The Geography of Transport Systems
Jean-Paul Rodrigue (2017), New York: Routledge, 440 pages.
ISBN 978-1138669574
Logistics and Freight Distribution
Authors: Dr. Jean-Paul Rodrigue
1. The Nature of Logistics
The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. These changes are not merely quantitative with more freight in circulation, but also structural and operational. Structural changes mainly involve manufacturing systems with their expanded geography of production, while operational changes mainly concern freight transportation with its geography of distribution, namely intermodal transport systems. As such, the fundamental question does not necessarily reside in the nature, origins and destinations of freight movements, but how this freight is moving. New modes of production are concomitant with new modes of distribution, which brings forward the realm of logistics; the science of physical distribution.
Logistics involves a wide set of activities dedicated to the transformation and distribution of goods, from raw material sourcing to final market distribution as well as the related information flows. Derived from Greek logistikos (to reason logically), the word is polysemic. In the Nineteenth century the military referred to it as the art of combining all means of transport, revictualling and sheltering of troops. In a contemporary setting, it refers to the set of operations required for goods to be made available on markets or to specific locations.
The application of logistics enables a greater efficiency of movements with an appropriate choice of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available goods, raw materials and commodities, fulfilling four major requirements related to order, delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity including production, location, time and control of elements of the supply chain. It thus enables a better managerial level of space-time relations and as such an important aspect of transport geography. Logistics acts as the material and organizational support of globalization requiring a complex set of decisions to be made concerning an array of issues such as the location of suppliers, the transport modes to be used and the timing and sequencing of deliveries.
The distinction between logistics and supply chain management can be subject to contention since the terms are often used interchangeably. Previously, logistics tended to focus on transportation and warehousing aspects, while supply chain management would consider sourcing as well as final distribution. In recent years the meaning of both has converged. Thus, logistics and supply chain management can be considered as similar and interchangeable terms, but the term supply chain management is usually considered to be more comprehensive since if also considers the competitive aspects of distribution. Activities comprising logistics include physical distribution; the derived transport segment, and materials management; the induced transport segment.
Physical distribution is the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be derived from materials management demands.
Materials management considers all the activities involved in the manufacturing of commodities in all their stages of production along a supply chain. It includes production and marketing activities such as production planning, demand forecasting, purchasing and inventory management. Materials management must insure that the requirements of supply chains are met by dealing with a wide array of parts for assembly and raw materials, including packaging (for transport and retailing) and, ultimately, recycling and reusing discarded goods and commodities. All these activities are assumed to be inducing physical distribution demands.
The close integration of physical distribution and materials management through logistics is also blurring the reciprocal relationship between the derived transport demand function of physical distribution and the induced demand function of materials management. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. The functions of production, distribution and consumption are difficult to consider separately, thus recognizing the integrated transport demand role of logistics. Distribution centers are the main facilities from which logistics are coordinated.
Distribution Center. Facility or a group of facilities that perform consolidation, warehousing, packaging, decomposition and other functions linked with handling freight. Their main purpose is to provide value-added services to freight, which is stored for relatively shorts periods of time (days or weeks). DCs are often in proximity to major transport routes or terminals. They can also perform light manufacturing activities such as assembly and labeling. A warehouse is a facility designed to store goods for longer periods of time. Therefore, a distribution center tends to focus on the demand while a warehouse is more driven by the supply.
Since it would be highly impractical to ship directly goods from producers to retailers, distribution centers essentially act as a buffer where products are assembled, sometimes from other distribution centers, and then shipped in batches. Distribution centers are established in part to deal with to different forms of asynchronisms in freight distribution such as different paces of production and consumption. Distribution centers commonly have a market area in which they offer a service window defined by delivery frequency and response time to order. This structure looks much like a hub-and-spoke network.
The wide array of activities involved in logistics, from transportation to warehousing and management, have respective costs. Once compiled, they express the burden that logistics impose on distribution systems and the economies they support, which is known as the total logistics costs. Costs are however not the only consideration in supply chain management since supply chains can also be differentiated by time, reliability and risk level. The nature and efficiency of distribution systems is strongly related to the nature of the economy in which they operate. Worldwide logistics expenditures represent about 10-15% of the total world GDP. In economies dependent on the extraction of raw materials, logistical costs are comparatively higher than for service economies since transport costs account for a larger share of the total added value of goods. For the transport of commodities, logistics costs are commonly in the range of 20 to 50% of their total costs.
The emergence of logistics in contemporary supply chains is based upon continuous improvements in transport and inventory management costs, leading to lower cycle and lead times.
Cycle time. The amount of time required from the receipt of an order to when this order is completed (assembled) and ready for delivery. Often labeled as the completion rate and is mostly linked with the function of production in the manufacturing sector; its level of responsiveness.
Lead time. The time it takes for an order to be fulfilled, which includes preparation, packing and delivery to a designed location. Often labeled as the arrival rate and is mostly linked with the function of distribution, mainly its efficiency and reliability; its level of responsiveness.
Before the emergence of online purchases, customers were rarely exposed to the concepts of cycle times and lead times since goods were directly purchased at a store. The customer was seeing the outcome of cycle and lead times, but not the process. An online transaction, particularly if it concerns a complex and customizable good (e.g. a computer) commonly includes the time it takes for the order to be ready for shipment and the delivery time from the distribution center to the customer's address.
2. Driving Forces in Supply Chain Management
Lean supply chains, as a managerial concept, is often labeled as seminal in the emergence of modern supply chains where inventory levels are kept at a minimum and where a large share of the inventory is in constant circulation. Typically, the manufacturing sector has 6 to 8 inventory turns per year. In the electronics sector, this can even be more frequent with 10 to 20 inventory turns per year. During the 1980s, the application of flow control permitted to reduce inventories in time-sensitive manufacturing activities from several days' worth to several hours. Much of these efforts initially took place within the factory, while supply and output flowed as batches from suppliers and to distributors. In the 1990s, with the convergence of logistics and information and communication technologies (ICT), this principle was increasingly applied to the whole supply chain, particularly to the function of distribution.
Another important requirement was containerization, which conferred substantial flexibility to production systems in addition to the container being its own storage unit. The expansion of standard transport infrastructure such as highways, terminals and airports was also essential for the development of modern logistics. Logistics and integrated transport systems are therefore related, particularly because of the container which has concomitantly become a unit of load (transport), production and distribution. The technological dimension of logistics can thus be considered from six perspectives:
  • Transportation modes. Modes have been the object of very limited technological changes in recent decades. In some cases, modes have adapted to handle containerized operations such as road and rail (e.g. doublestacking). It is maritime shipping that has experienced the most significant technological change, which required the construction of an entirely new class of ships and the application of economies of scale to maritime container shipping.
  • Transportation terminals. The technological changes have been very significant with the construction of new terminal facilities operating on a high turnover basis. Better handling equipment, particularly through automation, lead to improvements in the velocity of freight at the terminals, which are among the most significant technological changes brought by logistics in materials movements. In such a context, the port has become one of the most significant terminals supporting global logistics. Port facilities are increasingly being supported by an array of inland terminals connected by high capacity corridors.
  • Distribution centers and distribution clusters. Technological changes impacted over the location, design and operation of distribution centers; the facilities handling the requirements of modern distribution. They serve different purposes depending on the combination of fabrication, storage and distribution functions they perform within their supply chains. Modern distribution centers tend to consume more space, both from the site they occupy and the building area. From a locational standpoint, distribution centers mainly rely on trucking, implying a preference for suburban locations with good road accessibility supporting a constant traffic. They service regional markets with a 48 hours service window (lead time) on average, implying that replenishment orders from their customers are met within that time period. They have become one floor facilities designed more for throughput than for warehousing with specialized loading and unloading bays and sorting equipment. Cross-docking distribution centers represent one of the foremost expressions of a facility that handles freight in a time sensitive manner. Automation is also pushing forward the productivity level of distribution centers. For instance, it is possible to fully automate the sorting, storing and palletizing processes in a distribution center. Another trend has been the setting of freight distribution clusters where distribution activities agglomerate to take advantage of shared infrastructures and accessibility. This tends to expand the added-value performed by logistics.
  • Load units. Since logistics involves improving the efficiency of flows, load units have become particularly important. They are the basic physical management unit in freight distribution and take the form of pallets, swap bodies, semi-trailers and containers. Containers are the privileged load unit for long distance trade, but the growing complexity of logistics required a more specific level of load management. The use of bar codes and increasingly of RFID (Radio Frequency Identification Device) enables a high level of control of the load units in circulation.
  • Information technologies. Consider the vast array of information processing changes brought by logistics. The commodity chain is linked with physical flows as well as with information flows, notably through Electronic Data Interchange (EDI). Producers, distributors and consumers are embedded in a web of reciprocal transactions. Standardization of Internet-based applications enabled corporations to establish interfaces with their customers. While these transactions mostly take place virtually, their outcomes are physical flows. The commercial diffusion of Global Positioning Systems (GPS) is now allowing for the identification and routing of vehicles and therefore a better utilization of these assets. The outcome is often more efficient production and distribution planning with the additional convenience of tracking modes, shipments and inventories and thus giving a greater visibility for customers.
  • Ecommerce. Ecommerce offers advantages for the whole commodity chain, from consumers being exposed to a wider range of products to manufacturers and distributors being able to adapt quickly to changes in the demand. It is therefore a key driver of change for freight distribution. Ecommerce generates parcel movements for home deliveries that are carried by conventional postal services as well as specialized parcel carriers. In the United States, 50 to 70% of all home deliveries are made by the United States Postal Services, while the remaining is carried by private parcel companies. Fulfillment (warehousing, packaging) costs account for 10 to 12% of the revenue of ecommerce, while shipping and delivery costs added up another 10%. Ecommerce is also inciting shifts in retail freight distribution with the setting of new fulfillment and sortation centers. Because of its more effective cost structure, e-commerce is able to offer goods 10 to 15% cheaper than retail. As retail sales get partially replaced by online sales, the need for conventional retail space declines while the footprint occupied by distribution center increases.
Freight distribution is within a paradigm shift from inventory-based logistics (push) to replenishment-based logistics (pull). Demand, particularly in the retailing sector, is very difficult to anticipate accurately and is prone to cycles. A closer integration between supply and demand enables a more efficient production system with fewer wastes in terms of unsold inventory. Logistics is thus a fundamental component of efficiency improvements in a market economy.
3. Distribution Systems
In a broader sense distribution systems are embedded in a changing macro- and microeconomic framework, which can be roughly characterized by the terms of flexibility and globalization:
  • Flexibility implies a highly differentiated, strongly market and customer driven mode of creating added-value. Contemporary production and distribution is no longer subject to single-firm activity, but increasingly practiced in networks of suppliers and subcontractors. The supply chain bundles together all this by information, communication, cooperation, and, last but not least, by physical distribution.
  • Globalization means that the spatial frame for the entire economy has been expanded, implying the spatial expansion of the economy, more complex global economic integration, and an intricate network of global flows and hubs.
The flow-oriented mode affects almost every single activity within the entire process of value creation. The core component of materials management is the supply chain, the time- and space-related arrangement of the whole goods flow between supply, manufacturing, distribution and consumption. Its major parts are the supplier, the producer, the distributor (e.g. a wholesaler, a freight forwarder, a carrier), the retailer, the end consumer, all of whom represent particular interests. Compared with conventional freight transport systems, the evolution of supply chain management and the emergence of the logistics industry are mainly characterized by three features:
  • Integration. A fundamental restructuring of goods merchandising by establishing integrated supply chains with integrated freight transport demand. According to macro-economic changes, demand-side oriented activities are becoming predominant. While traditional delivery was primarily managed by the supply side, current supply chains are increasingly managed by the demand.
  • Time mitigation. Whereas transport was traditionally regarded as a tool for overcoming space, logistics is concerned with mitigating time. Due to the requirements of modern distribution, the issue of time is becoming increasingly important in the management of commodity chains. Time is a major issue for freight shipping as it imposes inventory holding and depreciation costs, which becomes sensitive for tightly integrated supply chains.
  • Specialization. This was achieved by shifts towards vertical integration, namely subcontracting and outsourcing, including the logistical function itself. Logistics services are becoming complex and time-sensitive to the point that many firms are now sub-contracting parts of their supply chain management to what can be called third-party logistics providers (3PL; asset based). More recently, a new category of providers, called fourth-party logistics providers (4PL; non asset based) have emerged.
While many manufacturing corporations may have own account transportation, increasingly the complex needs of the supply chain are being contracted out to third parties. Depending on the strategy and costs corporations can outsource in whole or in part their transport and supply chain operations. Third party logistics providers (3PL) have emerged from traditional intermediaries such as the forwarders, or from transport providers such as FEDEX or Maersk. Both groups have been at the forefront of the intermodal revolution that is now assuming more complex organizational forms and importance. In offering door to door services, the customer is no longer aware or necessarily concerned with how the shipment gets to its destination, namely the modes used and the routing selected. The preoccupation is with cost, reliability and level of service. This produces a paradox, that for the customer of intermodal services geographic space becomes meaningless; but for the intermodal providers routing, costs and service frequencies have significant geographical constraints. The effectiveness of intermodal transport systems is thus masking the importance of transportation to its users.
Logistics is thus concomitantly concerned by distribution costs and time. In addition, many dimensions are added to the function of distribution. While in the past it was a simple matter of delivering an intact good at a specific destination within a reasonable time frame, several components have become linked with distribution:
  • Distribution time, notably the possibility to set a very specific ETA for deliveries and a low tolerance for delays.
  • The reliability of distribution measured in terms of the availability of the ordered goods and the frequency at which orders are correctly serviced in terms of quantity and time.
  • The flexibility of distribution in terms of possible adjustments due to changes in the quantity, the location or the delivery time.
  • The quality of distribution concerns the condition of delivered goods and if the specified quantity was delivered.
4. Geography of Freight Distribution
Logistics has a distinct geographical dimension, which is expressed in terms of flows, nodes and networks within the supply chain. Space / time convergence, a well known concept in transport geography where time was simply considered as the amount of space that could be traded with a specific amount of time, including travel and transshipment, is being transformed by logistics. Activities that were not previously considered fully in space / time relationships, such as distribution, are being integrated. This implies an organization and synchronization of flows through nodes and network strategies.
The traditional arrangement of goods flow included the processing of raw materials to manufacturers, with a storage function usually acting as a buffer. The flow continued via wholesaler and/or shipper to retailer, ending at the final customer. Delays were very common on all segments of this chain and accumulated as inventories in warehouses. There was a limited flow of information from the consumer to the supply chain, implying the producers were not well informed (often involving a time lag) about the extent of consumption of their outputs. This procedure is now changing, mainly by eliminating one or more of the costly operations in the supply chain organization. Reverse flows are also part of the supply chain, namely for recycling and product returns. An important physical outcome of supply chain management is the concentration of storage or warehousing in one facility, instead of several. This facility is increasingly being designed as a flow- and throughput-oriented distribution center, instead of a warehouse holding cost intensive large inventories.
Due to new corporate strategies, a concentration of logistics functions in certain facilities at strategic locations is prevalent. Many improvements in freight flows are achieved at terminals. Facilities are much larger than before, the locations being characterized by a particular connection of regional and long-distance relations. Traditionally, freight distribution has been located at major places of production, for instance in the manufacturing belt at the North American East Coast and in the Midwest, or in the old industrialized regions of England and continental Europe. Large-scale goods flows are directed through major gateways and hubs, mainly large ports and major airports, also highway intersections with access to a regional market. The changing geography of manufacturing and industrial production has been accompanied by a changing geography of freight distribution taking advantages of intermediary locations.
The spatial structure of contemporary transportation networks is the expression of the spatial structure of distribution. Since in logistics lead and response times are important service factors, locations near main highways are of particular importance for distribution centers. Logistics is particularly sensitive to accessibility. The setting of networks leads to a shift towards larger distribution centers, often serving significant trans-national catchments. However, this does not mean the demise of national or regional distribution centers, with some goods still requiring a three-tier distribution system, with regional, national and international distribution centers. The structure of networks has also adapted to fulfill the requirements of an integrated freight transport demand, which can take many forms and operate at different scales. Most freight distribution networks, particularly in retailing, are facing the challenge of the "Last Mile" which is the final leg of a distribution sequence, commonly linking a distribution center and a customer (store).
The impacts of e-commerce on the geography of logistics are little understood, but some trends can be identified. As e-commerce becomes more common, it is changing the spatial characteristics physical distribution systems:
  • The conventional retailing supply chain coupled with the process of economies of scale (larger stores; shopping malls) is being challenged by a new structure. The new system relies on large warehouses located outside metropolitan areas from where a vast number of small parcels are shipped by vans and trucks to separate online buyers. This spatially disaggregates retailing distribution, and reverses the trend towards consolidation that had characterized retailing (larger stores and larger distribution centers). Still, when online shopping reaches a large volume, parcel delivery companies have the opportunity to create economies through the consolidation of loads.
  • In the conventional retailing system, the shopper was bearing the costs of moving the goods from the store to home, but with e-commerce this segment of the supply chain has to be integrated in the freight distribution process. The result potentially involves more packaging and more tons-km of freight transported. Traditional distribution systems are thus ill fitted to answer the logistical needs of e-commerce, especially in urban areas.
Since cities are at the same time zones of production, distribution and consumption, the realm of city logistics is of growing importance. This issue is made even more complex by a growing dislocation between production, distribution and consumption, brought by globalization, global production networks, and efficient freight transport systems and logistics. This dislocation has incited a growing emphasis on issues related to supply chain integration so that in spite of acute geographical separation physical and managerial processes have minimal friction. How challenging individual countries are perceived to be in the setting and management of supply chains can be assessed, as done by the Logistic Performance Index. It underlines that logistical costs in developing countries tend to be higher, which undermines economic development for the main following reasons:
  • The regulatory complexity of distributing goods in developing countries involves higher logistic costs and is inciting distributors to maintain higher inventory levels to cope with uncertainty. Custom regulations are complex and prone to delays and road transportation can be subject to arbitrary tolls and inspections. This is reflected in higher final goods or component prices that are assumed directly or indirectly by consumers.
  • Labor and infrastructure productivity in developing countries tend to be lower, which in many cases doubles logistics costs. The advantages of cheap labor can often be counterbalanced by lower levels of productivity. This also impacts the reliability of freight distribution with fluctuations in lead times and deliveries.
  • Modal and intermodal capacity is inconsistent. While several terminal facilities, particularly ports, are modern with capacity on par with global standards, hinterland transportation can be problematic with road segments unable to effectively handle trucks of standard capacity.
In such a context, policy reforms have been advocated to promote the effectiveness of logistics services and therefore break a vicious cycle in which several developing countries are entangled in. This involves a series of reform, pending the capacity to overcome political constraints and the inertia (and commonly the ent seeking behavior) of established stakeholders, concerning service providers, infrastructure investment as well as the administrative and regulatory environment.