Jean-Paul Rodrigue (2013), New York:
Routledge, 416 pages.
Author: Dr. Jean-Paul Rodrigue
1. The Structure of Commodity Chains
Commodity chains (or value chains) reveal much about the global structure of production,
the global economy and thus represent a notable field of investigation
that has yet to be fully considered by transport geographers (see
freight transportation and value chains). Understanding
the significance of commodity chains requires a comprehensive approach
since they include much more than a simple transport consideration;
an array of activities are generally involved.
Commodity chain analysis. The identification of the actors
and processes that contribute to the origination of a product that
is consumed by a market, such as raw materials, food or consumption
goods. Thus, a commodity chain includes a sequence of operations
ranging from the extraction of raw materials, the assembly of intermediate
goods, to the distribution to consumption markets. Commodity chain
analysis can also consider only a specific segment related to a
single product (or group of products).
The analysis of such a complex chain of agents and processes considers
The analysis of commodity chains, depending on the perspective, can
consider several factors:
- Transactional perspective: Identification of the flows
and of the transactions that create them. This particularly concerns
the decision making process in the establishment and management
of commodity chains.
- Comparative perspective: Assess the relative competitiveness
of the elements of the commodity chains in terms of added value.
- Functional perspective: Identify the physical processes
involved in the circulation of goods, including the capacity constraints
in distribution, namely modal, intermodal and terminal effectiveness.
China has become a crucial element in the emergence of global commodity
chains. After more than 25 years of
export oriented industrialization,
China has captured a whole range of manufacturing activities, from the
most simple and labor intensive to those with a growing level of sophistication.
The footwear commodity chain is a notable example of a mature industry
heavily dependent on low production costs and efficient distribution
channels. Products tend to be relatively simple and success is commonly
based on design, brand name and costs. It is thus a manufacturing sector
that has achieved a high level of fragmentation due to globalization.
From modest beginnings in the 1980s, footwear manufacturing has boomed
in China, which now accounts for about 50% the world's shoe production.
A brief commodity chain analysis reveals for this sector the following:
- Origin and destination. A basic issue of supply and demand
which reveals comparative advantages, locational preferences and
market size. A commodity chain is commonly organized as a
sequence of origin / destination pairs until a destination is
considered to be the location of final consumption. For complex
products, a multitude of origins, intermediary stages and
destinations imply the concept of global commodity
chains. Intermediary locations where activities such as warehousing
need also to be considered.
- Cost function. Evaluates the costs incurred to the set
of activities taking place along the commodity chain such as procurement
costs, manufacturing costs, distribution costs and retailing costs.
- Load unit. Considers how the material flows in the commodity
chain are circulating, often related to how fragile, perishable
(see the Cold Chain) or valuable a product is. It is more
than simply an issue of containerization, but also in which way
the containerized load unit is used.
- Modal and intermodal use. A matter of the nature of the
transport chains used to accommodate the commodity chains in terms
of modes, terminals and freight forwarders.
- Regulation and ownership. The set of rules and regulations
related to the circulation of goods within the commodity chain,
including compliance. Also considers the nature and the level of
control shipping companies have over the commodity chains they use
through agreements, mergers and alliances.
- Distribution channel. Relationships with logistical service
providers, particularly with manufacturers and retailers. In many
cases, distribution activities are subcontracted.
- Added value. The consideration of which parts of the
commodity chain contributes the most to added value. This is an
important strategic goal as added value is linked with profit margins.
The organization of commodity chain thus seeks to increase added
value through locational and organizational strategies.
The sequence provided here has focused more specifically on the transportation
and distribution aspects of the commodity chain. It reveals a globalized
and fragmented industry seeking to extract as much added value as possible
from a mature product being the object of intense competition for its
production and retailing.
- Origin and destination. The Pearl River Delta has become
one of the most intensive manufacturing clusters in the world, the
outcome of more than two decades of foreign investments (from the
mid 1980s), initially in special economic zones like Shenzhen. Mainly
due to poor inland transportation, most of the manufacturing activities
are clustered in the delta along main road corridors and close to
port facilities. The production is exported to the rest of the world.
In particular, 95% of the shoes sold in the United States are manufactured
in China, which in itself represents a significant commodity chain.
The nature of production commonly reveals a "platform"
structure where large fashion companies (American, European and
Japanese) controlling brand names are subcontracting their production.
In many cases, a brand name designer
is directly interacting with a retailer.
- Cost function. A typical
cost structure in shoe manufacturing reveals that because of
the low Chinese labor costs, labor became a marginal component of
the production costs. Transport costs are low because of a significant
value (at retail)-to-volume ratio. There are however significant
pressures on the cost structure particularly due to rising
energy prices. The most important costs are
actually related to retailing and marketing, underlining the level
of maturity this industry has achieved.
- Load unit. The typical factory output is a completed
product including the wrapping and packaging (often including the
price tag), ready to be put on a store shelf. Orders are placed
which are then assembled in container
loads. A growing trend to maximize the usage of the container
unit is to forego the usage of pallets at the expense of additional
loading and unloading costs (the container is said to be "floor
loaded"). The products are put on pallets
to their destination. The load units are containerized but the assembly
can include a variety of goods bound for the same distribution center,
particularly if the retailer is diversified. At the distribution
center, these loads will be broken down, often in LTL bound to specific
- Modal and intermodal use. Since the export market is
global, the commodity chain involves a variety of modes. The first
step is commonly truck deliveries at a distribution center where
loads are assembled in containers. Those containers are then
delivered to a port facility.
Since the shoe commodity chain is globally oriented with a multitude
of markets being serviced by a fairly centralized production structure,
a set of complex activities are performed at the port. A particular
problem is linked with containerized trade imbalances and the
loading of containerships considering
that each services different markets and has a set of port calls. Then, the
inland freight distribution system
carries these containers to their destinations.
- Regulation and ownership. This commodity chain takes
place in a context where the global apparel industry operates in
a free trade environment. Since shoes are simple and labor intensive
products, few countries maintain duties for this type of product,
which can circulate with relative ease from a regulatory perspective.
The ownership of global commodity chains is increasingly concentrated
since many international logistics providers have
vested interests in physical
distribution activities, notably in distribution centers.
- Distribution channel. In the case of shoe manufacturing
in China, like many manufacturing activities, locational issues
are simple as manufacturers choose sites close to port facilities.
The challenge resides in the distribution of shoe production to
a multitude of customers in a multitude of countries. Many logistics
and distribution firms (3PL) have started offering comprehensive
freight services in China, particularly around its export oriented
zones. There is thus a setting of more efficient distribution channels
within China, which helps cope with the surge of exports.
- Added value. It is typical in this commodity chain that
the designer and the retailer capture the great majority of the
added value (25% and 50% respectively).