GEOG 80 – Transport GeographyProfessor: Dr. Jean-Paul Rodrigue

Topic 2 – Transportation Systems and Networks

A. Transportation and Commercial GeographyB. Transport CostsC. Transportation NetworksD. Transportation Supply and Demand

A – Transportation and Commercial Geography

■ 1. Trade and Commercial Geography■ 2. Tendencies in Commercial Geography■ 3. Commercialization of the Transport Industry

1. Trade and Commercial Geography

■ Commercial geography• Economic systems are based on trade and transactions.• Specialization and efficiency requires interdependency.• Understand transportation.• Predict the outcome of transport demand.• Based on contracts and transactions:

• Undertaken through a movement of freight, capital, people and information that all possess weight, volume and value.

Commercial and Transport Geography

Commercial Geography

Transactions

Movements

Transport Geography

1. Trade and Commercial Geography

■ Conditions for trade• Availability:

• Commodities for trade.• Must be a demand.• A surplus must exist at one location and a demand in another.

• Transferability:• Policy barriers (tariffs, custom inspections, quotas).• Geographical barriers (time, distance).• Transportation barriers (the simple capacity to move the outcome of a

transaction). • Transactional capacity:

• Must be legally possible to make a transaction.• Recognition of a currency for trading.

1. Trade and Commercial Geography

■ Flows• Value:

• Negotiated value and are settled in a common currency.• Balance of payments.

• Volume:• Physical characteristic, mainly involving a mass.• Weight is variable when trade involves raw materials.

• Scale:• Range of a transaction.• Retailing transactions tend to occur at a local scale.• Transactions of a multinational corporation are global in scale.

2. Tendencies in Commercial Geography

■ Current commercial context• Free trade.• Differences in levels of development.• Technological, industrial and geopolitical changes.• Global and regional interdependence and competition.• Growing economic opportunities offered by transportation.

Global GDP, 2002

32.3%

12.3%

6.1%15.1%

34.2%

United StatesJapanGermanyOther G7Rest of the world

Share of Global GDP Growth, 1995-2002

0

5

10

15

20

25

China US Other Asia EU Japan Rest of theWorld

2. Tendencies in Commercial Geography

■ Liberalization of trade• Implementation of the World Trade Organization.• Positive trend in the growth rate of world trade and industrial

production.• Trade amounts to 6,000 billion dollars each year.• Growth of world service trade (18.6 % of all trade).• Growth of the share of Asia in world trade (about 25% of all

trade).

World Trade Flows, 2001 (billion $US)

Western Europe(1,677)

North America(391)

Asia / Pacific(722)

Rest of theWorld(285)

376

207

312

333

195

252

205

287

188

255

174

96

Share of Asia in World Trade, 1980-2003

10

12

14

16

18

20

22

24

26

28

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

ExportsImports

2. Tendencies in Commercial Geography

■ Organization of production• Division of labor:

• Design, planning and assembly in the manufacturing process.• Interlocking partnerships in the structure of manufacturing:

• Increased the trade of parts and the supply of production equipment around the world.

• One-third of all trade takes place among parent companies and their foreign affiliates.

• ISO norms:• Comparison between various enterprises around the world.• Applicable to the manufacturing and services industries.• Competitiveness of enterprises linked to the imperative of total quality.

2. Tendencies in Commercial Geography

■ Relocation of production• Change in the structure of export and import of world economies.• Adoption of standards.

Worldwide Mergers and Acquisitions, 1980-2001

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,00019

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

01

Billio

ns o

f 200

0 $U

S

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

All MergersCross Border Mergers% Cross Border

3. Commercialization of the Transport Industry

■ Transportation is a traded service• Openly and subject to full market forces.• Form of public control or ownership.

■ Costs• Negotiated between the provider of the service and the user.• Subject to some arbitrary decree (price fixing such as public

transit).■ Commercialization• How transportation is brought to the market.• Investments in infrastructure, modes and terminals.• Either a private or public endeavor.• Era deregulation and divestiture.

B – Transport Costs

■ 1. Transport Costs and Rates■ 2. Type of Transport Costs

1. Transport Costs and Rates

■ Context• Users have to negotiate or bid for transportation.• Conditions (tariffs, salaries, locations, fuel costs) are changing

constantly.• Costs for gathering information, negotiating, and enforcing

contracts and transactions.• Enterprises and individuals take decisions about how to route

traffic through the transport system.• Transport costs can account for 20% of the total cost of a

product.

1. Transport Costs and Rates

■ Transport costs• Monetary measure of what the transport provider must pay to

produce transportation services.• Fixed (infrastructure) and variable (operating) costs.• Depend on a variety of conditions:

• Geography.• Infrastructure.• Administrative barriers.• How passengers and freight are carried.

• Three major components, related to transactions, shipments and the friction of distance, impact on transport costs.

Fuel Costs Versus Annual Vehicle Mileage, United States, 1960-2000

R2 = 0.8825

9,000

9,500

10,000

10,500

11,000

11,500

12,000

12,500

13,000

$0.06 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18 $0.20

Average Cost Per Vehicle-Mile (2001 dollars)

Aver

age

annu

al m

iles

trave

led

per v

ehic

le

1. Transport Costs and Rates

■ Friction of distance• Most basic component of transport costs.• The more it is difficult to trade space for a cost, the more the

friction of distance is important.• Expression of friction:

• Length, time, economic costs or the amount of energy used.• Varies greatly according to the type of transportation mode

involved.• Impacts of technological innovation.

Conditions Affecting Transport CostsCondition Factors ExamplesGeography Distance, physiography,

accessibilityShipping between France and England vs. shipping between France and the Netherlands

Type of product Packaging, weight, perishable

Shipping coalShipping flowers or wine

Economies of scale

Shipment size A 747 compared to 737 (passengers)A ULCC compared to a VLCC (freight)

Trade imbalance Empty travel Trade between China and the United States

Infrastructure Capacity, limitations, operational conditions

The Interstate

Mode Capacity, limitations, operational conditions

A bus compared to a car

Competition and regulation

Tariffs, safety, ownership

The European Union, The Jones Act

Distance

Cost

s

1 2

3 4Transshipment Costs

Different Friction of Distance Functions

Fixed Costs

Zone Change

Shipment Size and Transport Costs

1

10

100

1000

10000

100000

1000000

10000000

Parcel LTL Truck Truckload Railcarload

Multi-railcar

Unit train Barge load

Shipment Size (lbs)Transport Charges ($/ton)

Transport Costs by Industry Type, 1999

0 1 2 3 4 5 6 7 8 9

Agriculture, Forestry & Fishing

Mining

Construction

Manufacturing

Communications & Utilities

Wholesale & Retail

Services

Finance, Insurance & Real Estate

Transport costs per output (%)

1. Transport Costs and Rates

■ Rates• Price of transportation services paid by the consumer of them.• Negotiated monetary cost:

• Moving a passenger or a unit of freight between a specific origin and destination.

• Difference between costs and rates:• Results in profit or deficit from the service provider.

• Rate setting:• Public transit: rates are often fixed and the result of a political decision

where a share of the total costs is subsidized by the society.• Freight transportation and many forms of passenger transportation (e.g.

air transportation): rates are subject to a competitive pressure.

2. Types of Transport Costs

■ Freight on board (FOB)• Price of a good is the combination of the factory costs and the

shipping costs from the factory to the consumer.• Consumer pays for the freight transport costs.• The price of a commodity will vary according to transportation

costs.■ Costs-Insurance-Freight (CIF)• Price of a good is a uniform delivered price for all customers.• No spatially variable shipping price.• Average shipping price is built into the price of a good.• CIF cost structure can be expanded to include several rate

zones.

FOB and CIF Transport Costs

} Production Costs

Distance

Cost

s

Freight-on-Board

Cost-Insurance-Freight

Zonal Freight Rates

Distance

Cost

s

I II III IV

Flat zonal rate

Real transport cost

D1

D2

2. Types of Transport Costs

■ Terminal costs• Related to the loading, transshipment and unloading.• Two major terminal costs:

• Loading and unloading at the origin and destination, which are unavoidable.

• Intermediate (transshipment) costs that can be avoided. ■ Linehaul costs• Function of the distance over which a unit of freight or passenger

is carried.• Weight is also a cost function when freight is involved.• Commonly exclude transshipment costs.

2. Types of Transport Costs

■ Capital costs• Physical assets of transportation mainly infrastructures, terminals

and vehicles.• Purchase or major enhancement of fixed assets, which can often

be a one-time event.

Fixed and Variable Costs and Service in the Transportation System

Characteristic Fixed Infrastructure Variable Costs

Examples Highways, rail tracks, airports, ports

Trucks, railcars, planes, ships

Ownership Mostly public Mostly private

Lifespan Very long (decades) Short to average (5 to 20 years)

Rate of change Slow Rapid redeployment

Impact on service Shapes accessibility Shapes level of service

Competition Level the playing field Source of comparative advantages