Business
4. How are Manufactured Goods Carried?
trade-destroying protectionism. Even more noticeable is the openness of Europe, which has fostered growth in container trade with Asia (noted previously) as well as rising intra-regional trade.
ratio of most general cargoes not yet containerised means there will always be some general cargoes carried conventionally. An excellent example of this is project cargo. Often bulky, high-value but high density, this cargo is seldom aligned dimensionally to make the container a suitable option. This means of acquiring traffic growth for liner companies has mostly run its course.
In finished goods trade, a very small percentage of the delivered value of the goods is attributed to transport. A dated Canadian study notes that, in 1986, transport costs
consumed only 2–3% of the export sales value of furniture and fixtures, and motor vehicles, but accounted for 45% of the export sales value of coal.14 A 1983 US study put the transport cost component at 4% for electronic machinery and instruments, 8% for transportation equipment, 12% for furniture and fixtures, but 24% for petroleum products.15 A UK study of manufacturing and services industries reported transport costs at 3–6% of production costs.16 In the 20-plus years since these studies were undertaken, the sheer size of vessels and improvements in speed of cargo handling technologies has dramatically reduced transport costs to nearly negligible in the total price paid by the end consumer.
To quote a 2006 International Chamber of Shipping video, “shipping a can of
beer costs about one cent”.17
Therefore, as the value of the goods rises, the importance of transport cost as a function of delivered price diminishes and the value of transport time rises (inventory carrying costs are a function of time and interest rates). Because of this, high-value goods of low density and small shipment volumes become targets for air cargo providers. Hummels attributes the rise in air freight share of global trade to 2000 to technological advances in jet engines and the resultant reduction in air cargo costs; he also attributes the loss of share for air freight after 2000 to rising input costs, particularly fuel.18
It is difficult to allocate various commodities to the type of transport they will demand. The trade statistics, while indicating the relative value of flows between countries, provide very little indication of what moves by what mode of transport. In the world of increasingly proprietary data, only a superficial assessment is possible.
Table 4, for example, indicates that modal split is not common across export markets, but that a significant share of Canada’s international modal split by value can be
attributed to air, particularly for Western and Eastern Europe and Oceania. The representation of modal split is quite accurate; the remainder of traffic moves by surface transport (road, rail or pipeline), and is generally intra-regional in nature.
In the case of North America, the dominance of surface modes is therefore clear.
Even so, data errors in “mode of transport” are quite common. Many exporters only know the origin of the goods, not how they were transported to their destination; this may be because the price they charge is based on FCA or EXW terms of sale or because they have outsourced transport decisions to a third party logistics service supplier. Given the sheer volume of transport services outsourced, it is not surprising that a significant number of manufacturers do not know the mode of transport used for the international leg of the journey; they may only know that a truck picked it up.
It has already been noted that significant trade in manufactured goods is intra- regional in nature, and therefore there is a potential target market for ship operators – the short sea market. However, encouraging cargo interests to switch from land transport options to regional shipping is not easy. Where there are very good land-based transport systems in place, particularly Western Europe and North America, short sea development has been a struggle, whereas where regional seas exist (Eastern Europe/Baltic States/Scandanavia and the Mediterranean) that has been less the case.
The case for short sea is particularly market-specific. For example, a Spanish study investigated a road versus short sea discrete mode choice, drawing conclusions about buyer requirements, including cost considerations; it found that shippers’ choice of short sea transport is more sensitive to changes in road transport prices than to changes in sea transport costs, and concluded that modal switching to short sea could be induced by imposing an ‘ecotax’ on road transport.19
Although severe congestion in road transport is a widespread problem, short sea or tug/barge transport options are not viewed as positive solutions by many shippers.20 While it has an image problem in both Europe and the US, in Canada this is not the issue; lack of adoption by Canadian cargo interests has been traced to its failure to meet specific shipper requirements in the current operating cost environment. In particular, short sea shipping has difficulty responding to shippers’ need for specific delivery windows required of just-in-time systems, and the usual evaluative criteria of transit times, departure frequencies and costs continue to drive the choices made in favour of more flexible land routings.21 While short sea shipping adoption languishes in North America, it has reached a
traffic volume in Europe similar to that carried by trucks.
In conclusion, modal splits between truck and sea in manufactured goods are more likely based on the product characteristics and seller/consignee preferences for fast transit time and time-definite delivery. The financial crisis may have changed the value proposition of each of these modes and the modal splits of the future are more likely to reflect the value proposition of the mode more closely attended by the cargo interest.