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Location factor

Location factor. Transport. Why is transport an important location factor?. Raw materials are unevenly-distributed Transport is essential for moving RM and products. What sort of ind. is significantly influenced by transport cost?. Ind. producing large, heavy, bulky but low value goods

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Location factor

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  1. Location factor Transport

  2. Why is transport an important location factor? • Raw materials are unevenly-distributed • Transport is essential for moving RM and products

  3. What sort of ind. is significantly influenced by transport cost? • Ind. producing large, heavy, bulky but low value goods • Examples: jewellery, computer/hi-tech and high quality fashionable clothes

  4. 2 types of costs • Procurement cost = cost of transporting RM to factory • Distribution cost = cost of transporting finished products to market

  5. 2 elements in transport costs (Hoover) • Terminal cost = cost of using terminal facilities for handling the goods and storage which is fixed. • Haulage cost/line haul cost = freight rate, e.g. wages paid to drivers, fuel used in transport, insurance, etc., which vary according to the length of journey

  6. Tapering freight rate • Average transport cost falls with distance • Initial steep rise • But followed by gently tapering curve • Long haul  cheaper ∵ TC is spread over • Short haul  cost more ∵ need to pay fixed TC

  7. Step-shaped relationship • Transport cost may increase in steps • e.g. MTR fare • Rate of increase↓as distance ↑ • Places far away from one another are charged the same • e.g. postage

  8. Raw material-oriented industry • PC rises more rapidly than DC • Lower total cost near the RM • So, where is the optimal location for industries?

  9. Market-oriented industry • DC rises more rapidly than PC • Total transport cost is lower at M • So, where is the optimal location for industries?

  10. Break-of-bulk points • When goods must be transshipped from A to B (e.g. rail to ship), additional terminal & handling costs are incurred • It destroys the long-haul advantage • So locating factories at the transshipment point can avoid this extra cost • i.e. factories are usually located near ports/rail terminals • These points are called break-of-bulk points.

  11. How were goods transported in the past? • Simple transport means like carts or boats • Primitive • Small carrying capacity • Low reliability

  12. Influence on ind. location • High transport cost • Accounts for high % of total production cost • ∴ great influence on ind. location • Poor technology required more RM •  PC > DC • ∴ RM-oriented

  13. Means of transport nowadays • Sea/land/air • Mass transit • Speedy • Less costly • More reliable • Global deliveries possible

  14. Influence on ind. location • Relatively lower transport cost • Accounts for very low % in production cost • Less influential than other factors/other factors being more important, e.g. labour • RM can be made more ubiquitous • ∴ Location is not tied to RM • Industrial decentralization is more than localization • Products are served for global market

  15. Transport rates • TC for road is the cheapest • TC for air is the highest • For short haul, road transport is the cheapest • For long haul, sea transport is the cheapest • Zones identified

  16. How does transport cost affect industrial location?

  17. Locational flexibility of ind. ↑ • Many inputs are made ubiquitous • Availability of skilled and professional workers and IT are more important • Improved highways, railway and shipping services help lower transport cost

  18. Industrial dispersion • Improvement in transport technology • Population decentralization (suburbanization) • Shift of labour from inner city to suburbs • Efficient linkages between inner city and suburbs • Cheaper land available for expansion • Results in industrial dispersion • e.g. industrial estates

  19. Regional specialization of ind. • Well-developed transport networks attract more industries • Concentration of manufacturing ind. at nodal points • The no. of factories serving isolated market areas ↓ • Centralization in production • Enjoy scale of economies • Easy to specialize in particular kinds of production • Globalization high value operations + R&D in MDCs while low value labour operations in LDCs

  20. Examples of regional specialization • Brewing in USA – Milwaukee • Automobile ind. in USA – Detroit • Automobile ind. in Nagoya, Japan • Ship-building around Inland Sea, Japan • Electronic ind. in Silicon Valley, USA • Textile ind. in Changjiang Delta, Central China • Toy industry in PRD

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