Strategic Gateways and Trade Corridors: The Challenge of Shifting International Trade

1. Strategic Gateways and Trade Corridors: The Challenge of Shifting International Trade (Prof) David Gillen YVR Professor of Transportation Policy & Management Director, Centre for Transportation Studies Sauder School of Business University of British Columbia, Vancouver, Canada CMA Canada Supply Chain Management Speaker Series School of Business & Economics Wilfrid Laurier University, November 16, 2007

2. Changes and Challenges • Amount and composition of trade • Bulk versus containers • Hubs versus ODs • Trade imbalance • Impacts on infrastructure efficiency • Full versus empty • Market concentration • Sea land interface • Economics of Gateways • Gateways & productivity and gateways as networks/alliances • Policy/management responses • The lens of Federal policy

3. Amount and Composition of Trade

6. World’s 10 Largest Exporters and Importers, 2005 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

7. Pressures: Global Commerce is Expanding, Patterns are Shifting • Global marketplace integration is driving the distribution of economic activity, as well as the expansion of world trade • The emergence of new economic powers such as China and India is forcing all trading nations to adjust, or be left behind. • Imports from China to Canada grew almost 550%, from $4.6B to $29.5B between 1995 and 2005. • Partners and competitors are acting aggressively on the intersecting issues of trade, transport and security.

8. Is It the Correct Target?

9. Impacts on Infrastructure Efficiency

10. TEU 12,500 Crew: 13

11. Containers Handled by the Port of Los Angeles, 1995-2006 (in TEU) Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

12. Containerized Cargo Flows along Major Trade Routes, 1995-2006 (in millions of TEUs) Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

13. Maritime Freight Rates (USD per TEU), 1993-2006 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

14. Largest American Importers of Asian Goods Through Maritime Container Transport, 2004 (in TEUs) Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

15. Logistics and the Acceleration of Freight • The velocity of freight • Shipment and transshipment. • No significant speed improvements in recent decades. • Intermodal operations; the most important element. • Logistical threshold: • Time based management of distribution becomes a possibility. • From push (supply based) to pull (demand based) logistics. Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

16. Mounting Capacity and Time Pressures in Global Freight Distribution • Time is the essence… • Surprising time underperformance: • Only 63% of transpacific container vessels arrived on time at their scheduled port calls. • 53% for transatlantic port calls. • The major factor behind delays is port congestion: • Multidimensional concept. • Physical docking capacity. • Transshipment capacity. • Storage capacity. • Inland capacity. • Reinforce the importance of the maritime / land interface.

17. Is this the Correct View?

18. Container Transport Costs from Inland China to US West Coast ($US per TEU) Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

19. The Economics of Gateways

20. Economics of Gateways • Gateways are alliances • Alliances are vertical and horizontal • Gateways internalize externalities • Upstream and downstream agents recognize mutual benefit • provide platform for cooperation and competition • Gateways provide agglomeration effects • Gateways integrate infrastructure, service, information and human capital

21. Economics of Gateways • Demand side forces favouring gateways • Accessibility/wide geographic scope/interconnectivity/intermodal access • Reliability/connecting capacity/Delivery speed • Allocating risk • Network externalities • Supply side forces • Reduce transactions cost –limit horizontal and vertical boundaries • Reduce logistics costs • Economics of scale, scope and density • Internalize externalities-alliances

22. Gateways and productivity • Productivity drives real income and economic welfare • Profit = revenue – costs • Gateways and revenue • Increases ‘willingness to pay’ with value adding services • Reliability & consistent service (risk reduction) • Gateways and costs • Enabler like technology (not just another factor input) • Service accountability & transparency • Benchmark – measure & monitor • New practice • Invest in network

23. Gateways are Systems • Gateways are a facilitator in the global supply chain • Gateways increase productivity by expanding markets, moving down the cost function and lowering costs, shifting down the cost function • Gateways increase productivity by internalizing externalities of upstream and downstream agents • Gateways increase productivity by allocating risk optimally

24. Current Research Undertakings • Question: what institutional/policy design complements export performance? • Domestic market structure and export performance • (1) firm size and cost function, (2) product and process innovation • Examine multi-market contact in a Cournot game • Question: how does gateway vertical integration between infrastructure providers and carriers differ in performance from vertical contracts? – our interest is in efficient gateway (congestion)pricing • Question: How do we measure gateway performance? • TFP= Aggregate Index of Hedonically-Adjusted Gateway Output • Aggregate Index of Nodal Infrastructure Inputs plus Strategic Investments and Initiatives • 4 effects: (1) exogenous DD effect, (2) factor price effect, (3) public K effect, (4) disembodied (i.e. factor neutral) technical change effect

25. Gateway Performance

26. Policy and Management Responses

27. Federal Response: • International Commerce Strategy • align major transportation systems • Logistics is about efficiency, service quality and capacity to deliver • Competition is in supply chains not individual components – therefore partnerships

28. Federal Response: • Volumes and Values of National Significance • Strategy should have national not regional focus • Strategy should focus on volumes and values which are most important for Canada • Does this focus on picking winners? • Is this a ‘field of dreams’?

29. Federal Response: • Future patterns in global trade & transportation • Emerging patterns place new demands on transportation infrastructure • performance linkage between : • infrastructure and user capital (ships) • Links and nodes (distribution networks) • Future patterns are not exogenous – they can be managed • Information technology shapes patterns

30. Federal Response • Potential scope of capacity and policy measures • Systems interconnection versus integration • Across modes • Investment and policy • Public versus private • Jurisdictions and governance • How do we choose – based on what performance metric? • Who receives the rents?

31. Thank you david.gillen@sauder.ubc.ca

32. Lens of National Policy

33. Strategies to improve gateway logistics: The shippers’ responses • The shippers accept higher transport costs to achieve greater reliability of service. • Retail shippers start shipping earlier to reduce the peak. • Shippers open other routes, e.g., accelerate development of East Coast routes for South Asian trade. • Shippers add flexibility to West Coast routings through the location of distribution facilities and availability of alternate port routings. • A better but more competitive gateway environment.

34. Strategies to improve gateway logistics: The strategies of service providers • Objective – to make the [Vancouver] Gateway the best place for gateway activity [on the West Coast of North America]. Not the biggest, but the best! • To achieve this a multi-pronged program needs to be continued. • Overview of the program: • Pricing should play a greater role in guiding behaviour. • Leadership is essential to achieve change. • Accountability is important to relationships. • Communication is fundamental to planning and execution. • Enterprise must be shown to adjust to the future, which is now! Source: Trevor Heaver (Gateway Conference Vancouver 2007)