Transportation, Globalization and International Trade

Maritime Routes and Strategic Locations

SuezHormuz

PanamaMalacca

Magellan

Good Hope

Gibraltar

Bab el-Mandab

Shipping Lanes and Strategic Passages in Pacific Asia

Hormuz

Malacca

Sunda

Lombok

Makassar

China

India

Tsugaru

Sout

h C

hina

Sea

Pacific Ocean

Indian Ocean

Japan

Indonesia

Shipping Lanes and Strategic Passages in the Middle East

IranIraq

Saudi ArabiaEgypt

Turkey

Indian Ocean

Hormuz

Bosporus

Bab el-Mandab

Suez

Oman

Yemen

Red Sea

PG

PG: Persian Gulf

15.5

3.3

3.8

3.0

1.0Oil transited (millions ofbarrels per day)Black Sea

2002-2003 figures

Mediterranean

Sudan

Economic Rationale of Trade

Without Trade

• Small national markets.• Limited economies of scale.• High prices and near monopoly.• Limited product diversity.• Different standards.

With Trade

• Increased competition.• Economies of scale.• Specialization.• Lower prices.• Interdependencies.

Cou

ntr

y 1

Cou

ntr

y 3

Cou

ntry

2C

ou

ntry

4

Major Global Trade Routes, 1400-1800

Mexico Havana

PeruBrazil

West Africa

WesternEurope

Manila

PacificOcean

PacificOcean

IndianOcean

East Africa

IndiaChina

Southeast Asia

Baltic

Hormuz

Aden

Aceh

North America Central Asia

Canton

Malacca

Caribbean

AtlanticOcean

Trade Route

Dominant Capital Flow

Levels of Economic Integration

Free trade between members: NAFTA, Mercosur, ASEAN (partial)

Free Trade

Common external tariffsCustoms Union

Factors of production move freely between members

Common Market

Common currency, harmonized tax rates, common monetary and fiscal policy: EU (partial)

Economic Union

Common governmentPoliticalUnion

Leve

l of i

nteg

ratio

n

Complexity

a

b

c

d

e

f

g

h a

b

cd

ef

g

h

G1

G2

Independent Nations Interdependent Groupsof Nations

Economic Integration and Interdependencies

Average Tariffs after the Uruguay Round (%)

0 10 20 30 40 50 60 70

All industrial products

Textiles & clothing

Mineral products

Transport equipment

Fish & fish products

Leather, footwear & travel goods

Chemical & photographic supplies

Electrical machinery

Other manufactured articles

Wood, paper & furniture

Nonelectrical machinery

Metals

Reduction

Tariff

Average Customs Clearance Time (days)

0 5 10 15 20 25 30

United States

Germany

Netherlands

China

Hong Kong

Malaysia

Singapore

Thailand

Taiwan

Brazil

India

Russia

Mexico

Sea FCLSea LCLAir

Changes in Global Trade Flows

Industrial Pole

Before 1970 After 1970

Developed Countries

Developing Countries

Developed Countries

Developing Countries

Flows of merchandises Flows of raw materials

Impacts of Integration Processes on Networks and FlowsN

etw

ork

Flow

s

Before Integration After Integration

International border

International Trade, 1998 (in billions of dollars and in % of exports)

EU

145,3(16,2 %)

91,5 (10,2 %)NAFTA

(51,5 %)

East Asia213.2 (23,3) %

(35.2 %)

(62,7 %)

205,6(9,4 %)

144,6(15,8 %)

98,4(4,5 %)

461,9

1371,2

322,0

World Exports of Merchandise, 1950-2003

00.5

11.5

22.5

33.5

44.5

55.5

66.5

7

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

Valu

e (T

rilli

ons

of $

US)

0

2

4

6

8

10

12

14

16

Shar

e of

Wor

ld G

DP

(%)

Value

Share

International Trade, Developing and Developed Countries, 1970-2000

0

1000

2000

3000

4000

5000

6000

1970 1980 1985 1990 1995 2000

Mill

ions

of $

US

20

25

30

35

Developed Countries Developing Countries Share

Changes in the Value World’s Merchandise Trade, Production and GDP, 1950-2002 (in %)

-10

-5

0

5

10

15

20

25

30

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

Total Merchandise Trade

World GDP

World Merchandise Production

Global Exports of Merchandise, 1963-2000

0%

20%

40%

60%

80%

100%

1963 1975 1990 1994 2000

Manufactured productsMineral productsAgricultural products

Merchandise Exports per Continent (in billions of US$), 1980-2000

0

1000

2000

3000

4000

5000

6000

7000

1980 1985 1990 1995 2000

Asia

Middle East

Africa

Eastern Europe

Western Europe

Latin America

North America

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1985 1990 1995 2000

Asia

Middle East

Africa

Eastern Europe

Western Europe

Latin America

North America

World’s Leading Exporters and Importers, 2003

0 200 400 600 800

Germany

United States

Japan

China

France

United Kingdom

Netherlands

Italy

Canada

Belgium

0 500 1000 1500

United States

Germany

China

United Kingdom

France

Japan

Italy

Netherlands

Canada

Belgium

World’s 10 Largest Exporters and Importers, 2002

0 200 400 600 800 1000 1200

United States

Germany

Japan

France

China

United Kingdom

Canada

Italy

Netherlands

Hong Kong, China

Billions of $US

ImportsExports

World’s 10 Largest Exporters and Importers, 2003

0 200 400 600 800 1000 1200 1400

Germany

United States

Japan

China

France

United Kingdom

Netherlands

Italy

Canada

Belgium Imports

Exports

Trade as Share of GDP, 1998

Less than 20%

20% to 40%

40% to 60%

60% to 100%

100% to 150%

More than 150%

Not Available

Share of World Goods Exports, Selected Countries, 1950-2002

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

United StatesJapanGermanyP.R. ChinaSaudi Arabia

Total Freight Costs for Imports in World Trade (% of Total Costs)

0 2 4 6 8 10 12 14

Word

Developed Countries

Developing Countries

Africa

America

Asia

Europe

Oceania

2000

1990

Value of Chinese Exports and Received FDI, 1983-2002 (Billions of $US)

0

50

100

150

200

250

300

35019

83

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Expo

rts

0

5

10

15

20

25

30

35

40

45

50

FDI

Exports

FDI

Trade by Ocean, 1995

0% 20% 40% 60% 80% 100%

1990

1995Pacific

Atlantic

Other

Major Economic Blocs, 2000

NAFTA

Andean Pact

Mecosur

Caricom

EFTA

EU

Europe's Associates

ASEAN

Trade by Major Economic Bloc

0 5 10 15 20 25 30

Intra AFTA

Intra EU

Intra NAFTA

EU-NAFTA

NAFTA-EU

Percentage

1995

1990

Share of Containerized Cargo in Global Trade, 1980-2000

0

100

200

300

400

500

600

700

800

1980 1985 1990 1995 2000

Mill

ion

tons

Containerized Cargo Other General Cargo

A B

Rail

Origin Destination

Transport Chain

Maritime Road

International Trade

Transshipment

International Trade and Transportation Chains

A B

Composition Decomposition

Trade barrier

Customs

Modal Shares of U.S.-NAFTA-Partner Merchandise Trade by Value and Weight, 2000

0

10

20

30

40

50

60

70

Truck Rail Pipeline Air Water Other andunknown

Value

Weight

Concept 3

Commodity Chains and Freight Transport

Elements of an Economic System

Economic System

Consumption (demand)

Production(supply)

Manufacturing

Regulation

Circulation Distribution

Labor

Land Capital

Production factors

London

New YorkLos Angeles

Singapore

Hong Kong

Tokyo

Telecommunications

Space

Time

Hin

terla

nd

Stock Market Opening Period

Global Financial Centers

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

0 50,000 100,000 150,000 200,000 250,000 300,000

Microsoft

General Electric

Exxon Mobil

Wal-Mart Stores

Pfizer

Citigroup

Johnson & Johnson

Royal Dutch/ Shell

BP

IBM

Ameri. Int. Group

Merck

Vodafone

Proctor & Gamble

Intel

GlaxoSmithKline

Novartis

Bank of America

NTT DoCoMo

Coca Cola

Industrial Agglomeration and Transportation

AgglomeratedDiffused

Modal Profile of Freight Transportation, United States

Mode Value Volume Service Distance

Truck Moderate to high Loads of less than 50,000 lbs.

On-time performance above 90%.

Driver can go 500 miles per day. 2/3 of tonnage carried over less than 100 miles.

Rail Moderate to low Multiple car loads. No weight restrictions.

4 to 7 days delivery time. 60 to 85% on-time performance.

Average haul length between 600 and 800 miles.

Intermodal Moderate to high No weight restrictions. 3 days for cross country. On-time performance between truck and rail.

Average haul between 700 and 1,500 miles.

Air High Small. Most loads less than 100 lbs.

Normally overnight or second day.

More than 1,300 miles.

Inland Water Moderate to low Bulk shipments. Varies according to segment. Competitive with rail.

Between 250 and 1,600 miles.

Coastal Water Moderate to low Containers, general freight and bulk shipments.

Function of distance. Between 2 to 5 days.

Between 500 and 2,000 miles.

International Water

High to low Mainly containers and bulk shipments.

7 to 10 days trans-Atlantic and trans-Pacific routes.

More than 2,600 miles.

Pipeline Low Bulk shipment of liquids and gazes.

According to demand. 0 to 20 mph.

825 miles average distance for crude oil.

National

International

Circ

ula

tion

International National

Mar

ket

Transport Chain

Parts and rawmaterials

Manufacturingand assembly Distribution

Commodity Chain

International National International National

Mar

ket

Sou

rcin

gS

tag

e

Producer and Buyer-driven Commodity Chains

Manufacturers DistributorsRetailers and

Dealers

Producer-driven

Domestic and foreign subsidiaries and subcontractors

Buyer-driven

Factories

Traders

OverseasBuyers

BrandedManufacturers

Retailers

BrandedMarketers

International National

Product Life Cycle

Sal

es

Stage 1 Stage 2 Stage 3

Monopoly Competition

Research anddevelopment

Maturity Decline

First competitors Mass production

Innovating firm

Competitors

Growth

Stage 4

PromotionIdeaDecline ofproduction

Production Systems and Types of Transported Freight

Raw materials Semi-finished products Manufactured goods

Extraction

TransferProcessing

Intra-industrial linkages

ManufacturingRetailing

Distribution

Changes in the Value of World’s Trade per Type of Merchandise, 1950-2002 (in %)

-30

-20

-10

0

10

20

30

40

50

60

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

Agricultural Trade

Mining Trade

Manufactures

Global Merchandises Exports by Product, 1990-2000 (in % of value)

0 2 4 6 8 10 12 14 16 18 20

Other machinery and transport equ.

Office and telecommunication equ.

Fuels

Automotive products

Chemicals

Food

Other semi-manufactures

Clothing

Textiles

Iron and steel

Raw food materials

Non-ferrous metals

Ores and other minerals2000

1990

Geographical Growth of a Multinational Corporation

Center

Nation

Other N

ation

TariffB

asic EnterprisePe

netr

atio

n of

a N

atio

nal M

arke

tPenetration of Foreign M

arketsM

ultin

atio

nal C

orpo

ratio

n

1 2

3 4

FactoryDistribution center

Representative

Centralized Production R

egio

nal P

rodu

ctio

nR

egional Specialization Vert

ical

Inte

grat

ion

Country A Country B

Country C Country D

Global Production Networks

Inbound Truck Traffic by US Port of Entry, 1997

Laredo

El PasoOtay Mesa

Blair

Detroit

Port Huron Buffalo

Market Share by Freight Transport Mode, Western Europe, 1980-2000 (in ton-km)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1985 1990 1995 2000

Inland Waterways

Road

Rail

Market Share by Freight Transport Mode, United States, 1980-2000 (in ton-miles)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1985 1990 1995 1999

Water

Truck

Rail

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

Quality Affordable Best Zero-Defect

Fordism Post-Fordism

Raw

mate

rials

an

d p

art

sM

an

ufa

ctu

rin

gS

ale

s a

nd

dis

trib

uti

on

Fluxes in a Fordist and Post-Fordist Production System

Producer-Driven and Buyer-Driven Global Commodity Chains

Producer-Driven Commodity Chains Buyer-Driven Commodity Chains

Drivers of Global Commodity Chains

Industrial Capital Commercial Capital

Core Competencies Research & Development; Production Design; Marketing

Barriers to Entry Economies of Scale Economies of Scope

Economic Sectors Consumer Durables; Intermediate Goods; Capital Goods

Consumer Nondurables

Typical Industries Automobiles; Computers; Aircraft Apparel; Footwear; Toys

Ownership of Manufacturing Firms

Transnational Firms Local Firms, predominantly in developing countries

Main Network Links Investment-based Trade-based

Predominant Network Structure Vertical Horizontal

The Global Car Production Network, 2003

Ford

Jaguar Land Rover

Volvo Aston Martin

Mazda Isuzu Suzuki

GM

Vauxhall Opel

Daewoo Saab

VAG

Bentley Skoda

Seat AudiVW

Dailmer Chrysler

Mercedes Benz

Chrysler Jeep

Fiat

Lancia Maserati

Ferrari Alfa Romeo

Toyota

Daihatsu

Porsche

Nissan Renault

Hyundai

PSA

Peugeot

Citroen

BMW

Rolls Royce

Mitsubishi

HondaEquity ownershipJoint ventureEquity relationshipFunctionally integrated group

The Automobile Supply Chain

Supplyingindustries

Steel and other metals

Rubber

Electronics

Plastic

Glass

Textiles

Bodies

Components

Engines and transmissions

Final Assembly

Manufacture and stamping of body

panels

Body assembling and painting

Manufacture of mechanical and electrical components (wheels, tires, seats, breaking

systems, windshields, exhausts, etc.)

Forging and casting of engine and transmission

components

Machining and assembly of engines and transmissions

Consumer market

Cereals Supply Chain

Farm

Wood Pulp Mfg

Processing Facility

Packaging

Label Mfg

Converter Distributor Store

Packaged Cereal

Packaged Cereal

Grain

Wood Pulp

Paperboard

LabelsWood Pulp

Cereal

Distribution and Retailing

ManufacturingExtraction

Concept 4

Logistics

Logistics Operations

Demand

Transportation

Stock

Managem

ent Purchas

e Ord

ers

Proce

ssing

Handling Packaging

Purc

hase

Sales

ProductionScheduling

Warehousing

Logistics and Integrated Transport Demand

Logistics(Integrated Demand)

Materials Management

Physical Distribution

Ind

uced

Dem

an

d

Deriv

ed

Dem

an

d

Value-Added Functions of Logistics

Production

Location

Time

ControlLogistics

Changes in the Relative Importance of Logistical Functions in Distribution Systems

0% 20% 40% 60% 80% 100%

Supply Driven

Demand Driven

Inventory

Transport System

Information System

From Push to Pull Logistics

Supplier Supplier Supplier

Manufacturer

Customer

Distributor

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Manufacturer

Distributor

Customer

3PL

Returns / Recycling Point-of-sale data

Freight flow

Push Pull

Fragmentation of the Production System and the Logistics Industry

Inputs Outputs

FactoryRegion A

Region A

Region B

Region C

Logistics

Conventional Emerging

Distribution

Benefits of Demand-Driven Supply Systems

Inventory turnover Working capital

Cause Consequence

Customer service Net income

Labor productivity Operating expenses

Capacity utilization Return on assets

Logistics costs Operating expenses

Total Logistics Costs Function

Costs

Shipment Size

P+T

TLC

C

Logistical Improvements, Manufacturing Sector, 1960-2000

0

2

4

6

8

10

12

14

16

18

20

1960s 1970s 1980s 1990s 2000s

% o

f GDP

0

5

10

15

20

25

30

35

40

Days

Logistics Costs (% GDP)

Inventory Costs (% GDP)

Cycle Time Requirements (days)

Worldwide Logistics Costs

39%

27%

24%

6%4%

Transportation

Warehousing

Inventory Carrying

Order Processing

Administration

Logistics Costs and Economic Development

Agriculture Mining Industry Services Information

Log

isti

cs C

osts

/ G

NP

Economic Development

United StatesJapan

Singapore

Argentina

Kenya

Brazil Poland

Ukraine

Belgium

Canada

Average Order Lead Times of European Manufacturers, Wholesalers, and Retailers

0

5

10

15

20

25

30

1985 1990 1995 2000 2005

Day

s

Logistics Costs, United States, 1980-2000 (in billions of $)

0

200

400

600

800

1000

1200

1980 1985 1990 1995 2000

Administrative Costs

Transportation Costs

Inventory Carrying Costs

% of Products Shipped for “Just-in-Time” Manufacturing

05

101520253035404550

1990 1994 1996 1998 2000

Product Life Cycle of a Television, 1960-1996

0

2

4

6

8

10

12

1960 1980 1990 1996

Year

s

Low

Medium

High

Evolution of Logistical Integration, 1960-2000

Demand Forecasting

Purchasing

Requirements Planning

Production Planning

Manufacturing Inventory

Warehousing

Materials Handling

Packaging

Inventory

Distribution Planning

Order Processing

Transportation

Customer Service Strategic Planning

MaterialsManagement

PhysicalDistribution

LogisticsSupply ChainManagement

Information Technology

Marketing

1980s

1990s

2000s

Taxonomy of Logistics Decisions

Level Description

Logistics structures

Numbers, locations and capacity of factories, warehouses and terminals

Pattern of trading links

Commercial decisions on sourcing, sub-contracting and distribution. Freight network linking a company and its trading partners

Scheduling of product flow

Programming of production and distribution operations translate trading into discrete freight flows. Adherence to a just-in-time (JIT) regime usually requires frequent delivery of small orders

Management of transport resources

Within the framework defined by decisions at the previous three levels, transport managers still have discretion over the use of transport resources.

Conventional and Contemporary Arrangement of Goods Flow

Raw Materials & Parts Manufacturing Distribution

RawMaterials

Storage NationalDistribution

RegionalStorage

LocalDistribution

Retailers

Supply Chain Management

RawMaterials

DistributionCenter

RetailersManufacturing

Cu

sto

mers

Cu

sto

mers

Conventional

Contemporary

Material flow (delivery)

Information flow (order)

Core component

Forward and Reverse Distribution

Con

su

mers

Producers Distributors

CollectorsRecyclers

Forward ChannelReverse Channel

Su

pp

liers

Globalization of Consumption

Nodes and Freight Distribution

Production

Consumption

Local GlobalDistribution Scale

Dis

trib

utio

n Sc

ope

Globalization of Production

DC Global Distribution

Manufacturing

Retailing

Regional Distribution

Cross-Docking

Suppliers

Customers

Receiving

Shipping

SortingDC

Freight Distribution and Network Strategies

A

BPoint-to-Point

A

BCorridor

A

BHub-and-Spoke

A

BFixed Routing

A

BFlexible Routing

Transshipment node

Route node

Network node

Unserviced node

Route

Alternativeroute

Cargo Rotation

Inland location withImports >> exports

Export flows

Import flows

Empties

Inland location withExports >> imports

Port

A

B

Complexity of the Supply Chain

FactoryDistribution center

Representative

National

International

National Supply Chain Multinational Supply ChainSimple Complex

High-throughputDC

National Semiconductors, Supply Chain, 1993-2001

")")

") ")

")

!(

!(!(

!(

!(

#*

#*#*

#*#*

#*

!(

!(!(

!(

!(

#*

#*#*

#*#*

#*

")

!(

!(

!(

!(

!(

Regional Distribution Centers (1993)

Global Distribution Center (2001)

Wafer Fabrication Assembly & Testing Distribution Center

Singapore

Portland

Salt Lake City

Santa Clara

Arlington

Greenock

Swindon

Midget Haemek

Tokyo

Hong Kong

Cebu

Bangkok

Penang

MalaccaToa Payoh

The Logistics of Mitsui & Co.

Distribution System

MitsuiProduction Sales

Needs• Increase production efficiency.• Reduce distribution costs.

Services• Offer and develop a logistical distribution system.

Needs• Reduce inventory costs.• Offer better services to customers.

Logistical center• Supervisions of orders and the inventory.• Consolidation of deliveries.

Producer

Producer

Producer

Customer

Customer

Customer

Orders Orders

Information fluxesFreight fluxes

15 Largest Owners of Warehouses, North America, 2000 (in millions of square feet)

0 10 20 30 40 50 60 70

United Parcel Service

Exel

General Motors

GATX Logistics

Supervalu

Sysco

AmeriCold Logistics

Fleming Co.

Tibbett & Britten Group

Target Stores

W.W. Grainger Inc.

Kenco Logistics Services

Standard Corp.

NFI

USCO Logistics

Ten Largest Global Logistics Service Providers, 1998

0 5 10 15 20 25 30 35 40 45 50

GEODIS

Schenker

TNT Post Group

Deutsche Bahn Cargo

NFC/Exel

Kuhne & Nagel

Danzas

Maersk Moeller

Panalpina

Deutsche Post FrachtEmployees (thousands)

Revenue (Billion $US)

Logistics and E-commerce

Retailer

Supply chain

E-Retailer

Customers Customers

Supply chain

Warehousing

Warehousing

Tra

dit

ion

al Log

isti

cs

E-L

og

istic

s

Shifts of Logistical Operations in the Internet economy

Traditional logistics E-logistics

Orders Predictable Variable

Order cycle time Weekly Daily or hourly

Customer Strategic Broader base

Customer service Reactive, rigid Responsive, flexible

Replenishment Scheduled Real-time

Distribution model Supply-driven (push) Demand-driven (pull)

Demand Stable, consistent More cyclical

Shipment type Bulk Smaller lots

Destinations Concentrated More dispersion

Warehouse reconfiguration Weekly or monthly Continual, rules-based

International trade compliance Manual Automated