Transport and Location

Author: Dr. Jean-Paul Rodrigue

1. The Importance of Transport in Location

In addition to being a factor of spatial organization, transportation is linked with the location of socioeconomic activities, including retail, manufacturing and services. In a market economy, location is the outcome of a constrained choice where many issues are being considered, transportation being one of them. The goal is to find a suitable location that would maximize the economic returns for this activity. There is a long tradition within economic geography in developing location theories with a view to explain and predict the locational logic of economic activities by incorporating market, institutional and behavioral considerations.

The majority of location theories have an explicit or implicit role attributed to transport since accessibility is an important factor in the location preferences of firms and individuals. As there are no absolute rules dictating locational choices, the importance of transport can only be evaluated with varying degrees of accuracy. At best, the following observations concerning transportation modes and terminals and their importance for location can be made:

Ports and airports. Convergence of related activities around terminals, particularly for ports since inland distribution costs tend to be high. The location and the level of activity of ports and airports are reflective of global trade patterns.
Roads and railroads. A structuring and convergence effect that varies according to the level of accessibility. For rail transport, terminals also have a convergence effect.
Telecommunications. No specific local influence, but the quality of regional and national telecommunication systems tends to ease transactions.

Globalization has been associated with significant changes in business operations and markets. Managing operations in such an environment has become increasingly complex, especially with the globalziation of production and consumption. Manufacturing strategies tend to use different locations for each component of a product in order to optimize respective comparative advantages and reduce input costs. Transport requirements have proportionally increased to support and organize the related flows. The requirement of faster long distance transport services has propelled the importance of air transport, especially for freight. Air terminals have thus become a significant location factor for globally oriented activities, which tend to agglomerate in the vicinity. Additionally, the surge in long distance trade has made logistical activities, namely transport terminals and distribution centers, at the forefront of locational considerations. Technological changes have also been linked with the relocation of industrial and even service activities. Global telecommunication facilities can favor the outsourcing of several services to lower cost locations, such as the case of call centers in India indicates.

2. Location Factors

The location of economic activities is a priori dependent on the nature of the activity itself and on certain location factors such as the attributes of the site, the level of accessibility and the socioeconomic environment. Although each type of economic activity has its own set of location factors, some general factors can be identified by major economic sectors:

Primary economic activities. Their dominant location factor is related to environmental endowments, such as natural resources. For instance, mining takes place where economically recoverable mineral deposits are found and agriculture is subject to environmental constraints such as soil fertility, precipitation and temperature. Primary activities are thus characterized by the most basic location factors but have a strong reliance on transportation since their locations rarely are close to centers of demand and they usually concern ponderous goods. Substantial investments in extraction and distribution infrastructures must thus be made before resources can be brought to markets. The capacity to transport raw materials plays a significant role in the possible development of extractive activities at a location.
Secondary economic activities. Imply a complex web of location factors which, depending upon the industrial sector, relate to labor (cost and/or skill level), energy costs, capital, land, markets and/or proximity of suppliers. Location is thus an important cost factor and the general purpose is usually to minimize it. Considering the wide variety of industrial and manufacturing activities, understanding the rationale of each sector is a difficult task that has been subject to many investigations in economic geography. Globalization, recent developments in supply chain management and global production networks have made the situation even more complex with the presence of many intermediaries and significant locational changes. The industrialization of China has been supported by several strategies trying to multiply locational advantages, such as the setting of export-oriented special economic zones and large investment in transport infrastructure.
Tertiary economic activities. Involve activities that are most bound to market proximity, since the capacity to distribute a product or service is their most important location requirement. As many of these activities are retail-oriented, consumer proximity (as well as their level of income) is essential and is directly related to sale levels. The main focus is to maximize sales revenues with location an important revenue factor. The retail industry has significantly changed with the emergence of large retail stores that maximize sales through economies of scale and local road accessibility. E-commerce also provides a new dynamic where information can easily be traded and where niche retailing markets can be developed in a situation of high product diversity.
Quaternary economic activities. Imply activities not linked to environmental endowments or access to a market, but to high level services such as banking, insurance, education, research and development. This often relate to the high technology sector where innovation is a key commercial factor. With improvements in telecommunications, many of these activities can be located almost anywhere as demonstrated by the recent trend to locate call centers offshore. There are still some strong locational requirements for high technology activities that include proximity to large universities and research centers and to a pool of highly qualified workers (as well as cheap labor for supporting services), availability of venture capital, a high quality of life (cultural amenities) and access to excellent transportation and telecommunication facilities. The sector has shown a propensity at clustering as close inter-firm relations are a factor of innovation.

Each of these sectors thus has its own set of economies related to its relations with production, distribution and consumption. However, basic location strategies appear to be dominantly cost minimization or revenue maximization endeavors. Understanding location factors enables a better overview of the dynamics of the global economy and the associated territorial changes at the global, regional and local levels.

3. Accessibility and Location

Since accessibility is dominantly the outcome of transportation activities, namely the capacity of infrastructures to support mobility, it presents the most significant influence of transportation on location. Hence, location (accessibility) and economic activities are interrelated. Accessibility plays an important role by offering more customers through an expanded market area, by making distribution more efficient (in terms of capacity, costs and time), or by enabling more people to reach workplaces (labor cost and qualification). While some transport systems have favored the dispersion of socioeconomic activities (e.g. automobiles and suburbanization), others have favored their concentration (e.g. airports and container terminals). All transport systems are bearers of spatial specialization and configuration. Among the five main economies, four are particularly influential for transportation:

Transportation costs. Refer to the benefits of a location that minimizes transport costs either for passengers or freight. These considerations are at the core of classic industrial location theories where transport-dependent activities seek to minimize total transport costs. With the expansion of transport infrastructures, shifts in manufacturing, new economic activities such as high technology, logistical management and an overall decline in transport costs, cost minimization is no longer a substantial consideration in locational choice. However, transport costs cannot be easily dismissed and must be considered in a wider context where the quality and reliability of transport is of growing importance. It has been demonstrated that travel time, instead of distance, is the determining factor behind commuting ranges. For freight distribution, while cost factors are significant, there is a growing importance of the concept of reliability.
Agglomeration economies. Refer to the benefits of having activities locate (cluster) next to another, such as the use of common infrastructures and services. Clustering continues to be a powerful force in location as the reduction in transport costs favored the agglomeration of retail, manufacturing and distribution activities at specific locations. For instance, shopping malls are based on agglomeration economies, offering customers a wide variety of goods and services in a single location. Distribution activities, even unrelated, have also a tendency to cluster in logistics zones. The development of special economic zones, many export-oriented, also benefit from the clustering effect.
Co-location. An agglomeration economy which is specific to transport terminals and concerns the benefits derived for an activity from being located directly adjacent to a terminal facility. Globalization has underlined the growing importance of transport terminals and of the principle of co-location, which can be seen as a very specific form of economy of agglomeration; localization economies. The main benefit concerns a complete and privileged access to the transport capacity and connectivity of the terminal. Any level of separation between the activity and the terminal significantly reduce or even negates the advantages of co-location. It could involve an individual activity or a cluster of activities where agglomeration economies can be added to the benefits of co-location. Hotels located adjacent to airports or rail stations are set on the co-location principle since they derive their business almost exclusively from the terminal's passenger activities. The distribution centers of parcels companies are commonly located directly adjacent to runways so that their air freight services can be tightly synchronized with the consolidation and deconsolidation of air parcels. For intermodal rail terminals, inland ports facilities are built over the principle of co-location.
Economies of density. Somewhat related to economies of agglomeration, but focus on spatial coverage and proximity. A core issue concerns the benefits derived from market density so that the same customer base can be reached (or serviced) with shorter distances and thus with less facilities. For instance, if the customer density is sufficient, a retailer can achieve several types of cost savings by locating its stores in proximity to one another. Such a structure reduces logistics and delivery costs by sharing a distribution center. Other advantages may include the possibility to relocate part of the workforce between nearby facilities and having shared advertising. In such a circumstance, the locational strategies are based on proximity to existing facilities, even if this implies the selection of sub-optimal locations.

Because of the level of accessibility they provide, new transport infrastructures influence the setting of economic activities. It becomes a particularly strong effect when new infrastructures are added to an undeveloped (or underdeveloped) site and thus locational decision tend to be simpler and unhindered by the existing spatial structure. The locational effects on activities are not always automatic or evident. They are important however when infrastructure is accompanied by social, economic and urban transformations of space. New infrastructures therefore play a catalytic role, because they are able of transforming space through land use and mobility changes.