Strategic Gateways and Trade Corridors: The Challenge of Shifting International Trade (Prof) David Gillen YVR Professor of Transportation Policy & Management Director, Centre for Transportation.
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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 THE UNIVERSITY OF BRITISH COLUMBIA
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
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Amount and Composition of Trade
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World’s 10 Largest Exporters and Importers, 2005
Belgium Canada Italy United Kingdom Netherlands France Japan China United States Germany 0 200 400
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
Imports Exports 600 800 1,000 Billions of $US 1,200 1,400 1,600 1,800 2020-04-25
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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.
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Is It the Correct Target?
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Impacts on Infrastructure Efficiency
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TEU 12,500 Crew: 13
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Containers Handled by the Port of Los Angeles, 1995-2006 (in TEU)
100.0
10.0
1.0
3 0.1
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Loaded (inbound) Loaded (outbound) Loaded Ratio (Outbound / Inbound)
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
Empty (inbound) Empty (outbound) Empties Ratio (Outbound / Inbound) 0 2 1 9 8 5 4 7 6 2020-04-25 11
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Containerized Cargo Flows along Major Trade Routes, 1995-2006 (in millions of TEUs) 2006 2005 2004 2003 2002 2001 2000 1998 1995 14.5
13.9
12.4
10.2
4.9
4.1
4.2
4.3
7.3
8.9
9.9
4.9
12.7
8.8
7.2
5.6
3.3
3.9
3.9
4.5
5.9
6.1
3.6
5.2
4.0
3.3
3.5
2.7
1.3
1.7
3.5
2.8
2.3
1.2
1.4
4.0
4.2
2.2
2.9
1.5
2.6
2.7
3.6
5.2
1.7
2.9
7.3
5.6
1.8
1.7
3.2
3.3
2.6
4.2
0 10 20
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
30 40 2020-04-25 50
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Asia-USA USA-Asia Asia-Europe Europe-Asia USA-Europe Europe-USA 12
Maritime Freight Rates (USD per TEU), 1993-2006
$2,500 $2,000 $1,500 $1,000 $500 $0 Asia - US US - Asia Asia - Europe Europe - Asia Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
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Largest American Importers of Asian Goods Through Maritime Container Transport, 2004 (in TEUs)
CVS (Eckerds) Honda Hamilton Beach Toyota Matsushita Samsung Payless ShoeSource Ashley Furniture Costco Lowe's Ikea Sears (K-Mart) Target Home Depot Wal-Mart 0 100,000 200,000
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
300,000 400,000 500,000 600,000 700,000 2020-04-25 14
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Logistics and the Acceleration of Freight
• The velocity of freight – Shipment and transshipment.
– No significant speed improvements in recent decades.
– Intermodal operations; the most important element.
– Logistical threshold: • Time based management of distribution becomes a possibility.
• From push (supply based) to pull (demand based) logistics.
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
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Mounting Capacity and Time Pressures in Global Freight Distribution
• Time is the essence… – Surprising time underperformance: • Only 63% of transpacific container vessels arrived on time at their scheduled port calls.
• 53% for transatlantic port calls.
– The major factor behind delays is port congestion: • Multidimensional concept.
• Physical docking capacity.
• Transshipment capacity.
• Storage capacity.
• Inland capacity.
– Reinforce the importance of the maritime / land interface.
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Is this the Correct View?
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Container Transport Costs from Inland China to US West Coast ($US per TEU)
Land access to final destination (USA) Port handling (USA) Maritime transport Port handling (China) Land access to port (China) 0
Source; Jean Paul Rodrique Vancouver Gateway Conference 2007
500 2020-04-25 1000 1500 2000
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The Economics of Gateways
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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
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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
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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
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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
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• • •
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 m easure 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
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Gateway Performance
Applying the Quality Adjustments to Output
The simple aggregate index of productivity for the gateway productivity is represented as: TFP= Aggregate Index of Hedonically-Adjusted Gateway Output Aggregate Index of Nodal Infrastructure Inputs plus Strategic Investments and Initiatives which can be re-written as and we can write the numerator as:
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Policy and Management Responses
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Federal Response:
1. 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
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Federal Response:
2. 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’?
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Federal Response:
3. 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
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Federal Response
4. 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?
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Thank you [email protected]
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Lens of National Policy
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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.
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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) 2020-04-25 34
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