The Terminalization Concept

The Terminalization Concept

Source: adapted from Rodrigue, J-P and T. Notteboom (2009) “The Terminalization of Supply Chains: Reassessing the Role of Terminals in Port / Hinterland Logistical Relationships”, Maritime Policy and Management, Vol. 36, No. 2, pp. 165-183.

Terminalization is a suitable strategy for global supply chains, which have become prevalent in the consumption goods sector, including a wide variety of products, from apparel to electronics. The above figure provides a schematic overview of a typical retailing supply chain where production and consumption have a substantial geographical differentiation. It is composed of three segments.

The export-oriented gateway in the midst of a manufacturing cluster is commonly facing capacity issues, implying some constraints in the usage of its facilities. Containerized cargo flows reach the gateway either directly from the supplier or via an intermediate export center in the port area, in a logistics zone near the gateway, or in a hinterland location connected to the gateway via a multimodal transport corridor. Mainly in Pacific Asia, export centers are often used as consolidation points and container stuffing locations for non-containerized cargo. Inland connections tend to be poor and trade flows imbalanced, so distribution centers agglomerate nearby gateway facilities, which favors a fast turnover of containers. Once assembled in container loads, the goal is to ensure that they are promptly shipped to the maritime segment promptly. Distribution tends to be synchronized with terminal handling capacity and availability implying that terminalization is mainly bottleneck-related at this stage.

The maritime segment of the supply chain can be based on a gateway-to-gateway liner service configuration or, alternatively, might include an intermediate transshipment facility. If an intermediate hub is part of the sequence, there is an opportunity to use it as a buffer and consolidation center. Intermediate hubs typically have the advantage of being lower-cost locations, making them suitable to be buffers within global supply chains. The logistics attractiveness of ports that are heavily involved in transshipment cargo is partly determined by the structure of the hinterland markets. If a port transships cargo to smaller ports with poorly developed hinterlands then the intermediate hub will be particularly attractive for locating logistics facilities targeted to those overseas areas. An intermediate hub can be purposely used as a buffer at locations in the vicinity of large consumer markets such as in the Caribbean or the Mediterranean. This confers the potential to use a low-cost storage point before entering areas with higher distribution costs. For instance, large gateways granting access to continental consumption markets (e.g. Northwest Europe, American West Coast) tend to be congested, an issue that has favored a set of inland access strategies, namely the development of inland terminals. Being less congested and closer to the distribution centers they serve, they have essentially become the buffer instead of the gateway.

Seaports rely heavily on inland ports to preserve their attractiveness. Regionalization expands the hinterland reach of the port through a number of strategies linking it more closely to inland freight distribution centers. Regionalization brings the perspective of port development to a higher geographical scale, which is beyond the port perimeter. The port regionalization phase is characterized by a strong functional interdependency and even joint development of a specific load center and (selected) multimodal logistics platforms in its hinterland, ultimately leading to the formation of a regional load center network. The port system consequently adapts to the imperatives of distribution systems, making regionalization a dimension of supply chain terminalization.

The shortage of industrial premises, high land prices, congestion problems, the inland location of markets, and environmental restrictions are some factors against locating at a seaport. The availability of fast, efficient, and reliable intermodal connections is one of the most important prerequisites for the further development of inland terminals. Inland terminals increasingly act as extended gates of deepsea terminal facilities.

The increasing differentiation of supply chains and related logistics networks is having an impact on the specific role of seaport and inland terminals. Terminal operators are trying to capture value and revenue. Where possible and desired, they are teaming up with shippers and logistics service providers to create value through developing concepts to streamline and synchronize supply chains. A concrete outcome of this development on the inland segment of the supply chain relates to the role of inland terminals as extended distribution centers. Terminalization is trickling down inland, conferring the benefits of a location close to the distribution center (and of final markets) and of a higher likelihood that the consignment will be held at the terminal and made available “on-call”. The broadening of the DC functions to include a nearby inland terminal also makes it possible to arrange direct delivery of full container loads without physically passing the cargo through the DC.