The Geography of Transport Systems
FOURTH EDITION
Jean-Paul Rodrigue (2017), New York: Routledge, 440 pages.
ISBN 978-1138669574
Transportation and Commercial Geography
Authors: Dr. Jean-Paul Rodrigue and Dr. Claude Comtois
1. Trade and Commercial Geography
Trade, the exchange of goods and services over long distances, and commercial activities, the exchange of goods and services at specific markets, are core components of the economy. Trade and commerce have evolved in space and in time, from low volume and limited extent prior to the industrial revolution, to the extensive flows and transactions that characterize the contemporary global economy. Historically, wealth was dominantly related to agricultural output implying that the largest economies were those with the largest populations, but these populations were mainly rural and with low income. As such, trade and commerce were marginal activities.
The industrial revolution irremediably changed trade and commerce with mechanization and its multiplying effects on production and consumption. Yet, in spite of substantial growth in production capabilities, economic systems remain based on trade and transactions since specialization and efficiency require interdependency. People trade their labor for a wage, having to commute in the process, while corporations trade their output for capital, having to access markets. Trade is the transmission of a possession in return for a counterpart, generally money, which is often defined as a medium of exchange. This exchange involves a transaction and its associated flows of capital, information, commodities, parts, or finished products. All these activities define commercial geography.
Commercial geography investigates the spatial characteristics of trade and transactions in terms of their nature, causes and consequences. It leans on the analysis of transactions, from a simple commercial transaction involving an individual purchasing a product at a store, to the complex network of transactions maintained between a multinational corporation and its suppliers. The scale and scope of commercial geography varies significantly.
Trade, in terms of its origins and destinations, has a spatial logic. It reflects the economic, social and industrial structure of the concerned markets, but also implies other factors such as transport costs, distance, trade agreements, exchange rates and the reciprocal economic advantages proponents get from trade. For trade to occur several fundamental conditions must be met:
  • Availability. Commodities, from coal to computer chips, must be available for trade and there must be a demand for these commodities. In other terms, a surplus must exist at one location and a demand in another, which implies a level a reciprocity. A surplus can often be a simple matter of investment in production capabilities, such as building an assembly plant, or can be constrained by complex geological and environmental factors like the availability of resources such as fossil fuels, minerals and agricultural products.
  • Transferability. Transport infrastructures, in allowing goods to be moved from their origins to their destinations, support the transferability of goods. There are three major impediments to transferability, namely regulatory barriers (tariffs, custom inspections, quotas), geographical barriers (time, distance) and transportation barriers (the simple capacity to move the outcome of a transaction). Distance often plays an important role in trade, as does the capacity of infrastructures to route and to transship goods.
  • Transactional capacity. It must be legally possible to make a transaction. This implies the recognition of a currency for trading and legislations that define the environment in which commercial transactions are taking place, such as taxation and litigation. In the context of a global economy, the transactional environment is very complex but is important in facilitating trade at the regional, national and international levels. The fundamental elements of a commercial transaction involving the transportation of a good are the letter of credit and the bill of lading. The transport terms have been regulated since 1936 by international commercial terms, which defines the respective responsibilities and risks of the actors involved. Such terms are regularly updated and revised to reflect commercial and regulatory changes in global markets.
Once these conditions are met, trade is possible and the outcome of a transaction results in a flow (or interaction). Three particular issues relate to the concept of flow:
  • Value. Flows have a negotiated value and are settled in a common currency. The American dollar, which has become the main global currency, is used to settle and/or measure many international transactions. Further, nations must maintain reserves of foreign currencies to settle their transactions. The relationship between the inbound and outbound flows of capital is known as the balance of payments. Although nations try to maintain a stable balance of payments, this is rarely the case; flows are commonly imbalanced.
  • Volume. Flows have a physical characteristic, mainly involving a mass. The weight of flows is a significant variable when trade involves raw materials such as petroleum or minerals. However, in the case of consumption goods, weight has little significance relatively to the value of the commodities being traded. With containerization, a new unit of volume has been introduced; the TEU (Twenty-Foot Equivalent Unit), which can be used to assess trade flows.
  • Scale. Flows have a range which varies significantly based on the nature of a transaction. While retailing transactions tend to occur at a local scale, transactions related to the operations of a multinational corporation are global in scale.
Cities are the world's major commercial centers, but the commercial importance of a city is relative to a number of factors such as financial flows, the ease of doing business and transport infrastructure. Traditionally, commercial activities tended to develop where there was a physical break along transport chains. Cargo needed to be transferred from one mode to another and a new actor took over its ownership or its custody. The physical break imposed transactions, an important reason why most the world's most important financial centers tend to be port cities or major load break centers in the hinterland.
2. Trends in Commercial Geography
The contemporary commercial setting is marked by increasing free trade and profound technological, industrial and geopolitical changes. The liberalization of trade, as confirmed by the implementation of the World Trade Organization, has given a strong impetus in the growth rate of world trade and industrial production. This has led to competitive pressures and shifting competitive advantages between regions. Even if in a true free trade environment, regulatory agencies would not be required, in spite of attempts at deregulation, transactions and trade are prone to disputes, litigations and perceived imbalances concerning who benefits the most. Although these issues mainly apply to international trade, there are also situations where trade is constrained between jurisdictions (provinces, states) of a nation.
After decades of globalization and ongoing growth, much of the trade remains dominantly regional. An overview of world trade flows indicates that trade within regions is more significant than trade between regions, but long distance trade has steadily been growing. This has been associated with an increasing share of East Asia, especially China, in world trade both in terms of exports and imports. Flows of merchandises have also been accompanied by a substantial growth in foreign direct investments. A remarkable reallocation of production capacities has taken place through outsourcing and offshoring following changes in comparative advantages around the world. This trend goes in tandem with mergers and acquisitions of enterprises that are increasingly global in scope. The analysis of international trade thus reveals the need to adopt different strategies to adapt to this new trading environment. As production is being relocated, there is a continuous shift in the structure of exports and imports among nations. The decline of manufacturing in its share of the global GDP is illustrative of the growing complexities that added-value brings to the function of production. It masks a manufacturing sector that is embedded with service activities, such as logistics, and which is increasingly dependent on the generation of added value.
Major changes have occurred in the organization of production. There is a noticeable increase in the division of labor concerning the design, planning and assembly in the manufacturing process of the global economy. Interlocking partnerships in the structure of manufacturing have increased the trade of parts and the supply of production equipment around the world. One third of all trade takes place among parent companies and their foreign affiliates. A part of this dynamism resides in the adoption of standards, a process which began in the late 19th century to promote mass production. It permitted the rapid development of many sectors of activity, including railways (gauge), electricity (wattage), the automobile (safety) and the telecommunication industry more recently (communication protocols and electronic data formats). In the realm of globalization of economic activities, the International Standards Organization developed the ISO norms that serve as comparison between various enterprises around the world. These norms are applicable to the manufacturing and services industries and are a necessary tool for growth.
There are also indications that the trends that have supported globalization may be receding. The growth of the service sector, particularly their share of the GDP, involves economic activities that are more difficult to trade. Due to rising standards of living, countries are consuming a growing share of their manufacturing output, although this is not taking place uniformly. As a result, the commercial geography is influenced by the market size, the consumption level of an economy (often measured in GDP per capita), but also by the growth potential of different regions of the world. National GDP figures however do not reveal well regional distributions, particularly the prominence of a few large metropolitan areas.
At the global level, the bulk of the consumption remains concentrated in a limited number of countries with the G7 countries alone accounting for two third of the global Gross Domestic Product. Economic growth taking place in East and Southeast Asia has been one of the most significant force shaping changes in the contemporary commercial environment. The commodification of the economy has led to significant growth in retail and wholesale and the associated movements of freight. As wages increases across the world, wage differences and their derived comparative are less significant, implying that cheap labor becomes less relevant for competitiveness. While technical advances have benefited transportation, they are also conferring a growing level of automation to production. This implies that locational decision for production will tend to be more market servicing based than factors of production based.
3. Transportation and Competitiveness
It is commonly assumed that regions compete over factors such a resources, labor and governance to provide the most suitable economic advantages. Transportation is considered to be a key factor for competitiveness since it provides accessibility to markets, labor and resources. In particular, the mobility costs of workers and freight are the two most important factors of spatial competitiveness. However, the true extent of how can transportation help improve competitiveness is often unclear since transportation is embedded in many economic and social processes. The liberalization of trade was accompanied by a growth of transportation activities since transactions involves movements of freight, capital, people and information. Developments in the transport sector are matched by global and regional interdependence and competition. Transportation, like commodities, goods and services, is traded, sometimes openly and subject to full market forces, but more often subject to a form of public control (regulation) or ownership. The core component of a transport-related transaction involves its costs that either have to be negotiated between the provider of the service and the user or are subject to some arbitrary decree (price setting such as public transit).
Since transportation can be perceived as a service, its commercialization (how it is brought to the market) is an important dimension of its dynamics. Most transport firms compete over cost, differentiation (offering different transport services in terms of nature or quality) or focus (highly involved in a specific region). These three factors usually involve different investment and development strategies for transport firms. Transport service providers tend to be private entities, particularly in the global freight transport sector. Local passenger transportation providers (transit) tend to be publicly owned. While transport companies have no specific location as modes are allocated to fulfill demand, transportation assets have a deep spatial and locational imprint. Improving transportation is thus assumed to improve the competitiveness of regions. 
One important component of the competiveness of transportation concerns investments in infrastructure, modes and terminals, as well as their marketing and financing. Financial activities have seen a concentration among major global financial centers. Investments are performed either to expand the geographical extent and/or the capacity of a transport system or to maintain its operating conditions. The public and private sectors have contributed to the funding of transport investments depending on economic, social and strategic interests. For obvious reasons, the private sector seeks transport investments that promise economic returns while the public sector often invests for social and strategic reasons. In many cases private transport providers have difficulties to act independently in formulating and implementing their transport investments. Various levels of government are often lobbied by transport firms for financial and/or regulatory assistance in projects that are presented as of public interest and benefit. The consolidation of regional markets and the resulting increase in transborder traffic has led transport firms to seek global alliances and greater market liberalization in the transport and communication sector as a mean to attract investments and to improve their productivity.
Deregulation and divestiture policy have also substantially changed the competitive environment in the transport industry and has led governments to withdraw from the management, operations and ownership of national carriers, ports and airports. This has given rise to a major reorganization of the international and national transport sectors with the emergence of transnational transport corporations that are governing the global flow of air, maritime and land trade and the management of airports, ports and railyards.
Competitiveness is not always a rational endeavor and behavioral issues could have an impact on the choice of modes, routes and terminals. There are a number of reasons behind this. First, decisions makers could have incomplete or even inaccurate information about routing options. The range of options is therefore bounded, resulting in options that are not optimal. Second, existing relations between actors in a transport chain are commonly associated with informal commitments that may not be optimal. Third, there is an inertia in commercial decisions where actors are opting for the status quo since changing existing structures would require an effort and a level of risk.
4. Logistics and Supply Chains
The development of logistics and the setting of global supply chains are substantially impacting commercial geography. A global economy with an acute division between production and consumption underlines the relevance of logistics as a commercial and spatial strategy to improve efficiency and reduce costs. Freight has commonly been managed by private interests, particularly in the maritime shipping segment. Similarly, the logistics industry is also prone to private commercial interests that owns modes, terminals, distribution facilities and provide management services. The ownership and operations of supply chains is intensive in transactions, flows and information exchange. Logistics is after all the spatial and temporal management of freight flows and with globalization these flows are extensive and complex. As a commercial activity logistics involves a whole range of tasks, from the labor intensive (loading, packaging, unloading) to information management intensive (order processing, booking, routing). Still, the context in which logistics services are offered and managed has changed.
Freight transport services are increasingly being outsourced as many companies realized that transportation and warehousing were not part of their core business. Many companies are reducing the number of transportation suppliers to reduce costs and improve services. The development of the logistics industry has enabled many transport companies to take control of larger segments of the supply chain. With an increasing level of functional integration many intermediate steps in the transport chain have been removed. Mergers and acquisitions have permitted the emergence of large logistics operators that control many segments of the supply chain. They are often labeled as third party logistics providers since they almost exclusively take care in the management and operation of logistics on behalf of their customers. Technology has also played a particular role in this process namely in terms of information technology (control of the process) and intermodal integration (control of the flows).
Freight distribution promotes regional competitiveness and their integration in global supply chains and thus change the commercial geography of a region. Logistical capabilities are often equated with competitiveness over segments of the supply chain, ranging from resource extraction, manufacturing and retailing. Both public and private interests are now considering various infrastructure and activities related to logistics and supply chain management as high priority projects for national investment and economic development. This often takes the form of logistics zones linked to intermodal terminal facilities, such as ports, rail yards and barge terminals. Logistics is also linked with changes brought be ecommerce. For instance, the growth of online purchases is linked with a decline of the retail commercial footprint, but with the increase of warehousing and distribution.
An important geographical, commercial and logistical aspect of transportation is the issue of empty movements. Irrespective of the mode involved, the conveyance usually has to return to its location of origin. If part of the transport is done empty (without carrying goods or passengers), then the costs of these empty movements have to be assumed one way or the other, either directly by the carrier or indirectly by the customer. The main factors inducing empty movements are related to imbalanced flows (such as international trade), specialized transport equipment being able to carry only specific types of merchandises, short range movements preventing a range of backhaul options and regulatory restrictions such as cabotage laws or the jurisdiction of operators.