Globalization and Globalization and TransportationTransportation

Production Networks, Production Networks, Logistics, Intermodalism and Logistics, Intermodalism and Supply Chain ManagementSupply Chain Management

GlobalizationGlobalization

Refers to increasing geographical scale of Refers to increasing geographical scale of economic, social and political interactionseconomic, social and political interactions

Examples: international trade, mobility of Examples: international trade, mobility of capital, tourism, expanding media deliverycapital, tourism, expanding media delivery

Also changing patterns of institutional Also changing patterns of institutional organization and structural shifts in world organization and structural shifts in world economic order economic order

Most conspicuous are expanding MNCs, Most conspicuous are expanding MNCs, regional trade alliances, and roles of NGOsregional trade alliances, and roles of NGOs

Globalization and MNCsGlobalization and MNCs Global level corporate opportunities are Global level corporate opportunities are

reinforced by reinforced by privatizationprivatization and and deregulationderegulation of public controlsof public controls

Combined with technological developments Combined with technological developments these changes facilitate these changes facilitate structural structural adjustmentsadjustments that alter networks of goods that alter networks of goods and services production and distributionand services production and distribution

Allow exploitation of Allow exploitation of international division of international division of laborlabor

MNCs and global city regions are dominant MNCs and global city regions are dominant

Transport and GlobalizationTransport and Globalization

Too often transport in globalization is Too often transport in globalization is ‘invisible’‘invisible’

But transport is central and functions as But transport is central and functions as an an enabling mechanismenabling mechanism and and space space adjusting technologyadjusting technology (SATs) which (SATs) which integrates production and distribution integrates production and distribution pointspoints

SATs such as transport produce flows SATs such as transport produce flows linking places, not goods in placeslinking places, not goods in places

Globalization and TransportGlobalization and Transport Transport, and especially freight, services have Transport, and especially freight, services have

become more critical in order for firms to become more critical in order for firms to competecompete

Accommodating new technologies, new markets Accommodating new technologies, new markets and new organizational structures requires and new organizational structures requires change- both from providers and consumers change- both from providers and consumers whether individuals or firmswhether individuals or firms

Need for greater efficiencies has made urgent Need for greater efficiencies has made urgent the need for a more “seamless” transport marketthe need for a more “seamless” transport market

““Seamlessness” suggests an environment in Seamlessness” suggests an environment in which neither national nor modal boundaries which neither national nor modal boundaries neither delay movements nor hinder choice of neither delay movements nor hinder choice of efficient route/mode combination efficient route/mode combination

Driving Factors in Search for SeamlessnessDriving Factors in Search for Seamlessness 1/ Competitive pressures require goods and services 1/ Competitive pressures require goods and services

producing firms to manage almost simultaneously producing firms to manage almost simultaneously multiple inter-organizational info and material flowsmultiple inter-organizational info and material flows

2/ Externalization of production trend is heightened- 2/ Externalization of production trend is heightened- seeking efficiency in managing flow from source to seeking efficiency in managing flow from source to consumerconsumer

3/ Logistics and supply chain management depend 3/ Logistics and supply chain management depend upon ways in which separate modal systems are upon ways in which separate modal systems are joined: containerization, load centers, hub/feeder joined: containerization, load centers, hub/feeder networksnetworks

4/ Role of real time in global operations has been 4/ Role of real time in global operations has been heightened: JIT, time based competitionheightened: JIT, time based competition

5/ Rise of e-commerce has huge consequences for 5/ Rise of e-commerce has huge consequences for transport system and logisticstransport system and logistics

Obstacles to a Seamless WorldObstacles to a Seamless World

Enhancement of goods flow has been Enhancement of goods flow has been empowered by liberalization, intermodalism empowered by liberalization, intermodalism and new technologies in logistics but and new technologies in logistics but contradictory forces also existcontradictory forces also exist

““Choiceless churning”-inability of concerned Choiceless churning”-inability of concerned social and political forces to confront social and political forces to confront challengeschallenges

Extending appropriate entry and exit Extending appropriate entry and exit approaches from national to regional and approaches from national to regional and international levels may be a major issueinternational levels may be a major issue

What policy research is required in this light?What policy research is required in this light?

Transport Demand Responses to Transport Demand Responses to GlobalizationGlobalization

Longer and more customized transport Longer and more customized transport linkageslinkages

Sensitivity to timing of connections, Sensitivity to timing of connections, arrivals, and departuresarrivals, and departures

Speed of movements and transactionsSpeed of movements and transactions Expanded reliance on e-communications Expanded reliance on e-communications

and e-commerceand e-commerce Holding together Global Production Holding together Global Production

Networks (GPNs)Networks (GPNs)

Trends in Global RestructuringTrends in Global Restructuring Above demand sensitive logistical Above demand sensitive logistical

concerns are consistent with many trendsconcerns are consistent with many trends Reliance on out-sourcingReliance on out-sourcing Customized production runsCustomized production runs Flexibility in resource access Flexibility in resource access Just-in-time management of production Just-in-time management of production

and distribution processesand distribution processes Zero inventoryZero inventory Opportunities for Opportunities for economies of scopeeconomies of scope

Globalization and Transport Globalization and Transport VulnerabilityVulnerability

High levels of auto and oil dependence High levels of auto and oil dependence expose transport to risks of boycott and expose transport to risks of boycott and embargoesembargoes

Global solutions to environmental problems Global solutions to environmental problems (air pollution and global warming) expose (air pollution and global warming) expose transport and their dependent economies transport and their dependent economies

Transport serves as vehicle for intensifying Transport serves as vehicle for intensifying mass consumption but more info based mass consumption but more info based goods and service (goods and service (dematerializationdematerialization) ) mean transport inputs to various goods mean transport inputs to various goods might be reducedmight be reduced

LogisticsLogistics

Freight transport is both an industry and Freight transport is both an industry and core input in manufacturing processcore input in manufacturing process

Must understand how raw, semi-finished Must understand how raw, semi-finished and final commodities are moved to and final commodities are moved to serve businessesserve businesses

Changes in technology, markets, Changes in technology, markets, institutional structures, and management institutional structures, and management theory have led to new ways of tying theory have led to new ways of tying transport into production processtransport into production process

Evolution of LogisticsEvolution of Logistics

Initially a military activity concerned with Initially a military activity concerned with moving men and munitions to battlefrontsmoving men and munitions to battlefronts

Now logistics has integral role in firm Now logistics has integral role in firm operationsoperations

Ability to move goods quickly, safely and Ability to move goods quickly, safely and economically are vital to firm’s economically are vital to firm’s profitability and the global economyprofitability and the global economy

Why new emphasis? Competitiveness of Why new emphasis? Competitiveness of firms, technology, deregulation, firms, technology, deregulation, packaging packaging

Aspects of Logistics in the EconomyAspects of Logistics in the Economy Two aspects: logistics management and Two aspects: logistics management and

logistics providerslogistics providers Logistics management in manufacturing and Logistics management in manufacturing and

distribution organizationsdistribution organizations Logistics organizations providing services to Logistics organizations providing services to

manufacturing and distribution firmsmanufacturing and distribution firms Growth of Growth of integratorsintegrators—(firms that both fly —(firms that both fly

the cargo between airports and handle the cargo between airports and handle ground pick up from and delivery to ground pick up from and delivery to customers) UPS, FedEx, DHLcustomers) UPS, FedEx, DHL

Growth of Growth of 3PLs-third party logistics providers 3PLs-third party logistics providers

Transportation and the Supply Transportation and the Supply and Distribution Chainand Distribution Chain

ActivitySupply Distribution

Transport Transport

Supplier Customer

Responsibility for design, optimization & management of operation with customized information systems

Multi-service, integrated solutions with specific information systems

Traditional transportation, freight forwarding & storage

SupplySupplyChainChain

ManagementManagement

IntegratedIntegratedLogisticsLogistics

Traditional Freight ForwardingTraditional Freight Forwarding

The Difference Among Supply Chain Management, Integrated Logistics, and Traditional Freight Forwarding

Source: Geologistics, Singapore

Traditional Freight Forwarding

ShipperForwarder 1

Origin

Airport Airline

Destination

Airport ConsigneeForwarder 2

Pickup &

Trucking

Forwarder secures

space from airline.

Trucking &

Delivery

Customs clearance

(often by a separate firm)

Forwarders relay information about shipment to/from shipper and consignee.

Air Freight-Linked Integrated Logistics Services

Shipper

Forwarder

Origin

Airport

Airline

Destination

Airport Consignee

Forwarder

Shipper 1

Shipper 2

Shipper 3

Forwarder’s

Warehouse Consignee

Forwarder

Vendor Managed Inventory

Merge-in-Transit

Shipper

Forwarder

Origin

Airport

Airline

Destination

Airport Consignee

Forwarder

ShipperForwarder’s

Warehouse

Consignee 1

Distribution Hub

Pick & Pack

Testing & Assembly

Postponement

Multiple products/

components

Consignee 2

Consignee 3

Air Freight-Linked Integrated Logistics Services

Supply Chain Management (SCM)Supply Chain Management (SCM)

Firms now compete not as entities but Firms now compete not as entities but rather as supply chainsrather as supply chains

Definition: a business strategy to improve Definition: a business strategy to improve shareholder and customer value by shareholder and customer value by optimizing the flow of products, services optimizing the flow of products, services and related information from source to and related information from source to customer customer

Generally management of multiple Generally management of multiple relationships across the suppliers, relationships across the suppliers, producers and distributorsproducers and distributors

Push and Pull Supply ChainsPush and Pull Supply Chains

Porter’s value chain-system shows how Porter’s value chain-system shows how firms construct value by gathering profits firms construct value by gathering profits at various points in the production chainat various points in the production chain

Push chain- costs are transmitted up the Push chain- costs are transmitted up the chain determined by selling price at chain determined by selling price at preceding level-cost plus approachpreceding level-cost plus approach

Pull chain- place downward pressure on Pull chain- place downward pressure on suppliers who determine profits from suppliers who determine profits from their input coststheir input costs

Global Production Chains and Global Production Chains and NetworksNetworks

Production Chain: Materials > Procurement Production Chain: Materials > Procurement > Transformation > Marketing and Sales > Transformation > Marketing and Sales >Distribution > Service>Distribution > Service

DefinitionDefinition: transactionally linked sequence : transactionally linked sequence of functions where each stage adds value of functions where each stage adds value to the process of goods and services to the process of goods and services productionproduction

Two aspects important: coordination and Two aspects important: coordination and regulation and geographical configurationregulation and geographical configuration

Production chains may be very localized Production chains may be very localized but increasingly are global in scale to take but increasingly are global in scale to take advantage of international division of labor advantage of international division of labor

KIA Auto Parts FlowKIA Auto Parts Flow Assembled in S Korea KIA Sorrento clear Assembled in S Korea KIA Sorrento clear

example of global supply chainexample of global supply chain Uses 30K parts from all around worldUses 30K parts from all around world Parts shipped from places as diverse as Parts shipped from places as diverse as

Wales and Mexico—but very riskyWales and Mexico—but very risky War in Iraq and piracy in Malacca StraitsWar in Iraq and piracy in Malacca Straits Demonstrate surprising adaptability due to Demonstrate surprising adaptability due to

advance planning, multiple sourcing of advance planning, multiple sourcing of parts and ability to shift routes on short parts and ability to shift routes on short noticenotice

KIA Auto Parts FlowKIA Auto Parts Flow Communicates regularly with suppliers-at Communicates regularly with suppliers-at

least once a weekleast once a week Order several months in advanceOrder several months in advance If necessary use air freight instead of sea If necessary use air freight instead of sea

freightfreight Greater demand forced KIA to air freight Greater demand forced KIA to air freight

airbags from Swedish company which makes airbags from Swedish company which makes them in the U.S.them in the U.S.

Greater expense of trans-Pacific flight better Greater expense of trans-Pacific flight better than slowing down production linethan slowing down production line

IntermodalismIntermodalism

One of most dynamic sectors of One of most dynamic sectors of transport industrytransport industry

Common meaning: flow of goods Common meaning: flow of goods involving more than one transport modeinvolving more than one transport mode

Mutimodal transport- involve several Mutimodal transport- involve several different modesdifferent modes

Intermodal transport-Intermodal transport- flow of cargos flow of cargos from shipper to consignee involving from shipper to consignee involving single cargo unit across at least two single cargo unit across at least two different modes using a single through different modes using a single through rate rate

Intermodal Transport GoalsIntermodal Transport Goals Goal to remove barriers to flows Goal to remove barriers to flows

inherent in traditional systemsinherent in traditional systems Includes technical limits of Includes technical limits of

transferring freight between transferring freight between competitors and organizational and competitors and organizational and legal constraints imposed by separate legal constraints imposed by separate rates and billsrates and bills

Attempt to achieve seamlessness Attempt to achieve seamlessness where relative advantages of each where relative advantages of each mode are capturedmode are captured

Elements of Intermodal TransportElements of Intermodal Transport

Transferability of a unit Transferability of a unit load- largely load- largely technological problemtechnological problem

Provision of door to door Provision of door to door service- requires service- requires organizational control organizational control that may face regulatory that may face regulatory restrictionsrestrictions

Transferability has been Transferability has been achieved through achieved through containerization- boxes containerization- boxes of standard dimensionsof standard dimensions

First Intermodal RevolutionFirst Intermodal Revolution

Several attempts to integrate transport Several attempts to integrate transport modes- modes-

““Piggyback” or trailer on flatcar (TOFC)Piggyback” or trailer on flatcar (TOFC) Early success limited by rate restrictions, poor Early success limited by rate restrictions, poor

reliability and low profitabilityreliability and low profitability Containerization was the revolutionary Containerization was the revolutionary

breakthroughbreakthrough Transfer of cargo can be mechanical by crane Transfer of cargo can be mechanical by crane

and safety and security is improvedand safety and security is improved Fast loading and unloading reduces port Fast loading and unloading reduces port

congestioncongestion Growth has occurred through conversion of Growth has occurred through conversion of

cargo from traditional break of bulk and the cargo from traditional break of bulk and the growth of world trade growth of world trade

Impacts of Containerization on ShipsImpacts of Containerization on Ships

First generation vessels- WWII liquid First generation vessels- WWII liquid bulk tankersbulk tankers

Second generation – late 1960s Second generation – late 1960s larger ships (2000 TEUs) capable of larger ships (2000 TEUs) capable of stacking 10 lines of containers stacking 10 lines of containers appearedappeared

Third generation- 1980s size and fuel Third generation- 1980s size and fuel efficiency- up to 4000 TEUsefficiency- up to 4000 TEUs

Fourth generation- 6-8000 TEU shipsFourth generation- 6-8000 TEU ships

Impacts of Containerization on Impacts of Containerization on ShippingShipping

1. Effects on shipping services and routing1. Effects on shipping services and routing Goal to maximize number of voyages and Goal to maximize number of voyages and

minimize port stays- a. use fleet as efficiently as minimize port stays- a. use fleet as efficiently as possiblepossible

Container services are liner services with regularly Container services are liner services with regularly schedules arrivals and departuresschedules arrivals and departures

Service frequency is important in designing Service frequency is important in designing networks – b. generate cargo and market sharenetworks – b. generate cargo and market share

Selection of port of call is strongly influenced by Selection of port of call is strongly influenced by cargo availability cargo availability

2. Effects on structure and organization of 2. Effects on structure and organization of industryindustry

Development of alliances has been commonDevelopment of alliances has been common

Impacts of Containerization on Impacts of Containerization on

PortsPorts Huge investments in machines to lift Huge investments in machines to lift

and move containersand move containers Provision of new berths for large shipsProvision of new berths for large ships Extensive storage space required until Extensive storage space required until

land modes can receive cargoland modes can receive cargo Larger demand for adequate port sites Larger demand for adequate port sites

and old terminals have been and old terminals have been abandonedabandoned

Elimination of labor has provoked Elimination of labor has provoked resistance to containerization resistance to containerization

Second Intermodal RevolutionSecond Intermodal Revolution

By early 1990s first intermodal revolution had By early 1990s first intermodal revolution had maturedmatured

Global assault on regulatory restrictions- Global assault on regulatory restrictions- liberalization removing control over rates and liberalization removing control over rates and permitting multimodal ownershippermitting multimodal ownership

Information technology assisting in problems Information technology assisting in problems of documentation, security and safetyof documentation, security and safety

New revolution characterized by “through New revolution characterized by “through transport” concept- organization of trade is transport” concept- organization of trade is “door to door” and attempt to integrate “door to door” and attempt to integrate various modes into production and various modes into production and consumption systemsconsumption systems

Implies landward links where rail and highway Implies landward links where rail and highway play major rolesplay major roles