,032

2,352

2,393

3,810

26,67067.7

12,032

2,352

2,698

3,970

26,51076.0

13,557

2,352

2,698

4,820

25,66086.0

40 foot
High Cube
45 foot
High Cube

Source: Usui (2012)
Note: Specifications differ slightly between container manufacturers.

14

Figure 2.2 Adoption of Containerization following Container Standardization
Source: Koech (2013)
Note: The year of containerization adoption is defined as the year in which the first container
port was constructed. The figure shows the percentage of countries engaged in international
maritime trade that adopted containerization by a given date relative to the total number of
adopters at the beginning of the 21st century.
Guerrero and Rodrigue (2012) divide the stages of containerization from 1970 to 2010 into
five “long waves” (see Table 2.2). The first wave is that referred to above, when
standardization and containerization were yet to be adopted in any significant way. This istermed the early-adopters stage. By the 1970s, liner transatlantic and transpacific services
had been established through ports in the US, Western Europe, and Japan. This was the
economic triad that spearheaded globalization at that time. The second wave can be regarded
as the expansion of containerization, and occurred among this triad and its trade partners inregions such as the Caribbean, the Mediterranean, and newly industrialized economies in
Asia. The third wave was the global diffusion stage. Container handling volumes grew inEast and Southeast Asia (excluding China). During that period, these areas were incorporated
into global trade relationships with the commencement of offshoring and the emergence of
new transshipment hubs such as Singapore.
15

Table 2.2 Waves of Containerization, 1970–2010
PeriodOverview

1956(1965)1975
Pioneer ports
establishedcontainerized
operations in
the economic
triad (North
America,
WesternEurope, andJapan)

1970-1985

1980-1990

1995-

2005-

Expansion of
the triad andits trade
partners(Caribbean,
Mediterranean, Asian
Tigers)Large
diffusion into
new markets(LatinAmerica,
MiddleEast/South
Asia,
Southeast
Asia

The container
became thestandardtransport unit
for the global
economy,“The China
Wave”

Peak growth
and theestablishmentof niches

Expansion of
global supply
chains, andtheemergence ofChina andtransshipment
hubs

Spillovereffect andnewtransshipment
hubs

Shanghai,
Shenzhen,
Gioa Tauro,
Ningbo,Tanjung
PelepasTangier Med,
Caucedo,Yingkou,
Prince Rupert

Driver

Early trade
substitution

Setting up of
Adoption of
global supply
Containerizati chains andontransshipment
hubs

Representative
ports

Antwerp,
New York,
Los Angeles,
Oakland,
NagoyaRotterdam,
Tokyo, Hong
Kong,
Kaohsiung,
Jeddah,Kingston

Singapore,
Colombo,Busan, Dubai,
Algeciras

Source: Guerrero and Rodrigue (2012)

The fourth wave occurred in the late 1990s, when containers became established as a global
standard for transporting cargo. Chinese ports were included in global shipping networks andpost-Panamax ships4 started to appear. Moreover, new transshipment hubs such as Salalah in
Oman and Colon in Panama emerged. In addition, new ports were developed during thisperiod to accommodate the growth in emerging economies such as Vietnam, India, and Brazil.
A transshipment hub was also developed in Tanjung Pelepas in Malaysia by global terminal
operators. Kavirathna et al. (2018) note that competition among hub ports became

4

A “Panamax” ship was a vessel that was able to navigate the old locks along the Panama Canal, which included
container ships up to about 5,000 TEUs in capacity. By the latter half of the 1980s, many practitioners had
assumed Panamax restrictions to be the upper limit of a container ship’s capacity.

16

increasingly fierce around this period. The fifth and most recent wave has seen newly
emerging ports meeting various concerns by filling specific roles such as avoiding congestion,
reducing transit time, and providing direct rail connections. In addition, they point out thatthe fifth wave has seen a pause in the growth of container shipping.

2.3 Stagnation of Containerization
Evidence emerged from the late 2000s onwards suggesting that the growth in container
shipping may not be sustainable in the future. The containerization rate rose from 4.5% of
global ocean freight in 1986 to 14.6% in 2008. However, as the upward trend in general cargo,
which was the driving force behind the increase in container cargo, weakened, thecontainerization rate stagnated from the latter half of the 2000s, and was steady at 15.8% in
2017. Rodrigue and Notteboom (2015) point out that containerized freight increased from
21% of general cargo in 1980 to around 65% from 2007 to 2012. Fenton et al. (2018) notethat container cargo accounted for 21% of dry seaborne cargo in 2005, but was still only 23%
in 2015.

An important reason for this stagnation is that the containerization of general cargo, which
has been the driving force behind the increase in container cargo to date, has now been moreor less optimized. Rodrigue and Notteboom (2015) point out that, particularly in developed
countries, the completion of the conversion to containerized transport is rapidly approaching.
It has been shown that the switch to container shipping has already occurred for most goods
that can be transported in this way. Fenton et al. (2018) note that the slowdown incontainerization is inevitable because many commodities have already become fully
containerized.

Another primary reason for this stagnation is that changes in the global economic structure
have reduced promotion effect by economic growth on international trade. Takatomi et al.
(2016) and Mori (2016b) both pointed out that trade growth has failed to match economic
growth. First, there has been a change from investment- to consumption-centered economic
structures in developed countries in the 21st century. Second, there has been significant
17technological progress in countries such as China and members of the ASEAN. Third, it canbe seen that there has been a pause in the expansion of the global value chain. These factors
have had an impact on container transportation volumes. The average ratio of the container
freighted growth rate to the global real economic growth rate was 3.2 from 2000 to 2008.
However, since 2009, it has fallen to 2.1 (Rodrigue, 2017). Fenton et al. (2018) confirm thisfinding, stating that “as the wave of globalisation has slowed, container growth is only justmatching GDP growth.”

2.4 Imbalances in Container Shipping
The existence of imbalances in cargo movements on container routes is a fundamental reason
for recommending the shift from bulk carriers to container vessels. Asymmetries in container
trade volumes exist on several container routes, and as can be seen in Table 2.3, the imbalancein 2017 amounted to 34.7 million TEUs or 21.4% of global container transportation via
interregional routes. As for intraregional routes, there was an imbalance of 1.3 million TEUs
during 2017 for the Japan–China route according to IHS Markit’s World Trade Service.

There was an upward trend in trade imbalances from the latter half of the 1990s, withstructural changes in global production networks leading to substantial endemic increases.
These imbalances have since escalated as a result of low export demand in the US andEuropean countries and the low cost of manufacturing new containers in countries such as
China5. For instance, imbalances increased from 18% for transpacific trade and 27% for FE–
Europe trade in 1995 to 67% and 65%, respectively, in 2005 (Theofanis and Boile, 2009).

5

Container manufacturing was initially concentrated in the US. Then, Japan emerged as the dominant player, until
Korea took its turn in the 1980s, during which time Korean companies produced more than 70% of the world’s
shipping containers. The Chinese container manufacturing industry had barely begun in the 1990s, but rapidly
increased production to the point where Chinese manufacturers had a 90% share of the shipping container market
by 2002 (Globalization Monitor, 2011) and about a 95% share of the market by 2015 (China Industry
Information Network, 2017).

18

Table 2.3 Container Cargo Trade Imbalances for Each Interregional Route in 2017
RoutesMainhaul(TEU)

Mainhaul from

Backhaul

Imbalance

(TEU)

(TEU)

FE-North America

18,607,823

FE

7,987,415

10,620,408

FE-Europe

15,816,578

FE

7,838,154

7,978,424

FE-IS and ME

7,532,426

FE

2,844,860

4,687,566

FE-South America

3,629,152

FE

1,802,003

1,827,149

FE-Sub-Saharan Africa

2,849,139

FE

1,183,911

1,665,228

Europe-North America

4,683,912

Europe2,734,658

1,949,254

2,016,494

Europe824,795

1,191,699

Europe-IS and ME

3,878,136Europe2,741,609

1,136,527

FE-Oceania

2,617,095

FE

1,609,699

1,007,396

2,879,082

North America

2,481,501

397,5816,986,622

4,705,954

2,280,668

71,496,459

36,754,559

34,741,900

Europe-Sub-SaharanAfricaNorth America-SouthAmerica
OthersTotal for Inter-Regional
Routes

Source: Container Trades Statistics

Even with bulk shipping, imbalances exist, but it is easier to address these imbalances
because shipping companies or operators have more flexibility in the operation of bulk
vessels than in the operation of container vessels (Stopford, 2009). However, there is a greaterneed to adhere to pre-determined schedules in container shipping, and thus it is more difficult
to resolve imbalances6.
6

Of course, trade imbalances remain a problem in the bulk transportation system, and there are even cases where
owners pay charterers to use their vessels. For example, Sand (2011) reported a negative freight rate stating that“On 13 January, the Baltic Exchange Capesize Route C11 from China/Japan to Europe was estimated at minus
USD 229 per day. Since then the rates have worsened even further. At those rates, far below break-even OPEX
levels, owners are literally paying charterers to carry their goods in order to reposition the vessel at the lowest
possible expense.”

19

Shipping companies are responsible for the shipping costs caused by these imbalances. In thevoyage cash flow model created by Stopford (2009), assuming transpacific routes, the total
repositioning cost was 2.9 to 4.1% of the navigation costs. Rodrigue (2017) estimated that
repositioning costs paid by shipping companies amounted to about 16 billion USD or 15%
of container management costs. Further, the Boston Consulting Group pointed out that 5–8%
of the operating expenses of container carriers are repositioning expenses, and the burden on
the shipping industry as a whole is 15–20 billion USD (Sanders et al., 2016)7,8.

Container shipping companies have tried to maintain tight control over their containers by
reducing freetime and increasing retention fees9. In addition, they have attempted to optimize
container logistics by unloading/loading in warehouses or distribution centers in theimmediate hinterland of the relevant ports (Theofanis and Boile, 2009). However, manymeasures are unable to be improved significantly, and thus additional measures are necessary
to reduce trade imbalances.

2.5 Bulk Cargo as Additional Container Cargo
Container shipping companies are suffering from a deterioration in market conditions as aresult of shrinking container cargo margins and increased supply through more vessels andlarger vessel sizes.

7

If the imbalance is substantial for shipping companies, they must operate dedicated vessels to bring empty
containers back. For example, Theofanis and Boile (2009) stated that up to 19 vessels with a carrying capacityof 8,000 TEUs are required each week for empty repositioning from the US to overseas destinations.

8

Containers are usually owned by container shipping companies and container leasing companies. According to
the estimates of Triton International, the world’s largest container lessor, leasing companies owned slightly
more than 50% of all containers in 2017. Further, it showed that the number of containers owned by leasing
companies had nearly doubled since 2010, while the number owned by shipping companies has remained steadyat around 20 million TEUs (Triton International, 2018).

9

Freetime refers to the period container shipping companies allow to consignees or their representatives before
returning the empty containers to the container depot. A retention fee is a charge by container shipping
companies if the period of retention by the consignee exceeds the freetime.

20

As a result of increases in both the average size of ships and ship numbers, container ship
capacity is growing faster than the amount of container cargo, resulting in excess supply of
container shipping. Because there is no opportunity to increase existing types of container
cargo, shipping companies and terminal operators need to find additional types of cargo ifthey are to increase their revenues. Rodrigue and Notteboom (2015) argue that it is crucial todevelop niche markets and attract cargo that has not previously been transported by container.

Therefore, BCC, which involves the transport in containers of bulk cargo that has
traditionally been carried by bulk carriers, is attracting increasing attention, and importers
have begun to change to container shipping as their preferred transport mode for bulk cargo.
However, this method is not new. In the 1980s, it was used as part of a shipping company’s
empty container return strategy from the US to Asia, and a grain transporter near the port ofLos Angeles used containers to transport cereals as early as 1974. A well-known example of
BCC is the transport of coffee beans, which began to be carried in containers in the 1980s,
and are now almost exclusively transported by container (Stopford, 2009; Rodrigue andNotteboom, 2015). In Japan, BCC has been used in relation to hay since the 1980s andsoybean imports since the 1990s.

BCC came to notice in the latter half of the 2000s after a sudden rise in bulk freight rates.
The freight rates for dry bulk carriers rose dramatically because of an expansion in the gap
between the supply of and demand for bulk carriers, while the freight rates for container
vessels remained relatively stable. As a result, a relative cost advantage for containerization
emerged, and importers shifted to container vessels for hauling bulk cargo. Theofanis andBoile (2009) pointed out that in 2008, imports of container cargo at PSW ports declined while
exports increased partly as a result of the shift of some minor types of bulk cargo to containers.
Mongelluzzo (2007) also pointed out that the increase in container use was derived mainly
from a dramatic increase in the export of grains by container from the US. At the time, thecapacity of bulk carriers was limited, and they were unable to handle the increased volumeof grain. Meanwhile, container vessels had sufficient excess space to move this cargo along
the westbound transpacific route from the US to East Asia.

21

The increase in the use of containers for bulk cargo exports from the US was also studied by
Wilson and Benson (2009) using Waterborne Commerce data. According to their study,
11.7% of all international cargo from/to the US in 1990 made use of containers, in terms of
tonnage. This figure increased to 19.5% in 2005.

Advances in technology are considered to have led to an increase in container shipping(Matsuda and Kawasaki, 2013; Clott et al., 2015), especially in relation to BCC in the late
2000s. For example, in 2004, the US company Advanced Steel Recovery (ASR) invented
prompt loading/unloading facilities for ferrous scrap transported by container vessels. ASR
obtained a US patent for this system in 200710. In 2009, A-WARD, a New Zealand company,
obtained a US patent for a “container tilter,” a cargo loader/unloader that works by tilting
containers. These facilities allow for fast, efficient, and cost-effective loading and unloadingof bulk materials transported by container.

Entities such as shipping companies and port managers expect BCC to provide new sourcesof cargo11. For example, if the average containerization rate of commodities that currently
have a containerization rate of 1% to 90% increased by 3.0%, global containerized trade
would rise by 8.9 million TEUs or 6.3%, while global dry bulk cargo trade would only fallby 1.5%12. Further, the need to improve the efficiency of container transportation is anotherreason BCC is receiving increased attention. As mentioned earlier, one reason for introducing
BCC was the existence of an imbalance between mainhauling and backhauling. Thus, BCC
had developed mainly in relation to backhauling (UNCTAD, 2013) in an attempt to increase
container shipping companies’ revenues by decreasing this imbalance. As a result, BCC isconsidered to be a practical solution to the problem of reducing repositioning costs (Rodrigue
and Notteboom, 2009).
10

Seabrook (2008) explains the development of FASTek in detail.

11

Iron ore and coal accounted for 41% of bulk cargo movements in 2017 (NYK Research Group, 2017). However,many practitioners do not consider these goods to be appropriate for containerization, although there are some
exceptions such as Ukraine and China. Yang et al. (2016) outlines the Chinese practice of containerizedtransport of coal mined in Shanxi and Inner Mongolia.

12

Author calculations based on IHS Markit’s World Trade Service data.

222.6 Transportation Processes for Bulk Shipping and Container Shipping
Figure 2.3 shows a simplified diagram of bulk shipping and container shipping.

Figure 2.3 Bulk Shipping and Container Shipping Processes

In bulk shipping, producers carry cargo to conservation centers such as consolidation centers(see Figure 2.4), from where the cargo is transported to quayside storage areas by trucks,
railcars, and barges. In the cases of cereals and chemical products, they are kept in dedicatedfacilities such as elevators and silos (see Figure 2.5) that enable storage of large quantities
and play a role in cargo handling as well. Cranes or dockside facilities are used to load/unloadbulk cargoes (see Figure 2.6 and Figure 2.7). Breakbulk vessels usually have cranes that canbe used for loading and unloading. The cargo is placed on trucks or railcars at a quay orstorage facility and transported to its final destination. Sometimes the elevator or silo isdirectly connected to the final destination.

23

Figure 2.4 Country Grain Elevator in Champaign County, Ohio
Source: Dual Freq,
https://commons.wikimedia.org/wiki/File:Rural_Champaign_County_grain_elevator.jpg

Figure 2.5 Grain Elevator in Vancouver
Source: United Grain Corporation

Figure 2.6 Bulk Carrier ”CAPE HAYATOMO”
Source: Kawasaki Kisen Kaisha, Ltd.
24

Figure 2.7 Workers Loading Imported Soybeans onto Trucks at a Port in Nantong in China
Source: Jiji Press Photo, Ltd

In container shipping, producers pack containers (hereafter termed “vanning”) at the factoryor production location or transport the cargo to the transshipment facility for vanning (seeFigure 2.8). Vanning methods differ among various types of commodities. Somecommodities such as scrap steel and hay are packed as is, while materials such as liner bags
are occasionally used to contain granular commodities such as grains (see Figure 2.9). In thecase of grains grown in the central areas of the US, the cargo may be vanned after beingtransported to the transit facility in California by rail (see Figure 2.10). Cargo that istransported by container ship (see Figure 2.11) is then removed from the containers at the
final destination (hereafter termed “devanning”).

25Figure 2.8 Container Transloading Facility in Los Angeles

Figure 2.9 Malt Packed in a Container Using a Liner Bag
Source: Nippon Yusen Kaisha

Figure 2.10 Containers Hauled by Train at Long Beach, California
Source: Union Pacific Corporation

26

Figure 2.11 Container Ship “ONE COMMITMENT”
Source: Ocean Network Express Pte. Ltd

Because bulk transport enables commodities to be moved in large quantities, it is suitable forsupply to large-scale markets. However, it is necessary to accumulate at least 1,000 tons ofcargo to utilize bulk shipping13. Meanwhile, container shipping is more applicable to smalllot shipping14. Moreover, it operates at high frequency and with a short leadtime, so it is ideal
for frequent shipments to markets of relatively small scale. In bulk transportation, grain thatis produced by numerous farms is combined before being transported to the departure port
and freighted as a single cargo. Conversely, container transportation enables shipments toremain separate after vanning, and thus is suitable for the transport of “identity preserved”
cargo, thereby enabling various production locations and varieties to be identified.

13

Even a load of 1,000 tons is insufficient to charter an entire ship. When shippers or consignees carry these typesof cargo by bulk shipping, they lease an area in the hold of a bulk carrier.

14

As indicated in Table 2.1, a 20-foot container can carry about 20 tons of cargo. However, container shipping isonly viable if customers have sufficient cargo to fill a container. Therefore, forwarders offer less than container
load (LCL) services, whereby they collect various cargoes that are headed for the same destination and combine
them in a single container.

27

It is also worth noting that freight rates for container shipping are usually higher than thosefor bulk transport. In December 2017, the voyage contract fee for a handysize bulker carrying
28,000 tons of bulk cargo from the west coast of the US to Yokohama Port was 9,508
USD/day-ship, meaning a freight cost of 6.8 USD per ton (excluding cargo handling fees).
Meanwhile, the rate for a 40-foot container was 678 USD (excluding terminal handlingcharges in Yokohama), or 27.1 USD per ton, nearly four times higher than the bulk shippingrate.

2.7 Current Status of BCC
2.7.1 Trends in Containerization
As noted above, containerization commenced in developed countries for the movement ofgeneral cargo. Since then, containerization has broadened its scope in terms of bothcommodities transported and geography. Figure 2.12 shows the current status and underlying
trend in containerization using the containerization rate15. In addition, IMF classifications,which are based on per capita income, trade diversification, and the degree of integration
into the global financial system16, are used to categorize developed and developing countries.

The containerization rate in relation to global maritime trade was 8.6% in 1995, increased to
10.0% in 2000 and 13.0% in 2007, remained at 12–13% for several years, and was 13.2% in2017. Containerization rates were higher in relation to exports from developed countries thanthose from developing countries. Containerization rates for export from developed countries
either showed no significant change or declined, which supports the view of Rodrigue and15

In this section, movement data released by IHS Markit’s World Trade Analysis is used rather than the Clarkson
data used in Figure 1.1. This is because although Clarkson data covers a longer period, it does not include origin
and destination information.

16

IMF sets (1) the per capita income level, (2) export diversification, and (3) the degree of integration into theglobal financial system as the main criteria used to classify the world into developed countries and developing
countries. The nominal per capita GDP for developed and developing countries in 2017 is shown in Appendix
I.

28

Notteboom (2015) that developed countries have reached the limit of containerization
through conversion from general cargo. Containerization rates have remained at around 13–
15% (14.8% in 2017) for trade between developed countries. Meanwhile, in relation toexports from developed countries to developing countries, containerization rates remained ataround 20% prior to 2008, and then decreased until 2017. This decline was mainly the resultof a surge in the export of bulk cargoes such as grains from the US to China.

Containerization Rate
23.0%
21.0%
19.0%
17.0%
15.0%
13.0%
11.0%
9.0%
7.0%
5.0%

Developed to Developed

Developed to Developing

Developing to Developed

Developing to Developing

Year

World

Figure 2.12 Containerization Rates from 2000 to 2017
Source: IHS Markit’s World Trade Service
Note: Country categorization is based on the IMF’s World Economic Outlook database.
29

The containerization rate for exports from developing countries to developed countries has
continued to increase, rising from 6.8% in 2000 to 10.2% in 2007 and 14.1% in 2017. This
reflects the continued growth of the manufacturing sector in developing countries such as
China and members of the ASEAN. Changes in the containerization rate for trade between
developing countries are similar to the overall global changes, with a slight increase in thefirst half of the 2000s, followed by a period of stagnation. The containerization rate increased
from 8.2% in 2000 to 11.6% in 2007, before settling at 9–11% (11.2% in 2017). The surges
in both containerized cargo such as manufactured goods and bulk cargo such as iron ore
occurred at the same time, and thus the growth in the container trade volume was canceledout by the growth in the bulk shipping trade volume. Containerized cargo has increased by
84.0% over the last decade, while total bulk cargo has increased by 90.9% over the same
period.

Looking at the shares of container cargo, trade between developed countries accounted for
29.0% of the world total in 2000, but this had almost halved to 14.8% by 2017, while thecargo volume only increased 1.2 times from the figure in 2000. Cargo from developed
countries to developing countries accounted for 23.5% of the world total in 2000, andremained relatively unchanged in 2017 at 24.8%, although the volume increased 2.5 times.
Trade from developing countries to developed countries accounted for 32.5% of the world
total in 2000, but had decreased slightly to 30.0% by 2017, although the cargo volume
increased 2.3 times. Trade among developing countries accounted for 15.0% of the world
total in 2000, and had increased to 30.4% by 2017, with the cargo volume increasing 4.9
times.

2.7.2 Containerization by Commodity GroupIn 2000, the number of commodities for which the containerization rate was greater than 80%
was 85 out of the 202 commodities classified by IHS Markit based on the ISIC system. In
2007, this number was increased to 102 and further it was 115 in 2017. Figure 2.13 shows
the containerization rates by commodity over the last decade and the average growth rate
between 2000–2007 and 2008–2017.

30

Containerization Growth Ratefor 2008–2017 compared with 2000–2007
25.0%
20.0%
15.0%

Group 3

Group 2

Group 4

Group 1

10.0%
5.0%
0.0%
-5.0%
-10.0%-15.0%
0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Average Containerization Rate 2008-2017
Figure 2.13 Average Containerization Rate for Each Commodity over the Period 2008–2017 and Growth Rate Compared with that for the Period 2000–2007
Source: IHS Markit’s World Trade Service
For the purposes of this study, commodities have been divided into four areas based oncontainerization rates during the period 2008–2017 and the average growth incontainerization rates between 2000–2007 and 2008–2017. The first group (group 1 in Figure2.13) contains 97 commodities (out of a total of 201 commodities) with an averagecontainerization rate of more than 80% and less than 5% growth. This group mainly includes
commodities such as machinery, electrical appliances, foodstuffs such as fruit, and apparel.

An example of an item in group 1 is “Plastics in Primary Forms and Synthetic Rubber.” Theaverage containerization rate for this item was 80.4% during the period 2008–2017, but this31

had declined from an average of 88.9% for the period 2000–2007. The surge in Chinese bulk
imports from Singapore and ME countries, and an increase in Indian, Indonesian, andVietnamese bulk imports from China, Singapore, and Japan contributed to the decrease in
the average containerization rate.

The second group had an average containerization rate of more than 80% and more than 5%
growth. This group contains 12 commodities that mainly include foods, flowers, and building
materials, as well as “Optical and Measuring Equipment, Meters and Counters,” a form ofprecision machinery. Group 2 also includes “Jams, Jellies, and Honey.” The averagecontainerization rate for this item was 83.8% for the period 2008–2017, which was anincrease from the average rate of 59.5% for the period 2000–2007. Containerization of theseproducts increased worldwide in the first half of the 2000s, and the continuation of this trend
contributed to the increase in the average containerization rate.

The third group had an average containerization rate of 80% or less and more than 5% growth.
This group contains 17 commodities that mainly include food ingredients, building materials,
and some raw materials. For example, Group 3 contains “Chicken and Turkey Meat, Frozen.”
The average containerization rate for this item was 63.7% for the period 2008–2017, which
was an increase from the average rate of 57.2% for the period 2000–2007.

Here, it is worth noting that a decline in demand is likely to increase the containerization rate.
An example of this is the item “Meat and Fish Products, Not for Human Consumption; Dog
and Cat Food, etc.” in Group 3. The average containerization rate for this item was 35.1%
for the period 2008–2017, which was an increase from the average rate of 28.1% for theperiod 2000–2007. However, some of the increase was likely caused by a decrease in demand.
In Japan, imports fell by 1.1 million tons or 46.8% between 2001 and 2017, while thecontainerization rate for Japanese imports rose from 33.2% to 43.0% during the same period.
The reduction in Japanese imports was probably a significant factor in the increase in the
average containerization rate.

32

The fourth group had an average containerization rate of 80% or less and less than 5% growth.
This group contains 75 commodities that mainly include larger machines, food ingredients,
recycling materials, building materials which are less processed, and some raw materials. For
example, Group 4 includes “Chicken and Turkey Meat, Fresh or Chilled.” The averagecontainerization rate for this item was 53.8% for the period 2008–2017, which was a decrease
from the average rate of 62.7% for the period 2000–2007.

2.7.3 Containerization and the Value of Commodities
Figure 2.14 shows the relationship between commodity unit values (USD per kilogram) andcontainerization rates in 2017. This relationship is not linear, and the correlation coefficient
between commodity unit values and containerization rates is 0.07. Meanwhile, the correlation
coefficient between the natural logarithm of commodity unit values and containerization
rates is 0.61.

Containerization Rate
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%

Unit Value(USD/kg)

10.0%
0.0%
0

10

20

30

40

Figure 2.14 Relationship between Commodity Unit Values andContainerization Rates in 2017
Source: IHS Markit’s World Trade Service
Note: The dotted line indicates the approximated curve.
3350

As can be seen from Figure 2.14, containerization rates for low-value commodities or goods(including some types of bulk cargo) tend to be low, but increase rapidly in response to aslight increase in commodity unit value. With some exceptions such as trains and trailers17,
cargo seems to be almost fully containerized if the unit value is more than 5 USD per
kilogram.

Table 2.4 Commodity Unit Values and Average Containerization Rates in 2017
USD per kilogram
Below

Above

$2

$2-4

$4-6

$6-10

$10-15$15-20$20

Containerization Rate

46.1%

81.3%

82.3%

79.4%

83.4%

89.9%

86.6%

Number of Commodities

80

32

22

18

20

10

19

Average

Source: IHS Markit’s World Trade Service

Table 2.4 shows the average containerization rates for various unit values. As can be seen,
the average containerization rate for commodities with a unit value of less than 2 USD per
kilogram is 46.1%, while for commodities with a unit value of between 2 USD and 4 USD
per kilogram, the average containerization rates increase significantly to 81.3%. However,
the average containerization rates are not significantly higher for commodities with evenhigher unit values.

2.7.4 Containerization and Trade Routes
Although, as noted earlier, the overall rise in containerization has stagnated in recent years,
the situation differs across various trade routes. In 2000, containerization rates varied from
0.8% (ME to FE) to 67.6% (IS to CAC) (see Table 2.5), but by 2017, containerization rates
had increased along almost all trade routes, varying from 1.5% (Oceania to South America)
to 68.7% (FE to North America) (see Table 2.6). Cargo tends to be more containerized if

17

Shipping companies normally use pure car carriers or general cargo ships to carry these types of cargo.

34

more manufactured goods are shipped, whereas containerization rates are likely to be lower
if raw materials for energy production such as coal and crude oil are transported.

Table 2.5 Containerization Rates between Various Areas in 2000

Africa

CAC

FE

EU

IS

North
Ameri
ca

Ocean
ia

South
Ameri
ca

ME

World
Total

Africa

10.1%

5.9%

3.8%

3.8%

2.0%

1.9%

7.2%

2.1%

4.1%

3.6%

CAC

17.9%

13.3%

13.0%

42.2%

38.2%

14.3%

9.8%

10.4%

16.5%

18.1%

FE

26.7%

35.8%

19.3%

43.1%

12.0%

46.6%

14.0%

35.8%

39.9%

24.6%

EU

23.7%

33.0%

40.5%

n.a.

21.9%

22.3%

58.3%

34.5%

28.7%

24.8%

IS

32.7%

67.6%

6.4%

34.6%

19.7%

54.8%

20.7%

11.1%

27.3%

15.7%

North America

6.8%

16.0%

21.1%

13.3%

23.2%

2.1%

27.3%

18.3%

11.2%

12.4%

Oceania

9.8%

40.0%

2.6%

3.5%

3.5%

17.4%

14.8%

1.6%

5.6%

3.5%

South America

6.1%

2.7%

4.7%

6.6%

3.1%

6.8%

28.8%

14.6%

5.4%

6.6%

ME

3.0%

29.9%

0.8%

3.2%

3.2%

2.5%

2.4%

1.3%

16.2%

2.0%

World Total

12.7%

8.1%

10.1%

9.8%

5.0%

11.1%

16.2%

14.8%

15.6%

10.0%

Source: IHS Markit’s World Trade Service
Table 2.6 Containerization Rates between Various Areas in 20172017 Africa

CAC

FE

EU

IS

North
Ameri
ca

Africa

12.7%

8.8%

3.2%

7.2%

3.1%

5.2%

2.7%

3.8%

15.6%

5.9%

CAC

22.1%

32.1%

22.9%

45.3%

13.7%

25.3%

28.1%

20.5%

39.9%

28.2%

FE

37.1%

31.8%

22.8%

67.7%

12.6%

68.7%

23.4%

48.5%

49.2%

30.3%

EU

19.6%

42.1%

45.5%

n.a.

24.3%

39.3%

63.4%

34.6%

28.7%

31.8%

IS

20.6%

56.2%

10.3%

29.4%

15.5%

57.0%

16.2%

35.3%

20.5%

20.6%

North America

14.0%

14.9%

23.0%

11.9%

17.2%

2.7%

34.6%

11.8%

22.9%

15.2%

Oceania

18.7%

67.8%

1.2%

8.6%

2.9%

32.7%

29.2%

1.5%

8.8%

1.9%

South America

10.0%

9.0%

2.8%

7.6%

2.9%

11.7%

15.3%

16.1%

6.4%

6.3%

ME

12.7%

31.7%

2.4%

6.2%

2.5%

5.5%

7.9%

8.8%

21.8%

4.4%

World Total

18.4%

17.5%

9.8%

17.2%

7.6%

23.4%

23.3%

18.6%

22.7%

13.2%

Source: IHS Markit’s World Trade Service
35

Ocean
ia

South
Ameri
ca

ME

World
Total

In addition, it is worth noting that the containerization rate for each route is not symmetric.
For example, in 2017, the containerization rate for the route from FE to North America was
68.7%, while it was 23.0% in the opposite direction. This suggests that there is an opportunity
for increased containerization to alleviate trade imbalances to some extent.

2.8 Benefits of BCC
When a shift is made to BCC, shippers/consignees usually form a new contract with anothershipping company because most shipping companies are dedicated to either bulk shipping or
container shipping operations, and few provide both services. In the case of bulk transport,
the shipping contract may be via a trading company or a broker, but in many cases theshipping company and shipper/consignee form a direct contract, while in the case ofcontainer shipping, shippers/consignees are more likely to delegate this role to theirforwarders18. Thus, a container shipping contract is more akin to an air cargo contract than abulk shipping contract.

It is also worth noting the different frequencies of bulk transport and container transport.
Bulk shipping carries a large amount of cargo in one shipment that is then used over a
relatively long period. Therefore, the frequency of bulk shipping between the same OD by
the same shipper/consignee is not high. However, it is hard for shippers and consignees toswitch from container shipping back to bulk shipping in the middle of a fiscal year orplanning period because the volume required to be carried by bulk shipping is usually larger
than the volume shipped by consignees in the given fiscal year or planned period. That is,once a transport mode has been selected, customers must commit to using that mode for a
specified period. Customers can use bulk shipping and container shipping in combination,
but the ratio cannot be changed during the specified period. This means that if customers
choose container shipping, their cargo will be carried in small units for the duration of thecontract period.

18

Direct contracts with container shipping companies are also used. However, this mainly applies to large
customers.

36

Regarding the development of BCC, shippers/consignees have come to recognize theadvantages inherent in container shipping, such as higher frequency and smaller lot sizes
compared with bulk cargo shipping (Ishihara and Goda, 2010; Mongelluzzo, 2007). For
instance, the management of individual cargo lots is relatively simple19 (Clott et al., 2015;
Rodrigue and Notteboom, 2015). In addition, the cost per trade is relatively low whencontainer shipping is used (Mongelluzzo, 2007). In particular, container shipping is anadvantageous transport mode for smaller shippers/consignees, and can reduce the risk of
surplus inventory and price volatility (Mongelluzzo, 2007). The volume per bulk carrier
shipment is much larger than that for container shipping, therefore bulk carriers enable thetransportation of larger volumes of cargo. Economies of scale suggest that the unit price ofgoods shipped in bulk would be lower. However, bulk shipping also poses greater risks forshippers/consignees, as noted above.

Moreover, the leadtime for container shipping tends to be shorter than that for bulk shipping(Rodrigue and Notteboom, 2015; Mongelluzzo, 2007), and thus the consequent earlier
settlement is another advantage of using container shipping (Mongelluzzo, 2007).

BCC also offers benefits to consumers. Some consignees, especially in developing countries,
only need small amounts of bulk cargo, thus if they want to use bulk shipping, various factors
may prevent them from importing the cargo they require. For example, bulk carriers tend to
be large, and if they cannot enter a port near the consignee, or the consignee does not havesufficient storage space or facilities to receive a significant amount of cargo that will resultin high levels of inventory, they will be unable to obtain the cargo they require. Hence,container shipping, which enables smaller amounts to be consigned, is more suitable for these
consignees.

19

Traceability is also a benefit of container shipping. Clott et al. (2015) pointed out that shippers and importers
increased their use of container haulage because of its traceability. Nishi (2008) used the example of a Japanese
importer who used container shipping for the import of edible soybeans to prevent them from being mixed with
GMO soybeans.

37Some consignees, mainly in developed countries, require identity qualified bulk cargo (e.g.,
non-GMO soybeans and stamping steel) because they have a particular interest in safety or
quality, even though the cost is higher than that of bulk shipping. If they use bulk shipping,
there is a possibility of their product being contaminated by non-qualified cargo like GMOs.
Container shipping enables consignees to preserve the integrity of their consignment.

Steel Scrap from Automobile Factories

Non-GMO Soybeans

Figure 2.15 Examples of Identity Qualified Bulk Cargo
Source: The Organic & Non-GMO Report, Taiho Industry Co.,Ltd.

A practitioner advised that BCC of soybeans was instigated by natto producers who were
uncompromising regarding the quality of the ingredients they used 20 . In Taiwan, BCC
progressed in relation to scrap iron and agricultural imports in the latter half of the 2000s(Matsuda and Kawasaki, 2013; Lirn and Wong, 2013). Even within East Asia, includingSoutheast Asia, BCC is progressing in the 21st century through the transport of goods
including building materials, recycled products, food, clothing, steel, and aluminum.

Another benefit of BCC is also related to smaller shipment sizes. BCC makes it possible totransport a small initial amount as an experiment when it is not yet known what the level ofdemand for the product will be. Container transport is sometimes used for such purposes assending experimental shipments of grain and the like to developing countries andtransporting an initial supply of raw materials for factory start-ups. Container transport can

20

See Nishi (2008) for details regarding the containerization of soybean imports into Japan.

38

also offer a more efficient transportation mode when an economy contracts and demand isreduced. Many studies have argued that the transport mode should be chosen in response to
the stage of the product cycle (e.g., Murakami and Matsuse, 2014). Container shipping is anefficient way to transport small volumes at both the initial and closing stages of the productcycle.

2.9 Chapter Conclusion
This chapter has outlined the current status of BCC. First, the progress of containerization,
including periods of diffusion and stagnation, was reviewed. Then, problems inherent incontainer shipping, namely trade imbalances and repositioning, were outlined. Next, BCC
was introduced as a solution to the problems of stagnation of containerization and tradeimbalances. Finally, the characteristics of container shipping and bulk shipping were
illustrated, along with the current status and benefits of BCC.

In developed countries, the trend toward containerization has not changed significantly since
the beginning of the 21st century, as reported by Rodrigue and Notteboom (2015). In addition,
since the latter half of the 2000s, bulk transport from developed countries to developing
countries has increased, leading to a sharp decline in the containerization rate. Meanwhile,the containerization rate for trade from developing countries to developed countries
continues to rise. Although container cargo trade is increasing among developing countries,
bulk cargo trade is also increasing, and thus the containerization rate has not changed
significantly since the late 2000s.

Looking at the status of containerization by category of goods, the group that has a highaverage containerization rate but no significant growth over the last decade includes goods
such as machinery, electrical equipment, fruit, and apparel. This group may have experienced
a decline in the containerization rate as a result of an increase in bulk transport. The group of
goods with both a high average containerization rate and significant growth includes
precision machinery, food, and flowers. Containerization of these items has progressed since
the early 2000s, and is continuing to grow. The group of goods with a low average
39containerization rate but significant growth includes food ingredients, some building
materials, and some raw materials. One reason for the increase in the average containerization
rate of these goods is a reduction in transportation volumes as a result of a decline in demand.
The final group of goods has a low average containerization rate and low growth, andincludes recycling products and some raw materials.

The relationship between the unit value of the commodity and the containerization rate is not
linear. The containerization rate increases sharply when the unit value rises to between 2
USD and 4 USD per kilogram, but there is no significant difference in containerization rates
at higher unit values. Looking at containerization rates by route, the rates tend to be higher
on routes where manufactured products are carried, and lower on routes where large amountsof raw materials for energy production are transported. Further, the containerization rates forvarious routes are not symmetric, confirming the significant imbalances that exist in relation
to containerized transport.

The benefits of BCC include shipping to small or medium-sized consignees, risk avoidancein response to changes in demand, inventory reduction, and shorter leadtimes, enabling
shippers of bulk goods to make full use of the advantages of small-lot transport by containers.
From these results, it seems that trade using BCC is focused on imbalanced routes fromdeveloped countries to developing countries. It is crucial to acquire items that do not have ahigh containerization rate at present such as raw materials, food ingredients, building
materials, and recycled products. In addition to the transportation of new types of goods, thebenefits of BCC are expected to be demonstrated in transportation not only to areas where
demand is expected to increase in the future but also to areas where demand has decreased.

Thus, BCC may provide new business for container shipping. As mentioned in Section 2.5,
if the transportation mode for commodities shifts toward container shipping, global
containerized trade will rise significantly, while dry bulk cargo trade will only fall by arelatively small amount.

40CHAPTER 3
REVIEW OF PREVIOUS STUDIES

41

3.1 Introduction
This chapter provides a review of the literature that is considered relevant to this dissertation.
First, studies on the progress of containerization are presented, followed by the literature on
the stagnation of containerization in recent years. Studies on imbalances in containerizedtransportation are also reviewed because this is a significant factor in the promotion of BCC.
Then, studies of BCC and transport mode selection are reviewed. Finally, conclusions
regarding the direction of future research are presented.

3.2 Literature on the Progress of Containerization

As noted previously, containerization is regarded as a means of promoting international trade.
Levinsohn (2006) presented a comprehensive history of containerization and highlighted the
reduction in trade costs that it facilitated. Hummels (2007) used five-digit SITC codes toanalyze a sample of commodities imported to the US from 1974 to 2004 to determine patterns
in international marine and air transportation costs, and found that the ad valorem cost wassignificantly reduced when exporting countries and goods were controlled for. It was foundthat when the share of containerized cargo doubled, the associated transportation costs only
increased by 13.4%.

These reductions in transportation costs as a result of containerization encouraged an increase
in international trade. Bernhofen et al. (2016) examined the trade promotion effect using an
econometric model covering the period of container adoption and showed that
containerization has been one driver of the globalization of the economy in the second halfof the 20th century. First, they defined containerization adoption as the point at which thehandling of containers at port or rail terminals commenced. In addition, they regarded
containerization as a technology specific to various pairs of exporting and importing
countries, which were represented by a dummy variable. They analyzed data from 157
countries for the period from 1962 to 1990, and then divided this period into three sub-periods.
The first sub-period was from 1962 to 1965, when there was no diffusion of containerization,
the second was from 1966 to 1983, when containerized transport was introduced all over the42

world, and the third was from 1984 to 1990, when no new countries introduced containerizedtransport. Their analysis was based on four-digit SITC codes and examined whether the
introduction of containerized transport had a positive impact on the amount of trade andwhether the future containerization of new products would have a positive impact on theamount of trade. Their results showed that containerization has had a significant influenceon the growth of bilateral trade, and in some cases the impact was still being felt 15 years
later. Further, their estimation results showed not only the stimulation effects of increasing
the amount of trade for containerizable products such as automobile parts but also thecomplementary effects for non-containerizable products such as automobiles .

Other studies have conducted more sophisticated structural analyses to examine the impact
of containerization. Cosar and Demir (2017) analyzed the impact of containerization on
shipping costs. First, they analyzed a trade model based on monopolistic competition
involving companies that produced heterogeneous goods. Container transport costs include
higher fixed costs than general cargo transport costs, but the additional costs as a result of
increased transport distances are relatively low. Therefore, cargo that is to be shipped overlong distances is better suited to container shipping than general cargo shipping. Based on
this, they used an econometric model to analyze data on exports from Turkey in 2013. It was
found that companies with higher productivity considered that the use of containertransportation increased profitability. Further, the cost of the first mile of containertransportation is 1.27 times that of general cargo transportation, but the cost elasticity inrelation to distance is lower for container transportation. Therefore, the difference intransportation costs between general cargo transport and container transportation tends to fallas the distance increases. Moreover, they found that transportation costs were lower forcontainer transportation over distances of more than 103 kilometers. For example, the costs
for the journey between China and the US were 22% lower using container transportation. In
addition, they showed that trade values fell by around 30% for average-distance trade
partners if containers were not used, and that this figure increased to 40% for long-distance
trade partners. However, the increase in trade volume as a result of the development ofcontainerization was not significant because less productive companies were able to engage

43

in trade as a result of the development of containerization, and these companies did not add
significantly to the overall value of trade.

Regarding the development of containerization, Guerrero and Rodrigue (2012) usedhierarchical cluster analysis and divided the evolution of the global container port system
into seven classes representing five long waves, each of which corresponded to a stage in thedevelopment of containerization.

Rua (2014) analyzed the adoption and diffusion of containerization using microeconomicand econometric modelling. She first analyzed the choice of transportation mode between
container and general cargo ships by firms and choices by governments concerning the
introduction of container ports using a monopolistic competition model, basing her analyses
on the following premises. First, a container ship is faster and the leadtime is shorter, so thecost per unit of freight is lower for container shipping. Second, the cost of introducing
container transportation is higher because it is necessary to introduce a more sophisticatedlogistics system. Third, the cost of introduction is falling year by year. Under theseassumptions, she used econometric models and country-level data regarding containerizationfrom 1956 to 2008 and obtained the following results. (i) Companies with high productivity
choose containerization as the cargo transportation mode because the growth in income fromexports means that the fixed costs per unit are reduced. (ii) As the fixed costs gradually
decline, even firms with low productivity will be able to make increasing use ofcontainerization. (iii) As the container transportation network grows, the share of container
shipping will rise. (iv) If governments expect that container usage will grow substantially,
the introduction of container ports will proceed.

Rodrigue and Notteboom (2009) outlined the potential of containerization, stating that thecontainer is “much more than a box; it is a vector of production and distribution,” after
examining the changes over the half century since container transportation was introduced.
They pointed out that although the introduction of new modes of transport took time, it was
not only the introduction of a new transportation method but also changes in production
methods, maritime logistics, inland logistics, and consumption through intermodal transport
44that needed to be considered. They also noted the potential use of container transportation atalmost all stages of the supply and commodity chain, and anywhere where adequate transport
infrastructure has been developed.

3.3 Literature on the Recent Stagnation of Containerization

Containerization progressed in the first half of the 2000s, but then stagnated, as explained in
Chapter 2. Fenton et al. (2018) interviewed 30 leaders and experts in shipping-relatedindustries seeking their comments regarding the recent stagnation of containerization. They
explained that “Fundamentally, this is because many commodities have fully containerised
already.” In addition, they stated that “the future of containerisation then will be decided byhow ‘mid-containerised’ commodities evolve.”

From the academic perspective, Rodrigue and Notteboom (2015) reached essentially thesame conclusions as Fenton et al. (2018). Based on the premise that recent developments incontainerization have occurred in stages, they outlined the progress of containerization as
follows: (1) change in transport mode from general cargo, (2) low freight rates offered for
imbalanced routes (backhauling), (3) increases in transshipments, and (4) trade expansion
through economic growth. Conversely, they noted that in recent years, (4) growth througheconomic expansion is becoming less dynamic, (1) substitution had been almost completed,especially in developed economies, and (2) the share of empty containers is relatively stable.
Hence, they insisted that (3) growth through increased transshipments, and the developmentof niche markets and new opportunities are necessary to expand containerization. They
proposed the containerized transport of goods in the commodity sector such as minerals andgrains (i.e., BCC), as well as the transport of refrigerated products such as frozen foods.

3.4 Literature on the Effect of Trade Imbalances

In addition to the need to find new types of cargo, the need to improve the efficiency ofcontainer shipping is another reason to focus on BCC. As shown in Chapter 2, there are45

significant imbalances in cargo volumes between mainhaul and backhaul transport on many
container trade routes, these imbalances being so large in many cases that shipping
companies are sending numerous empty containers back to Asia (Stopford, 2009; Notteboom,2012).

Theofanis and Boile (2009) examined global empty container logistics and analyzed theempty container management problem. They found that the reason for the surge in container
trade imbalances was the change in the global production network since the 1990s, andpointed out that although repositioning involves additional costs, it is necessary to balance
demand and supply. Then, they classified the players involved in the empty container
logistics industry, that is, container shipping companies and container leasing companies. In
addition, they explained the multilayered structure of the empty container management
industry at the global, interregional, regional, and local levels. Finally, they introduced
various studies aimed at alleviating the problem and presented some sophisticated,
technology-based optimization strategies. However, many of the advanced solutions havebeen unsuccessful because container shipping companies are reluctant to share sensitive
commercial information.

In the literature on international economics, the trade imbalance problem is sometimes
referred to as the “backhaul problem.” Ishikawa and Tarui (2017) explained the problem
using a theoretical model. A shipping company conducts its operations so that the backhaul
problem is minimized. However, when import tariffs and quotas are imposed, there is apossibility that the volume of imports needs to be reduced, and thus to avoid an increase in
the backhaul problem, both the import volume and the export volume must be reduced. In
other words, the presence of an imbalance may serve to prevent an increase in the tradevolume.

3.5 Literature on the Benefits of BCC
BCC has been proposed as an effective way to reduce repositioning costs (Rodrigue andNotteboom, 2015). Indeed, BCC mainly occurs in relation to backhauling (UNCTAD, 2013).
46

In relation to Asia–North America trade routes, BCC has mostly developed in westboundtrade (i.e., from North America to Asia).

Prentice and Craven (1980) conducted an early study of BCC and outlined its economic
potential. Other early studies were mainly focused on the export of grains from North
America (Prentice and Craven, 1980; Vachal et al., 2003; Prentice and Hemmes, 2015). This
reflects the fact that practitioners have focused on trade imbalances in the FE and North
America since the early years of containerization.

Nita et al. (2008) estimated the containerization rates from/to the US, excluding trade withJapan, using the Port Import/Export Reporting Service (PIERS) database. They found thatthe containerization rate in Asia–US trade increased by 8.3% in movements from Asia to the
US and 21.5% in movements from the US to Asia between 1997 and 2007, and concluded
that BCC had contributed to the greater increase in volume from the US to Asia. They founda positive correlation between the rise in the containerization rate and the increase incontainer cargo volume from the US to Asia (excluding Japan), but could find no suchcorrelation for trade from the US to Japan.

Some researchers have addressed the environmental issues relating to BCC. Suzuki andKurokawa (2013) examined levels of CO2 emissions in relation to the wheat trade from
Vancouver to Busan and found that containerization could reduce CO2 emissions by about
21%. Akakura et al. (2009) also found that CO2 emissions could be reduced by improving
the containerization rate in trade from North America to Asia.

3.6 Factors Affecting the Choice of Transportation Mode

In addition to the studies of Rua (2014) and Cosar and Demir (2018) pointing out that the
productivity of exporters is a factor in choosing containerization, other studies havedeveloped quantitative models regarding BCC. Matsuda and Kawasaki (2013) and Kawasaki
and Matsuda (2014) analyzed shippers’ choices between bulk shipping and container
shipping in relation to trade routes from the US to Asia. The former analyzed ferrous scrap
47

trade from the US to Korea and Taiwan, while the latter analyzed wood pulp trade from the
US to Japan, Korea, and China. They both developed logit models in which choice was thedependent variable and freight rates, commodity prices, port of loading, and other economic
factors were explanatory variables. The results showed that the progress of BCC differeddepending on the importing country. They also showed that the most important explanatory
variable was port of loading, as the choice of freight mode was heavily reliant on where theport of loading was located.

Clott et al. (2015) used an optimization model to determine where soybeans harvested around
Illinois should be exported from. They proposed three alternative routes; shipping by barge
down the Mississippi River to New Orleans, rail transport to Norfolk, or rail transport to Los
Angeles. Regarding the option involving barges down the Mississippi River, they considered
the possibility of congestion as a result of problems with locks. Xiang et al. (2017) used theGeospatial Intermodal Freight Transportation model to analyze the optimal network design
for US soybean exports, and concluded that shipping by barge to New Orleans was thecheapest route for many areas in the Midwest and along the Mississippi River corridor. They
also recommended increased investment in infrastructure along the Mississippi River and at
the New Orleans port facilities to generate significant reductions in transportation costs.

Lirn and Wong (2013) analyzed choices between bulk cargo transportation and containertransportation by Taiwanese grain shippers and importers. They distributed questionnaires to
26 Taiwanese shippers and used the fuzzy analytic hierarchy process to analyze the responses.
They divided 12 criteria into three groups (total cost, control of cargo and quality, and service
provided by shipping companies) to identify the factors that influenced the choice of transportmode, and found that total cost was the most important factor. They also showed that themost influential criterion among the 12 criteria examined was the difference in the price ofgrain between exporting and importing countries, followed, in order, by inventory cost,transportation cost, and in-transit inventory cost. These four criteria all belonged to the total
cost group. In addition, they showed that grain importers or shippers exhibited a slight
preference for bulk shipping rather than container shipping when markets were stable. Their48

study provides considerable insight for this dissertation because they focused on the choice
between bulk shipping and container shipping.

BCC is one possible choice in terms of transport mode. In the transport mode selection model,
the influences of freight, non-freight charges, and cargo characteristics are often taken into
consideration. For example, Miyashita (2002) considers opportunity costs attributable tofares, inventory costs, product cycle changes, and logistics response capability in theselection of either air transport or container transport. Tsuboi et al. (2010) considered the
choice between container shipping and air transportation using a model that took time, cost,inventory cost, and obsolescence cost into account. Murakami and Matsuse (2015) showedthat products that are at peak valuation tend to be transported by air, while they aretransported by container shipping when they reach the point of maturity in the product cycle.
They investigated how shippers’ choices reflect the product life cycle of commodities. Using
structural equation modelling, they found that the product life cycle of cargo exported fromJapan was perfectly correlated with the upward and downward movements in the air transport
ratio.

3.7 Chapter Conclusion
BCC is a new form of containerization, and thus is a new transport mode that shippers canselect. Thus, clarification of the mechanism underlying BCC contributes to the literature byproviding new knowledge relating to containerization and transport mode selection.
Therefore, previous studies on containerization, including the recent stagnation and tradeimbalance issues, as well as studies on transport mode selection were reviewed in this chapter.

Previous studies on containerization have tended to focus on trends in containerization in
relation to economic development and its influence on international trade. However, few
studies have addressed the mechanism underlying containerization, in particular, themechanism in recent years. These studies have not addressed macroeconomic aspects suchas the status of various economies and their infrastructure. In addition, studies focusing on

49

maritime affairs or maritime economics have tended to concentrate on descriptive analysis,
and thus more quantitative analysis should be undertaken using appropriate models.

Therefore, to derive the mechanism underlying BCC, this dissertation examines both
macroeconomic and microeconomic aspects. That is, the impact of economic conditions andinfrastructure levels, decision-making entities regarding BCC, the relationships between
those entities, and the structure of the decision-making process are all considered. This
provides a meaningful contribution to the literature regarding maritime economics andlogistics studies because it clarifies the mechanism underlying containerization as it enters a
new stage.

This dissertation also contributes to the literature regarding transport mode choices. As
mentioned in Chapter 2, prior research on mode selection in relation to international transport
has mainly focused on the choice between container shipping and air cargo transport becauseof similarities in the types of goods that have traditionally been transported using these modes.
However, there has been a lack of research on the factors influencing the choice between
bulk shipping and container shipping.

Many practitioners including shipping companies, shippers, and consignees are now
confronting the changing trend in containerization. This dissertation provides a meaningfulreference in relation to the sourcing of new types of cargo and the selection of the mostefficient cargo transport mode.

50

CHAPTER 4ECONOMETRIC ANALYSIS OF BULK CARGOCONTAINERIZATION IN EAST ASIA

51

4.1 Introduction
In this chapter, factors related to BCC in East Asia (Japan, Korea, China, Taiwan, Hong Kong,
Malaysia, Singapore, Thailand, Vietnam, Indonesia, and the Philippines) are examined using
cluster analysis and simultaneous equation modeling. First, trends in the containerization rate
in relation to various goods are identified using cluster analysis. Then, the determinants ofthe containerization rate are identified using simultaneous equation modeling. In the model
estimation, characteristics are classified into clusters.

The first reason for choosing East Asia is that the volume of short sea container shipping issignificant in this region. The second reason is the diversity in the region in terms of
economic development and trade. This enables us to understand the relationship between
economic development and containerization. The third reason is that container port
development is progressing in East Asia, and thus it is possible to understand the relationshipbetween containerization and container port development.

The promotion of BCC will result in an increase in the volume of cargo handled by container
shipping companies. Currently, the volume of cargo transported by container in East Asia
exceeds that along the transpacific and FE–Europe routes. As new cargo types are introducedwith the promotion of BCC in this region, container shipping company revenues will increase,as will efficiency through the reduction of imbalances. It is well-known that container
shipping has increased international trade and played a key role in promoting the second eraof globalization (Bernhofen et al., 2016). Thus, increasing container shipping company
revenues, reducing repositioning costs, and improving the market environment are all of great
importance.

This chapter is organized as follows. In Section 4.2, cluster analysis of factors affecting the
progress of containerization is presented. Section 4.3 explains the formulation and analysis
using simultaneous equation modeling. Section 4.4 presents the estimation results, andSection 4.5 summarizes and discusses the results found in Sections 4.2 and 4.4.

52

4.2 Cluster Analysis
4.2.1 Data and Variables
In this section, factors affecting the progress of containerization are examined using cluster
analysis. Traded goods are grouped according to characteristics, and the characteristics of thegroups are analyzed. Container trade volume (MT basis), bulk trade volume (MT basis),container trade amount (USD basis) and bulk trade amount (USD basis) in the East Asia
region are analyzed using IHS Markit’s world trade data. Bulk trade volume is calculated as
total seaborne trade volume less container trade volume, including cargo carried by generalcargo ships in addition to bulk carriers. IHS Markit gathers trade statistics for each country
and estimates the amount of transportation and trade value by transportation mode for each
item, classifying goods in accordance with ISIC codes. The containerization rate is calculatedby dividing the container shipping volume by the total seaborne trade volume. Goods withan average containerization rate from 2000 to 2014 of either more than 99% or less than 1%
were judged to have no competition between container shipping and bulk shipping, and were
excluded. This left 127 goods for analysis.

The following seven variables were used: [1] change in containerization rate (percentage
points) between 2007 and 2000, [2] change in containerization rate (percentage points)
between 2014 and 2007, [3] average containerization rate (%) from 2000 to 2014 (4) average
unit price (USD/kg) between 2000 and 2014, [5] average seaborne trade volume (MT)between 2000 and 2014, [6] change in container trade volume (MT) between 2000 and 2014,
and [7] change in bulk trade volume (MT) between 2000 and 2014.

These variables were used for the following reasons. [1] The changes in the containerization
rate up to and after 2007 were calculated because Rodrigue and Notteboom (2015) pointed
out that the conversion from general cargo transport to container transport stagnated fromaround 2007. [2] The average containerization rate was used to determine whether thestagnation in the growth of containerization occurred following the completion of theconversion to containerized shipping. [3] Container trade volume and bulk trade volume were
calculated to assess whether the significant reduction in bulk trade volume caused the53containerization rate to rise despite the decrease in container trade volume. [4] The average
unit price and average seaborne trade volume were adopted because these are crucial factors
affecting containerization, and are also useful elements for classifying goods.

Cluster analysis uses the k-means method, which is non-hierarchical and divides N
observations into k clusters. Data are assigned to each cluster in accordance with theevaluation function shown below. The distance between representative point μi of cluster

Si and data x is expressed by x − μ i . k-means clustering assigns data x to cluster Si sothat μi is the nearest representative point for all x ∈ Si that satisfies evaluation function(4.1).
kmin   x − μ ixi =1 x∈Si(4.1)

The k-means method requires the number of clusters to be determined ex ante. Thus, threestandards were applied: (1) whether the containerization rate was high, (2) whether growthin the containerization rate was large, and (3) whether the demand for seaborne trade volume
was growing. At least eight clusters are considered necessary to assess these factors, and soten clusters were used to provide a margin for error.

4.2.2 Results of Cluster Analysis
The results of the cluster analysis are shown in Table 4.1. The values shown in each cell are
the average values for goods included in each cluster. The goods in each cluster are shownin Table 4.221.

Even though there is a considerable difference between Cluster 1 (14.3%) and Cluster 7(2.1%), the change in the containerization rate from 2000 to 2007 shows that containerization
was progressing across all clusters, confirming that containerization advanced during that
period. Conversely, the increase in the containerization rate declined between 2007 and 2014,21

Detailed results are shown in Appendix I.

54when even Cluster 9, which showed the most growth, only increased by 4.3%, while thechanges in the containerization were negative for Clusters 2, 3, 4, and 7. Overall, progress incontainerization stalled around 2007.

Table 4.1 Results of the Cluster Analysis
Cluster
No.

No.
of
goods

1
(Middle)2(Middle)3(High)
4(High)
5(High)
6(High)
7
(Low)
8
(Low)
9
(Middle)10(Low)

Change inContainerization
Rate from 2000
to 2007

Change inContainerization
Rate from 2007
to 2014

Containerization
Rate

8

14.3%

2.1%

59.5%

5

9.5%

–8.0%

44

5.7%

3

Unit
Price
($/kg)

Seaborne
Trade
Volume(10,000
tons)

Change inContainer
Cargo(10,000
tons)

Change in
Seaborne
Trade(10,000
tons)

0.65

590

315.0

77.4

61.9%

1.05

1,302

599.5

338.9

–0.1%

76.2%

10.52

23

7.2

0.5

8.2%

–0.4%

93.8%

4.22

136

–30.3

–9.8

20

10.5%

1.6%

79.2%

2.59

231

137.1

1.4

25

7.6%

1.1%

87.1%

7.13

83

48.3

1.2

10

2.1%

–0.1%

24.7%

1.76

214

42.8

105.6

5

4.9%

2.3%

20.7%

0.57

2,943

653.4

1,483.7

3

9.9%

4.3%

56.2%

0.43

154

–27.4

–75.2

4

3.0%

0.9%

11.3%

0.56

757

104.1

610.7

Table 4.2 Rough Classification of Goods for Cluster Analysis
Cluster No.

Number of
Goods

Goods

1(Middle)

8 Stones and Cements, Fertilizers, Building Materials, Recycling Goods

2(Middle)

5 Chemical Products, Fruits and Vegetables, Woods

3(High)44 Machinery, Agricultural Products4(High)3 Cotton, Synthetic Fibers, Apparel Raw Materials/Products
Metals, Iron, Chemical Elements, Industrial Machinery, Drinks, Plastic
20 Products5(High)7(Low)

25 Fruits, Vegetables, Machines, Foods, Clothing
Fertilizers, Feed Materials, Animal and Vegetable Oils, Rice, Wood Chips,
10 Motor Vehicles

8(Low)

5 Steel Products, Organic Compounds, Stones

9(Middle)

3 Fertilizers, Phosphate, Paper, Oilseeds, Fruits for Oil Extraction

10(Low)

4 Petroleum Products, Oils, Cokes, Scrap Metals6(High)55

Clusters 3, 4, 5, and 6, which have a high average containerization rate, include goods suchas fresh food, machinery, and apparel. These clusters tend to contain small goods and highvalue goods. Conversion from general cargo transport to container transport has advanced
further for these goods than for those in other clusters, with containerization achieving
significant progress by around 2007.

Machinery and agricultural products account for the majority of goods in Cluster 3, with theaverage unit price being the highest among all clusters. However, the averagecontainerization rate is lower for this cluster than it is for Clusters 4, 5, and 6. The growth in
the volume of container trade is also moderate compared with that in Clusters 5 and 6, andthe growth in the containerization rate since 2007 is slightly negative. However, the growthin bulk trade volume over the same period has been small. It is worth noting that goods in
Clusters 3, 4, 5, and 6 also have a low containerization rate. For example, the containerization
rate of grapes and plums is about 60%. In addition, there are specific routes where thecontainerization rate for the cluster as a whole is low, for example, the containerization rates
for the Philippines–China route and the Malaysia–Vietnam route are less than 50%. This may
be related to the lack of container services on these routes. According to the Alphaliner
database, only 38 services are offered on the Philippines–China route including semi-liners
and roll-on/roll-off (RO-RO) ship services. This is extremely low comparing with the 135
services offered on the China–Vietnam route and the 155 services offered on the China–
Taiwan route. The Malaysia–Vietnam route is also underserviced, with only 45 services onoffer.

Cluster 4 includes goods such as apparel-related raw materials and products. Between 2000
and 2014, container trade volumes and bulk trade volumes were decreasing, but the decreasein container trade volumes was more significant than that in bulk trade volumes. Sincecontainerization of goods in this cluster was considerably advanced, the decrease in container
trade volumes mainly reflected the decrease in trade volumes22.

22

Nippon Kaiji Kentei Kyokai (2015) analyzed trade trends for apparel-related goods in Asia (from Northeast
Asia to India) in 2003 and 2013. In terms of synthetic fibers and textiles, procurement by Chinese importers

56

In Clusters 5 and 6, the container trade volume has increased significantly even though thebulk trade volume has hardly increased at all. Thus, the goods in these clusters are those forwhich container transportation has remained fixed to some extent. Cluster 5 contains goods
such as aluminum, concrete products, and steel materials. These goods are larger in volume
than those in Cluster 6, which includes goods such as machines, food, and clothing. Cluster
5 contains goods with low unit prices.

Clusters 1, 2, and 9, which have medium average containerization rates, include goods suchas building materials and chemical products. The unit price of goods in these clusters isaround 1 USD/kg or less, which is considerably lower than that of goods in the Clusters 3, 4,
5 and 6. Containerization of goods in these clusters advanced significantly up to around 2007,
but the situation varies from 2007 onwards.

Cluster 1 contains goods such as building materials and recycling materials. The container
trade volume and bulk trade volume were both increasing, and increases in the container
trade volumes were larger than those in bulk trade volumes before 2007. Even after 2007,changes in container trade volumes are higher for more than half of the goods in this cluster.
Therefore, since 2007, the growth in the average containerization rate for this cluster has
been small but positive.

The goods in Cluster 2 include chemical products, wood, and fruits. The containerization ratein this cluster has declined since 2007 because of the significant increase in bulk tradevolumes in the latter half of the 2000s. For example, exports of processed fruit goods fromThailand to China have increased significantly since the latter half of the 2000s, but thecontainerization rate fell sharply because bulk transport was mainly used.

Cluster 9 contains goods such as fertilizers and raw materials such as phosphate, newspaper
and uncoated paper, oilseeds, and fruits for oil extraction. As the procurement of these goods

increased as a result of economic development. This caused a reduction in the trade volumes of goods in Cluster
4.

57

has switched from domestic sources to suppliers outside East Asia, the seaborne trade volume
in East Asia has been on a downward trend. Moreover, the containerization rate rose because
the bulk trade volume decreased more than the container trade volume. This is a case wherecontainer transportation remained steady despite trade shrinkage.

Clusters 7, 8, and 10, which have low average containerization rates, include goods such as
metals, stones, and cooking oil. The unit prices of goods in these clusters are 1 USD/kg orless, which is about the same as that of goods in clusters with medium averagecontainerization rates. In addition, the average seaborne trade volumes are the largest in theseclusters because goods in these clusters tend to be heavy. Containerization of these goods did
not progress significantly until around 2007, and so the bulk trade volume increased morethan the container cargo volume from 2000 to 2014.

Goods in Cluster 7 include fertilizer, feed materials such as hay, animal and vegetable oils,
rice, and wood chips. Unit costs and average seaborne trade volumes are similar to those of
Cluster 5, but there is a big difference in the average containerization rate. Containerization
rates for around half of the goods in Cluster 7 declined from 2007. Conversely, thecontainerization rates did not decrease for the rest of the goods in the cluster, while they roseslightly for fertilizer raw materials, foods such as meat and fish, and hay.

Cluster 8 includes goods such as steel products, organic compounds, and stones. Overall,although the containerization rates for these goods are low in East Asia, some goods such asstones, which are in high demand for tombstones, account for the highest trade volumes, withsignificant volumes of container trade between Japan and China and between Japan and
Korea (Matsuda, 2014; Matsuda, 2016).

Goods in Cluster 10 include petroleum products, oils, cokes, and scrap metals. The unit pricesof these goods are the second lowest, and average containerization rates are the lowest of any
cluster. Some practitioners believe that transportation in dedicated containers looks
promising for goods in this cluster. In addition, container transportation of scrap metal still58

accounts for a significant share of exports from the US to countries such as Taiwan andTurkey.

Finally, it is worth discussing seasonal fluctuations in demand for goods. As can be seen from
Table 4.2, goods such as food crops and raw materials, which experience seasonal
fluctuations in demand, are contained in clusters that have both high and low averagecontainerization rates. However, also can be seen from Table 4.2, it seems to be apparent that
containerization rates tend to be relatively higher in relation to goods for which seasonal
fluctuations in demand are less significant. Therefore, the existence of seasonal fluctuations
in demand may not have a significant influence on the choice of transport mode. That is,
except for sharp fluctuations in demand, there is not much hedging of risk through the choiceof transport mode. However, there is a possibility that hedging of risk is occurring on various
individual routes because the cluster analysis conducted in this chapter combined the routeinformation.

4.3 Outline of Simultaneous Equations Model
4.3.1 Model Formulation
In the simultaneous equations model, containerization rates in relation to imports and exports
between exporting and importing countries are regarded as the final dependent variable. In
addition, the extent of the influence of trade characteristics such as seaborne trade volume
and import and export costs on both the exporting country and the importing country is
identified. That is, the containerization rate Yit in year t of bilateral trade i is estimatedusing equations (4.2) – (4.4).

Yit = β0 + β1 X it + β 2 Zit + β3L1it + ε it2
 X it = α 0 + α1Yit + α 2 Zit + α 3Lit + ηit Z = γ + γ X + γ Y + γ L3 + µ
0
1 it
2 it
3 it
it
 it

59

(4.2)
(4.3)
(4.4)

The seaborne trade volume in year t of bilateral trade i is indicated by X it . The ratio of the1

2

3

container freight rate to the bulk freight rate is indicated by Zit . L it , L it , and L it arevectors of exogenous variables used in equations (4.2), (4.3), and (4.4), respectively. ε it , ηit ,and µit are error terms used in each equation.

Equation (4.2) provides a formula for calculating containerization rates, which is the ultimate
objective of the analysis. It aggregates individual transportation mode decision-making,which determines the containerization rate based on the seaborne trade volume and the freightrates for container shipping and bulk shipping and other factors.

Equation (4.3) is used to estimate the seaborne trade volume in bilateral trade. It aggregates
individual decision-making regarding the seaborne trade quantity (i.e., the lot) based on thecontainerization rate, the freight rates and the sizes of the economies of the exporting country
and the importing country. In estimating this formula, bilateral maritime distance wasadopted as an explanatory variable in relation to the transportation cost. Real GDP is used tomeasure the size of a country’s economy. Equations (4.2) and (4.3) are both demand
functions that determine the demand for seaborne trade volume and container trade volume,
respectively.

Equation (4.4) is used to estimate the relative freight rate of container shipping and bulk
shipping based on the seaborne trade volume, containerization rate, and other factors.
Equation (4.4) is a collection of supply functions in relation to container shipping and bulk
shipping. It should be noted that not only the relative levels of container freight and bulk
freight but also the overall freight level influence decision-making. Thus, it is preferable tobuild a model based on absolute values. However, because it is difficult to collect bulk freightdata on an origin and destination (OD) basis, estimations are made using a model that
determines the relative freight rate of container shipping and bulk shipping.

60

4.3.2 Notes on the Analysis
First, it is worth noting again the period over which goods shipped by either bulk transport
or container transport are consumed. As stated in Section 2.8, once a transport mode isselected, a specified period of time must elapse until the next selection can be made.

In an interview, a consignee confirmed the above statement and mentioned that the ratio ofbulk shipping to container shipping is initially determined for each route in accordance withthe management plan drawn up at the beginning of the fiscal year. However, even if theconsignee wishes to use bulk shipping, container shipping might be used temporarily when
the consignee wants to import cargo quickly and is not prepared to wait until sufficient cargois accumulated for a bulk shipment. Many companies formulate management plans forperiods of three months, six months, and one year, and review their long-term management
plans annually. Although there are differences in accounting systems and practices among
countries and companies, shippers/consignees usually make decisions once or several times
per year. The formulation of the model presented here, in which a decision is made once a
year, makes it possible to examine trends in the selection of the transport mode in aggregatedform.

The formulation of the simultaneous equations model reflects the fact that seaborne tradevolumes, containerization rates, and freight rates are determined at the same time. When aperson exports or imports a specific good via a specific route, he/she usually decides on thetransport mode and the shipping volume at the same time. Due to negotiations between
shipping companies and their customers, not only the freight rates but also the cargo quantity
and the share of various transport modes will fluctuate. Thus, the cargo quantity andtransportation mode share is determined at the same as the freight rates. Evenshippers/consignees who use bulk shipping and container shipping at the same time or who
contract with multiple shipping companies and forwarders may experience some timing
variations. However, there is no problem if seaborne trade volumes, container freight61

volumes (containerization rates), bulk freight rates, and container freight rates are determinedalmost simultaneously23.

When estimating the simultaneous equations model, the endogeneity problem occurs where
the endogenous variable and the error term are correlated24. To deal with this, the three-stage
least squares method (3SLS) is used. First, each endogenous variable is regressed on all
exogenous variables. Second, using the previous regression-estimated values as instruments,
all equations are estimated using the ordinary least squares (OLS) method to computeresiduals and determine cross-equation correlations. Third, the generalized least squares(GLS) method is used to estimate model parameters.

In estimating equation (4.2), the range of the dependent variable Yit is limited to [0,1].
However, OLS and GLS do not restrict the range, and thus might be inappropriate for thisanalysis. Therefore, the natural logarithm of the odds ratio is used, which is defined asln (Yit 1 − Yit ) 25 . However, because lim ln (Yit 1 − Yit ) = ∞ , data are excluded from theYt →1

estimation when Yit = 1 26.

Trade between neighboring countries with land borders is also considered. In this chapter, 11
East Asian countries (Japan, South Korea, China, Hong Kong, Taiwan, Vietnam, thePhilippines, Indonesia, Thailand, Malaysia, and Singapore) comprise the sample. However,in cases where countries share a land border, transportation by a land-based service becomesan option in addition to container shipping and bulk shipping, which affects both the transportmode decision and containerization rates. Therefore, the following country combinations

23

Murakami and Matsuse (2014) applied almost the same methodology as that used in the econometric model
used in this chapter to estimate the choice between container shipping and air transport.

24

If there is endogeneity, a correlation between the explanatory variables and the error term is present, and theestimated coefficients lose their consistency. Thus, OLS is not an appropriate estimation method.

25

This is the logit conversion, thus this estimation can be regarded as a logit model using aggregated data.

26

Some observations in Cluster 4 were excluded.

62

were excluded from the analysis: China–Vietnam, China–Hong Kong, Malaysia–Singapore,
Malaysia–Thailand, and Malaysia–Indonesia.

Finally, there is a limitation to the analysis conducted in this chapter. Here, regression
analyses are performed for each cluster. However, cluster analysis is conducted for containertransportation throughout East Asia, and thus information on the degree of containerization
applicable to each route is abstracted. Average containerization rates by OD and cluster are
shown in the tables in Appendix II. It is worth noting that the result of the regression analysis
is based on the clusters into which the containerization on each route is grouped. Table 4.3
indicates differences in containerization rates between the results of the cluster analysis andthe average for each route. In fact, the difference between the containerization rates for eachcluster shown in Table 4.1 and the average containerization rates for each cluster shown inAppendix II does not exceed 10% except for Clusters 7 and 9. However, there is a possibility
that the results of the regression analysis deviate from the actual degrees of containerization
as a result of the method of analysis, especially in relation to Clusters 7 and 9.

Table 4.3 Differences in Containerization Rates between the Results of Cluster Analysis
and the Average for Each Route
Cluster
10

Cluster 1

Cluster 2

Cluster 3

Cluster 4

Cluster 5

Cluster 6

Cluster 7

Cluster 8

Cluster 9

Cluster
Analysis

59.5%

61.9%

76.2%

93.8%

79.2%

87.1%

24.7%

20.7%

56.2%

11.3%

Appendix

52.4%

64.7%

75.7%

90.2%

80.8%

90.4%

37.3%

21.9%

85.2%

11.2%

Differenc
e

7.1%

–2.8%

0.5%

3.6%

–1.6%

–3.3%

–12.6%–1.2%–29.0%

0.1%

4.3.3 Explanatory Variables, Dependent Variables, and Data
Table 4.4 shows the explanatory variables, dependent variables, and data used in the analysis.
At the time of estimation, natural logarithms are taken for all variables excluding
containerization rates and the relative volumes of container shipping and bulk shipping. This
enables the coefficients to be compared in percentage terms, making the results easier tointerpret (Stock and Watson, 2007).

63

Table 4.4 Data Outline and Summary Statistics
Variable

Unit

Data Source

AverageStandard

Observations

Exogenous Variables Used for Estimating the Containerization Rate (Yit)Container Handlingin Exp. Country

TEU

UNCTAD, MLIT

25,780,806

36,404,639

54

Container Handlingin Imp. Country

TEU

UNCTAD, MLIT

25,780,806

36,404,639

54

Cost of Export in Exp.
Country

USD/Container(PPP)

WB “Doing
Business”

710

200

99

Cost of Import in Imp.
Country

USD/Container(PPP)

WB “Doing
Business”

785

283

99

Container Trade Imbalance

TEU

IHS Markit

32

195,298

1,487

Exogenous Variables Used for Estimating the Seaborne Trade Volume (Xit)
Real GDP of Exp. Country

Mil. USD (2005)

World Bank

1,041,226

1,587,146

99

Real GDP of Imp. Country

Mil. USD (2005)

World Bank

1,041,226

1,587,146

99

Distance

Nautical MilesAXS Alphaliner

1,503

788

110

Exogenous Variables Used for Estimating the Relative Freight Rate (Zit)
Bulk Carrier Capacity for thePrevious Year

Mil. DWT

Clarksons Research

577

123

5

Container Ship Capacity for
the Previous Year

1,000 TEUs

Clarksons Research

14,702

1,895

5

Bunker Oil Price for thePrevious Year
(380 CST, Singapore)

USD/MT

Clarksons Research

554

115

5

Exogenous Variables Used for Estimating Various Endogenous Variables
Unit Price

USD/kg

IHS Markit

6

21.98

13,545

Dummy for each year

-

-

-

-

-

Endogenous Variables
Containerization Rate (Yit)%

IHS Markit

0.59

0.31

12,711

Seaborne Trade Volume (Xit)MT

IHS Markit

547,807

1,633,330

13,545

Container Freight Rate (Zit)

USD/FEU

Drewry Shipping
Consultants

949

248

494

BDI (Zit)

Index

Baltic Exchange

2,977

2,279

9

64

Containerization rates and relative freight volumes are ratios, and thus do not take natural
logarithms. Because the acquisition of freight rate data between ports was restricted, theanalysis period was set from 2010 to 2014. Based on the results of the cluster analysis, 127
goods were aggregated into 10 clusters. In addition, the value of each variable such as
seaborne trade volume and container trade volume was aggregated by cluster.

a) Exogenous Variables Used for Estimating the Containerization Rate ( Yit )The exogenous variables used in equation (4.2) to estimate containerization rates are thecontainer handling volume of importing and exporting countries, import and export costs ofimporting and exporting countries, and imbalance in container trade volumes.

The container handling volume of the exporting and importing countries shows the numberof containers handled (throughput) in the form of export, import, transshipment, and empty
container transportation at the port of each country during the year in question. For countries
other than Japan, the annual figures published by UNCTAD are used, while figures publishedby the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) are used for Japan.
In this chapter, the container handling volume is used as a proxy for the processing capacityof the country’s port infrastructure. Container shipping seems to be utilized more at ports
with high throughput because containers are handled more efficiently at these ports, andnumerous container vessels visit these ports, thus empty containers are more readily available
for use. Therefore, containerization rates should be higher in countries with more active ports.

The export costs for the exporting countries and the import costs for the importing countries
were obtained from the “Doing Business” database published by the WB. These data are
based on information provided by private-sector experts in international logistics. The costof exporting and importing one container of cargo is converted into dollars, and pricefluctuations are taken into account. This cost is a proxy not only for land transportation in
the country but also for institutional or soft infrastructure because when the country’s legal
system does not impede transportation, the procedural costs, which reflect the country’s levelof soft infrastructure, will be low. A rise in these costs is likely to lower the containerization
rate because they inhibit the use of container transportation.
65

The imbalance in container trade volume between countries is the difference between theexport volume and the import volume of container cargo for all goods. For the purposes ofthis chapter, the imbalance is defined as “the container trade volume imported by theimporting country from the exporting country” less “the container trade volume exported by
the importing country to the exporting country” and is calculated using IHS Markit data. For
example, the imbalance when Japan is the exporting country and China is the importing
country is the container trade volume imported by China from Japan less the container tradevolume exported from China to Japan. A rise in the imbalance means that the import volume
has become relatively larger in relation to the export volume. This places downward pressure
on the container freight rate for exports, and thus should increase the volume of containerized
exports.

b) Exogenous Variables Used for Estimating the Seaborne Trade Volume ( X it )The exogenous variables used in equation (4.3) to estimate the seaborne trade volume are thereal GDP of the exporting and importing countries and the ocean distance between them.

Real GDPs (base year 2005) were obtained from the WB database, while ocean distanceswere obtained from the AXS Alphaliner database. The distance between the exporting
country and importing country is defined as the distance between the largest container port
in each country. The largest container ports in each country are Tokyo (Japan), Busan (Korea),
Shanghai (China), Kaohsiung (Taiwan), Hong Kong (Hong Kong), Port Kelan (Malaysia),
Singapore (Singapore), Laem Chabang (Thailand), Cai Mep (Vietnam), Tanjung Priok(Indonesia), and Manila (the Philippines).

c) Exogenous Variables Used for Estimating the Relative Freight Rate ( Zit )The exogenous variables used in equation (4.4) to estimate the relative freight rate are thebulk carrier volume for the previous year, the container ship volume for the previous year,
and the average bunker price for the previous year27. The overall capacity of ships indicates
27

Using the previous year’s data avoids the simultaneity problem concerning the determination of the capacity ofthe vessels.

66the potential supply level. Decisions regarding shipping services in the current period are
based on capacity in the previous period because shipping companies have to decide on
shipping capacity in advance. An increase in bulk carrier capacity shifts the bulk trade supply
curve to the right, leading to a fall in bulk freight rates. Meanwhile, an increase in container
shipping capacity shifts the supply curve for container trade to the right and leads to a fall incontainer freight rates. However, it is not clear in advance how these effects will affect therelative freight rates28.

In addition, the bunker cost accounts for a large percentage of the operating expenses. For
example, for the three Japanese shipping companies Nippon Yusen Kaisha, Mitsui O.S.K.
Lines, and Kawasaki Kisen Kaisha, fuel costs accounted for 31.2% of their operating
expenses for FY 2015 29 . Therefore, bunker price fluctuations affect market conditions
through changes in operating costs. In some cases, a bunker adjustment factor is applied toraise or lower freight rates according to past fuel prices. In general, container ships are fasterand consume more fuel (International Maritime Organization, 2009). Therefore, an increasein the fuel price places upward pressure on container freight rates.

d) Exogenous Variables Used for Estimating Equations (4.2), (4.3), and (4.4)
Of the explanatory variables, the unit price and year dummies are used in plural equations.
The unit price is the average unit price for each cluster in bilateral trade, and is calculated by
dividing the seaborne trade value by the seaborne trade volume. In the cluster analysis, theaverage containerization rate tended to increase for goods with higher unit prices. There isan incentive for each shipper/consignee to reduce inventory costs by decreasing the volume
per shipment because inventory costs tend to be higher for goods with higher unit prices.

28

For example, assuming that the supply functions for bulk trade and container trade are linear, the relative freightrate is calculated using the first approximation method. Then, the signs of the coefficients of the shipping
capacities are affected by the constant term signs of the original supply functions. Therefore, it is not possible
to specify beforehand whether the sign of the ship’s capacity is positive or negative in the estimation formula.

29

Weighted average value of bunker costs as a share of operating expenses in the non-consolidated income of
Nippon Yusen Kaisha, Mitsui O.S.K. Lines, and Kawasaki Kisen for the 2015 fiscal year.

67

Because container transportation is appropriate for small-lot transport, it is likely that thecontainerization rate will rise as the unit price increases.

Dummies are used for trade in years other than 2010 to indicate that the trade was conductedduring that year. The reason for using a year dummy is to enable more accurate estimationby controlling for each year’s unique effects that are unable to be represented by variables in
the model. Since the importance of controlling the effects unique to each year does notchange even if the goods change, year dummies were not excluded a priori when analyzing
specific clusters30.

e) Endogenous Variables
The relative freight rate is used as an endogenous variable in addition to the containerization
rate and the seaborne trade volume. This is obtained by dividing the container freight rate by
the bulk freight rate. Monthly container freight rates between various ports are published byDrewry Shipping Consultants, and are based on the average of spot freight rates collectedfrom forwarders at each port. The annual average is used in this chapter. In cases where nodata are available the freight rates from/to the nearest port are used.

The bulk freight rate is based on the BDI, which is the daily index of bulk carrier charter fees
published by the Baltic Exchange. This calculates the weighted averages of ship sizes andfreight rates that are reported by shipbrokers called panelists in relation to all shipping routes.
The average annual BDI figures are used in this chapter.

30

Some dummies are excluded for some years in Table 4.6. This was done by the software package R at the timeof estimation to avoid perfect multicollinearity where regression coefficients cannot be determined.

684.4 Results of Simultaneous Equation Modeling
The results of the simultaneous equation modeling are shown in Tables 4.4 to 4.6. The overallsystem coefficient of determination is shown in the lower part of Table 4.631, and varies from0.60 to 0.97. Thus the estimation results maintain explanatory power.

4.4.1 Results for Seaborne Tradea) Coefficients of Real GDP and Distance
The estimation results for seaborne trade volume are shown in Table 4.5. The sign of thecoefficient of real GDP of the exporting country is significantly positive for each cluster.
This indicates that economic development in exporting countries has led to an increase inseaborne trade volume.

The coefficients of real GDP in importing countries are significantly positive in all clusters
except for Cluster 4. Economic development and rising demand in importing countries have
led to an increase in marine transportation volumes for most goods. Cluster 4 had negative
coefficients, but they were not significant. This cluster is made up of raw materials used inlight manufacturing industries, and thus it can be inferred that this result was because
industrialization in importing countries had advanced with economic development, and thus
manufacturers had transferred their bases overseas.

The coefficients of distances between exporting countries and importing countries werepositive for all clusters except Cluster 9 and significant for Clusters 2, 7, 8, and 10. Thissuggests that bulk shipping, which can carry large quantities of cargo at once, is extremely
31

The coefficient of determination (adjusted R2) may take a negative value in the estimation model used in thischapter. In the simultaneous equation model using 3SLS, it is known that the determination coefficients of eachequation take a negative value, or more than unity. There are some indications that the coefficient ofdetermination lacks adequacy as an index of explanatory power in simultaneous equation modeling (e.g.,
Matsuura and McKenzie, 2012). However, to show the explanatory power of the estimation results, thecoefficients of determination of the simultaneous equation system (system R2) are calculated and shown in thelower part of Table 6.

69cost competitive for long-distance trade. In addition, goods in Clusters 7, 8 and 10 originally
had a low containerization rate, as shown in Table 4.1. Therefore, it is likely that bulk
shipping would be used for long-distance trade of goods in these clusters as demand increases.
However, in relation to the goods in Cluster 2, which have relatively high unit prices andcontainerization rates, not only bulk transport but also container transport may be selected,
even for long-distance trade.

Table 4.5 Estimation Results for Seaborne Trade
Cluster 1

Cluster 2

Cluster 3

Cluster 4

Cluster 5

Cluster 6

Cluster 7

Cluster 8

Cluster 9

Cluster 10

GDP ofExporting
Country (ln)0.593***

0.839***

0.992***

0.909***

0.875***

0.841***

0.669***

0.760**

0.597***

0.276***(0.060)(0.057)(0.064)(0.101)(0.044)(0.056)(0.073)(0.255)(0.083)(0.101)

GDP ofImporting
Country (ln)0.343***

0.642***

0.539***–0.0700.434***

0.535***

0.294***

0.458***

0.189**

0.818***(0.066)(0.047)(0.054)(0.109)(0.036)(0.070)(0.058)(0.057)(0.092)(0.065)0.125

0.479***

0.118

0.0003

0.079

0.031

0.665***

0.446***–0.0070.397**(0.125)(0.104)(0.118)(0.140)(0.079)(0.119)(0.152)(0.103)(0.129)(0.160)0.745*

1.804***

0.945***–0.674**–0.1352.707***–0.0132.709**

1.257***–1.091***(0.404)(0.184)(0.213)(0.294)(0.147)(0.485)(0.393)(1.098)(0.211)(0.360)2.694***

0.607–6.157***1.222–1.878***

0.463

0.954

–0.871

7.361***

0.667(0.823)(0.775)(0.708)(1.067)(0.558)(0.751)(0.962)(1.257)(1.075)(1.090)–0.445***–0.618***0.213**–0.1790.176

0.531***

0.451***–1.819***–0.911***–0.099(0.126)(0.104)(0.104)(0.228)(0.150)(0.080)(0.111)(0.679)(0.124)(0.106)–0.628**0.014

2.006***–0.2120.656***–0.132–0.2140.794**–1.662***0.023(0.307)(0.296)(0.285)(0.427)(0.194)(0.293)(0.366)(0.378)(0.426)(0.415)–1.588***–0.2924.229***–1.0031.356***–0.267–0.5870.916–4.472***–0.184(0.566)(0.547)(0.510)(0.751)(0.384)(0.532)(0.670)(0.775)(0.745)(0.762)–0.902**–0.0962.512***–0.5550.84***–0.155–0.3840.543–2.814***–0.045(0.369)(0.357)(0.336)(0.523)(0.250)(0.350)(0.437)(0.482)(0.501)(0.497)–1.253***–0.2232.936***–0.6550.975***–0.348–0.4900.448–3.560***0.096(0.440)(0.419)(0.386)(0.600)(0.300)(0.419)(0.515)(0.608)(0.593)(0.576)–3.101**–11.26***–7.349***1.146–3.995***–12.45***–6.772***–3.018–7.553***–9.306***(1.403)(1.347)(1.739)(2.871)(1.197)(1.940)(1.878)(4.775)(1.896)(1.867)

Observations

472

472

472

367

472

472

472

472

465

470

Adjusted R2

0.26130.2854–0.3804

0.29580.6568–0.5778

0.38310.5637–0.33900.2230Distance (ln)Containerization
Rate (ln)Container
Freight
Rate/BDI
Unit Price (ln)Dummy for 2011

Dummy for 2012

Dummy for 2013

Dummy for 2014

Constant

Note 1: Standard errors in parentheses.
Note 2: *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

70b) Coefficients of Containerization Rates
The coefficients of containerization rates are significantly positive in six clusters (Clusters 1,
2, 3, 6, 8, and 9). In these clusters, seaborne trade volumes are increasing along withcontainerization rates, and the increase in container shipping contributes to the increase inseaborne trade volumes.

Conversely, when the coefficients of containerization rates are significantly negative, as is
the case in Clusters 4 and 10, it is likely that the use of containers reduces the transportvolume. Even cargo that previously used bulk shipping will no longer be able to be carriedby bulk carriers if demand falls from previous levels. Thus, the transport mode has to bechanged. This suggests the possibility of switching to container transport in response to
reduced demand.

c) Coefficients of Relative Freight Rates
The trends in the coefficients of relative freight rates differed among clusters. The
coefficients for Clusters 3 and 5, which have relatively high containerization rates, aresignificantly negative. Demands for the goods in these clusters relatively sensitive in relation
to container freight rates. If the container freight rate rises, transportation costs will also rise,
reducing demand for imports. Meanwhile, Clusters 1, 6 and 9 have significantly positivecoefficients. Demands for the goods in these clusters are relatively insensitive in relation tocontainer freight rates. Container transportation is not likely to decrease as much in response
to increasing container freight rates. The coefficients of the clusters other than thosementioned above were not significantly different from zero, and thus freight rates did nothave a significant influence on seaborne trade volumes. For goods in these clusters, demands
are relatively insensitive in relation to freight rates.

4.4.2 Results for Relative Freight Rates
Table 4.6 shows the estimation results for relative freight rates, which represent the ratio ofcontainer freight rates to bulk freight rates.

71

The coefficients of the capacity of bulk carriers in the previous year are significantly negative
for all clusters. Thus, the relative freight rate decreases as the bulk carrier capacity increases.
The coefficients of the capacity of container ships in the previous year are significantly
positive in all clusters. Therefore, the relative freight rate increases as the container ship
capacity increases.

Table 4.6 Estimation Results for Relative Freight Rates
Cluster 1

Cluster 2

Cluster 3

Cluster 4

Cluster 5

Cluster 6

Cluster 7

Cluster 8

Cluster 9

Cluster 10–60.25***–60.35***–58.08***–59.96***–61.11***–59.81***–59.72***–58.46***–58.70***(6.958)(6.645)(7.860)(6.641)(6.813)(7.458)(6.633)(6.853)(6.953)106.8***

107.1***

103.0***

106.3***

108.4***

106.1***

105.9***

103.8***

104.0***(12.42)(11.86)(14.04)(11.86)(12.16)(13.31)(11.84)(12.23)(12.41)

0.140

0.117

0.145

0.128

0.089

0.103

0.141

0.108

0.169

(0.153)(0.146)(0.174)(0.146)(0.150)(0.164)(0.146)(0.151)(0.153)0.066***

0.045***

0.038***

0.027***

0.048***

0.039***

0.07***

0.044***

0.046***

0.036***(0.008)(0.008)(0.009)(0.009)(0.009)(0.009)(0.008)(0.006)(0.006)(0.007)–0.026–0.112***–0.033*–0.036*–0.022–0.233***–0.154***–0.035**–0.075***0.043(0.026)(0.019)(0.019)(0.022)(0.015)(0.049)(0.050)(0.015)(0.012)(0.037)–0.007–0.004–0.0040.002–0.009–0.002–0.009–0.007–0.016–0.004(0.027)(0.029)(0.027)(0.031)(0.027)(0.028)(0.031)(0.027)(0.028)(0.028)–646.8***–643.0***–644.7***–619.9***–640.4***–652.3***–639.1***–637.9***–624.7***–626.1***(70.46)(74.22)(70.88)(83.87)(70.84)(72.67)(79.55)(70.75)(73.10)(74.18)

472

472

472

367

472

472

472

472

465

470

0.54100.48020.54370.50190.54320.41800.40610.5637

0.48260.4704

Capacity of bulk –60.55***
carriers for theprevious year
(6.605)(ln)
Capacity of
107.4***
container
vessels for the(11.79)previous year(ln)
Average Bunker
0.111
Price for theprevious year
(0.145)(ln)
Seaborne Trade
Volume (ln)Containerization
Rate
Dummy for2011
Constant

Observations
2

Adjusted R

Note 1: Standard errors in parentheses.
Note 2: *, **, and *** indicate significance at the 10%, 5%, and 1% level, respectively.
The coefficients of seaborne trade volume are significantly positive for all clusters. Thus, thecontainer freight rate increases as the maritime trade volume increases. This is because
relatively long contracts ranging from one year to several years are common for bulk shipping.
Moreover, the amount carried in one shipment is large, and thus the frequency of bulk
shipping is relatively low. Hence, bulk shipping is relatively insensitive to market trends inseaborne trade. In the case of container trade, transportation contracts are generally
concluded within one year, and the frequency of container shipping is relatively high. In
72

addition, the proportion of spot cargoes is significant. Therefore, the freight rate incorporates
changing market conditions relatively quickly. Indeed, container shipping is considered tohave emerged as a result of rapid changes in freight rates in response to changing market
trends.

4.4.3 Results for Containerization Ratesa) Coefficients of Container Handling in the Exporting Country
Estimation results for containerization rates are shown in Table 4.7. The coefficients ofcontainer handling volumes in exporting countries were not significantly different from zerofor Clusters 3 and 6, while they were significantly positive for Clusters 4 and 5. This suggeststhat products with a high containerization rate might have an insignificant impact on port
infrastructure development in exporting countries.

In Clusters 1, 2, and 9, which have medium average containerization rates, the signs differ,
although they are all significant. The signs for Clusters 2 and 9 are significantly negative,
suggesting that the containerization rate decreases as container port infrastructuredevelopment progresses. When infrastructure development is progressing, not only container
terminals but also bulk cargo berths are often improved32. Thus, in relation to the goods inthese clusters, there is a possibility of using dedicated bulk berths to pursue economies ofscale following port infrastructure development. The sign of the coefficient for Cluster 1 issignificantly positive, suggesting that container shipping has progressed in line with thedevelopment of ports.

The results also differ among Clusters 7, 8, and 10, which have low average containerization
rates. The coefficients for Clusters 8 and 10, which include numerous types of bulk cargo,
are significantly negative. For the goods in these clusters, it is considered that economies ofscale will be pursued in line with the development of port infrastructure. For the goods in
32

The correlation coefficient between global container trade volume (total of export and import volumes) and bulk
transportation volume (total of export and import volumes) from 2000 to 2014 was 0.78. This is a strong positive
correlation, suggesting that container port development and bulk port development proceed roughly in parallelin a given country.

73

Cluster 7, which include numerous food products, the coefficient is significantly positive.
This suggests that containerization of goods in this cluster will progress in line with port
development because containerized shipment of these goods is likely to benefit from
improvements in hard infrastructure.

Table 4.7 Estimation Results for Containerization Rates
Cluster 1

Cluster 2

Cluster 3

Cluster 4

Cluster 5

Cluster 6

Cluster 7

Cluster 8

Cluster 9

Cluster 10

Container
Handling
in Exp. Country(ln)Container
Handling
in Imp. Country(ln)
Cost of Export
in Exp. Country(ln)0.549***–0.187***0.147

0.248*

0.393***–0.0110.138***–0.104***–0.392***–0.156***(0.159)(0.057)(0.147)(0.142)(0.132)(0.049)(0.049)(0.026)(0.080)(0.041)0.637***–0.259***–0.218**–0.385***0.129–0.102**0.214***–0.185***–0.314***0.480***(0.173)(0.068)(0.103)(0.084)(0.115)(0.049)(0.064)(0.033)(0.063)(0.117)0.600**–0.382***–0.134

0.653

0.319

–0.03

0.559***–0.221*–0.827**–0.275(0.290)(0.133)(0.294)(0.449)(0.328)(0.142)(0.191)(0.116)(0.263)(0.279)

Cost of Importin Imp. Country(ln)1.354***–0.0970.580**–1.312***–0.3260.056–0.323**–0.156***–0.594***0.688***(0.394)(0.111)(0.237)(0.299)(0.230)(0.087)(0.136)(0.052)(0.168)(0.184)

Container Trade
Imbalance (ln)–0.134**–0.084**–0.184***–0.022–0.129**–0.065***0.001–0.042***–0.0250.136***(0.056)(0.034)(0.057)(0.053)(0.063)(0.025)(0.044)(0.012)(0.044)(0.046)

Seaborne Trade
Volume (ln)–0.679***0.413***–0.024–0.246***–0.411***

0.093*–0.221***0.261***

0.543***–0.407***(0.185)(0.064)(0.134)(0.080)(0.117)(0.054)(0.066)(0.020)(0.056)(0.069)Container Freight
Rate/BDI

2.811***–6.252***–3.641***–0.883–2.801***–2.304***1.488**–1.626***–6.188***3.400***(0.907)(0.500)(0.455)(0.624)(0.648)(0.291)(0.589)(0.228)(0.513)(0.593)0.005

0.224***

0.506***

0.353**

0.750***–0.0120.244***

0.626***

0.592***–0.032

Unit Price (ln)(0.107)(0.049)(0.072)(0.118)(0.091)(0.038)(0.058)(0.020)(0.075)(0.045)–0.855***1.857***

1.048***

0.32

0.633***

0.705***–0.499**0.321***

1.485***–0.953***(0.286)(0.216)(0.202)(0.270)(0.242)(0.124)(0.207)(0.093)(0.242)(0.206)

Dummy for 2012

–1.856***4.125***

2.369***

0.393

1.795***

1.522***–1.079***0.946***

3.714***–2.12***(0.588)(0.371)(0.347)(0.459)(0.448)(0.211)(0.408)(0.167)(0.393)(0.414)

Dummy for 2013

–1.045***2.44***

1.505***

0.097

1.073***

0.919***–0.696***

0.551***

2.203***–1.230***(0.359)(0.262)(0.251)(0.343)(0.297)(0.146)(0.267)(0.116)(0.288)(0.277)

Dummy for 2014–1.283***3.024***

1.961***

0.179

1.349***

1.177***–0.813**0.756***

2.85***–1.419***(0.448)(0.306)(0.288)(0.394)(0.354)(0.168)(0.319)(0.135)(0.326)(0.323)

Constant–23.82***9.313***

2.443

11.72*

0.524

4.603**–6.159**3.982**

21.57***–9.193***(7.473)(2.400)(5.226)(6.360)(5.658)(2.193)(2.681)(1.625)(3.790)(2.367)

472

472

472

367

472

472

472

472

465

470

Adjusted R–1.231–2.011–0.1295

0.11150.1152–0.4119–0.5661

0.5755–0.8296–2.012

System R2

0.65850.97100.7266

0.7711

0.71120.92100.60190.92300.94780.7643

Dummy for 2011

Observations
2

Note 1: Standard errors in parentheses.
Note 2: *, **, and *** indicate significance at the 10%, 5%, and 1% level, respectively.
74b) Coefficients of Container Handling in Importing Countries
The coefficients for container cargo handling volumes in importing countries are
significantly negative for all clusters with high average containerization rates except Cluster
5 and all clusters with medium average containerization rates except Cluster 1. This reflects
the fact that bulk shipping increases and containerization rates fall in importing countries
with well-established port infrastructure. In Clusters 7 and 10, which have low averagecontainerization rates, the coefficients are significantly positive, suggesting the possibility ofincreasing the containerization rate if the port infrastructure is improved.

c) Coefficients of Export Costs in Exporting Countries and Import Costs in ImportingCountries
The coefficients of export costs in exporting countries are insignificant for Clusters 4, 5, and6, which have high average containerization rates. The goods in these clusters are relatively
expensive, and it seems that even a slight change in export costs will be insufficient to change
the transport mode. However, the sign of the coefficient for Cluster 3 is significantly negative,
suggesting that an increase in export costs results in a fall in the containerization rate.

For Clusters 1, 2, and 9, which have medium average containerization rates, the coefficientsare significantly negative for Clusters 2 and 9, suggesting that an increase in export costs
reduces containerization rates. Practitioners have pointed out that customs clearance andprocedural burdens in relation to container shipping are greater for container shipping thanfor bulk shipping. Thus, for goods that do not have a high containerization rate, these burdens
may hinder the increase in container transport. The coefficient for Cluster 1 is significantly
positive, suggesting that an increase in export costs leads to an increase in containerization
rates.

For Clusters 7, 8, and 10, which have low average containerization rates, the results differ
among clusters. The signs of the coefficients for Clusters 8 and 10 are negative, while thecoefficient for Cluster 7 is significantly positive. The results for Clusters 8 and 10 suggestthat increased export costs will reduce containerization rates, while the result for Cluster 7
suggests that they will increase container shipping.
75

The coefficients of import costs in importing countries are negative in six clusters (Clusters
2, 4, 5, 7, 8, and 9), suggesting that an increase in import costs reduces container shipping ofgoods in these clusters. However, the coefficients for Clusters 1, 3, and 10 are significantly
positive. Although goods in Cluster 3 do not seem to be responsive to increased import costs
because of their high unit prices, shippers/consignees of goods in Clusters 1 and 10 do notseem to be concerned about increased import costs despite the low unit price.

d) Coefficients of Unit Prices, Imbalances, Seaborne Trade Volumes, and Relative
Freight Rates
The coefficients of unit prices are significantly positive for all clusters except Clusters 1, 6,
and 10. This is consistent with the conventional view and the result in Chapter 2 that container
shipping is chosen for goods of high value. Clusters 6 and 10 have negative coefficients.

The coefficients of imbalance are significantly negative for Clusters 1, 2, 3, 5, 6, and 8, while
they are insignificantly negative for Clusters 4 and 9. These results suggest a tendency forthe containerization rate not to become too high on routes where there is a significant
imbalance, that is, routes where imports are greatly exceeded by exports. The coefficientswere insignificantly positive for Cluster 7, and significantly positive for Cluster 10. Thisimplies that the containerization rates for goods in these clusters may increase as theimbalance increases. As shown in Table 4.1, goods in Clusters 7 and 10 include many typesof bulk cargo with low containerization rates and low unit prices. Therefore, shipments ofthese goods in containers may be a useful tool for addressing imbalances. Conversely, thecoefficients for Clusters 1 and 8, which also include bulk cargo, are negative, and thus
container shipping is not progressing in relation to these clusters, even on routes with large
imbalances. In promoting BCC as a means of alleviating imbalances, it will be necessary toconsider how to promote containerization of these kinds of goods.

The coefficients of seaborne trade volume were negative for all clusters with a high averagecontainerization rate (Clusters 3, 4, 5, and 6) except for Cluster 6. This suggests that anincrease in the seaborne trade volume does not lead to an increase in the containerization rate
for goods that already have a high containerization rate. Moreover, this is consistent with the76

recent stagnation in the progress of containerization in relation to highly containerized goods.
The coefficients of seaborne trade volume were significantly positive for all clusters with amoderate average containerization rate (Clusters 1, 2, and 9) except for Cluster 1. Thissuggests that there is a high possibility that new cargo in these clusters is being carried incontainers. For Cluster 2, although the bulk trade volume increased in the latter half of the
2000s, the overall containerization rate has been declining, suggesting that thecontainerization rate may be higher for routes with greater seaborne trade volume. In addition,
because the trade volumes of goods in Cluster 9 are decreasing overall, seaborne cargo tends
to be transported by containers where bilateral trade survives. The coefficients of seaborne
trade volume for clusters with a low average containerization rate (Clusters 7, 8, and 10) aresignificantly negative except for Cluster 8. Again, this suggests that there is a tendency tochoose bulk transportation in pursuit of economies of scale on routes with a significant
amount of seaborne trade. Conversely, the coefficient for Cluster 8 is significantly positive,
suggesting that container shipping is frequently used on routes with a significant volume of
seaborne trade.

The coefficients for relative freight rates in clusters with high average containerization rates(Clusters 3, 4, 5, and 6) and those with medium average containerization rates (Clusters 1, 2,
and 9) suggest that the rise in container freight rates has reduced the containerization rate.
However, the results for clusters with low average containerization rates (Clusters 7, 8, and
10) are somewhat different, suggesting that the rise in container freight rates should not betaken into account.

4.5 Chapter Conclusion

This chapter analyzed the factors relating to BCC in maritime trade in East Asia. First, cluster
analysis was undertaken using data on seaborne trade volumes from 2000 to 2014 and trends
in the progress of containerization by goods were identified. Goods that were not transported
at all or goods that were almost exclusively transported by container were excluded. The 127
goods that remained in the sample were divided into 10 clusters based on seven criteria
including trends in the containerization rate and unit prices.
77

The results of the cluster analysis presented in Section 4.2 revealed the following findings.
[1] Regardless of the cluster, as Rodrigue and Notteboom (2015) pointed out, the progress ofcontainerization stagnated around 2007. [2] Clusters with high average containerization rates
have low average transport volumes and unit prices. [3] Clusters with low averagecontainerization rates did not experience much progress in containerization even before 2007.
[4] Containerization rates may be relatively high even for goods belonging to clusters withlow average containerization rates on some trade routes. [5] There is room for further
progress in containerization of some goods on specific routes, even goods in clusters that
already have high average containerization rates.

Next, the factors influencing the containerization rates for each cluster were analyzed using
simultaneous equation modeling. Explanatory variables included imbalances, container tradevolumes, seaborne trade volumes, container handling volumes of exporting countries andimporting countries, and unit prices of goods.

The results of the analysis presented in Section 4.4 revealed the following findings. [1] The
impact of seaborne trade volumes on containerization rates is positive for goods with amedium average containerization rate and negative for goods with a low averagecontainerization rate. Significantly positive correlations between seaborne trade volumes andcontainerization rates were not evident for goods with a high average containerization rate.
[2] The impact of relative freight rates on containerization rates is negative except for goods
with a low average containerization rate. [3] Container port development in importing
countries may raise containerization rates for goods with a low average containerization rate,
but bulk transportation facilities are generally developed at the same time. [4] Reducing theexport costs of exporting countries, mainly in relation to goods with a low averagecontainerization rate, may encourage increased container transportation. [5] Reductions inimport costs of importing countries also encourage increased container transportation. [6]There is a tendency for goods of high value to be transported by container. [7] For somegoods, BCC can be a useful tool for reducing imbalances. [8] For some bulk cargoes, eventhough containerization has not been used thus far to resolve imbalances, BCC should beconsidered in relation to the transportation of these goods.
78

From the viewpoint of encouraging container shipping of goods with a low averagecontainerization rate, it is essential to reduce export and import costs, including costs related
to transport of goods to the port prior to shipment and landing and customs procedures, inaddition to maintenance costs relating to port and land-based infrastructure. These measures
are also necessary from the viewpoint of reducing imbalances.

79

CHAPTER 5
DECISION-MAKING STRUCTURE REGARDING THE CHOICE
BETWEEN BULK AND CONTAINER TRANSPORT

80

5.1 Introduction
Previous studies regarding BCC were reviewed in Chapter 3. However, these studies did not
address specific BCC decision-making entities, the relationships between those entities, andthe structure of the decision-making process. Therefore, in an attempt to identify the optimum
BCC promotion policy, the decision-making structure is examined based on interviews withpractitioners and a survey of the literature regarding the entities related to BCC.

The decision-makers that were targeted in this research include shipping companies, logistics
companies, trading companies, shippers, consignees, and port-related personnel. BCC is one
possible transport mode that might be considered as a result of changes in factors such as
freight rates, costs other than freight rates, and the characteristics of the cargo. For example,
Miyashita (2002) discusses air transport and container transport modes by addressing factors
such as freight rates, inventory costs, and product cycle changes. The opportunity cost
attributable to logistics compliance is also considered as a factor in mode selection. In thisdissertation, the decision-making structure is organized in accordance with the context ofsuch a selection model.

The structure of this chapter is as follows. Section 5.1 outlines the interview survey method.
Section 5.2 analyzes the survey results to present a summary of the decision-making factors
affecting shipping companies, logistics companies, and shippers, and identifies the primarydecision-makers in relation to BCC. Section 5.4 discusses decision-making agents in relation
to BCC. Section 5.5 proposes measures necessary to promote BCC and provides a summaryof the chapter and conclusions.

5.2 Outline of the Interview Survey
5.2.1 Interviewees
From January to July 2017, personnel from 23 companies in Japan and the US wereinterviewed. Interviewees were chosen not only from shipping companies, but also fromother related organizations. The Port of Los Angeles/Long Beach in California is responsible
81for the largest volume of BCC in the world, and was targeted on the assumption that it would
contain people with considerable knowledge of BCC.

The breakdown of the interviewees in Japan is as follows: six shipping companies, threeforwarders, two consignees, two container leasing companies, one industry newspaper
reporter, and three trading companies. With the cooperation of Japan Shipowners’
Association, an experienced representative from the container section coordinated theinterviews with Japanese shipping company personnel, who also collected answers fromforeign and logistics subsidiaries of each company. The other respondents were interviewed
individually. In non-Japanese shipping companies, Japanese sales staff were the main
respondents, and in forwarding companies, the person in charge of maritime freight
responded. In trading companies, people involved in the bulk transport of crops and pulp
products responded. The consignee respondents were people involved in the procurement of
raw materials for the manufacturing industry and people experienced in the logistics of crop
freighting. Experienced representatives from container leasing companies responded. Finally,
the industry newspaper reporter was investigating trends in the trade of scrap metal.

The breakdown of the organizations represented by interviewees in California in the US is
as follows: one forwarder, two port administrators, one terminal operator, one containertransloading company, and one scrap trading company. Representatives of the Japanese
shipping companies, in particular Mr. Hirotaka Akaiwa of Shipfan, helped to makeappointments with respondents in the United States. The respondent from the forwardermainly handled cargo related to Japan and Korea, and had considerable experience in Asia
prior to working in the US office of the shipping company. The port authorities were themanagers of the marketing departments of the Port of Los Angeles and the Port of Long
Beach. The respondent from the terminal operator was in charge of the bulk transport division.
The respondents from the container transloading company and the scrap trading wereinterviewed on site.

82

5.2.2 Survey Questions
The main questions were related to the general status of BCC and decision-making, andinformation on BCC and its future. The questions are summarized in Table 5.1 and the fullquestionnaire is presented in Appendix IV. Some questions were changed in response toeither the status of respondents or their replies. Moreover, following the review presented in
Chapter 2 and the literature survey presented in Chapter 3, documents relating tocontainerization and bulk transportation were examined prior to the interviews, and various
issues that were contained therein were reflected in the questions that were asked. They werealso used to complement the responses when summarizing BCC promotion measures.

Table 5.1 Main Questions in the Survey
Decision-making agent andGeneral status of BCC

information collection

Future of BCC

regarding BCC
Commencement time

Decision-making agent

Optimism regarding BCC
The possibility of promoting

Main consignees ofcontainerized cargo

Factors in decision-making

BCC through automation,
digitization, and innovations incontainer shipping

Main types of containerizedcargo
Benefits and disadvantages
Differences between bulk
shipping and container
shipping

Sequence of mode choice
Change of contracts through
BCC
Opportunities for acquiring
information regarding BCC

83

Challenges to promoting BCC

5.3 Decision-Making Factors Regarding BCC
5.3.1 Decision-Making Factors of Interest to Shipping Companies / Logistics
Companies / Shippers / Consignees
Respondents representing shipping companies, logistics companies, and consignees
commonly cited leadtimes, freight rates, cargo handling costs, inventory costs, procedural
costs, item characteristics, and cargo values as factors affecting their choice between bulk
shipping and container shipping. This is consistent with the standard mode selection criteria
described earlier.

Leadtimes and freight rates were the most significant factors in transport mode selection,
being cited by 17 of the 23 respondents. Because it is faster and more frequent, containertransportation usually offers a shorter leadtime and greater punctuality. Bulk carriers cannot
depart without a full cargo, and often have to wait to enter ports to either load or unload theircargo. Regarding freight rates, container shipping companies sometimes offer a very low rate
for bulk cargo instead of transporting empty containers. Some shipping companies term this“equipment control33,” and use it to collect cargo from backhaul exporters that are locatednear mainhaul importers in places where it is difficult to obtain backhaul cargo. Meanwhile,
container shipping companies and forwarders were concerned about shippers’/consignees’
reluctance to pay the transportation costs of containerized bulk cargo34.

Costs other than freight rates were other commonly mentioned items. Either shippers or
consignees pay these costs up front, but eventually they are charged to the consignees.
Thirteen respondents commented about cargo handling costs and inland transportation costs.
In the case of container shipping, freight rates include port handling costs, and sometimes
also include the cost of inland transportation. Usually, when shipping companies or

33

This method is used to collect cargo from nearby exporters when the importers are located in the outback.

34

This supposes that shippers and consignees are not prepared to pay transportation costs in excess of a certain
percentage of the value of the cargo. In Japan, practitioners term this the “freight rate paying capacity.”84

forwarders arrange port and inland transportation, shippers or consignees pay the costs ofthese services.

Meanwhile, FIO contracts are standard in bulk shipping, and shippers or consignees are
required to arrange the loading and unloading of the cargo. However, when shippers or
consignees can use facilities such as a grain elevator, this does not present a problem. In thecase of bulk transport, these costs will be paid by shippers or consignees directly to port
transportation companies, trucking companies and owners of bulk facilities.

The cost of vanning /devanning is another cargo handling cost. For goods that are difficult to
pack, shippers and consignees need the facilities and equipment necessary forvanning/devanning. For example, when some woods are packed into a container, a molding
process may be necessary, and when liner bags are used to carry goods like cereals, the costof the liner bags35 and the filling/discharging device must also be borne. Even with scrap
metals, container loaders36 and container tilters are needed (see Figure 5.1).

Figure 5.1 Container Loader (left) and Container Tilter (bottom right)
Sources: A-WARD
35

A liner bag is a disposable inner pouch used for carrying goods that are difficult to pack into a container such as
powders and liquids. When vanning, the liner bag is placed inside the container before being filled. For
devanning, the container is tilted, the liner bag is sliced open using a special cutter, and the contents are removed.

36

A container loader is a device that consists of a box with a hole in the upper surface that is used to pack bulk
cargo into a container, and a container tilter is a device that enables containers to be loaded and unloaded bybeing tilted to one side.

85Seven respondents mentioned inventory costs. Since bulk transport carries a significant
amount of cargo in one shipment, inventory maintenance costs are higher. Expensive
facilities such as silos and elevators are necessary for cargo storage. Inventory interest costs37
are also higher for bulk transport (Rodrigue, 2017).

Six respondents mentioned procedural costs including customs clearance fees and otherdocument submission expenses. In the case of bulk transport, many countries allow the
shipment to clear customs while cargo handling is underway, and some respondents notedthat this was more flexible and straightforward. Conversely, in the case of container transport,
multiple procedures are necessary because numerous transactions are involved. Moreover,the customs clearance procedure is stricter, and all documents including those relating tocargo handling permissions, quarantine certificates, and tax payments have to be submitted
before the arrival of the ship. In addition, there is a cutoff point beyond which acceptance bycontainer yards and container freight stations (CFSs) ceases.

Table 5.2 Import Costs in Various Regions (USD/container)

Costs for bordercompliance such as
customs clearance
Costs for documentarycompliance

East
Asia &
Pacific

Europe&CentralAsia

Latin
America & theCaribbean

MiddleEast &
North
Africa

431.0

185.1

684.0

540.7

638.0

686.8

111.6

275

111.4

94.7

119.5

266.2

341.6

300.1

25.6

107

South
Asia

SubOECD
Saharan High
AfricaIncomeTokyo

Source: World Bank’s “Doing Business” 2018 report
Note: The cargo is automobile parts in 15-ton containers and the data are for the period until
June 2017.

In the case of trade with developing countries, there is a possibility that procedural costs may
be higher as a result of unclear criteria based on the original system and the need to use paper
documents as a result of delays in installing ICT-based systems. As can be seen from Table
5.2, the import cost for containerized cargo is 137.2 USD (=111.6+25.6) per container in
37This refers to interest on funds raised to purchase inventory.

86

developed countries and even higher in developing countries. Investigations by Maersk andIBM in September 2016 found that of the 2,000 USD charged for the transportation of eachcontainer from Mombasa to Rotterdam, 300 USD was for expenses such as customs
clearance procedures (Groenfeldt, 2017).

Two respondents also mentioned demurrage costs. Demurrage is a charge that is payable if
the cargo has not been loaded or unloaded prior to the scheduled departure time, and isapplicable to tramp vessels including bulk carriers. When the agreed departure time is passed,
the shipping company incurs dwelling charges. Conversely, shippers or consignees receive apremium when the ship departs before the agreed departure time. Because the demurrage
status is unknown to shipping companies, shippers, and consignees in advance, they are
uncertain about payments/receipts.

Characteristics of goods were also cited as a decision-making factor. Ten respondents
mentioned item characteristics of material aspects. Besides the ease of packing describedabove, the ease of preservation is also relevant to decision-making. In the case of bulk
shipping, the large quantities of cargo carried and the longer leadtimes mean that damage
tends to be worse. Thus, preservation becomes more important. Container shipping involves
smaller transportation quantities and shorter leadtimes, and thus there are less preservation
problems. However, humidity and temperature management are essential in the containerizedtransportation of crops (Lirn, 2017).

Nine respondents cited market characteristics. The opinion was expressed that containerizedtransportation is suitable for goods that depend on spot transactions and for which trends are
too unreliable to predict demand fluctuations. Since it is difficult for traders of goods that are
dependent on spot transactions to hedge against price fluctuations, the risks attached to bulk
transport tend to be greater. In addition, goods for which demand fluctuates have a higher
level of inventory risk. However, small-lot shipping can reduce these risks. Moreover, goods
that involve numerous small consignees are suitable for container shipping.

87

5.3.2 Decision-Making Factors that are Mainly of Interest to Shipping Companies
Eight respondents, mainly from shipping companies, cited concerns about damage tocontainers as a factor in decision-making. Bulk cargo may cause damage to containers andcontamination to both containers and ships 38 . Containers are mainly owned by shipping
companies and leasing companies, and shippers or consignees are usually responsible for any
damage or contamination39. However, they do not always meet their obligations. Therefore,
there is concern about problems in relation to liability when leakage of cargoes such as liquids
and powders causes damage to containers and ships40.

Seven respondents mentioned issues regarding imbalances and cargo weight. There is aweight limit of about 20 tons for 20-foot containers and about 25 tons for 40-foot containers,
and goods with low specific gravity can be fully packed within these weight limits. However,bulk cargo tends to have a very high specific gravity, and even if cargo is loaded to the weight
limit, there is often still space inside the container. Further, if all containers are loaded totheir weight limits, it might not be possible to fill all the container slots on ships without
exceeding their deadweight limits. Shipping companies are also concerned about fully
weighted vessels carrying empty containers.

Six respondents mentioned the difficulty of procuring containers. BCC often requires
numerous containers, and shippers/consignees are sometimes required to procure up to 100
containers, causing difficulties in both procurement and operations. However, this problem

38

Scrap metals and wood/steel materials may damage containers, and waste paper may be dirty. Cereals, chips,
and hay can enter gaps in containers. Because leather attracts salt water, odors and moisture may remain in thecontainer.

39

Regarding container damage, respondents from some shipping companies commented that they always clarify
who is responsible for damage and assure customers in writing that they will identify the perpetrator in the caseof damage to a container. Moreover, they take pictures of the container in advance so that they can track its
condition.

40

When the leaked goods are dangerous, the risks are increased. There is also a risk of explosion as a result of the
inclusion of dangerous goods in shipments of scrap metals. There have also been cases where weapons andrefugees have been found in containers.

88can be overcome by establishing transloading facilities near places where there are many
types of imported cargo and using empty containers for export cargo (Rodrigue, 2017).

In addition, four respondents pointed out the need for expertise in handling, packaging, andstorage facilities for dangerous goods, and in preparing facilities to handle them. Two
respondents also mentioned the problem of cargo abandonment. This refers to the risk that
containers are not collected at the destination port or container depot because many
consignees are unknown small and medium-sized enterprises, and may not arrive to collect
their cargo.

One respondent also mentioned a problem regarding retention of containers in importing
countries as a result of system changes and tightening of regulations. If cargo is inspectedunder the regulations of the importing country, there may be a risk of interference in theactivities of other shipping companies in the same shipping alliance. For example, one
respondent from a shipping company stated that Chinese authorities tightened the regulationsin 2013 because garbage was being brought into the country in containers, and commencing
in 2018, China started to regulate the importing of recycling goods such as waste plastics andpaper (Kako, 2018). This has already affected trade in these goods, and some containerized
imports to China have ceased. Conversely, regulatory developments may support BCC. One
example is in relation to Australian grain exports. Since 2008, when grain trading was
deregulated in Australia, containerized wheat shipments have increased tenfold (UNCTAD,
2013).

5.3.3 Decision-Making Factors that are Mainly of Interest to Consignees
Three respondents mentioned frequency and punctuality of shipments as important factors indecision-making by shippers. Container transportation is more frequent and punctual thanbulk transport. It is not unusual for shippers to be forced to wait for up to a month to obtainbulk transport in peak seasons such as the grain harvesting period in South America.

89

In addition, three respondents mentioned exchange rate fluctuations. Favorable rates
encourage the use of containerized transport because changes in exchange rates can increase
the amounts due for cargo, freight, and other costs.

Two respondents also mentioned theft as an issue for concern among consignees. Bulk cargo
is transported in trucks that may not be sealed during inland journeys, and may also be
exposed during handling at the port, increasing the likelihood of theft.

5.4 Main Decision-Making Agents in Relation to BCC and their Behavior
To summarize the above discussion, the main decision-making agents in relation to BCC areshipping companies, logistics companies such as forwarders, shippers, and consignees 41 .
Shipping companies and forwarders were advised that there was a possibility of BCC at portseminars and through inquiries from shippers and consignees. Although some shipping
companies undertake aggressive sales activities, most container shipping companies only
propose containerized shipping as an option for shippers/consignees to consider, while
forwarders also tend to be passive regarding BCC, only responding to inquiries.

A forwarder pointed out that it is necessary for consignees to accept BCC, while a consignee
noted that consignee-led BCC such as the transport of non-GMO soybean imports to Japanwas evident. In addition, a consignee and a shipping company representative both mentionedthat consignees are involved in the choice of the means of transport as part of the management
plan. A port authority marketing director pointed out that consignees make the final decisionon the demand side of the supply chain. There is also a view that BCC has developed in linewith the changing needs of consignees (Matsuda and Kawasaki, 2013). Moreover, trading
companies should also be regarded as consignees. Thus, it is clear that consignees leaddecision-making in relation to BCC. This is consistent with the findings of Lirn et al. (2013),
who based their analysis on the assumption that consignees make decisions regarding BCC.

41

Terminal operators are also involved, but they operate in response to requests by shipping companies.

90

In addition to financing, some interviewees pointed out that procurement of equipment andchanges in contracts needed to be taken into account by consignees as part of their decisionmaking process. Regarding financing, cargo procurement costs and freight rates forcontainerized shipping are relatively small because the volume of cargo per shipment issmaller than for bulk shipping (Mongelluzzo, 2007). Since funds used for bulk transport canalso be used to fund BCC, the problem of finance is not significant in the initial stages.
However, total transport costs over a specified period (for example, one year) tend to begreater for container shipping, and thus additional finance is required over the medium tolong term. As for equipment procurement, it is necessary to procure container loaders andother equipment necessary for container handling. Cereals and raw materials also require thepurchase and disposal of packaging equipment such as container liners. Further, if aconsignee has invested in a large-scale bulk port facility such as a silo and elevator, it will
not be possible to recoup the investment cost, let alone obtain a return on the investment, if
BCC is adopted because the consignee will no longer require the facility, hence a switch to
BCC is unrealistic.

Regarding contract changes, BCC usually involves a change in the contract held withshipping companies. In the case of bulk transport, the shipping contract may be via a trading
company or a broker, but in many cases the shipping company and shipper form a directcontract. In the case of container shipping, this is often arranged through forwarders, rather
than directly with the shipping companies. However, interviewees stated that the change incontract partner was not fundamental to the failure of BCC. In addition, because the types oftrucks that are required to transport the cargo to and from ports differs between bulk shippingand container shipping, there is a possibility that consignees will need to change theircontracts with trucking companies.

Moreover, once the change is made to BCC, a return to bulk transportation cannot occur until
sufficient cargo is accumulated as noted before. BCC differs from the containerization of air
cargo in that BCC involves a commitment that lasts for months.

91

5.5 Summary of the Survey Questionnaire and Chapter Conclusion
Other than practitioners who were actively involved in bulk transport such as forwarders andtrading companies, the respondents all agreed that BCC could contribute to increasing
container cargo volumes. Although BCC is not new, having commenced in the 1980s, some
representatives of shipping companies and port authorities indicated that they would like to
see an increase in BCC as one source of new cargo. However, most respondents emphasizedthat the choice of transport mode must obey economic principles. Based on these responses,
Figure 5.2 shows a conceptual diagram summarizing the factors encouraging decisionmaking that promotes BCC.

Figure 5.2 Decision-Making Factors Encouraging the Promotion of BCC

Solid gray arrows represent the influence of environmental changes (e.g., digitization), black
dotted arrows represent innovations, actions by container shipping companies toward
consignees are represented by solid black arrows, and shippers’ actions are represented by92

thick arrows. In addition, to correspond to the factors influencing general transport mode
selection, the decision-making factors for consignees are classified into (I) freight rates, (II)costs other than freight, (III) item characteristics, and (IV) other factors.

First, in terms of what shipping companies can do to promote BCC, a reduction in freightrates is essential. One shipping company representative emphasized that the critical factor inpromoting BCC is the ability to offer low freight rates to bulk cargo customers. Here, it isimportant not to measure profitability in terms of cargo carried in one direction, but tomaximize profit on the round trip, even if the freight rate for returning bulk cargo is low.
Conversely, in relation to mainhaul cargo, it may be necessary to collect an imbalancesurcharge42 and to consider flexible freight rates in response to the difficulty of alleviating
imbalances.

Regarding reductions in transportation costs, it is essential to keep costs other than freightrates as low as possible through innovations that cut cargo handling costs in relation to
packaging, port handling, and inland transportation and equipment such as vanning anddevanning. Moreover, it is necessary to improve the quality of equipment. Thus, to encourage
progress, it is worth considering cooperation with equipment manufacturers. Advances incargo handling equipment were a key factor in the progress of BCC in the latter half of the
2000s (Matsuda and Kawasaki, 2013), although some interviewees pointed out that there isconsiderable room for improvement in liner bags in terms of quality preservation and cost.
Improvement in liner bags is also important for reducing container damage. There are also
ways to reduce the cost of introducing new cargo handling equipment. A shipping company
representative said that the company lends loading/unloading equipment to customers andteaches them how to use it until the customers are fully trained in using the equipment. This
also serves to reduce the introduction and learning costs for shippers and consignees.

Another important factor is a reduction in the cost of procedures such as digitization. As of
2018, some efforts are aimed at reducing procedure costs by digitizing trade procedures using

42

One interviewee stated that shipping companies occasionally collect an imbalance surcharge.

93

blockchain technology. Digitizing the transaction history not only allows for flexibility insetting freight rates but also helps to avoid container damage and dealing with shippers withlow levels of credibility. Further, simplification of customs procedures using innovations
such as IC tags is also useful in achieving cost reductions. Improved traceability of containers
using this type of technology also contributes to alleviating the problem of container
procurement faced by shipping companies.

Apart from cost reduction, it is also necessary to aim for cargo collection based on item
characteristics. For example, it is worth considering cargoes that have particularcharacteristics, such as “identity preserved” grains, for which traceability is essential, andcargoes that are located in areas where they can be only be carried by container because there
are no ports with bulk cargo handling facilities. In addition, it is worth considering container
shipping companies actively promoting BCC by arranging and introducing inland carriers toconsignees and providing information regarding BCC such as leadtimes, frequency,
punctuality, inventory costs, and risks.

94

CHAPTER 6
COST ANALYSIS OF BULK CARGO CONTAINERIZATION

95

6.1 Introduction
This chapter explores the behavior of consignees and container shipping companies whenselecting the transportation mode. In Chapter 5, the decision-making mechanism was
examined based on interviews with practitioners. A primary objective of this dissertation is
to assess whether decision-makers have economic incentives to adopt BCC. Thus, thischapter presents an assessment of the behaviors of consignees and container shipping
companies regarding BCC based on the findings presented in Chapter 5.

In earlier chapters, it was shown that a reduction in the costs listed below increased
consignees’ incentives for choosing BCC (Hypothesis 1): (i) container freight rates, (ii)transport costs other than freight, and (iii) inventory costs. Item (ii) includes (ii-a)loading/unloading costs and inland transportation costs and (ii-b) procedural costs in importcountries such as customs clearance costs. This implies that digitization and innovations incontainer shipping promote the adoption of BCC through cost reductions (Hypothesis 1a).

Conversely, if consignees can use large bulk unloading facilities such as elevators and silos,
incentives for choosing BCC are weakened (Hypothesis 2). Further, container shipping
companies have an incentive to promote BCC to help mitigate the impact of trade imbalances(Hypothesis 3).

In this chapter, a cost model regarding transport mode choices for backhaul trade is used to
examine the incentives for consignees, who are regarded as the primary decision-makers
regarding BCC, as noted in Chapter 5, and shipping companies. The model has a relatively
simple structure but includes a considerable amount of detail. To date, no model has been
proposed that includes detailed information regarding costs and profits to facilitate the choiceof routes.

96

6.2 Decision-making Agents, Costs, and Profits Relating to BCC
6.2.1 Decision-making Agent Behavior
Here, the model used for analysis in this chapter is described. Suppose that a certain amountof bulk cargo is carried from point x in country A to point y in country B. It is assumed that
containers can be shipped between country A and country B either direct or via atransshipment port, and shipment from country B to country A is the main route (mainhaul).
This means that the container cargo volume on the return route from A to B is less than thaton the main route from B to A. Although bulk transport was initially carried out, it is assumed
that transportation by container has come under consideration. The container shipping
company is considering whether this mode of transportation can be offered, and theconsignee is also starting to consider the possibility of selecting a different transport mode.
However, as indicated in Chapter 4, if a consignee decides to change from bulk transportation
to container transportation, it takes a certain amount of time to accumulate sufficient cargo
for bulk transport, and so if the consignee decides to switch to container transportation, it
will be some time before they can return to bulk transport if container transportation is
unsuccessful. Meanwhile, the shipping company will not be able to carry the bulk cargo in asingle container shipment, and so it will need to send several container ships to transport thecargo.

An outline of the analysis is shown in Figure 6.1. In trying to express the BCC decision, it isnecessary to formulate a set of decision-makers and a set of options (behaviors) that eachdecision-maker can choose, and then outline the benefits of each option. Figure 6.1 reflects
the results of Chapter 5. First, the main decision-makers regarding BCC are container
shipping companies and consignees. Moreover, it seems that the role of logistics companies
is similar to that of shipping companies such as forwarders. Second, the leading decisionmaker is the consignee. Thus, it is assumed that the decision-making process to select either
bulk shipping or container shipping takes a form whereby a container shipping company
chooses whether to offer a container shipping service for bulk cargo, and if it does so, theconsignee decides whether to accept the offer.

97

Figure 6.1 Decision-making Process in the Selection of Bulk Shipping or Container
Shipping

The consignee’s choice between bulk and container shipping is based on the total cost
including purchase costs, tariffs, and changes in the value of the goods. Further, the total cost
is affected by the factors shown in Figure 5.2 in the previous chapter. Meanwhile, thecontainer shipping company must decide whether to offer BCC based on total profits fromboth mainhauling and backhauling. It is not always profitable for shipping companies to carrybackhaul cargo. In addition, shipping companies’ incentives to carry cargo depend on thecost of transporting empty containers back to the loading location, the return freight rate, andwhether the destination is a direct source of cargo (Theofanis and Boile, 2009.) Thus, it is
crucial to examine the incentives for shipping companies. These are also affected by thefactors shown in Figure 5.2 in the previous chapter.

In general, the consignee is regarded as having the ultimate power over the entire supply
chain in terms of decision-making regarding the transport mode because they are the sourceof demand (and payment), as explained in Chapter 5. Therefore, it is considered thatconsignees lead the choice of transport mode, rather than shippers. In addition, even if theshippers choose the transport mode, consignees purchase imported goods using a specific98transport mode, and so shippers cannot ignore the wishes of consignees in deciding on thetransport mode.

The results presented in Chapter 5 show that container shipping companies are not proactivein encouraging their customers to select a particular transport mode. Therefore, it isconsidered that container shipping companies, forwarders, and logistics companies are
relatively passive, and regard themselves solely as service providers rather than playing aleading role in promoting BCC. In addition, forwarders sometimes become shippers withcontainer shipping companies, so it can be seen that the container shipping company ismainly engaged in presenting services and information. Further, in discussing BCC, thechoice about whether to change to container transport for cargo that is currently transported
by bulk carrier is considered, and for the sake of simplicity, the behavior of the bulk shipping
company is regarded as given.

It is assumed that the container shipping company decides whether to offer container shipping
at a given freight rate. That is, its choices are “(i-a) OFFER a Container Shipping Service for
Bulk Cargo” or “(i-b) DO NOT OFFER a Container Shipping Service for Bulk Cargo.” It is
assumed that the container freight rate is fixed in the analysis undertaken in this chapter.
However, it should be noted that this assumption does not necessarily mean that the container
shipping company does not offer a different freight rate. It is simply assumed that the current
freight rate is mutually understood between the container shipping company and theconsignee because the freight rate offered is at a standard level or has already been presented
to the consignee. As will be described later, changes in freight offers by container shipping
companies can be analyzed in the form of changes in an exogenous variable.

Moreover, for the consignee, it is assumed that he/she decides whether to accept an offer by
the container shipping company at a given freight rate. That is, the consignee’s choices are“(ii-a) ACCEPT the Container Shipping Company’s Offer” or “(ii-b) DO NOT ACCEPT the
Container Shipping Company’s Offer.” In addition, as for the combined use of bulk transportand container transport as mentioned above, it can be interpreted that the consignee is99

applying a form of mixed strategy from game theory or exhibiting stochastic behavior in
deciding on one behavior with a specific probability distribution.

It is assumed that the container shipping company operates a container shipping service along
the route considered, and has space available to sell on the backhaul route as a result of a
trade imbalance. In addition, it is assumed that if the container shipping company does notoffer a service, the backhaul consignee chooses bulk shipping. This means that the container
shipping company carries empty containers on the backhaul route, and thus incurs
repositioning costs.

It should be noted that the frequency of bulk transport differs from that of container transport.
As noted in Chapters 2 and 4, bulk transport carries a large volume of cargo that is to be usedover an extended period of time, so even if a consignee that is presently using bulk transport
intends to change to container transportation, sufficient cargo will already have beentransported for some period into the future. Many companies formulate management plansin units of three months, six months, or one year, and review their long-term management
plans annually. Although there are differences in accounting systems and practices among
countries and companies, consignees who use bulk cargo transport usually only makedecisions once or several times a year. This means that the time frame can extend fromseveral months to several years. Thus, within a given time frame, one load of cargo istransported when bulk shipping is used, while several loads must be transported whencontainer shipping is utilized.

Regarding the volume traded, it is assumed that the consignee intends to import bulk cargoof either 3,000 tons or 28,000 tons per shipment. This means that the consignee either enters
into a contract to lease a certain volume in the hold of a general cargo ship (break-bulk ship)
when the cargo weight is 3,000 tons or charters a bulk carrier when the cargo weight is 28,000
tons. It is assumed that 40-foot containers are used for container shipping, and the weight percontainer is calculated based on IHS Markit’s World Trade Service data for 2017.

100

Further, it is assumed that one truck can carry one container or the equivalent amount of bulk
cargo, and thus trucking costs are the same for bulk and container shipping given the same
weight of cargo. Regarding the terms of trade, it is assumed that either FOB or Free Carrier(FCA) is used and the shipper arranges and pays for loading the ship in the exporting country.
This assumption simplifies the cost calculations because inland costs in the exporting country
can be basically included in the purchase costs.

6.2.2 Consignee’s Cost Structure
The sum of transportation costs indicates the consignee’s cost of purchasing the imported
goods. In the analysis undertaken in this chapter, the total cost of international transportation
is defined as the sum of all expenses incurred, including the purchase price of the imported
goods. Tsuboi et al. (2010) considered that the total cost of international transportation could
be divided into “transportation expenses,” “cost of the change in the value of the goods,” and“inventory costs.” This division is used to calculate the cost of purchasing tradable goods
here. The total costs incurred by the importer when bulk transportation is selected are givenby the following equation (the subscript B indicates that the consignee chose bulk transport):

TCB = CYB + CB + FCB + SPCB ,(6.1)

where CYB represents the total purchase cost (in USD), including insurance costs and tariffs,
CB represents the transportation costs for bulk shipping, FCB represents the cost of a change

in the value of the goods, and SPCB represents the inventory cost.

The transportation cost for bulk shipping, CB , is the total of C AB (the charter rate for thevoyage), CBB (the land transportation and unloading costs), CCB (the cost of procedures
such as customs clearance), and CDB (depreciation of facilities such as silos and the cost ofrenting unloading equipment). The charter fee is in USD because it is settled in USD. Other
costs are also expressed in USD for ease of calculation.

The cost of the change in the value of the goods, FCB , is given by:
101

T 
r
CV 

FC B = p  days B +  +,
2   100 ⋅ 365 100 


(6.2)

where p represents the purchase cost plus added value (i.e., the total sales value), daysB
represents the leadtime for bulk shipping, T represents the time frame (in days), r represents
the interest rate, and CV represents the change in the value of the goods transported.

The inventory cost, SPCB , is given by:

V
SPCB =  + kσ daysB  SC ,
2


(6.3)

where SC represents the unit cost of storing the inventory, k represents a safety factor
coefficient (assume that k = 1.65 43), σ represents the standard deviation of demand for the
goods traded, and V represents the volume of goods to be carried.

The total costs incurred by the consignee when container transportation is selected are givenby the following equation (the subscript C indicates that the consignee chose container
shipping). It should be noted that when container shipping is used, several trips will be
required to carry the same amount of cargo as a single bulk load, and so these costs will be
incurred several times.
n

TCC =  ( CYCt + CCt + FCCt + SPCCt ) ,

(6.4)

t =1

where CYCt represents the cost of purchasing the imported goods including insurance costs
and tariffs, CCt represents the transportation cost for container shipping, FCCt represents thecost of responding to a change in the value of the goods, SPCCt represents the inventory cost,and n indicates the number of shipments that are required to carry the equivalent of a bulk
cargo shipment.
43

When the demand varies based on the normal distribution N ( µ , σ ) , the probability of a shortage is expressed
as a function of the demand quantity. Conversely, if the probability of a shortage is assumed, the quantity canbe calculated using this probability function. If the probability of a shortage is set at 0.05, the demand quantity
is calculated as µ + 1.65σ . Thus the probability of a shortage is 0.05 and k = 1.65 .

102

CCt is the total of C ACt (container freight rate for the backhaul route), CBCt (landtransportation and unloading costs), CCCt (the cost of procedures such as customs clearance),
and CDCt(depreciation of facilities such as silos and the cost of renting unloading

equipment).

The container freight cost is expressed in USD based because it is settled in USD. Other costs
are also expressed in USD for ease of calculation. It is assumed that CCt is constant over time.
The cost of changes in the value of the goods traded, FCCt , and the inventory cost, SPCCt ,are in the same form as the formulas presented in equations (6.3) and (6.4), respectively, theonly changes being the subscripts and the suffix t regarding the number of times containertransport is required.

6.2.3 Profit Structure of a Container Shipping Company
A container shipping company earns profits from the service it provides. The round-trip profit
is calculated by subtracting the costs of providing shipping services from the revenue
received through freight rates. The reason for considering the round trip is that it is a selection
criterion for either establishing or maintaining a container shipping route regardless ofwhether the round trip is profitable, and it is also a criterion in the decision on whether toaccept transportation requests. The round-trip profit is given by the following equation when
the container shipping company offers to provide containerized transportation of bulk cargo:

π1 = π Main + π Back ,

(6.5)

n

where π Back =  C AMt − COSTt − pr1 DAM t − pr2 ( C ACt + C AMt ) − pr3 DETt t =1nand π Back =  C ACt − COSTt − PROt − pr1 DAM t − pr2 ( C ACt + C AMt ) − pr3 DETt  ,t =1

where π1 is the total profit from the round trip, given by the sum of π Back (backhaul profit)and π Main (mainhaul profit) for each period t, COSTt represents the operational cost per
shipping container, PROt represents the container procurement cost, DAM t represents thecontainer repair cost, C AMt represents the container freight rate for the mainhaul container
103

route from B to A, DETt represents the cost of the containers remaining in the destination
country for too long, pr1 represents the probability that the container is damaged, which is
positively correlated with cargo weight, pr2 represents the probability that the container is
not collected (i.e., the cargo is abandoned), and pr3 represents the probability that thecontainer remains in the destination country for too long, which is affected by the credibilityof the consignee and the local regulations. It is assumed that there are no fluctuations inoperational costs or any other related costs over time.

Conversely, profit from not engaging in containerized transport of bulk cargo (either because
the service is not offered or it is offered but no orders are received) is given by:n

π 2 = π Main −  IMBt ,

(6.6)

t =1

where IMBt = COSTt − OTHCt − DTHCt represents the container repositioning cost, OTHCt
represents the terminal handling charge at the port of origin, and DTHCt represents theterminal handling charge at the destination port.

Equation (6.6) is similar to the second term on the right-hand side of equation (6.5), the only
exception being the container return cost, IMBt . This reflects the fact that if the container
shipping company did not receive orders for containerized shipments of bulk cargo, it would
have to return the containers to their original location at its own expense.

6.3 Conditions Necessary to Realize BCC
To realize BCC, the container shipping company must have an incentive to offer acontainerized shipping solution, while at the same time the consignee must have an incentive
to use containerized shipping.

For the container shipping company, this means that it will only offer a containerizedshipping solution for bulk cargo if this will prove more profitable than not offering thisservice. This can be expressed by subtracting equation (6.6) from equation (6.5) as follows:104n

π 1 − π 2 =  C ACt − PROt + OTHCt + DTHCt − pr1 DAM t − pr2 ( C ACt + C AMt ) − pr3 DETt  > 0 . (6.7)
t =1Therefore, BCC can be promoted by increasing the freight rate and reducing the cost ofcontainer repairs, procurement, and retention costs in the destination country. In addition,
the lower the probability of container damage, refusal to receive containers, and overstay as
a result of inspections, the lower the cost of providing a containerized shipping solution forcarrying bulk cargo.
The condition for consignees can be expressed as TCB > TCC . This means that total logistics
costs including purchase costs for container shipping are lower than those for bulk shipping.
This is illustrated in Figure 6.2.

Figure 6.2 Conditions for Realizing BCC

105

6.4 Data Analysis

Here, an analysis is conducted of what is needed to establish the conditions whereby
TCB > TCC and π 1 > π 2 . Several input variables need to be prepared to estimate the
incentives for each shipping type using this model. Input values are all exogenously given.
The process of data preparation is outlined as follows.

Routes from Houston, Los Angeles, Santos, Rotterdam, and Yokohama to Shanghai and
Yangon, as shown in Figures 6.3 and 6.4, are used for the analysis. It is assumed that notransshipment occurs for routes to Shanghai, but transshipment takes place in Singapore forroutes to Yangon. Goods considered are Recycling Items (Ferrous Scrap (HS 7204) and
Waste Plastics (HS 3915)), Grains (Oilseeds (HS 1204–1207) and Soybeans (HS 1201)),
Chemicals (Organic Chemicals (HS 29) and Inorganic Chemicals (HS 28)), and Metals (Flatroll (HS 7208–7212) and Aluminum (HS 76)).

Figure 6.3 Routes to Shanghai

106

Figure 6.4 Routes to Yangon

The analysis assumes that the consignee imports 3,000 tons per period using 10 routes × 8
goods – 4 shipments (grain exports from Japan) = 76 patterns. Grain exports from Japan
rarely occurred, and thus were ignored. In addition, the analysis considers the case in which
the consignee imports 28,000 tons per period using 8 routes × 1 good (soybeans) = 8 patterns.

Data used to calculate the consignee’s costs are shown in Table 6.1. These data were collected
in 2017. In cases where historical data were difficult to obtain, the latest values were used.

The purchase cost of goods under FOB conditions used for calculating the total unit cost isbased on trade statistics. Therefore, the analysis used the total export value in 2017 as thepurchase cost, and the total unit cost is expressed as the total cost per ton. US export data arefrom Datamyne, European data are from Eurostat, Japanese data are from the Ministry of
Finance trade statistics, and Brazilian data are from the UN’s Comtrade database. The costof purchasing goods is assumed to be the same for both bulk and container transportation. In
addition, it is assumed that the price remains constant in any period t. This assumption may

107be interpreted as reflecting the fact that consignees fix the purchase price by using futures orsome other form of risk hedging to protect them from price changes.

Tariff rate data are calculated using FedEx’s WorldTariff database and is based on the
average tariff rate per item code for China and Myanmar. Insurance premiums are based on
the rates for containerized and bulk transport listed on the World Freight Rates website, andare calculated by multiplying the CIF price by 1.1 times the insurance premium rate. This
formula is widely used in the industry. IHS Markit’s World Trade Service data were used to
calculate the amount of cargo that could be packed into containers in 2017.

The average 2017 value was used to determine the shipping freight rate. The container freightrate was based on Drewry’s Container Freight Rate Insight, while the terminal handlingcharge (THC) was obtained from the MOL Corporation website. Since container freight rates
between Singapore and Myanmar are not included in Drewry’s data, the latest data wereextracted from World Freight Rates in June 2018.

However, because the average general shipping cargo freight rates for 2017 were notavailable, the latest freight rates published by World Freight Rates were used for the
calculation. Further, the rates published by World Freight Rates tend to be higher in situations
where there are no semi-liner routes. Hence, freight rates are calculated based on the Los
Angeles–Shanghai route, adjusted in proportion to the relative distance. It should be notedthat even if the port does not have a semi-liner route, general cargo ships visit the port in
response to requests from shippers/consignees. Since distance is a key factor in determining
freight rates, this assumption in relation to calculating the freight rates for general cargoshipping seems reasonable. The bulk carrier freight rate is based on the Clarksons Research
SIN 2010 database using the Handysize trip charter rate. Freight rates per tonnage of cargo
under trip charter are higher than those under a time charter contract. However, consignees
are not required to pay fuel costs under a trip charter contract.

108

Table 6.1 Data used for Consignee Cost Calculations
Data Source
Purchasing Cost Components
Unit Cost
Datamyne, Eurostat, UN
Comtrade, MOF “Trade
Statistics”
TariffFedEX “WorldTariff”
Insurance Cost
World Freight Rates
Freight Rate Components
Container Freight Rate
Mitsui O.S.K. Lines, Drewry’s
and Terminal Handling“Container Freight Rate Insight”,
Costs
World Freight Rates
Freight Rates forWorld Freight Rates
General Cargo Ships
Charter Rates for Bulk
Clarksons Research
Carriers
Unloading/Inland Transport Cost Components
Port Facility Charges
China Shipping Agency(China)Management
Labor Costs andChina Shipping Agency
Devanning Costs (China) Management
Port Facility Charges
Elaborated by the author(Myanmar)
Labor Costs andElaborated by the author
Devanning Costs(Myanmar)
Cost of Truck Transport World Bank “Doing Business”
Procedural Cost Components
Cost of Customs
World Bank “Doing Business”
Clearance
Cost of OtherWorld Bank “Doing Business”
Procedures
Inventory Cost Components
Rent of Silos
Elaborated by the author
Unit Rent of Warehouse
JETRO
Time Components
Traveling Time forGeneral Cargo Ships andBulk Carriers
Leadtime for Container
Shipping
Unloading Time forGeneral Cargo Ships andBulk Carriers
Trucking Time

Notes
Total export values and weights in 2017 are used
for calculating unit costs
Latest Information
Latest Information (=CIF price*1.1*rate)
Average of 2017 except data from World Freight
Rates
Freight rate for routes from Los Angeles toShanghai is base of freight rate calculation, andproportional to distance
Handysize Trip Charter Rate

Calculated from tariff rates regarding port labor
Calculated from tariff rates regarding port labor
Calculated by multiplying the ratio of PPP-based
per capita GDP between China and Myanmar using
IMF World Economic Outlook Database

Per shipment
Cost to import: clearance and inspections requiredby customs authorities
Cost to import: documentary compliance

Based on silos in Tianjin and Yangon
Based on rent of industrial park in Shanghai and
Yangon (m2/month)

AXS Alphaliner

Based on an average speed of 12.5 knots

Freightos

Latest information

Japanese Shipowners’ Association

Based on 50 tons/hour

Assumption

One day109

Transportation costs other than freight rates excluding inventory costs include port facility
usage fees, labor costs, and devanning costs, which are classified as cargo handling costs.
Regarding the port facility usage fee, tariffs for the use of port facilities were obtained fromthe China Shipping Agency Management website. Regarding general administrative
expenses, the tariff for harbor handling was calculated based on data from the same website.
Facility usage fees and labor costs in Myanmar are calculated using relevant figures for China
adjusted by the ratio of per capita GDP for China and Myanmar published on the IMF World
Economic Outlook database. The silo usage fee was based on the total cost of constructionof the silo built in Tianjin in 2015 and the silo that is planned to be built in Thilawa.
Depreciation charges assume a useful life of 20 years, a residual value of 10%, and an interest
rate of 5%. The silo usage fee was based on three months of amortization. Further, warehouserents (m2/month) for industrial parks in Shanghai and Yangon were used to obtain thewarehouse rent per ton.

Data from the WB’s Doing Business database were used to calculate customs clearance costs,
procedure costs, and trucking costs. For the cost of customs clearance, Cost to import:
clearance and inspections required by customs authorities data were used, while for the costof other procedures, Cost to import: documentary compliance data were used. Since thesecosts are per shipment, they were multiplied by ten to reflect the number of container
shipments. In addition, because it is assumed that one truck can carry one 40-foot containeror the equivalent weight of bulk cargo, the trucking fee is the same for container and bulk
transportation.

Leadtime for general cargo ships and bulk carriers is based on AXS Alphaliner’s distance
database. Moreover, the speed of bulk carriers was assumed to be 12.5 knots. Since various
forwarders and container shipping companies indicate the leadtime or schedule for each routein relation to containerized transport, there is no need to calculate the leadtime based on
distance and speed for container shipping. Therefore, leadtimes for container shipping are
based on quotations provided by forwarders, with the shortest leadtimes published by
Freightos, which lists quotations from various forwarders, used in the analysis. Unloading
times for general cargo ships and bulk carriers were calculated based on a rate of 50 tons/hour
110that was obtained from Japanese Shipowners’ Association website. Trucking time wasassumed to be one day.

Data used to calculate the container shipping company’s profit and set parameters are shownin Table 6.2.

Table 6.2 Data for Calculation of Container Shipping Company Profits and Parameter
Setting
Data Source

Notes

Time Frame

Assumption

90 daysVolume Carried

Assumption

3,000 tons or 28,000 tons

Safety Coefficient

Assumption

1.65 (= 95% service rate)

S.D. of Demand

Assumption

100 tons

Interest Rate

Assumption

5%

Value Decaying Rate

Assumption

Value Added for Goods

Assumption

Parameter

0.06% for grains, 0% for waste, 0.01% forother goods
10% (same as insurance company’s
assumption)

Parameter for Container Shipping Company
Container Repairing Cost
Probability of disorder
Probability of undeliverable
Container Retention Cost

Probability of Retention
Container Procurement Cost

Based on interviews withshipping company reps
Based on interviews withshipping company reps
Based on interviews withshipping company reps
Based on interviews withcontainer leasing company
reps
Based on interviews withshipping company reps
WB’s Doing Businessdatabase

1,000 USD/container
0.20%
0.001%
40.5 USD/month/container

10%
Proxy: Trucking cost to carry an empty
container from the van pool to the shipper’s site

Parameter values are based on interviews with practitioners. The container repair cost is
assumed to be 1,000 USD. This was determined based on advice provided by a shipping
company representative. However, it should be noted that the repair cost was considerably
higher for containers that were badly damaged. The probability of failure ( pr1 ) was set at
0.2% based on interviews with representatives of the shipping companies. The probability of111

cargo abandonment ( pr2 ) was set at 0.001%. However, according to the shipping company
representatives, in a normal environment, cargo abandonment only occurs once a year at most,and thus the probability is quite low. A container leasing fee of 40.5 USD was used, whichis equivalent to a one month lease by the leasing company assuming that the container isreturned by the end of the month. Regarding container leasing, the leasing fees varydepending on whether the lease is short term or long term and whether the container is new,therefore an average value was used. The container retention probability ( pr3 ) was set at
10%.

Container procurement costs are taken from the WB’s Doing Business database. The inlandtransportation costs in each country were used to calculate the container procurement cost,which is the cost of sending containers from the container yard or empty container depot tothe shipper’s site and the cost of transporting containers from the mainhaul consignee’s siteback to the port. It is assumed that shipping companies cannot pass these costs on to thecustomers entirely. Interviewees stated that shipping companies may arrange trucks totransport containers from the shipper’s site to the port, but the cost was not passed on to theshippers enough.

Regarding inventory costs, a standard deviation in demand of 100 tons and a safety factor of
1.65 (i.e., a service rate of 95%) was assumed to provide a suitable safety margin.

6.5 Calculations
Table 6.3 shows the total costs per ton of container transport and bulk transport of each typeof good to each destination port. The cost of container transportation to Shanghai is lower
for all types of goods except waste plastics, while the cost of bulk transportation to Yangon
is lower for all types of goods. This implies that consignees prefer to avoid the cost andleadtime involved in transshipment because cargo to Yangon is carried direct. For routes toShanghai, the base container freight rates are already low enough. This suggests that
container shipping companies prefer to transport containers to gateway ports where there are
numerous types of export cargo available for backhaul.
112

Table 6.3 Total Cost/Ton by Goods and Destinations
To Shanghai
Container

Unit USD/ton

To Yangon
Bulk Shipping

Shipping

Container

Bulk

Shipping

Shipping

Ferrous Scrap (HS 7204)

986

993

923

845

Waste Plastics (HS 3915)

403

372

451

309

Soybeans (HS 1201)

525

534

589

519

Oilseeds (HS 1204–1207)

2,415

2,493

2,159

2,134

Organic Chemicals (HS 29)

1,519

1,532

2,520

2,467

Inorganic Chemicals (HS 28)

3,730

3,789

3,070

3,025

Flatroll (HS 7208–7212)

2,197

2,231

2,189

2,140

Aluminum (HS 76)

2,754

2,796

4,401

4,391

Total

1,834

1,860

2,073

2,013

Table 6.4 shows the total costs per ton of the various cost items for container transport andbulk transport to each destination. Container transport costs are higher in terms of freight rate
but lower in terms of insurance premiums, change in the value of goods, and inventory costs.
The lower insurance cost reflects the shorter leadtime. Moreover, multiple shipments freeconsignees from having to maintain a large inventory, which contributes to further cost
reductions.
Table 6.4 Total Cost/Ton Comparison of Cost Items by Destination
To Shanghai
Unit USD/ton

To Yangon

Container

Bulk

Container

Bulk

Shipping

Shipping

Shipping

Shipping

Purchase Cost

1,623

1,623

1,810

1,810

Ocean Freight

47.7

24.2

124.7

26.5

Unloading/Inland Costs

12.8

14.4

9.6

10.2

Insurance

21.5

44.2

24.8

49.3

Tariffs

97.0

97.1

67.7

65.4

Procedural Costs

1.7

0.2

1.7

0.2

Cost of Change in the

24.6

43.0

30.5

44.4

Inventory Costs

6.2

13.8

3.8

7.6

Total

1,834

1,860

2,073

2,013

Value of Goods

113

Table 6.5 shows the total costs per ton of container transport, bulk transport, and bulk
transport to silos of 28,000 tons of soybeans on the Los Angeles–Shanghai route. The volume
of cargo enabled by bulk shipping facilitates greater reductions in transportation costs thanthe corresponding increases in costs in relation to changes in the value of the goods andinventory costs. Moreover, the use of silos offers considerable benefits for bulk shipping interms of economies of scale and reduced tracking and inventory costs.

Table 6.5 Total Cost/Ton Comparison for the Los Angeles–Shanghai Route (soybeans)
Unit USD/ton

Container Shipping

Bulk Shipping

Bulk Shipping to
SilosPurchase Cost

386

386

386

Ocean Freight

25

12

12

Unloading/Inland Costs

16

13

5

Insurance

9.6

9.6

9.6

Tariffs

12.2

12.2

12.2

Procedural Costs

0.18

0.02

0.02

Cost of Change in the
Value of Goods
Inventory Cost

9

28

28

1.3

9

2.6

Total

456

471

457

Table 6.6 shows the average and median containerization rates of various goods from theexporting countries (the United States, EU countries, Brazil, and Japan) adopted in theanalysis to China and five countries in Southeast Asia in 2017. Both the average value andthe median value are shown because there are cases where the containerization rate is either
very high or very low. Since IHS Markit’s World Trade Analysis data are used for Table 6.6,
the figures were calculated on a country-to-country basis44. Conversely, transportation costs
are calculated on a port-to-port basis in the analysis undertaken in this chapter. It should be
noted that goods are not in line with the HS codes because the data source is not aligned withthis system. Because of these limitations, it is difficult to compare the data in Table 6.6 with44

In Table 6.6, figures on routes from EU countries are calculated on a region-to-country basis, while those forroutes from Los Angeles and Houston are calculated on an area-to-country basis.

114

the results of these calculations, but they indicate that there is little difference between the
results of the cost analysis and the real-world trend in containerized transportation.
Table 6.6 Comparison of Average and Median Containerization Rates by Goods andDestinations in 2017

Scrap Metal

50.4%

To Myanmar, Cambodia, Brunei,
Laos, and Papua New Guinea
Average
Median
34.5%
41.5%
12.7%

Waste and Scrap of
Rubber, Synthetic
Fibers and Plastics
Soybeans

79.6%

83.4%

87.1%

89.7%

39.8%

2.2%

52.3%

52.3%

Oil Seeds andOleaginous Fruits
Organic Chemicals

57.3%

44.6%

100.0%

100.0%

32.1%

24.3%

45.5%

18.0%

Inorganic ChemicalCompounds
Flat-Rolled Iron andSteel Products
Aluminum

39.3%

32.1%

42.8%

18.9%

33.9%

23.1%

39.4%

11.8%

62.6%

68.9%

76.7%

68.2%

To China
Average

MedianSource: IHS Markit’s World Trade Service

Regarding the Chinese market, the total cost tended to be lower for container transportation,
but the containerization rate is not necessarily higher. One reason for this is that bulk
transportation to China has progressed for goods such as soybeans, and thus facilities suchas grain elevators are readily available. In other words, because the volume of goods
transported to China is already massive, it is likely that the average bulk shipment is alreadylarger than that expected by Table 6.3, and thus the cost advantages offered by containerizedtransport are lost.

Although it is not evident in Table 6.6, there is a tendency for lower containerization rates inrelation to transportation from Brazil because the cost of container shipping to China is lower
in all cases except for waste plastics and organic chemicals. The FE–South America routeconnecting Brazil and China is also known to be a highly imbalanced route, suggesting that
there is an opportunity for BCC to help alleviate the trade imbalance between Brazil andChina.
115

Container transportation seems to be reasonably popular despite the relatively high cost ofcontainer transportation to the five countries in Southeast Asia shown in Table 6.6. This is
likely the result of the small volumes of cargo transported: the total volume of cargo shippedto these countries was only 107,200 tons in 2017. For destinations with low levels of demand,
it is necessary to use container transportation, even though the cost is higher than that forbulk transport, and thus there is an opportunity to promote container transportation while
demand remains low.

6.6 Sensitivity Analysis
Figures 6.5 to 6.8 show the results of comparisons of the total costs of container shipping andbulk shipping in terms of the frequency of container shipments, the purchase price of goods,
the freight rate (base rate), and the period over which the cargo is consumed. These were themost important factors in relation to transport mode decision-making.

Total Cost (USD/ton)
2,100
2,050

2,000

1,950
1,900

1,850
1,800
1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Container to Shanghai

Bulk to Shanghai

Container to Yangon

Bulk to Yangon

Figure 6.5 Sensitivity Analysis of Frequency of Shipping
116

Frequency

Changes in the total cost of container shipping based on frequency are shown in Figure 6.5.
The costs shown in Figure 6.5 are the average of all routes to Shanghai and Yangon. The
total costs of bulk shipping, which remain constant, are also shown in Figure 6.5. The resultsof the sensitivity analysis in relation to container shipping frequency suggest that the total
costs of container shipping are higher for routes to Shanghai if there is only one shipment.
However, there is a significant reduction in total costs as the number of shipments increases
from one to two, and total cost become lower than bulk shipping. This is because multiple
shipments lead to reductions in inventory costs and costs related to changes in the value ofthe goods. Since the purchase price of goods accounts for the greatest proportion of the total
cost of shipping, the impact of such a change is significant. There is also a significant
reduction in total costs of container shipping is occurred for routes to Yangon, but total costfor container shipping remained higher than bulk shipping.

Total Cost (USD/ton)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2
Container to Shanghai

Bulk to Shanghai

Container to Yangon

Bulk to Yangon

Purchase Price(Ratio to the original)

Figure 6.6 Sensitivity Analysis of Changes in the Purchase Price
117

Figure 6.6 shows changes in the total cost of container shipping in relation to changes in thepurchase price of the goods shipped. As the purchase price increases, there is a tendency forthe cost of container transportation to fall. Although it is not evident in the range presented
in Figure 6.6, if the purchase price rises to about five times the current level, the cost ofcontainer transportation to Myanmar will also be lower than bulk trasnportation.

Container freight rates are the most influential factor in relation to total costs. Figure 6.7
shows the changes in the total cost of container shipping in relation to changes in the baserate. The base rate is the main component of container freight rates, which consist of the baserate and surcharges such as THCs. On the Myanmar route, if the base rate falls to about half
the original level, the cost of container transportation will be lower than that of bulk
transportation. Conversely, on routes to China, if the base rate increases to about one and ahalf times the original level, the cost competitiveness of container shipping is lost.

Total Cost (USD/ton)
2,300

2,200

2,100

2,000

1,900

1,800

1,700
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.91

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9Container to Shanghai

Bulk to Shanghai

Container to Yangon

Bulk to Yangon

Base Rate(Ratio to the original)

Figure 6.7 Sensitivity Analysis of Changes in the Base Rate

118

2

The period until the cargo is consumed is another significant factor in total costs. Figure 6.8
shows the changes in the total cost of bulk shipping in relation to the period over which thecargo is consumed. It can be seen that Figure 6.8 differs from Figures 6.5, 6.6, and 6.7 in thatthe total cost of bulk shipping changes as the period over which the cargo is consumed
changes, while that of container shipping remains unchanged. A longer period suggests thedemand for the cargo becomes weaker. Inventory costs and costs from changes in the valueof the goods will be higher for bulk shipping because the consignee has to store this cargo
for longer. Thus, container shipping, which enables smaller shipments, is preferable because
it lowers inventory costs and costs from changes in the value of the goods. Even for the route
to Myanmar, container shipping is cost-competitive in relation to bulk shipping if the periodof consumption for bulk goods is four times longer than the base period of 90 days.

Total Cost (USD/ton)
2,150
2,100
2,050
2,000
1,950
1,900
1,850
1,800
1,750

30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
250
260
270
280
290
300
310
320
330
340
350
360

1,700

Container to Shanghai

Bulk to Shanghai

Container to Yangon

Bulk to Yangon

Period (days)

Figure 6.8 Sensitivity Analysis for Changes in the Period until Cargo is Consumed

119

6.7 Incentives for Container Shipping Companies
Table 6.7 shows container freight rates, container procurement costs, THCs, and thedifference in profit expressed as π 1 − π 2 . π1 is the total profit from the round trip, while π 2is the profit from not engaging in BCC. The figures in the right-hand column of Table 6.7
represent π 1 − π 2 per container, and indicate whether a container shipping company has
sufficient incentive to offer transport using containers for various routes. It is assumed thatthe container freight rate and transport volume per shipment are both constant.

Table 6.7 Container Freight Rates, Procurement Costs, THCs, and Differences in Profit
for Each RouteContainer Freight Rate

Container Procurement Cost

THC

π1 − π 2

Houston to Shanghai

1,372

1,361

727

629

Houston to Yangon

2,327

1,361

815

709

Los Angeles to Shanghai

576

1,361

777

–115

Los Angeles to Yangon

1,873

1,361

865

–148

Santos to Shanghai

1,232

763

399

759

Santos to Yangon

2,475

763

487

1,275

Rotterdam to Shanghai

1,357

315

513

1,447

Rotterdam to Yangon

2,331

315

601

1,505

Yokohama to Shanghai

467

323

547

585

Yokohama to Yangon

2,007

323

635

928

Unit USD/container

Profits are reduced on the Los Angeles–Shanghai route when container shipping is usedbecause of high container procurement costs and low container freight rates. Since the Los
Angeles–Shanghai route is one of the busiest shipping routes in the world, numerous shipping
companies are entering the market, and thus the fares for container shipping have become
extremely competitive, which is expected. Meanwhile, damage to containers, cargoabandonment, and retention of containers at the destination port do not seem to present
problems. Incentives for container shipping companies seem to be greater in relation to theroutes to Yangon, but shipping is usually outsourced to operators on feeder routes, and thus120

it seems that the incentives for large shipping companies are less than the figures in Table
6.7 would suggest.

6.8 Chapter Conclusion
In conclusion, the findings in relation to the hypotheses proposed in Section 6.1 are presented.
Hypothesis 1 proposed that a reduction in costs such as fares promoted containerization. Thisis valid for freight rates, although a substantial reduction in fares is required. As for costs
other than freight costs, the ratio of these costs to the total cost is so low that it is difficult topromoted BCC by reducing these costs, indeed container shipping is already cheaper in termsof inventory costs. Thus, Hypothesis 1 is not supported. This also implies that digitizationand innovations in container shipping will not provide sufficient cost reductions to promote
the adoption of BCC, and thus Hypothesis 1a is not supported either.

Hypothesis 2, which proposed that container transportation will not be competitive againstbulk transportation using facilities such as silos and elevators, is supported. Despite bulk
transport leading to increased inventory costs, all other conditions being equal, the effect of
economies of scale through the use of bulk cargo facilities on reducing cargo handling costs
and inventory costs is significant. Finally Hypothesis 3 which proposed that container
shipping companies have an incentive to use BCC to alleviate trade imbalances, wassomewhat supported, although the incentive is not significant.

121

CHAPTER 7
CONCLUSION

122

7.1 Summary
In this dissertation, several reviews and analyses and a survey have been conducted to fulfill
three objectives relating to issues regarding BCC. In Chapter 2, the history of containerization,
challenges to containerization, and the current status of BCC were reviewed. In Chapter 3,
the existing literature was reviewed. In Chapter 4, an econometric analysis was conducted.
The results indicated that to encourage containerized shipping of goods that currently have
low containerization rates, it is essential to reduce export and import procedure costs
including freight costs to the port, costs after landing, and costs in relation to customs
procedures, as well as undertaking maintenance of port and land infrastructure. In Chapter 5,
the decision-making mechanism was examined based on interviews with practitioners, and it
was found that the consignee is the leading decision-maker. Most respondents emphasizedthat the choice of transport mode must obey economic principles, and thus it was found thata reduction in freight rates is the most important factor influencing decision-making. In
addition, reductions in other costs such as unloading costs and procedural costs are essential
in promoting BCC. In Chapter 6, a cost analysis was conducted to test the hypotheses thatwere presented. The results suggested that a reduction in freight rates would be effective,
while reductions in other costs do not seem to be sufficient to promote BCC. The results alsosuggested that BCC is more suitable when demand is weakening. Further, container shipping
companies have incentives to promote BCC for some goods and routes, but these incentives
are not strong. A summary of these results is presented below, followed by concluding
remarks.

7.2 Clarification of the Mechanism Underlying BCC

Here, research objectives 1 to 3 are addressed. In relation to objective 1, an econometricanalysis provided several findings from the macroeconomic viewpoint. It was found that
goods with a low containerization rate are mainly carried on backhaul journeys, and BCC
may be useful in reducing imbalances. The analysis suggests that investment in infrastructure
and a reduction in export and import costs should promote the containerization of goods thatcurrently have a low containerization rate.
123Regarding objective 2, an examination of the decision-making process revealed that factors
such as ocean freight costs, loading/unloading costs, and customs clearance costs had thegreatest effect on the choice of transport mode. However, the cost analysis presented in
Chapter 6 suggested that reductions in these costs would not be sufficient to promote BCC.

In relation to objective 3, the cost analysis revealed that a reduction in the freight rate is themost effective means of promoting BCC, but a considerable reduction is necessary. Other
costs such as procedural costs are not significant factors. Expanded analyses are expected toprovide more insights regarding the promotion of BCC.

In this dissertation, the mechanism underlying BCC was examined based on the current
situation from both the macroeconomic and microeconomic points of view. In Chapter 2, thecurrent status of containerization and problems confronting containerization were reviewed,
and the goods and routes that should be considered for BCC were identified. It was foundthat BCC is useful in backhaul trade from developed countries to developing countries andtrade between developing countries such as from Brazil to China, and that the mostappropriate goods include food, building materials, raw materials, and recycling materials.
Furthermore, BCC is useful for carrying small volumes of differentiated goods.

In Chapter 4, the relationship between the macroeconomic environment including
infrastructure and aggregated containerization was examined using econometric analysis. It
was found that BCC could provide a solution to the problem of imbalance in containerizedtransportation. Further, it was found that infrastructure development, as well as institutional
improvements, particularly in importing countries, could contribute to the development of
BCC.

Chapter 5 examined the decision-making structure and factors influencing BCC based oninterviews with practitioners. In promoting BCC, consignees play a leading role in decisionmaking, while freight rates, costs other than freight such as inventory costs, and other factors
such as item characteristics and leadtime play a substantial role in decision-making.
Consignees play a leading role because they have to manage the supply chain and develop
124import systems. Thus, they play a leading role in decision-making in relation to BCC becauseof the nature of the goods handled by BCC. It seems that goods transported by BCC tend torequire some degree of processing, either by the consignee or by other parties, althoughfurther verification is necessary in relation to this issue.

Chapter 6 presented an analysis of decision-making in relation to BCC based on the total costof transport including purchase costs for consignees and marginal profits for container
shipping companies. For consignees, reduced freight rates and demand are the mostsignificant factors influencing the choice of containerized transportation, while reductions incustoms clearance costs do not have a significant effect.

What is important here is that while practitioners are aware that costs are important,macroeconomic environmental factors are implicitly also recognized as influencing decisionmaking, that is, they involve costs that cannot be directly converted into monetary terms.
This is why both microeconomic cost factors and macroeconomic environmental factors areincluded in Figure 5.2. Conversely, these implicit costs do not account for a substantial shareof total costs for individual consignees. Thus, these costs are not emphasized in Chapter 6.
However, at the national level, it seems that greater benefits can be realized by developing
not only hard infrastructure such as ports and roads, but also soft infrastructure such as
improved customs clearance procedures.

7.3 Practical Applicability
The results presented in the previous chapters are useful for practitioners. First, they can
assist container shipping companies in utilizing BCC as a strategy to help eliminate
imbalances. This in turn can help to improve these companies’ operational efficiency.

In addition, it became clear who will have the most influence in promoting BCC. The resultsof interviews with practitioners presented in Chapter 5 showed that the consignee’s role isessential because they control the acceptance system for imported cargo and consider the
supply chain when deciding whether to use containerized import for bulk cargo. Even if trade125conditions such as CIF are used, it is difficult to ignore consignee requests. Thus, it is crucial
to encourage consignees, who play a leading role, by understanding their needs, thereby
potentially creating new business.

Furthermore, in clarifying what kinds of goods to select and what measures to take inpromoting BCC, it is necessary to provide suggestions not only to container shipping
companies but also to port authorities. It was shown that it is essential to select goods with arelatively low level of demand and to promote the selection of BCC by reducing freight rates.
This finding is useful because it provides guidelines for container shipping companies,
governments, and port authorities to promote BCC.

The information presented in Chapter 2 suggests that BCC would be beneficial on
imbalanced routes from developed countries to developing countries. It is crucial to attract
goods that currently do not have a high containerization rate such as raw materials, foodingredients, building materials, and recycling products. In addition to the transportation ofdifferentiated items, the benefits of BCC are expected to be demonstrated in transportation
to areas where demand is either expected to increase in the future or has already decreased.
This is confirmed by the results presented in Chapter 4.

Regarding the relationship between BCC and factors such as a reduction in procedural costs
and increased investment in ports, the results presented in Chapter 4 suggest that these efforts
can be useful to some extent in promoting BCC. However, the results presented in Chapter 6
suggest that the effects of these efforts are limited, and thus it is necessary to combine theseapproaches with other initiatives to promote BCC.

Based on the results presented in the previous chapters, the following actions arerecommended to promote BCC. First, shipping companies should consider outsourcing cargocollection and marketing activities because shippers and consignees of BCC tend to be small.
This presents a burden for container shipping companies, but forwarders specialize in thesetypes of activities. Thus, container shipping companies will be freed of this burden by126

outsourcing. This will also strengthen the role played by logistics-related subsidiaries ofshipping companies such as Damco and Yusen Logistics.

In addition, innovations in terms of digitization are necessary to collect as much informationas possible about customers. Goods transported by BCC tend to be aimed at meeting
temporary demand, and thus identifying customer characteristics is essential for promoting
BCC. For example, collecting information about shippers and consignees using blockchain
technology is useful prior to entering into transactions because shipping companies can verify
the credit status of shippers and consignees. This reduces the risk of nonpayment, container
retention, or cargo abandonment.

Second, for port authorities and government officials, the results presented in Chapter 6
suggest that transshipment may interfere with BCC. Thus, it is recommended that port
authorities develop infrastructure to enhance convenience because BCC is preferable fordirect transport routes. Further, enhanced port facilities provide increased incentives forshipping companies. Further, even though the results presented in Chapter 6 did not support
the hypothesis that a reduction in procedural costs is essential for promoting BCC, such a
reduction should still be pursued to facilitate increased trade. Even though cost reductions
alone are insufficient to promote BCC, they will affect not only BCC but also the future ofother forms of container shipping.

In addition, the provision of subsidies might be a useful strategy for promoting BCC,
particularly in importing countries such as the US. It is recommended that subsidies should
be provided to encourage backhaul cargo to reduce shippers’/consignees’ burdens, especiallyin relation to PSW ports, because the most effective way to promote BCC is a significant
reduction in freight rates. It is also recommended that these subsidies should be distributed
not only to shippers/consignees but also to container shipping companies that carrycontainerized bulk cargo. Subsidies to container shipping companies to encourage the use of
BCC seem preferable to the construction of transloading facilities, as is currently being
promoted by port authorities in California.

1277.4 Limitations and Future Research
Although this study revealed several useful findings, the analyses were limited by data
constraints and the methodologies used. For example, there was no consideration of seasonaland short-term fluctuations in demand and supply because the containerization rate was only
considered on an annual basis. There is a possibility that the containerization rate falls at
various times of the year, in particular at grain harvest time, which might lead to either underor overestimation of containerization rates. The limited route information for the cluster
analysis undertaken in Chapter 4 meant that no evidence was available regarding risk hedging
by route. Future research is necessary in relation to this issue using improved methodologies
and more detailed data. It might also be necessary to pressure governments and the UNCTAD
to release trade statistics by transportation mode, including container trade45.

Finally, this dissertation was unable to discuss the relationship between containerization andthe demand or product cycle in sufficient depth. As Miyashita (2002) and Murakami andMatsuse (2014) noted in their analyses of the product cycle and choices in transportation
mode between maritime container transport and air cargo, the relationship between
containerization and the product cycle seems to be important, as noted in Chapter 2. Further
analysis of this relationship should be undertaken in future studies.

45

To the best of the author’s knowledge, the US and Japan are the only sources of information regarding
containerized trade. The EU releases trade statistics by transportation mode, but they only show the seaborne
trade volumes.

128

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134

APPENDIX IPER CAPITA GDP OF DEVELOPED COUNTRIES AND
DEVELOPING COUNTRIES

135

Table A.I.1 Nominal per capita GDP of Developed Countries and Developing Countries Classified by IMF
Developed Economies
Country

Developing Economies
2017Country

2017

Country

2017

Country

2017

Country

2017

Luxembourg

105,803

Qatar

60,804

Dominica

7,921

Indonesia

3,876

Cambodia

1,390

Switzerland
Macao

80,591
77,451

United Arab Emirates
The Bahamas

37,226
31,255

Botswana
Montenegro

7,877
7,647

Armenia
Mongolia

3,861
3,640

Mauritania
Myanmar

1,318
1,264

Norway74,941

Brunei Darussalam

29,712

Dominican Republic

7,375

Tuvalu3,638

Zimbabwe

1,176

Ireland

70,638

Kuwait27,319

St. Vincent and the Grenadines

7,271

Marshall Islands

3,625

Kyrgyz Republic

1,144

Iceland70,332Bahrain

24,029

Peru

6,762

Tunisia

3,496

Senegal1,038

United States

59,501

Saudi Arabia

21,120Venezuela

6,684

Bolivia

3,353

Tanzania

1,034

Singapore

57,713

Oman

17,973

Turkmenistan

6,643

Cabo Verde

3,238

Eritrea980

Denmark

56,444

Barbados

17,859Thailand

6,591

Micronesia

3,200

Ethiopia

873

Australia
Sweden55,70753,218Palau
Uruguay

17,096
16,722

Colombia
South Africa

6,273
6,180

MoroccoVanuatu

3,151
3,094

Nepal
Benin

834
830

Netherlands

48,346

Antigua and Barbuda

16,702

Ecuador

6,098

Philippines

2,976

Tajikistan

824

San Marino

47,406

St. Kitts and Nevis

16,296

Serbia5,899

Bhutan

2,903

Mali

811

Austria

47,290Trinidad and Tobago

15,769Belarus5,760

Papua New Guinea

2,861

Chad

810

Hong Kong

46,109Seychelles

15,686

Suriname

5,746

Honduras

2,766

Guinea-Bissau

794

Finland46,017

Hungary

15,531

Fiji

5,740

Ukraine2,583

Comoros

788

Canada45,077

Panama15,089Jordan5,678

Lao P.D.R.

2,542

Haiti

784

Germany
Belgium

44,55043,582

Chile
Argentina

15,07014,467FYR Macedonia
Namibia

5,474
5,413

Egypt
Vietnam

2,501
2,354

RwandaGuinea772
749

New Zealand

41,593

Poland13,823Islamic Republic of Iran

5,305

Moldova

2,280

Liberia729

Israel40,258Croatia

13,138Bosnia and Herzegovina

5,149

Nicaragua

2,207

Uganda699

France39,869Equatorial Guinea

12,727

Iraq

5,088

Timor-Leste

2,104

Burkina Faso

664

United Kingdom

39,735

Maldives

12,527

Jamaica

5,048

Solomon Islands

2,081

Togo

611

Japan

38,440

Costa Rica

11,685

Libya

4,859

Nigeria

1,994

Afghanistan

588

Italy

31,984

Lebanon

11,409Belize4,806

Djibouti

1,989

Yemen

551

Puerto RicoKorea

30,48829,891

Romania
Russia10,757
10,608

GuyanaAlbania

4,710
4,583

India
Republic of Congo

1,983
1,958

Sierra Leone
The Gambia

491
480

Spain

28,359Turkey10,512

Guatemala4,472São Tomé and Príncipe

1,785

Democratic Republic of the Congo

478

Malta

27,250

Grenada10,360Angola4,408

Kiribati

1,721

Madagascar

448

Cyprus24,976

Brazil

9,895

El Salvador

4,400

Kenya

1,702

Niger

440

Taiwan24,577

Malaysia

9,813

Algeria

4,292

Ghana

1,663

Mozambique

429

Slovenia

23,654Mauritius

9,794

Paraguay

4,260

Côte d'Ivoire

1,617

Central African Republic

387

Portugal

21,161

St. Lucia

9,607

Samoa

4,253

Bangladesh

1,602

Malawi

324

Czech Republic
Estonia

20,152
19,840

MexicoKazakhstan

9,304
8,841

Tonga
Azerbaijan

4,177
4,141

PakistanUzbekistan

1,541
1,491

BurundiSouth Sudan

312
228

Greece18,637

China

8,643

Georgia

4,099

Zambia1,480

Somalian/a

Slovak Republic

17,664

Nauru

8,575

Sri Lanka

4,085

Sudan

1,428

Syria

n/a

Lithuania

16,730Bulgaria

8,064

Swaziland

3,915

Lesotho

1,425

Latvia15,547

Gabon

7,972

Kosovo3,880

Cameroon

1,401

Source: the IMF’s World Economic Outlook database

136

APPENDIX IIDETAILED CLUSTER ANALYSIS RESULTS

137

Table A.II.1 Detailed Classification of Goods Included in the Cluster Analysis
Cluster No.

Numberof Goods

1(Middle)82(Middle)5

3(High)
4 (High)44
3

5(High)

20

6(High)

25

7
(Low)
8
(Low)
9
(Middle)
10
(Low)

10
5
3
4

Goods
Building Stone, Worked and Non-Metallic Mineral Products, n.e.s., Cement andLime, Fertilizers and Pesticides, Metal Structures, Reservoirs and Tanks, NonRefractory Clay and Ceramic Products, Veneer, Plywood, Particle Board, Wasteand Scrap Rubber, Synthetic Fibers and Plastics, Waste Paper, n.e.s.
Chemical Products, n.e.s., Fruits and Vegetables, Prepared or Preserved,
Inorganic Chemical Compounds, Plastics in Primary Forms and Synthetic
Rubber, Wood of Non-Coniferous Species
Agricultural Machinery, n.e.s., Aircraft and Parts, Apricots and Peaches, Fresh,
Beef, Fresh or Chilled, Chicken and Turkey Meat, Pork, Fresh or Chilled, Cutlery,
Non-Electric Cooking Appliances, Scissors and Blades, Essential Oils, Perfumes
and Beauty Preparations, Fruit, Dried, Tobacco, Unmanufactured, Copper Plates,
Sheets, Foil, Powders, Tubes and Pipes, Corn and Soybean Oil, Footwear, n.e.s.,
Footwear Parts, Industrial Ovens, Furnaces and Furnace Burners, Lemons,
Grapefruit, and other Citrus Fruits, Metal Working Machinery, n.e.s. and Parts,
Milk Not Concentrated, Yogurt and Ice Cream, Musical Instruments and Parts,
Soybeans, Sunflower, Sesamum, Colza and Mustard Seeds, Transport Equipment
and Parts, n.e.s., Live Animals
Cotton, Synthetic Fibers, Textile Fabrics, Woven, excl. Narrow or Special Fabrics
Aluminum, Articles of Concrete, Cement and Plaster, Basic Iron and Steel,
Chemical Elements, General Industrial Machinery, n.e.s., Insulated Wire andCable, Accumulators and Batteries, Kiwi Fruit, Guavas, Mangos and Durians,
Fresh, Metal Products, Non-Alcoholic Beverages, Beer and Cider, Plastic Tubes,
Pipes, Plates and Film, Plastics in Non-Primary Forms and Plastic Products, n.e.s.,
Sugar, Beet or Cane, Pulp, Rubber Products, Printing and Writing Paper, Molasses
and Other Sugars
Apples, Pears and Plums, Fresh, Bearings and Gears, Boilers, Engines andTurbines, excl. Aircraft and Vehicle Engines, Cauliflower, Broccoli, Cabbagesand Lettuce, Fresh or Chilled, Dental Hygiene, Hair, and Shaving Preparations,Electric Engines, Generators and Transformers, Electrical Equipment, n.e.s.,
Vegetables, n.e.s., Fresh or Chilled, Plastic Builders’ Ware, Floor Coverings,
Meat, Prepared or Preserved, Heating and Cooling Equipment, n.e.s., Oranges andMandarins, Paints, Varnishes and Lacquers, Wood Products, n.e.s., Textile Yarn,
Special Industrial Machinery, n.e.s.
Agriculture and Food Processing Residue and Waste, n.e.s., Animal andVegetable Oils, n.e.s., Bananas, Hay, Fodder, Bran, Oilcake, Machinery andEquipment for Mining and Construction, n.e.s., Meat and Fish Products, Not for
Human Consumption, Dog and Cat Food, Motor Vehicles, Natural Rubber, Gums
and Resins, Rice, Wood and Cork Waste, Sawdust, Charcoal
Flat-Rolled Products of Iron and Steel, Iron and Steel, n.e.s., Organic Chemicals,
Sands, Pebbles, Gravel and Crushed Stone, Stone, Clay and Other Crude Minerals
Crude Fertilizers, Newsprint and Uncoated Paper and Paperboard, excl. Printing
Paper, Oil Seeds and Oleaginous Fruits, n.e.s.
Mineral Tars and Distillation Products, Petroleum Jelly, Palm, Coconut and Palm
Kernel Oil, Pitch Coke, Petroleum Coke, Bitumen, Scrap Metal

138

APPENDIX III
CONTAINERIZATION RATES FOR VARIOUS ROUTES BY
CLUSTER

139

Table A.III.1 Containerization Rates by Route for Cluster 1
Hong
Kong

Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

51.2%

73.0%

50.3%

59.7%

62.0%

77.6%

59.0%

60.9%

Hong
Kong

70.4%

51.9%

31.3%

58.1%

66.9%

63.4%

73.3%

56.5%

70.6%

30.9%

57.4%

72.3%

66.8%

37.6%

43.1%

27.1%

21.4%

52.0%

59.2%

57.7%

37.8%

64.0%

68.6%

60.1%

70.4%

47.2%

22.3%

58.8%

70.8%

56.9%

53.9%

57.6%

23.2%

34.5%

48.4%

31.0%

China

Indonesia

64.6%

58.5%

Japan

45.4%

47.1%

Malaysia

56.1%

70.7%

Philippine
s

53.2%

60.7%

53.3%

69.7%

Singapore

48.1%

75.6%

55.7%

66.7%

South
Korea

65.2%

72.5%

28.3%

23.1%

28.7%

28.8%

44.5%

Taiwan

67.3%

42.7%

52.0%

44.1%

27.6%

42.2%

32.0%

30.2%

Thailand

48.0%

75.3%

44.9%

60.4%

63.1%

52.9%

67.3%

67.4%

50.7%

30.9%

78.1%

48.4%

51.8%

56.3%

48.7%

Vietnam

66.2%
46.3%

30.2%
56.7%

41.9%
54.4%

54.1%
38.7%

24.4%

Vietna
m

53.8%

45.4%
62.5%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

Table A.III.2 Containerization Rates by Route for Cluster 2
Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

42.8%

50.3%

61.4%

47.4%

51.4%

51.9%

43.0%

40.2%

Hong
Kong

76.3%

74.4%

67.2%

67.6%

63.0%

79.0%

79.5%

70.9%

81.5%

55.3%

54.2%

40.5%

41.5%

49.8%

55.9%

34.9%

62.3%

64.4%

60.2%

76.5%

79.2%

50.7%

49.1%

52.7%

50.7%

61.0%

84.0%

69.8%

82.8%

70.4%

87.1%

74.3%

48.2%

69.3%

78.3%

87.5%

China

Hong
Kong

Indonesia

42.9%

66.7%

Japan

70.7%

91.7%

Malaysia

55.5%

87.6%

Philippine
s

49.2%

60.8%

48.3%

43.5%

Singapore

66.6%

96.1%

82.9%

73.3%

South
Korea

78.4%

97.5%

63.9%

74.4%

74.6%

63.1%

78.1%

Taiwan

89.7%

93.6%

71.1%

82.8%

79.0%

60.2%

65.8%

66.1%

Thailand

47.8%

90.4%

67.6%

61.3%

69.9%

60.3%

55.8%

55.1%

54.0%

61.6%

52.9%

54.1%

51.6%

50.3%

50.8%

Vietnam

51.3%
70.4%

67.3%
53.3%

66.2%
59.0%

53.1%
83.6%

56.3%

Vietna
m

72.5%

79.1%
65.7%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

140

Table A.III.3 Containerization Rates by Route for Cluster 3
Hong
Kong

Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

81.0%

89.2%

87.7%

89.2%

69.6%

82.9%

30.0%

77.0%

Hong
Kong

94.8%

81.7%

92.7%

93.9%

96.1%

94.3%

98.0%

95.5% 99.1%

81.0%

69.1%

72.2%

42.2%

70.2% 69.8%

66.0%

80.6%

73.7%

69.5%

71.9% 69.6%

78.7%

75.3%

55.3%

53.5%

62.7%

83.2% 82.4%

91.0%

87.1%

88.3% 88.5%

79.6%

78.6% 86.4%

China

Indonesia

29.5%

78.8%

Japan

66.9%

86.8%

Malaysia

59.9%

72.6%

Philippine
s

43.0%

69.6%

81.0%

77.6%

Singapore

72.2%

91.2%

78.9%

89.4%

South
Korea

73.5%

83.5%

84.2%

81.9%

73.9%

69.1%

62.4%

Taiwan

76.7%

82.8%

83.1%

72.3%

78.1%

74.1%

74.9%

79.9%

Thailand

83.9%

85.5%

78.0%

86.5%

88.3%

69.0%

50.8%

77.3%

90.9%

77.1%

84.0%

76.7%

63.8%

34.8%

82.3%

Vietnam

81.7%
63.6%

68.9%
73.7%

39.9%
85.0%

91.3%
69.8%

46.0%

Vietnam

72.1% 74.7%
59.9%
85.6%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

Table A.III.4 Containerization Rates by Route for Cluster 4
Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

87.9%

93.0%

100%

95.3%

97.4%

100%

85.3%

90.6%

Hong
Kong

95.9%

81.4%

97.5%

96.1%

99.9%

92.3%

84.7%

96.4% 98.9%

91.5%

97.2%

87.9%

85.5%

86.0% 84.0%

100%

100%

100%

100%

100%

81.6%

90.8%

85.3%

94.7%

100%

91.1% 99.5%

81.8%

81.5%

85.4% 87.6%

90.1%

72.6% 79.8%

China

Hong
Kong

Indonesia

74.2%

91.3%

Japan

82.5%

100%

Malaysia

70.2%

100%

Philippine
s

94.7%

95.6%

95.0%

99.9%

Singapore

64.0%

100%

90.7%

84.8%

South
Korea

98.4%

97.7%

77.6%

90.4%

90.3%

93.2%

91.8%

Taiwan

96.9%

96.2%

89.2%

84.0%

85.2%

93.5%

87.3%

82.0%

Thailand

65.7%

100%

82.1%

85.5%

84.0%

93.2%

82.7%

82.8%

87.8%

86.2%

95.5%

88.0%

95.1%

90.2%

84.8%

Vietnam

92.3%
81.3%

100%
89.2%

98.5%
90.0%

100%
90.2%

98.3%

Vietnam

92.2%

84.1% 85.0%
83.8%
88.2%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

141

Table A.III.5 Containerization Rates by Route for Cluster 5
Hong
Kong

Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

83.1%

87.0%

92.4%

93.5%

94.7%

80.2%

85.5%

86.2%

Hong
Kong

79.9%

90.6%

90.1%

92.9%

95.1%

92.8%

94.7%

82.0% 96.9%

93.7%

92.5%

31.6%

63.1%

85.7% 78.7%

79.9%

91.5%

42.0%

34.2%

65.1% 44.6%

36.7%

88.2%

68.6%

86.9%

83.2%

82.7% 90.5%

85.9%

83.9%

87.3% 93.9%

68.2%

64.7% 73.5%

China

Indonesia

37.4%

98.2%

Japan

60.6%

94.5%

Malaysia

71.6%

88.8%

Philippine
s

77.5%

92.7%

91.8%

87.5%

Singapore

90.1%

94.1%

88.4%

92.9%

South
Korea

87.9%

90.9%

61.5%

73.5%

86.1%

45.6%

90.3%

Taiwan

88.6%

91.4%

61.6%

85.1%

84.0%

75.1%

90.6%

57.8%

Thailand

79.5%

85.6%

87.6%

92.7%

73.1%

86.7%

94.4%

88.9%

89.9%

79.7%

85.6%

69.6%

97.8%

78.0%

99.5%

Vietnam

81.1%
61.1%

79.1%
83.1%

79.5%
95.1%

93.2%
96.0%

86.2%

Vietnam

72.9% 72.5%
81.8%
64.8%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

Table A.III.6 Containerization Rates by Route for Cluster 6
Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

87.8%

90.9%

93.2%

94.0%

91.9%

88.4%

91.7%

92.8%

Hong
Kong

93.6%

89.8%

89.2%

91.8%

90.3%

90.2%

91.9%

88.4% 95.8%

96.1%

90.0%

97.1%

88.7%

92.5% 94.4%

75.0%

90.2%

80.4%

73.4%

91.4% 88.4%

91.9%

75.8%

95.0%

82.1%

91.3%

92.8% 93.0%

95.6%

94.0%

90.0% 92.7%

90.9%

90.7% 93.5%

China

Hong
Kong

Indonesia

88.6%

96.2%

Japan

90.3%

93.1%

Malaysia

76.9%

93.4%

Philippine
s

76.8%

83.9%

92.1%

78.1%

Singapore

92.4%

93.0%

91.2%

93.3%

South
Korea

89.1%

95.5%

94.2%

88.3%

92.6%

90.2%

92.1%

Taiwan

93.9%

95.8%

94.5%

84.7%

91.7%

90.6%

93.2%

94.3%

Thailand

93.4%

92.1%

95.0%

95.3%

94.8%

94.9%

97.2%

95.5%

85.3%

88.8%

86.1%

86.0%

88.6%

90.8%

88.5%

Vietnam

81.1%
88.6%

90.0%
82.8%

93.4%
91.8%

86.5%
90.9%

92.2%

Vietnam

93.3% 95.4%
94.8%
87.8%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

142

Table A.III.7 Containerization Rates by Route for Cluster 7
Hong
Kong

Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

51.0%

45.6%

41.3%

31.3%

44.2%

31.3%

30.4%

38.3%

Hong
Kong

30.1%

24.9%

43.9%

35.3%

35.5%

34.6%

36.6%

27.9%

27.6%

33.3%

55.3%

50.4%

53.8%

36.9%

37.9%

33.4%

39.3%

33.8%

31.8%

38.8%

49.6%

31.1%

28.2%

22.8%

25.0%

26.7%

26.8%

23.5%

31.7%

35.2%

39.5%

31.8%

35.9%

31.5%

23.9%

24.7%

China

Indonesia

53.0%

14.2%

Japan

30.7%

44.2%

Malaysia

31.3%

37.1%

Philippine
s

26.4%

63.5%

40.8%

14.1%

Singapore

60.3%

41.8%

32.7%

27.2%

South
Korea

42.9%

43.6%

38.0%

53.8%

36.7%

31.5%

44.0%

Taiwan

35.5%

29.4%

31.5%

35.9%

23.8%

27.5%

35.9%

25.5%

Thailand

18.8%

29.6%

34.3%

49.6%

22.3%

57.0%

61.4%

43.9%

55.5%

54.9%

42.5%

25.7%

37.4%

33.2%

63.2%

Vietnam

66.4%
34.9%

33.2%
20.2%

37.6%
70.8%

59.3%
26.8%

79.1%

Vietna
m

20.9%

32.3%
20.0%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

Table A.III.8 Containerization Rates by Route for Cluster 8
Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

31.2%

16.1%

36.0%

34.5%

45.1%

38.3%

8.7%

29.9%

Hong
Kong

18.1%

28.3%

16.7%

14.9%

23.2%

23.3%

11.4%

27.6%

31.0%

29.3%

28.4%

31.2%

33.4% 29.1%

21.1%

15.3%

23.7%

14.8%

25.5% 15.9%

20.7%

22.1%

29.0%

17.5%

5.1%

23.7% 14.8%

25.0%

34.7%

30.4% 26.3%

32.5%

28.1% 13.0%

China

Hong
Kong

Indonesia

18.0%

24.1%

Japan

23.0%

15.7%

Malaysia

25.1%

19.8%

Philippine
s

18.3%

9.5%

16.9%

3.2%

Singapore

27.8%

33.4%

29.5%

33.8%

South
Korea

31.6%

30.7%

23.8%

26.3%

27.8%

26.3%

23.1%

Taiwan

31.5%

27.3%

26.2%

21.8%

24.9%

23.0%

28.6%

28.4%

Thailand

19.3%

22.7%

7.3%

4.1%

9.2%

20.8%

8.4%

20.7%

24.4%

20.1%

6.6%

10.6%

11.2%

3.4%

21.2%

Vietnam

30.2%
25.8%

23.7%
10.8%

16.2%
10.9%

1.6%
30.8%

21.3%

Vietnam

9.6%

27.5% 27.4%
5.6%
18.9%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

143

Table A.III.9 Containerization Rates by Route for Cluster 9
Hong
Kong

Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

83.6%

24.6%

76.3%

75.8%

93.4%

60.9%

67.8%

80.6%

Hong
Kong

95.7%

95.9%

95.7%

95.6%

95.7%

95.7%

88.9%

95.7% 85.0%

95.7%

95.4%

82.3%

89.3%

95.7% 95.2%

93.8%

95.7%

87.5%

91.8%

95.0% 93.9%

69.9%

73.1%

92.8%

78.5%

95.6%

95.7% 95.4%

95.6%

95.7%

55.5% 95.6%

95.7%

95.7% 94.1%

China

Indonesia

94.6%

95.7%

Japan

78.0%

95.3%

Malaysia

89.0%

95.6%

Philippine
s

51.6%

95.8%

95.7%

22.1%

Singapore

94.1%

95.7%

94.7%

95.7%

South
Korea

95.2%

95.7%

95.6%

71.9%

95.7%

95.7%

95.7%

Taiwan

95.4%

95.0%

94.5%

85.3%

90.4%

71.9%

95.7%

95.7%

Thailand

83.5%

95.8%

94.8%

36.8%

95.0%

94.5%

83.6%

95.7%

86.7%

65.7%

30.5%

37.5%

94.3%

27.2%

95.7%

Vietnam

54.8%
94.3%

94.0%
33.2%

92.2%
91.2%

95.7%
80.9%

79.7%

Vietnam

95.3% 95.7%
89.8%
95.7%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates of pairs of countries with common land borders are excluded.

Table A.III.10 Containerization Rates by Route for Cluster 10
Indonesia

Japan

MalaysiaPhilippi
nes

Singap
ore

South
Korea

TaiwanThailan
d

China

3.1%

4.4%

4.7%

6.7%

7.0%

5.7%

5.5%

5.6%

Hong
Kong

12.0%

16.4%

12.0%

9.6%

13.1%

12.0%

23.2%

12.0% 12.0%

26.1%

21.3%

12.5%

19.0%

15.8% 25.9%

12.7%

10.7%

12.8%

14.4%

32.3% 13.6%

14.8%

15.2%

13.6%

11.5%

10.6%

11.4% 12.2%

8.7%

7.4%

6.9%

5.7%

6.7%

6.6%

4.0%

8.7%

2.4%

China

Hong
Kong

Indonesia

23.6%

15.5%

Japan

21.9%

14.0%

Malaysia

13.8%

13.4%

Philippine
s

15.4%

12.2%

15.2%

19.9%

Singapore

2.7%

4.5%

5.3%

8.8%

South
Korea

3.3%

11.8%

4.4%

5.1%

5.0%

3.4%

5.6%

Taiwan

4.2%

12.0%

8.5%

12.9%

8.5%

7.7%

8.2%

8.3%

Thailand

4.0%

11.6%

10.5%

11.8%

9.0%

6.8%

9.4%

10.3%

12.0%

11.5%

12.0%

12.0%

11.9%

12.0%

12.0%

Vietnam

5.8%
11.7%

8.0%
15.3%

26.9%
16.4%

16.9%
4.0%

12.2%

Vietna
m

4.9%
13.2%

Note 1: Containerization rates are average rates from 2010 to 2014.
Note 2: Containerization rates for pairs of countries with common land borders are excluded.

144

APPENDIX IV
QUESTIONNAIRE USED IN INTERVIEW SURVEY145

Survey Questionnaire for “Study on Bulk Cargo Containerization”
1. At the Port of Los Angeles and the Port of Long Beach, bulk cargoes such as ferrous
scrap, soybeans, and animal feeds are often containerized, and bulk shipping andcontainer shipping coexist for these goods. Please let me know when containerization ofthese goods began and how it has progressed. In addition, please let me know the main
destinations for these cargoes.
2. If you know of any other examples of BCC, please let me know.
3. Is my understanding that the progress of BCC can be attributed to (1) innovations inloading equipment and facilities and (2) a surge in freight rates in the mid-2000s (andmany shippers’ changing perceptions regarding shipping in small units) correct? If you
are aware of other factors that are relevant in explaining the progress of BCC, please letme know.
4. Who do you think has led the BCC of ferrous scrap, soybeans, and animal feeds? Please
let me know if you have any other thoughts in this regard.
Ferrous scrap
a. Shippers
b. Logistics providers (including forwarders) or trading companies
c. Consignees
d. Shipping companies
e. Others
Soybeans
a. Shippers
b. Logistics providers (including forwarders) or trading companies
c. Consignees
d. Shipping companies
e. Others
Animal feeds
a. Shippers
b. Logistics providers (including forwarders) or trading companies
c. Consignees
d. Shipping companies
e. Others

5. When the transportation mode shifts from bulk shipping to container shipping, how willtransportation contracts between shipping companies engaged in bulk shipping andshippers change? (multiple answers are allowed)
a. Shipping companies will enter into a contract directly with the shippers (i.e., there is no change), but
the contracting section in the shipping company will change to a liner section for containerized bulk cargo,
whereas the contracting section in the shipping company will not change and the tramper section will
engage in the bulk transportation.

146

b. One contracting party will change to containerized cargo. The new contracting party is a forwarder or
Non Vessel Operating Common Carrier (NVOCC), and the relationship becomes indirect forcontainerized cargo. That is, shippers (or consignees) enter into contracts with the tramper section of theshipping company for bulk cargo, whereas shippers arrange deals with the forwarder or NVOCC forcontainerized cargo.
c. One contracting party will change to containerized cargo. The new contracting party is another shipping
company that transports containerized cargo.
d. Other parties, e.g. shippers (consignees), will tend to enter into contracts with shipbrokers, and BCC
will change.

6. A bulk carrier can carry a large volume of cargo, so if a shipper (or consignee) wanted
to send cargo by bulk carrier, they would need to sign a longer-term contract. Is myunderstanding that shippers (consignees) must enter into longer contracts for bulk
shipping than for container shipping correct? If possible, please let me know what the
typical contract length is for bulk shipping and container shipping (multiple answers areallowed, given that this may vary depending on the types of goods).
Bulk shippinga. Beyond one year (goodsb. One year (goodsc. Fixed period shorter than one year (goods
d. Trip charter (goods

)
)
)
)

Container shippinga. One year (goods
b. Fixed period shorter than one year (goodsc. Spot (goods)))

7. Because bulk carriers can carry a large volume of cargo, shippers or consignees seem todecide on the share of bulk shipping and container shipping they will use to carry theirgoods before the trade occurs. If possible, please tell me what form this decision-making
takes (multiple answers are allowed).
a. The shares (in terms of cargo volume) of bulk shipping and container shipping are decided at the
beginning of the year or quarter as part of the shippers’ (or consignees’) management plans (i.e., shippers(or consignees) regularly make decisions regarding the volume carried by each transportation mode).
b. Shippers (or consignees) do not make any decisions regarding the volume carried by eachtransportation mode, but logistics providers do so at the beginning of the year or quarter (i.e., logistics
providers regularly make decisions regarding the volume carried by each transportation mode).
c. The shares (in terms of cargo volume) of bulk shipping and container shipping are decided by shippers(or consignees) when shippers collect the cargo.
d. The shares (in terms of cargo volume) of bulk shipping and container shipping are decided by logistics
providers when shippers collect the cargo.
e. Other

8. Please let me know your company’s view of BCC for goods other than ferrous scrap,soybeans, and animal feeds.
a. These are promising new cargoes, and I think that shippers or other relevant parties should pursue theseopportunities.
b. It depends on the market situation and the kinds of goods. Some of the bulk cargoes are promising, andI think that shippers or other relevant parties should explore the possibilities related to these cargoes.

147

c. I think the potential of these cargoes is uncertain, but I think that shippers or other relevant parties
should respond to shippers’ or consignees’ needs.
d. Even though shippers or consignees might indicate demand for BCC of these cargoes, I do not thinkthat shippers or other relevant parties should carry these cargoes.** Please let me know what your concerns are.

e. We never carry these cargoes.**Please let me know why not.

f. Other

9. Are recent innovations such as automation of port services and digitization of trade
procedures likely to enhance the progress of BCC?
a. They have the potential to enhance the progress of BCC.
b. They have the potential to enhance the progress of BCC to some extent for some goods.
c. They will probably not have any effect on the progress of BCC.

Please let me know the reason(s) for your answer.
10. What kinds of innovation or development concerning container shipping or logistics doyou think have the potential to enhance the progress of BCC?
11. What problems need to be solved to advance BCC? Please circle the issues you think areimportant in Table A.IV.1 below (multiple answers are allowed).
If you are aware of any other challenges, please write these down.

Table A.IV.1 Challenges and Specific Issues regarding BCC
Challenge

IssuesContainer availability

Location and characteristics of goods

Container preparation

Pre-use cleaning (to avoid contamination)
Use of liners
Post-use cleaning
Dedicated containers

Container loading, unloading, andtransloading

Bulkers difficult to load horizontally
Vertical loading/unloading (equipment)
Transloading issues

Cargo weight

Limitations to about 30 tons (40-foot containers)
20-foot containers (26–28 tons) preferable

Weight distribution

Container loads (10–14 tons per TEU)
Trade imbalances necessitate mitigation strategies

Land requirements at port terminals

Container shipping more consume port space (four times more thanbulk shipping)

Existing distribution channels

Considerable sunk investment (transport modes and terminals)
Established distribution practices
Modal shift inertia

148