Jean-Paul Rodrigue (2013), New York:
Routledge, 416 pages.
Transportation, Globalization and International Trade
Author: Dr. Jean-Paul Rodrigue
1. The Flows of Globalization
In a global economy, no nation is self-sufficient. Each
is involved at different levels in trade to sell what it
produces, to acquire what it lacks and also to produce more
efficiently in some economic sectors than its trade partners.
International Trade. An exchange of goods
or services across national jurisdictions. Inbound trade
is defined as imports and outbound trade is defined as exports.
Subject to the regulatory oversight and taxation of the
involved nations, namely through customs.
As supported by conventional
economic theory, trade promotes economic efficiency
by providing a wider variety of goods, often at lower costs,
notably because of specialization, economies of scale and
the related comparative advantages. International trade
is also subject to much
contention since it can at time be a disruptive economic
and social force as it changes the conditions wealth is
distributed within a national economy, particularly due
to changes in prices and wages.
The globalization of production is concomitant to
the globalization of trade as one cannot function
without the other. Even if international trade has taken
place centuries before the modern era, as ancient trade
routes such as the
can testify, trade occurred at an ever increasing scale
over the last 600 years
to play an even more active part in the economic life of
nations and regions. This process has been facilitated by
significant technical changes in the transport sector. The
scale, volume and efficiency of international
trade have all continued to increase since the 1970s. As
/ time convergence was an ongoing process that implied
a more extensive market coverage that could be accessed
with a lower amount of time. It has become increasingly
possible to trade between parts of the world that previously
had limited access to international transportation systems.
Further, the division and the fragmentation of production
that went along with these processes also expanded trade.
Trade thus contributes to lower manufacturing costs.
Without international trade, few nations could maintain
an adequate standard of living. With only domestic resources
being available, each country could only produce a limited
number of products and shortages would be prevalent.
Global trade allows for an enormous
variety of resources – from Persian Gulf oil, Brazilian
coffee to Chinese labor – to be made more widely accessible.
It also facilitates the distribution of a wide range of manufactured
goods that are produced in different parts of the world
to what can be labeled as the global market. Wealth becomes
increasingly derived through the regional specialization
of economic activities. This way, production costs are lowered,
productivity rises and surpluses are generated, which can
be transferred or traded for commodities that would be too
expensive to produce domestically or would simply not be
available. As a result, international trade decreases the
overall costs of production worldwide. Consumers can buy
more goods from the wages they earn, and standards of living
should, in theory, increase.
International trade consequently demonstrates the extent
of globalization with increased
between elements of the global economy and their level of
integration. These interdependencies imply numerous relationships
of capital, goods, raw materials and services are established
between regions of the world. At the beginning of the 21st
century, the flows of globalization have been shaped by
four salient trends:
2. The Setting of the Contemporary Global Trade System
International trade, both in terms of value and tonnage,
has been a growing trend in the global economy. It is important
to underline when looking at the structure of global trade
that it is not nations that are trading,
but mostly corporations with the end products consumed in
majority by individuals. Inter and intra corporate trade
is taking place across national jurisdictions is accounted
as international trade. The emergence of the current structure
of global trade can mainly be articulated within
three major phases:
- An ongoing growth of
international trade, both in absolute terms and in relation
to global national income. From 1970 to 2010 the value of
exports has grown by a factor of 48 times if measured in
current dollars, while GDP increased 22 times and population
increased 1.8 times.
- A substantial level of
containerization of commercial flows. Containerization tends
to grow at a rate faster than trade and GDP growth.
- A higher relative growth of trade in Pacific Asia as
many economies developed an
strategy that has been associated with
imbalances in commercial
- The growing role of multinational
corporations as vectors for international trade, particularly
in terms of the share of international trade taking place
within corporations and
level of concentration of their head offices.
The global economic system is thus characterized by a growing
level of integrated services, finance,
retail, manufacturing and nonetheless distribution, which
in turn is mainly the outcome of improved transport
and logistics, a more efficient exploitation of
regional comparative advantages and a
transactional environment supportive of
the legal and financial complexities of global trade. The
volume of exchanged goods and services between nations is
taking a growing share of the generation of wealth, mainly
by offering economic growth opportunities in new regions
and by reducing the costs of a wide array of manufacturing
goods. By 2007, international trade surpassed for the first
time 50% of global GDP,
a twofold increase in its share since 1950.
The facilitation of trade involves how the procedures
regulating the international movements of goods can be improved.
It depends on the reduction of the general costs of trade,
which considers transaction, tariff, transport and time
costs, often labeled as the "Four
Ts" of international trade. United Nations estimates
have underlined that for developing countries a 10% reduction
in transportation cost could be accompanied with a growth
of about 20% in international and domestic trade. Thus,
the ability to compete in a global economy is dependent
on the transport system as well as a trade facilitation
framework with activities including:
- First phase (immobile factors of production).
Concerns a conventional perspective on international trade
that prevailed until the 1970s where factors of production
were much less mobile. Prior to the end of World War I,
global trade was mainly structured by colonial relations.
Particularly, there was a limited level of mobility of raw
materials, parts and finished products. After World War
I international trade became fairly regulated with impediments
such tariffs, quotas and limitations to foreign ownership.
Trade mainly concerned a range of specific products, namely
commodities, (and very few services) that were not readily
available in regional economies. Due to regulations, protectionism
and fairly high transportation costs, trade remained limited
and delayed by inefficient freight distribution. In this
context, trade was more an exercise to cope with scarcity
than to promote economic efficiency.
- Second phase (mobility of factors of production).
From the 1980s, the mobility of factors of production, particularly
capital, became possible. The legal and physical environment
in which international trade was taking place lead to a
better realization of the comparative advantages of specific
locations. Concomitantly, regional trade agreements emerged
and the global trade framework was strengthened from a legal
and transactional standpoint (GATT/WTO). In addition, containerization
provided the capabilities to support more complex and long
distance trade flows, as did the growing air traffic. Due
to high production (legacy) costs in old industrial regions,
activities that were labor intensive were gradually relocated
to lower costs locations. The process began as a national
one, then went to nearby countries when possible and afterwards
became a truly global phenomenon. Thus, foreign direct investments
surged, particularly towards new manufacturing regions as
multinational corporations became increasingly flexible
in the global positioning of their assets.
- Third phase (global production networks). There
is a growth in international trade, now including a wide
variety of services that were previously fixed to regional
markets and a surge in the mobility of the factors of production.
Since these trends are well established, the priority is
now shifting to the geographical and functional integration
of production, distribution and consumption with the emergence
of global production networks. Complex networks involving
flows of information, commodities, parts and finished goods
have been set, which in turn demands a high level of command
of logistics and freight distribution (see
concept 3). In such an environment,
powerful actors have emerged which are not directly involved
in the function of production and retailing, but mainly
taking the responsibility of managing the web of flows.
The quality, cost, and efficiency of these services influence
the trading environment as well as the overall costs linked
with the international trade of goods. Many factors have
been conductive to trade facilitation in recent decades,
including integration processes, standardization, production
systems, transport efficiency and transactional efficiency:
- Distribution-based. A multimodal and intermodal
freight transport system composed of modes, infrastructures
and terminals that spans across the globe. It insures a
physical capacity to support trade and its underlying supply
- Regulation-based. Customs procedures, tariffs,
regulations and handling of documentation. They insure that
trade flows abide to the rules and regulations of the jurisdictions
they cross. Cross-border clearance, particularly in developing
countries, can be a notable trade impediment with border
delays, bottlenecks and long customer clearance times.
- Transaction-based. Banking, finance, legal and
insurance activities where accounts can be settled and risk
mitigated. They insure that the sellers of goods and services
are receiving an agreed upon compensation and that the purchasers
have a legal recourse if the outcome of the transaction
is judged unsatisfactory or is insured if a partial or full
The nature of what can be considered international trade
has changed, particularly with the emergence of
global value chains and the trade of intermediary
goods they involve. This trend obviously reflects the strategies
of multinational corporations positioning their manufacturing
assets in order to lower costs, and maximize new market
opportunities. International trade has thus grown at
faster rate than global merchandise
production, with a growing complexity of distribution
systems supported by supply chain management practices.
The structure of global
trade flows has shifted with many developing economies
having a growing participation in international trade with
an increasing share of manufacturing activities.
Globalization has been accompanied
by growing flows of manufactured goods
and their growing share of international
trade. The trend since the 1950s involved a relative
decline in bulk liquids (such as oil) and more dry bulk
and general cargo being traded. Recently, the share of
fuels in international trade has increased, mainly due
to rising energy prices. Another emerging trade flow
concerns the increase in the imports of resources from developing
economies, namely energy, commodities and agricultural products,
which is a divergence from their conventional role as exporters of resources.
This is indicative a economic diversification as well as
increasing standards of living.
There are however significant fluctuations in international
trade that are linked with economic cycles of growth
and recession, fluctuations in the price of raw materials,
as well as disruptive geopolitical and financial events.
Neo-mercantilism is reflective of global
trade flows as several countries have been actively pursuing
export-oriented economic development policies
using infrastructure development, subsidies, and exchange
rates as tools. This strategy has been followed by developing
economies and is associated
with growing physical and capital flow
imbalances in international
trade. This is particularly reflective in the
trade structure, which is highly imbalanced and having
acute differences in the composition of imports and exports.
Still, these imbalances must be looked at with caution as
products are composed of parts manufactured in several countries
with assembly often taking place in a low cost locations
and they exported to major consumption markets.
In international trade statistics, this location assumes
the full value of finished goods imported elsewhere while
it may have only contributed to a small share of the total
added value. Electronic
devices are illustrative of this issue.
Regionalization has been one of the dominant
features of global trade as the bulk of international trade
has a regional connotation, promoted by proximity and the
establishment of economic blocs
such as NAFTA and the European Union. The closer economic
entities are, the more likely they are to trade due to lower
transport costs, less potential delays in shipments, common
customs procedures and linguistic and cultural affinities.
The most intense trade relations are within Western Europe
and North America, with a more recent trend involving trade
within Asia, particularly between Japan, China, Korea and
Taiwan as these economies are getting increasingly integrated.
5. International Transportation
The growth of the amount of freight being traded as well
as a great variety of origins and destinations promotes
the importance of international transportation as
a fundamental element supporting the global economy. Economic
development in Pacific Asia and in China in particular has
been the dominant factor behind the growth of international
transportation in recent years. Since the trading distances
involved are often considerable, this has resulted in increasing
demands on the maritime shipping industry and on port activities.
As its industrial and manufacturing activities develop,
China is importing growing quantities of raw materials and
energy and exporting growing quantities of manufactured
goods. The outcome has been a surge in demands for long
distance international transportation. The ports in the
Pearl River delta in Guangdong province now handle almost
as many containers as all the ports in the United States
International transportation systems have been under increasing
pressures to support additional demands in freights volume
and the distance at which this freight is being carried.
This could not have occurred without considerable technical
improvements permitting to transport larger quantities of
passengers and freight, and this more quickly and more efficiently.
Few other technical improvements than containerization have
contributed to this environment of growing mobility of freight.
Since containers and their intermodal transport systems
improve the efficiency of global distribution, a growing
share of general cargo moving globally is containerized.
Consequently, transportation is often referred to as an
enabling factor that is not necessarily the cause
of international trade, but as a condition without which
globalization could not have occurred. A common development
problem is the inability of international transportation
infrastructures to support flows, undermining access to
the global market and the benefits that can be derived from
international trade. International trade also requires
distribution infrastructures that can support trade
between several partners. Three components of international
transportation facilitate trade:
- Integration processes, such as the emergence
of economic blocks and the decrease of tariffs at a global
scale through agreements,
promoted trade as regulatory regimes were harmonized.
One straightforward measure of integration relates to
custom delays, which can
be a significant trade impediment since it adds uncertainty
in supply chain management. The higher the level of economic
integration, the more likely the concerned elements are
to trade. International trade has consequently been facilitated
by a set of factors linked with growing
levels of economic integration,
the outcome of processes such as the European Union or the
North American Free Trade Agreement. The transactional capacity
is consequently facilitated with the
development of transportation
networks and the adjustment of trade flows that follows
increased integration. Integration processes have also taken
place at the local scale with the creation of
free trade zones
where an area is given a different governance structure
in order to promote trade, particularly
export oriented activities.
In this case, the integration process is not uniform as
only a portion of a territory is involved.
China is a salient example
of the far-reaching impacts of the setting of special economic
zones operating under a different regulatory regime.
- Standardization concerns the setting
of a common and ubiquitous frame of reference over information
and physical flows. Standards facilitate trade since those
abiding by them benefit from reliable, interoperable and
compatible goods and services which often results in lower
production, distribution and maintenance costs. Measurement
units were among the first globally accepted standards (metric
system) and the development of information technologies
eventually led to common operating and telecommunication
systems. It is however the container that is considered
to be the most significant
standard for trade facilitation. By offering a load
unit that can be handled by any mode and terminal with the
proper equipment, access to international trade is improved.
- Production systems are more flexible and embedded
(see concept 3). It is effectively
productive to maintain a network of geographically diversified
inputs, which favors exchanges of commodities, parts and
services. Information technologies have played a role by
facilitating transactions and the management of complex
business operations. Foreign direct investments are commonly
linked with the globalization of production as corporations
invest abroad in search of lower production costs and new
markets. China is a leading
example of such a process, which went on par with a growing
availability of goods and services that can be traded on
the global market.
- Transport efficiency has increased significantly
because of innovations and improvements in the modes and
infrastructures in terms of their capacity and throughput.
Ports are particularly important in such a context since
they are gateways to international trade through
maritime shipping networks. As a result, the transferability
of commodities, parts and finished goods has improved. Decreasing
transport costs does more than increasing trade; it can
also help change the location of economic activities. Yet,
transborder transportation issues remain to be better addressed
in terms of capacity, efficiency and security.
- Transactional efficiency. The financial sector
also played a significant role in integrating global trade,
namely by providing investment capital and credit for international
commercial transactions. For instance, a
credit may be issued based upon an export contract.
An exporter can thus receive a payment guarantee from a
bank until its customer finalizes the transaction upon delivery.
This is particularly important since the delivery of international
trade transactions can take several weeks due to the long
distances involved. During the transfer, it is also common
that the cargo is insured in the event of damage, theft
or delays, a function supported by insurance companies.
Also, global financial systems permit to convert currencies
according to exchange rates that are commonly set by market
forces, while some currencies, such as the
Chinese Yuan, are set
by policy. Monetary policy can thus be a tool, albeit contentious,
used to influence trade.
About half of all global trade takes place between locations
of more than 3,000 km apart. Because of this geography,
most international freight movements involve several modes
since it is impossible to have a physical continuity in
freight flows. Transport chains
must thus be established to service these flows which reinforce
the importance of intermodal transportation modes and terminals
at strategic locations. Among the numerous transport modes,
two are specifically concerned with international trade:
- Transportation infrastructure. Concerns physical
infrastructures such as terminals, vehicles and networks.
Efficiencies or deficiencies in transport infrastructures
will either promote or inhibit international trade.
- Transportation services. Concerns the complex
set of services involved in the international circulation
of passengers and freight. It includes activities such as
distribution, logistics, finance, insurance and marketing.
- Transactional environment. Concerns the complex
legal, political, financial and cultural setting in which
international transport systems operate. It includes aspects
such as exchange rates, regulations, quotas and tariffs,
but also consumer preferences.
Road and railway modes tend to occupy a more marginal portion
of international transportation since they are above all
modes for national or regional transport services. Their
importance is focused on their role in the "first
and last miles" of global distribution. Freight
is mainly brought to port and airport terminals by trucking
or rail. There are however notable exceptions in the role
of overland transportation in international trade. A substantial
share of the NAFTA trade between
Canada, United States and Mexico is supported by trucking,
as well as large share of the Western European trade. In
spite of this, these exchanges are at priori regional by
definition, although intermodal transportation confers a
more complex setting in the interpretation of these flows.
Still, many challenges are impacting future developments
in international trade and transportation, mostly in terms
of demographic, energy and environmental issues. While the
global population and its derived demand will continue to
grow and reach around 9 billion by 2050, demographic changes
such as the aging of the population, particularly in developed
countries, will transform consumption patterns as a growing
share of the population shifts from wealth producing (working
and saving) to wealth consuming (selling saved assets).
The demographic dividend in terms of peak share of working
age population that many countries benefited from, particularly
China, will recede. As both maritime and air freight transportation
depend on petroleum, the expected scarcity of this fossil
fuel will impose a rationalization of international trade
and its underlying supply chains. Environmental issues have
also become more salient with the growing tendency of the
public sector to regulate components of international transportation
that are judged to have negative externalities. Also, international
trade enables several countries to mask their energy
consumption and pollutant emissions by importing
goods that are produced elsewhere and where environmental
externalities are generated. Thus international trade has
permitted a shift in the international division of production,
but also a division between the generation of environmental
externalities and the consumption of the goods related to
- Ports and maritime shipping. The importance of
maritime transportation in global freight trade in unmistakable,
particularly in terms of
tonnage as it handles
about 90% of the global trade. Thus, globalization is the
realm of maritime shipping, with containerized shipping
at the forefront of the process. The
global maritime transport
system is composed of a series of major gateways granting
access to major production and consumption regions. Between
those gateways are major hubs acting as points of interconnection
and transshipment between systems of maritime circulation.
- Airports and air transport. Although in terms
tonnage air transportation carries an insignificant amount
of freight (0.2% of total tonnage) compared with maritime
transportation, its importance in terms of the
total value is much
more significant; 15% of the value of global trade. International
air freight is about 70 times more valuable than its maritime
counterpart and about 30 times more valuable than freight
carried overland, which is linked with the types of goods
it transports (e.g. electronics). The
location of freight airports correspond to high technology
manufacturing clusters as well as intermediary locations
where freight planes are refueled and/or cargo is transshipped.