Strategic Gateways and Trade Corridors: The Challenge of Shifting International Trade

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Strategic Gateways and Trade Corridors The
Challenge of Shifting International Trade

• (Prof) David Gillen
• YVR Professor of Transportation Policy
  Management
• Director, Centre for Transportation Studies
• Sauder School of Business
• University of British Columbia, Vancouver, Canada
  
• CMA Canada Supply Chain Management Speaker Series
• School of Business Economics
• Wilfrid Laurier University, November 16, 2007

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Changes and Challenges

• Amount and composition of trade
• Bulk versus containers
• Hubs versus ODs
• Trade imbalance
• Impacts on infrastructure efficiency
• Full versus empty
• Market concentration
• Sea land interface
• Economics of Gateways
• Gateways productivity and gateways as
  networks/alliances
• Policy/management responses
• The lens of Federal policy

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• Amount and Composition of Trade

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Worlds 10 Largest Exporters and Importers, 2005
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Pressures Global Commerce is Expanding, Patterns
are Shifting

• Global marketplace integration is driving the
  distribution of economic activity, as well as the
  expansion of world trade
• The emergence of new economic powers such as
  China and India is forcing all trading nations to
  adjust, or be left behind.
• Imports from China to Canada grew almost 550,
  from 4.6B to 29.5B between 1995 and 2005.
• Partners and competitors are acting aggressively
  on the intersecting issues of trade, transport
  and security.

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Is It the Correct Target?
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• Impacts on Infrastructure Efficiency

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TEU 12,500 Crew 13
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Containers Handled by the Port of Los Angeles,
1995-2006 (in TEU)
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Containerized Cargo Flows along Major Trade
Routes, 1995-2006 (in millions of TEUs)
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Maritime Freight Rates (USD per TEU), 1993-2006
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Largest American Importers of Asian Goods Through
Maritime Container Transport, 2004 (in TEUs)
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Logistics and the Acceleration of Freight

• The velocity of freight
• Shipment and transshipment.
• No significant speed improvements in recent
  decades.
• Intermodal operations the most important
  element.
• Logistical threshold
• Time based management of distribution becomes a
  possibility.
• From push (supply based) to pull (demand based)
  logistics.

Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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Mounting Capacity and Time Pressures in Global
Freight Distribution

• Time is the essence
• Surprising time underperformance
• Only 63 of transpacific container vessels
  arrived on time at their scheduled port calls.
• 53 for transatlantic port calls.
• The major factor behind delays is port
  congestion
• Multidimensional concept.
• Physical docking capacity.
• Transshipment capacity.
• Storage capacity.
• Inland capacity.
• Reinforce the importance of the maritime / land
  interface.

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Is this the Correct View?
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Container Transport Costs from Inland China to US
West Coast (US per TEU)
Source Jean Paul Rodrique Vancouver Gateway
Conference 2007
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• The Economics of Gateways

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Economics of Gateways

• Gateways are alliances
• Alliances are vertical and horizontal
• Gateways internalize externalities
• Upstream and downstream agents recognize mutual
  benefit
• provide platform for cooperation and competition
• Gateways provide agglomeration effects
• Gateways integrate infrastructure, service,
  information and human capital

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Economics of Gateways

• Demand side forces favouring gateways
• Accessibility/wide geographic scope/interconnectiv
  ity/intermodal access
• Reliability/connecting capacity/Delivery speed
• Allocating risk
• Network externalities
• Supply side forces
• Reduce transactions cost limit horizontal and
  vertical boundaries
• Reduce logistics costs
• Economics of scale, scope and density
• Internalize externalities-alliances

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Gateways and productivity

• Productivity drives real income and economic
  welfare
• Profit revenue costs
• Gateways and revenue
• Increases willingness to pay with value adding
  services
• Reliability consistent service (risk reduction)
• Gateways and costs
• Enabler like technology (not just another factor
  input)
• Service accountability transparency
• Benchmark measure monitor
• New practice
• Invest in network

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Gateways are Systems

• Gateways are a facilitator in the global supply
  chain
• Gateways increase productivity by expanding
  markets, moving down the cost function and
  lowering costs, shifting down the cost function
• Gateways increase productivity by internalizing
  externalities of upstream and downstream agents
• Gateways increase productivity by allocating risk
  optimally

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Current Research Undertakings

• Question what institutional/policy design
  complements export performance?
• Domestic market structure and export performance
• (1) firm size and cost function, (2) product and
  process innovation
• Examine multi-market contact in a Cournot game
• Question how does gateway vertical integration
  between infrastructure providers and carriers
  differ in performance from vertical contracts?
  our interest is in efficient gateway
  (congestion)pricing
• Question How do we measure gateway performance?
• TFP Aggregate Index of Hedonically-Adjusted
  Gateway Output
• Aggregate Index of Nodal Infrastructure
  Inputs plus Strategic Investments and Initiatives
• 4 effects (1) exogenous DD effect, (2) factor
  price effect, (3) public K effect, (4)
  disembodied (i.e. factor neutral) technical
  change effect

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Gateway Performance
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• Policy and Management Responses

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Federal Response

• International Commerce Strategy
• align major transportation systems
• Logistics is about efficiency, service quality
  and capacity to deliver
• Competition is in supply chains not individual
  components therefore partnerships

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Federal Response

• Volumes and Values of National Significance
• Strategy should have national not regional focus
• Strategy should focus on volumes and values which
  are most important for Canada
• Does this focus on picking winners?
• Is this a field of dreams?

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Federal Response

• Future patterns in global trade transportation
• Emerging patterns place new demands on
  transportation infrastructure
• performance linkage between
• infrastructure and user capital (ships)
• Links and nodes (distribution networks)
• Future patterns are not exogenous they can be
  managed
• Information technology shapes patterns

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Federal Response

• Potential scope of capacity and policy measures
• Systems interconnection versus integration
• Across modes
• Investment and policy
• Public versus private
• Jurisdictions and governance
• How do we choose based on what performance
  metric?
• Who receives the rents?

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Thank you david.gillen_at_sauder.ubc.ca
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Lens of National Policy
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Strategies to improve gateway logistics The
shippers responses

• The shippers accept higher transport costs to
  achieve greater reliability of service.
• Retail shippers start shipping earlier to reduce
  the peak.
• Shippers open other routes, e.g., accelerate
  development of East Coast routes for South Asian
  trade.
• Shippers add flexibility to West Coast routings
  through the location of distribution facilities
  and availability of alternate port routings.
• A better but more competitive gateway
  environment.

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Strategies to improve gateway logistics The
strategies of service providers

• Objective to make the Vancouver Gateway the
  best place for gateway activity on the West
  Coast of North America. Not the biggest, but the
  best!
• To achieve this a multi-pronged program needs to
  be continued.
• Overview of the program
• Pricing should play a greater role in guiding
  behaviour.
• Leadership is essential to achieve change.
• Accountability is important to relationships.
• Communication is fundamental to planning and
  execution.
• Enterprise must be shown to adjust to the future,
  which is now!
• Source Trevor Heaver (Gateway Conference
  Vancouver 2007)