Topic 5 – International and Regional Transportation

1. Topic 5 – International and Regional Transportation The Strategic Space of International Transportation Transportation, Globalization and International Trade Freight Transport and Commodity Chains Logistics

2. B – Transportation, Globalization and International Trade • 1. Trade and the Global Economy • 2. Global Trade Patterns • 3. International Transportation

3. 1. Trade and the Global Economy • Interdependencies • In a global economy, no nation is self-sufficient. • All involved at different levels in trade: • Sell what they produce. • Acquire what they lack. • Produce more efficiently in some economic sectors. • Historical growth: • International trade occurred at an ever increasing scale over the last 500 years. • Significant technical improvements. • Possible to trade between parts of the world that previously had limited, if no access to international transportation systems. • Division and the fragmentation of production expanded trade.

4. Major Global Trade Routes, 1400-1800 Baltic Central Asia Western Europe North America China Hormuz Havana Canton Mexico India Pacific Ocean Aden West Africa Caribbean Manila Pacific Ocean East Africa Malacca Aceh Southeast Asia Indian Ocean Peru Brazil Atlantic Ocean Trade Route Dominant Capital Flow

5. 1. Trade and the Global Economy • International trade • Trade promotes economic efficiency: • Lower productions costs. • Achieve economies of scale. • Demonstrates the extent of globalization: • Increased spatial interdependencies between elements of the world-system. • Numerous relationships: • Huge variety of resources being made accessible. • Raw materials, energy, goods, food and labor. • Exchanges of capital, merchandises, raw materials and services. • Level of integration: • Growing level of integration. • The more integrated economies are, the more they trade.

6. Levels of Economic Integration Political Union Common government Common currency, harmonized tax rates, common monetary and fiscal policy: EU (partial) Economic Union Level of integration Common Market Factors of production move freely between members Customs Union Common external tariffs Free Trade Free trade between members: NAFTA, Mercosur, ASEAN (partial) Complexity

7. 1. Trade and the Global Economy • Supporting activities • Distribution-based: • Multimodal and intermodal freight transport systems composed of modes, infrastructures and terminals. • Regulation-based: • Customs procedures, regulations and handling of documentation. • Transaction-based: • Banking, finance and insurance activities where accounts can be settled.

8. 2. Global Trade Patterns • Context • Growing trend in the global economy. • Shift in the global trade flows: • Developing countries having a growing participation. • 27% of the global trade. • Increasing share of manufacturing activities taking place in developing countries. • More complex and interdependent world-system. • Trade accounted for 15% of global GDP in 2000.

9. World Exports of Merchandise, 1950-2004

10. 2. Global Trade Patterns • Factors • Production systems are more flexible and embedded: • Encourages exchanges of commodities and services. • Transport costs have decreased significantly: • The transferability of commodities has improved. • Integration processes promoted trade. • Cycles • Evolution of international trade has a concordance with the evolution of production. • Significant fluctuations in international trade: • Economic cycles of growth and recession. • Fluctuations in the price of raw materials. • Disruptive geopolitical events.

11. 2. Global Trade Patterns • Nature • Growing flows of manufactured goods. • Relatively less bulk liquids (such as oil) and more dry bulk and general cargo. • Geographical distribution • Dominance of North America and Western Europe. • Growing share of developing countries of Asia. • China accounting for the most significant growth. • Changes over trans-oceanic trade with Trans-Pacific trade growing faster than Trans-Atlantic trade.

12. Global Exports of Merchandises, 1963-2000

13. Merchandise Exports per Continent (in %), 1980-2000

14. World’s 10 Largest Exporters and Importers, 2003

15. Share of World Goods Exports, Selected Countries, 1950-2001

16. Trade by Ocean, 1995

17. 2. Global Trade Patterns • Geographical scale • Regionalization has been one of the dominant paradigm. • Formation of economic blocs. • The bulk of international trade has a regional connotation, promoted by proximity and economic blocs.

18. Major Economic Blocs, 2000

19. Trade by Major Economic Bloc

20. 3. International Transportation • Context • Support large quantities of freight flows. • Considerable technological innovations: • Transport larger quantities of freight and people more quickly and more efficiently • Transportation is often referred as an enabling technology. • A mean over which international trade could not occur without. • Transportation chains • Large distances involved; several modes. • Transport chains reinforce the importance of points of transfer. • Answer the mobility of freight and people.

21. International Trade and Transportation Chains International Trade A B Trade barrier Destination Origin Transport Chain Disassembly Assembly A B Maritime Road Rail Customs Transshipment

22. Share of Containerized Cargo in Global Trade, 1980-2000

23. 3. International Transportation • Transportation infrastructure • Physical infrastructures such as terminals, vehicles and networks. • Either promote or inhibit international trade. • Transportation services • Services involved in the international circulation of freight and people. • Warehousing, logistics, finance, insurance and marketing. • Transactional environment • Legal, political, financial and cultural setting. • Exchange rates, regulations, quotas and tariffs, but also consumer preferences.

24. NAFTA Truck Flows, 2003

25. D – Commodity Chains and Freight Transport • 1. Contemporary Production Systems • 2. Commodity Chains • 3. Commodity Chains and Freight Transport

26. 1. Contemporary Production Systems • Production and consumption • Core components of economic systems. • Both interrelated through supply / demand relationships. • Basic economic rationale: • What is being consumed has to be produced. • What is being produced has to be consumed. • They tend to have separate locations. • Market failure: • Lack of supply or not enough demand. • Realization of production and consumption: • Cannot occur without flows of freight between locations of production and markets.

27. 1. Contemporary Production Systems • Production factors • Three dominant factors of production are land, labor and capital: • Previously could not be effectively used at the global level. • Factors of production have an extended mobility. • Many firms have relocated segments (sometimes the entire process) of their industrial production systems to new locations. • In 2003 American corporations were performing around 27% of their manufacturing activities abroad. • 15% for Japanese corporations. • Strengthened by economic integration and trade agreements.

28. 1. Contemporary Production Systems • Distribution • Overcoming distances used to be related to constraints in physical distribution as well as to telecommunications. • Production systems were mainly built through regional agglomeration economies with industrial complexes. • Efficiency in distribution has reached a point where it is possible to manage large scale production and consumption. • Industrial linkages • Relationships used to take place between autonomous entities. • Uncoordinated linkages. • Multinational corporations: • Higher level of linkages within production systems. • About 30% of all global trade occurs within elements of the same corporation.

29. The World’s 20 Largest Corporations by Market Value, 2003 ($US millions)

30. Global Financial Centers Hinterland Telecommunications Space Time London Tokyo New York Los Angeles Hong Kong Singapore Stock Market Opening Period

31. Fordist and Post-Fordist Corporate Structure

32. 2. Commodity Chains • Definition • A functionally integrated network of production, trade and service activities. • Covers all the stages in a supply chain: • Transformation of raw materials. • Intermediate manufacturing stages. • Delivery of a finished good to a market. • Conceptualized as a series of nodes, linked by various types of transactions, such as sales and intrafirm transfers. • Each successive node within a commodity chain involves the acquisition or organization of inputs for the purpose of added value.

33. Commodity Chain Manufacturing and assembly Parts and raw materials Distribution Market Stage LTL shipping Bulk shipping Unit shipping Transport Chain Market Flows Average volumes High frequency Low volumes High frequency High volumes Low frequency

34. 2. Commodity Chains • Function of commodity chains • Sequential process used by corporations within a production system. • Gather resources. • Transform them in parts and products. • Distribute manufactured goods to markets. • Each sequence is unique: • Product types. • Nature of production systems. • Markets requirements. • Stage of the product life cycle. • Adaptability to changing conditions.

35. Cereals Supply Chain Manufacturing Extraction Farm Processing Facility Grain Cereal Distribution and Retailing Packaged Cereal Store Packaging Distributor Converter Paperboard Wood Pulp Packaged Cereal Label Mfg Wood Pulp Mfg Labels Wood Pulp

36. Product Life Cycle Competition Monopoly Competitors Innovating firm Sales Decline of production Idea Promotion First competitors Mass production Research and development Growth Decline Maturity Stage 1 Stage 2 Stage 3 Stage 4

37. Global Production Networks Country A Country B Regional Production Centralized Production Country C Country D Regional Specialization Vertical Integration

38. 2. Commodity Chains • Types of commodity chains • Raw materials: • Attributable to climatic (agricultural products) or geological (ores and fossil fuels) conditions. • Developing countries export towards developed countries. • Semi-finished products: • Have some transformation that confers them an added value. • Metals, textiles, construction materials and parts used to make other goods. • Regional transport systems integrated to regional production systems. • Manufactured goods: • Goods that are shipped towards large consumption markets. • Flows concerns developed countries, but a significant share is related to developing countries. • Containerization has been the dominant transport paradigm.

39. D – Logistics • 1. Logistics • 2. Distribution Systems

40. 1. Logistics • Definition • Activities related to the transformation and circulation of goods. • Material supply of production. • Distribution and transport function. • Wholesale and retail. • All operations required for goods (material or nonmaterial) to be made available on markets or to specific destinations. • Logistics operations • Purchase orders processing: • Related to the transactional procurement of goods. • Stock management: • Related to the physical procurement of goods. • Transportation: • Related to the physical distribution of goods.

41. Logistics Operations Handling Packaging Transportation Demand Production Scheduling Purchase Purchase Orders Processing Stock Management Sales Warehousing

42. 1. Logistics • Physical Distribution • Activities involved in the movement of goods: • From production to sale and consumption. • Insure that the mobility requirements of supply chains are met: • Movement and handling of goods. • Transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines) • Transshipment and warehousing services: • (e.g. consignment, storage, inventory management).

43. 1. Logistics • Materials Management • Activities related in the manufacturing of commodities in all their stages of production along a supply chain. • Production and marketing activities. • Insure that the requirements of supply chains are met • Assembly and raw materials. • Packaging (for transport and retailing) and recycling discarded commodities.

44. Changes in the Relative Importance of Logistical Functions

45. Conventional and Contemporary Arrangement of Goods Flow Conventional Raw Materials & Parts Manufacturing Distribution Customers Local Distribution Raw Materials National Distribution Regional Storage Retailers Storage Contemporary Supply Chain Management Customers Raw Materials Distribution Center Manufacturing Retailers Material flow (delivery) Core component Information flow (order)

46. 2. Distribution Systems • Context • Changes in distribution because of logistics. • Supporting fragmentation of production. • Emergence of a separate branch of the industry specialized with the function of distribution. • E-commerce offers new opportunities.

47. From Push to Pull Logistics Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Freight flow Manufacturer Manufacturer 3PL Distributor Distributor Customer Returns / Recycling Point-of-sale data Customer Push Pull

48. Logistics and E-commerce Supply chain Supply chain Warehousing E-Retailer Retailer Warehousing Traditional Logistics E-Logistics Customers Customers