GEOG 80 Transport Geography Professor Dr JeanPaul Rodrigue

GEOG 80 – Transport Geography Professor: Dr. Jean-Paul Rodrigue Topic 5 – International and Regional Transportation A. The Strategic Space of International Transportation B. Transportation, Globalization and International Trade C. Freight Transport and Commodity Chains D. Logistics

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

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.

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

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.

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

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.

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.

World Exports of Merchandise, 1950 -2004

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.

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.

Global Exports of Merchandises, 1963 -2000

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

World’s 10 Largest Exporters and Importers, 2003

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

Trade by Ocean, 1995

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.

Major Economic Blocs, 2000

Trade by Major Economic Bloc

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.

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

Share of Containerized Cargo in Global Trade, 1980 -2000

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.

NAFTA Truck Flows, 2003

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

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.

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.

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.

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

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

Fordist and Post-Fordist Corporate Structure Characteristics Fordism Post-Fordism Organization Pyramidal Networked Focus Supply Demand Style Structured Flexible Reach Regional / National Global Resources Physical Assets Information / Knowledge Production Mode Mass Production Mass Customization Production Structure Self-Sufficiency Alliances Inventories Months Hours Production Cycle Time Weeks / Months Days Information Weekly Real-Time Product Life Cycle Years Months

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.

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

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.

Cereals Supply Chain Extraction Farm Grain Manufacturing Processi ng Facility Cereal Distribution and Retailing Packaged Cereal Converter Paperboard Packagin g Wood Pulp Mfg Distributo r Store Packaged Cereal Wood Pulp Label Mfg Labels

Product Life Cycle Competition C om pe t ito rs Monopoly Inn Sales ova Idea Promotion First competitors Research and development Stage 1 Growth Stage 2 ting firm Mass production Decline of production Maturity Decline Stage 3 Stage 4

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

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.

D – Logistics ■ 1. Logistics ■ 2. Distribution Systems

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.

Logistics Operations ng Pa c li nd ka Ha gin g Pu us s ing le a S Purchase ck nt Sto eme g na ho rc Demand Ma Production Scheduling Wa re Pr ha oc se es O si rde ng r s Transportation

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).

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.

Changes in the Relative Importance of Logistical Functions

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

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.

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

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