A Transportation and Commercial Geography1. Trade and Commercial Geography2. Tendencies in Commercial Geography3. Commercialization of the Transport Industry

1. Trade and Commercial GeographyCommercial geographyEconomic 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 GeographyCommercial GeographyTransactionsMovementsTransport Geography

1. Trade and Commercial GeographyConditions for tradeAvailability: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 GeographyFlowsValue: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 GeographyCurrent commercial contextFree 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

Share of Global GDP Growth, 1995-2002

2. Tendencies in Commercial GeographyLiberalization of tradeImplementation 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)37620731233319525220528718825517496

Share of Asia in World Trade, 1980-2003

2. Tendencies in Commercial GeographyOrganization of productionDivision 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 GeographyRelocation of productionChange in the structure of export and import of world economies.Adoption of standards.

Worldwide Mergers and Acquisitions, 1980-2001

3. Commercialization of the Transport IndustryTransportation is a traded serviceOpenly and subject to full market forces.Form of public control or ownership.CostsNegotiated between the provider of the service and the user.Subject to some arbitrary decree (price fixing such as public transit).CommercializationHow transportation is brought to the market.Investments in infrastructure, modes and terminals.Either a private or public endeavor.Era deregulation and divestiture.

B Transport Costs1. Transport Costs and Rates2. Type of Transport Costs

1. Transport Costs and RatesContextUsers 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 RatesTransport costsMonetary 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

1. Transport Costs and RatesFriction of distanceMost 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 Costs

Different Friction of Distance Functions DistanceCosts1234Transshipment CostsFixed CostsZone Change

Shipment Size and Transport Costs

Transport Costs by Industry Type, 1999

1. Transport Costs and RatesRatesPrice 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 CostsFreight 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 CostsDistanceCostsFreight-on-BoardCost-Insurance-Freight

Zonal Freight RatesDistanceCostsIIIIIIIVFlat zonal rateReal transport costD1D2

2. Types of Transport CostsTerminal costsRelated 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 costsFunction 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 CostsCapital costsPhysical 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

Source: World Bank.Source: The Economist, November 15th 2003, p. 67.Source: WTO.Source: WTO.Source: Worldwatch Institute.Source: BTS.Source: P.O. Roberts (1999), Logistics and Freight Transportation: Review of Concepts Affecting Bulk Transportation. http://www.worldbank.org/html/fpd/transport/ports/trf_docs/bulk_tr.pdfSource: Transport Satellite Accounts. US Department of Transportation, 1999.Source: adapted from J. Cortright (2001) Transportation, Industrial Location and the New Economy: How Will Changes in Information Technology Change the Demand for Freight Transportation and Industrial Location? Impresa Inc., March.http://www.marshall.edu/ati/tech/PortlandConference/unchangedPDFs/Portland_Cortwright.pdf