Cost Trade-offs: Bulk versus containers
February 01, 1999
by Teresa Acklin
Cost of physical handling versus container transfer.
In bulk handling, grain is loaded and unloaded at least four times before reaching the final customer. Containerized grain would be handled once and the container transferred three times. The economics of size in bulk handling may not be totally exhausted, but further gains are likely to be marginal. Container systems are experiencing rapid productivity improvements. Computer-controlled cranes and robotic trolleys are reducing labor costs and increasing handling speed.Pipeline storage costs versus use of containers.
Farmers already possess most of the storage they require to protect the crop after harvest. The storage provided in the bulk handling pipeline duplicates on-farm storage. The container serves as a transportation unit and storage. Farmers could use containers to supplement on-farm grain storage. When the grain was sold, the storage would move into the handling system.Economics of shipping versus inventory holding costs.
The speed of the container system and the opportunity to use Just-In-Time scheduling reduces the costs of financing pipeline inventories. Lower inventories also reduce the risk associated with spoilage and shrinkage due to pests. On the other hand, approximately 2 tonnes of metal have to be physically moved with each 20-tonne container shipment. Adding 10% to the weight of the shipment increases the cost of transport.Empty backhauls versus tare weight of containers.
Containers are the new “boxcars” of the railways. Whereas bulk systems experience empty backhauls, the availability of empty containers would attract a variety of freight. If no backhaul can be obtained, however, the container is likely more expensive to return empty than the bulk handling equipment.Low freight costs/average quality versus freight premiums/exact quality.
The bulk system offers low-cost service but delivers only average-quality grain. Containers cost more to transport but can deliver exact specifications. Some buyers may find the quality benefits more than offset the extra transportation charges. A few cents more for transportation might be easily extracted as a quality premium for the final product.