Business
7. Looking Forward
Over the past two decades, the nature of transport of manufactured goods has changed as many consumer products sectors have globalised. Manufacturers can buy components in many places, distribute somewhere else for assembly and the final products end up in a third location to be sold. Sometimes some component parts have been moved seven or eight times in the process of getting on the retail shelf or to the automotive showroom. Declining real transport costs, increasing value of goods transported, a declining weight to volume ratio, along with diminishing costs of telecommunications and computing all encouraged a concentration of specialised production.
However, recently companies producing products requiring customisation
have moved the customisation location as close as possible to the end market.
All this means, in an era of supply chain management, that these multiple moves are dependent on continuous improvement activities, regular and frequent performance monitoring and re-evaluation of the network of manufacturing and distribution partners. With a global perspective, the conclusion for container shipping is one where large volume routes will continue to dominate but, at the level of the trader, the product mix and route will be less predictable. Direct delivery, via air cargo, is now the norm for many high value-to-weight segments, such as personal computers, particularly those where products are customised to order.
Furthermore, with the trend to mega-retailers in North America and Europe, and the use of fewer and fewer distribution points, the network for warehousing and distribution has become very dynamic. Companies now have the capacity for creating just-in-time systems of distribution and that has been accompanied by an intense focus on performance monitoring. Constant re-evaluation of the entire supply chain has meant frequent changes to the network as continuous performance improvements are sought. If system performance does not measure up, not only can manufacturers choose to re-route the traffic, but they may also decide to relocate their production or assembly facilities, thus shifting trade flows. The mergers and acquisitions trend of the 1990s led to industry consolidation in many sectors; the result is fewer, larger production facilities and those “relocation” decisions are now in the hands of fewer and fewer “global”
shippers.
Will world trade in manufactured goods continue to grow in future? There will be some growth attributed to rising population, and significant growth due to the expanding middle class in many of the world’s more populated countries. As already noted, growth in container transport demand arising from the penetration of containerisation is less probable, as containerisation will soon reach maximum penetration except on low-volume routes. Furthermore, continued incursion of air cargo into traditional ocean shipment markets is possible as manufacturers continue to squeeze buffer time out of the transport chain and to favour time-definite transport over the vagaries of weather-influenced shipping.
Most important is the issue of whether or not the growth of the past decade resulting from manufacturing supply chain management and national economic
specialisation has run its course. Most industrial sectors have undergone a decade of consolidation; the accompanying strategic merger and acquisition activities were intended to prepare surviving companies for global reach in defined niches or global domination. Any economic or financial crisis brings with it the opportunity for corporate restructuring; how international merger and acquisition activity will affect both traders and transport suppliers remains to be seen. We can only speculate on what the market will look like in two years.
Therefore, the future demand for sea transport of containerised goods is unlikely to reflect the demand patterns of the past for three critical reasons. First, in serviceled economies, growth in demand comes largely from the rise in wealth and greater consumer spending, in addition to greater demand from rising population; here, the likelihood is that demand for consumer products will continue to drive growth where new wealth is being generated for an expanding middle class. Therefore, it is likely that increased demand will come from BRIC and Eastern European markets, as the rising middle class seeks to enjoy consumer products now taken for granted by developed-country consumers.
Secondly, it is not clear how the financial crisis will play out in terms of which key manufacturers of these products and which providers of marine container services will survive the economic downturn and emerge as healthy businesses.
Finally, it is also not clear how the United Nations Framework Convention on Climate Change will affect the economic value proposition offered by transport companies to their customers; carbon taxes or cap and trade approaches to incorporating environmental costs into the supply chain will influence traders’
mode choices in future.
* Dalhousie University, Halifax, Canada. Email: [email protected]
Endnotes
1. UNCTAD (2009): Review of Maritime Transport 2008, Geneva, United Nations Conference on Trade and Development.
2. Jennings, E. (1980): Cargoes: A Centenary Story of the Far Eastern Freight Conference, (Singapore, Meridian Communications (South-east Asia) Pte Ltd).
3. Levinson, M. (2006): The Box: How The Shipping Container Made The World Smaller and the World
Economy Bigger (Princeton NJ, Princeton University Press).
4. Levinson, n 3, discusses this in Chapter 14.
5. World Trade Organisation (2002): International Trade Statistics 2001, www.wto.org.
6. World Trade Organisation (2002): Note 5.
7. World Trade Organisation (2008): International Trade Statistics 2008, Table II.2 from www.wto.org.
8. For a more detailed discussion, see
www.wto.org/english/res_e/statis_e/its2008_e/its08_merch_trade_product_e.pdf.
9. The Organisation for Economic Co-operation and Development is a multilateral grouping of 30 developed economies comprising the countries of Europe, North America (including Mexico), Australia, New Zealand, Japan and Korea.
10. Growth data for all four countries have been taken from World Trade Organisation (2008). Note 7, pp.
3–14.
11. Bingham, Paul (2008): Macroeconomic View of Trends in Global Trade and Transportation, presentation to the Transportation Research Board Annual Meeting, Washington, DC, 14 January.
12. Page 3 of WTO (2008), Note 7.
13. The pillars of enabling trade are: 1. domestic and foreign market access, 2. efficiency of customs administration, 3. efficiency of import-export procedures, 4. transparency of border administration, 5. availability and quality of transport infrastructure, 6. availability and quality of transport services, 7. availability and use of ICTs, 8. regulatory environment, and 9. physical security.
14. NTA (1992): An Integrated and Competitive Transportation System: Meeting Shipper and Traveller Needs, Ottawa, National Transportation Agency of Canada, March.
15. Anderson, D.L. (1983): “Your company’s logistic management: An asset or a liability?”, Transportation Review, Winter, 111–125.
16. Diamond, D. and Spence, N. (1989): Infrastructure and Industrial Costs in British Industry (London, Her Majesty’s Stationery Office).
17. International Chamber of Shipping (2006), International Shipping: Life Blood of World Trade (London, Videotel Productions).
18. Hummels, David (2009): “Globalization and Freight Transport Costs in Maritime Shipping and Aviation”, Background Paper for the International Transport Forum 2009 on Transport for a Global Economy: Challenges and Opportunities in a Downturn, Joint Transport Research Centre of the
Organisation for Economic Co-operation and Development (Leipzig, May 26–29, 2009).
www.internationaltransportforum.org/2009/workshops/pdf/Hummels.pdf
19. García-Menéndez, L., Martinez-Zarzoso, I. and Pinero De Miguel, D. (2004): “Determinants of mode choice between road and shipping for freight transport: Evidence for four Spanish exporting sectors”, Journal of Transport Economics and Policy, 38, 3, 447–466.
20. Paixão, A.C. and Marlow, P. B. (2002): “The strengths and weaknesses of short sea shipping”, Marine Policy, 26, 167–178; Commission of the European Communities (2004), Communication from the Commission to the Council, The European Parliament, the European Economic and Social Committee and the Committee of the Regions on Short Sea Shipping (Com (2004) 453 final).
Brussels: Commission of the European Communities; and GAO (2005), Short Sea Shipping Option Shows Importance of Systematic Approach to Public Investment Decisions (05–768) (Washington, United States Government Accountability Office, July).
21. These are well-documented in Brooks, Mary R., J.R.F. Hodgson and J.D. Frost (2006): Short Sea Shipping on the East Coast of North America: An Analysis of Opportunities and Issues (Halifax, Dalhousie University). www.management.dal.ca/Research/ShortSea.php; and Brooks, Mary R. and Valerie Trifts (2008): “Short sea shipping in North America: Understanding the requirements of Atlantic Canadian shippers”, Maritime Policy and Management, 35, 2, 145–158.
22. Sclar, M.L. and Blond, D.L. (1991): “Air cargo vs. Sea cargo trends”, DRI/McGraw-Hill Conference World Sea Trade Outlook, London, 25 September.
23. Air Cargo Yearbook 2002 (London, Air Transport Publications Limited).
24. International Air Transport Association (2009): IATA Economic Briefing, April.
www.iata.org/economics, Accessed 15 July 2009.
25. Tretheway, M. (2008): Personal communication with the author, August 25.
26. This study by BTS on value by mode used 2001 data and is the latest published on the BTS website as of July 2009; Bureau of Transportation Statistics (2003): US International Trade and Freight Transportation Trends, Modal Shares of US International Merchandise Trade by Value and Weight:
2000 and 2001, Table 8,
www.bts.gov/publications/us_international_trade_and_freight_transportation_trends/2003/html/table_08.html Accessed 15 July 2009.
27. See for example, International Air Transport Association (2009): Cargo Market Analysis (Cargo E- Chartbook Q2). www.iata.org/whatwedo/economics/index.html, Accessed 15 July 2009.
28. International Air Transport Association (2009): IATA Economic Briefing, April.
www.iata.org/economics, Accessed 15 July 2009.
29. Brooks, Mary R. (1985): “An alternative theoretical approach to the evaluation of liner shipping, Part II: Choice criteria”, Maritime Policy and Management, 12, 2, 145–55; Brooks, Mary R. (1990):
“Ocean Carrier Selection Criteria in a New Environment”, The Logistics and Transportation Review, 26, 4, 339–55; Brooks, Mary R. (1995): “Understanding the ocean container carrier market – A seven country study”, Maritime Policy and Management, 22, 1, 39–50.
30. Ibid.
Chapter 5
Energy Economics and Trade
Michael Tamvakis*
1. Introduction
It is a well known fact that the international maritime industry is driven by the movement of goods and people. Maritime economists have long established that the demand for shipping services is derived from the demand for international trade and awareness of what drives the latter is the aim of this chapter.
Within the space and scope of the next few pages, it is impossible to cover all trades and factors that affect demand for maritime services. We will focus, instead, on the economics and major trade patterns of the most important commodity group, energy, which encompasses three very important commodities: crude oil and products, gas and coal.