Topic 2 – Transportation Systems and Networks

1. Topic 2 – Transportation Systems and Networks Transportation and Commercial Geography Transport Costs Transportation Networks Transportation Supply and Demand

2. A – Transportation and Commercial Geography • 1. Trade and Commercial Geography • 2. Tendencies in Commercial Geography • 3. Commercialization of the Transport Industry

3. 1. Trade and Commercial Geography • Commercial geography • Economic systems are based on trade and transactions. • Specialization and efficiency requires interdependency. • Understand transportation. • Predict the outcome of transport demand. • Based on contracts and transactions: • Undertaken through a movement of freight, capital, people and information that all possess weight, volume and value.

4. Commercial and Transport Geography Sphere of Transactions Commercial Geography Transactions Movements Transport Geography Sphere of Circulation

5. 1. Trade and Commercial Geography • Conditions for trade • Availability: • Commodities for trade. • Must be a demand. • A surplus must exist at one location and a demand in another. • Transferability: • Policy barriers (tariffs, custom inspections, quotas). • Geographical barriers (time, distance). • Transportation barriers (the simple capacity to move the outcome of a transaction). • Transactional capacity: • Must be legally possible to make a transaction. • Recognition of a currency for trading.

6. 1. Trade and Commercial Geography • Flows • Value: • Negotiated value and are settled in a common currency. • Balance of payments. • Volume: • Physical characteristic, mainly involving a mass. • Weight is variable when trade involves raw materials. • Scale: • Range of a transaction. • Retailing transactions tend to occur at a local scale. • Transactions of a multinational corporation are global in scale.

7. 2. Tendencies in Commercial Geography • Current commercial context • Free trade. • Differences in levels of development. • Technological, industrial and geopolitical changes. • Global and regional interdependence and competition. • Growing economic opportunities offered by transportation.

8. Global GDP, 2002

9. Share of Global GDP Growth, 1995-2002

10. 2. Tendencies in Commercial Geography • Liberalization of trade • Implementation of the World Trade Organization. • Positive trend in the growth rate of world trade and industrial production. • Trade amounts to 6,000 billion dollars each year. • Growth of world service trade (18.6 % of all trade). • Growth of the share of Asia in world trade (about 25% of all trade).

11. World Trade Flows, 2001 (billion $US) 255 Western Europe (1,677) 195 188 252 North America (391) 312 Asia / Pacific (722) 376 207 333 205 96 Rest of the World (285) 174 287

12. Share of Asia in World Trade, 1980-2003

13. 2. Tendencies in Commercial Geography • Organization of production • Division of labor: • Design, planning and assembly in the manufacturing process. • Interlocking partnerships in the structure of manufacturing: • Increased the trade of parts and the supply of production equipment around the world. • One-third of all trade takes place among parent companies and their foreign affiliates. • ISO norms: • Comparison between various enterprises around the world. • Applicable to the manufacturing and services industries. • Competitiveness of enterprises linked to the imperative of total quality.

14. 2. Tendencies in Commercial Geography • Relocation of production • Change in the structure of export and import of world economies. • Adoption of standards.

15. Worldwide Mergers and Acquisitions, 1980-2001

16. 3. Commercialization of the Transport Industry • Transportation is a traded service • Openly and subject to full market forces. • Form of public control or ownership. • Costs • Negotiated between the provider of the service and the user. • Subject to some arbitrary decree (price fixing such as public transit). • Commercialization • How transportation is brought to the market. • Investments in infrastructure, modes and terminals. • Either a private or public endeavor. • Era deregulation and divestiture.

17. B – Transport Costs • 1. Transport Costs and Rates • 2. Type of Transport Costs

18. 1. Transport Costs and Rates • Context • Users have to negotiate or bid for transportation. • Conditions (tariffs, salaries, locations, fuel costs) are changing constantly. • Costs for gathering information, negotiating, and enforcing contracts and transactions. • Enterprises and individuals take decisions about how to route traffic through the transport system. • Transport costs can account for 20% of the total cost of a product.

19. 1. Transport Costs and Rates • Transport costs • Monetary measure of what the transport provider must pay to produce transportation services. • Fixed (infrastructure) and variable (operating) costs. • Depend on a variety of conditions: • Geography. • Infrastructure. • Administrative barriers. • How passengers and freight are carried. • Three major components, related to transactions, shipments and the friction of distance, impact on transport costs.

20. Fuel Costs Versus Annual Vehicle Mileage, United States, 1960-2000

21. 1. Transport Costs and Rates • Friction of distance • Most basic component of transport costs. • The more it is difficult to trade space for a cost, the more the friction of distance is important. • Expression of friction: • Length, time, economic costs or the amount of energy used. • Varies greatly according to the type of transportation mode involved. • Impacts of technological innovation.

22. Conditions Affecting Transport Costs

23. Different Friction of Distance Functions 1 2 Zone Change Costs Fixed Costs Distance 3 4 Transshipment Costs

24. Shipment Size and Transport Costs

25. Transport Costs by Industry Type, 1999

26. 1. Transport Costs and Rates • Rates • Price of transportation services paid by the consumer of them. • Negotiated monetary cost: • Moving a passenger or a unit of freight between a specific origin and destination. • Difference between costs and rates: • Results in profit or deficit from the service provider. • Rate setting: • Public transit: rates are often fixed and the result of a political decision where a share of the total costs is subsidized by the society. • Freight transportation and many forms of passenger transportation (e.g. air transportation): rates are subject to a competitive pressure.

27. 2. Types of Transport Costs • Freight on board (FOB) • Price of a good is the combination of the factory costs and the shipping costs from the factory to the consumer. • Consumer pays for the freight transport costs. • The price of a commodity will vary according to transportation costs. • Costs-Insurance-Freight (CIF) • Price of a good is a uniform delivered price for all customers. • No spatially variable shipping price. • Average shipping price is built into the price of a good. • CIF cost structure can be expanded to include several rate zones.

28. FOB and CIF Transport Costs Freight-on-Board Costs Cost-Insurance-Freight } Production Costs Distance

29. Zonal Freight Rates Real transport cost D1 Flat zonal rate D2 Costs III II I IV Distance

30. 2. Types of Transport Costs • Terminal costs • Related to the loading, transshipment and unloading. • Two major terminal costs: • Loading and unloading at the origin and destination, which are unavoidable. • Intermediate (transshipment) costs that can be avoided. • Linehaul costs • Function of the distance over which a unit of freight or passenger is carried. • Weight is also a cost function when freight is involved. • Commonly exclude transshipment costs.

31. 2. Types of Transport Costs • Capital costs • Physical assets of transportation mainly infrastructures, terminals and vehicles. • Purchase or major enhancement of fixed assets, which can often be a one-time event.

32. Fixed and Variable Costs and Service in the Transportation System