Supply Chains, Transport Chains and Added Value

Locations are competing to attract, expand and retain economic activities since the provide employment and generate value for an economy. The generation of value in a supply/commodity/value chain is a process that mainly takes three major forms:

• Value creation or capture. Value creation concerns the formation of new activities within a supply chain, such as manufacturing, distribution and transport. It is often linked with a paradigm shift such as a new terminal, lower distribution costs, a new technology, new market opportunities, etc. and increases the level of return. Value capture attracts activities from another location, a process which can be incited through various costs and infrastructure advantages that may include improved intermodal facilities or logistics zones.
• Value expansion. The growth of existing strengths, mainly in relation with the growth of traffic along a supply chain. Therefore, the more traffic, the more value generated for the local economy.
• Value retention. Involves keeping desirable added-value activities which under existing circumstances would have ceased or relocated elsewhere (value capture by another location). It is a difficult process to mitigate since it is linked with changes in economic fundamentals such as comparative advantages. However, value capture and expansion can have a significant impact on value retention since it creates local clusters of interdependent activities.

The structure of transport chains underlines how locations (gateways, regions, localities, etc.) are able to capture, expand and retain value added activities. It is in this context that policies, regulations and investments are articulated for the expected multiplying effects related to value capture. Since many supply chains are globally oriented, added value is performed at a wide array of locations, which is the outcome of decisions made by multinational corporations to maximize their revenue. It is worth underlining that in a supply chain, from suppliers to customers and through all the intermediary stages, it is a matter of where each added value function takes place. For many sectors, added value activities have moved downward the supply chain as a strategy to lower production (input) costs. In other cases, added value activities have moved upward to expand market potential, mainly through better freight distribution strategies. In almost all cases, improving the efficiency of freight distribution is a salient factor of added value.

Several regions, such as the North America, Japan and Europe, have seen a "devaluation" of  several of the supply chains they are involved with. For the retailing sector, most added value activities related to production have been off-shored and the added value performed in North America mainly concerns distribution; how to move finished goods to a wide array of markets (gateway / hinterland relationship).