Management question Word report

GLOBAL_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT_3E_----_Part_One__Logistics_and_Supply_Chain_Context_.pdf

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CHAPTER 2 GLOBALISATION AND INTERNATIONAL TRADE 29

will put in place certain conditions (for example low rates of corporate taxation) in order to attract more FDI.22

Table 2.4 outlines some of the many factors that have to be considered when deciding on an optimum location for an overseas facility. Indeed many of the factors listed for consideration arise regardless of the type or location of facility being considered, and in addition to their relevance in the context of the discussion here on FDI, they are also relevant in the context of issues considered in subsequent chapters of this book (for example those dealing with outsourcing and with warehousing).

It is important to recognise the important role played by large companies in the context of global logistics flows. Some of the world’s largest companies have annual turnovers greater than the GDP of some smaller countries. Given their scale, how they move product around the world can have major implications for logistics network structure and operations. For example, large flows in one direction can create opportunities for other companies to use the empty containers on the return leg.

Participation by a country in global trade is predicated on access to logistics networks. UNCTAD and other stakeholders are at the vanguard of efforts to facilitate international trade through improved logistics. An area of recent focus, for example, is around ensur- ing landlocked countries have access to seaports through dedicated transit systems and inland dry ports (dry ports are typically inland terminals connected by rail to a distant seaport).23

DIRECTIONAL IMBALANCES As Figure 2.1 illustrated, world trade has grown considerably in recent decades. One particular characteristic of freight markets, which distinguishes them from passenger markets, is what are commonly referred to as directional imbalances. A simple analogy explains this. Most people who make a journey today aim to make a return trip at some point. This, however, is not the case with freight, which usually moves to either be

Table 2.4 Site selection factors

Labour costs Political stability Employment regulations Environmental regulations Available skills Taxation rates Land costs and availability of suitable sites

Government supports

Energy costs Currency stability Availability of suitable suppliers Benefits of being part of a cluster of similar

companies Transport and logistics costs Preferred locations of competitors Transport linkages Access to markets Communications infrastructure and costs Community issues and quality of life

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Mangan, J., & Lalwani, C. L. (2016). Global logistics and supply chain management 3e. ProQuest Ebook Central <a onclick=window.open('http://ebookcentral.proquest.com','_blank') href='http://ebookcentral.proquest.com' target='_blank' style='cursor: pointer;'>http://ebookcentral.proquest.com</a> Created from kingsowninst-ebooks on 2020-08-11 07:37:12.

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30 PART ONE LOGISTICS AND SUPPLY CHAIN CONTEXT

Sometimes directional imbalances can exist in opposite directions on the same route for different commodities. This can arise with, for example, perishable products such as foodstuffs and flowers, which usually require refrigerated containers. There could be a surplus of empty containers in one direction, thus allowing low rates to be charged for freight in that direction. Perishable products might not, however, be able to use this

consumed at the destination point or have further value added to it before making another journey. In other words most freight makes one‐way, and not return, journeys. Figure 2.4 illustrates the traffic volumes on a sample of major global freight corridors.

This of course would be fine if the same volume and type of freight (certain types of freight have particular han- dling and equipment characteristics, e.g. refrigerated containers for perishable freight) went in both directions on all routes. But of course it doesn ’ t, and in some cases the differences can be quite pronounced. This in turn raises interesting challenges for the transport companies who are faced with variable directional utilisation of their equipment.

N Asia- Amer

N Amer- Asia

N Asia- Europe

N Europe- Asia

m il

li o

n s

o f

T E

U s

Route

Figure 2.4 Major Trade Corridors. (Source: UNCTAD, 2014) 24

Directional imbalances arise in freight markets when there are mismatches in the volumes or types of freight moving in opposite directions in a freight market.

DIRECTIONAL IMBALANCES: THE CHINA– EU ROUTE

● It can cost the same amount to transport a container unit by road between Munich and Hamburg in Germany as it does to ship the same container by sea from Shanghai in China to Hamburg in Germany.

● It can cost twice as much to ship a typical 20‐ft container between Hong Kong and the EU when compared with the opposite direction (EU–Hong Kong). This is because of the huge volume of exports from China into European markets.

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CHAPTER 2 GLOBALISATION AND INTERNATIONAL TRADE 31

available equipment and special refrigerated containers would have to be imported to carry such products.

The challenge for carriers is obviously to match as much inbound freight capacity with outbound freight capacity as possible.25 When, however, there are gross imbalances in import and export volumes and cargo types this is not always possible. As a result empty containers may need to be repositioned to where they are required. Furthermore this can lead to problems for ports, which sometimes have to store such empty containers. Shipping companies have also endeavoured to come up with solutions such as develop- ing new routing patterns which minimise empty container movements and seek to max- imise operations on routes with higher traffic densities (Figure 2.5).

In the traditional system vessels move

in both directions on each route. If

imbalances exist on any of the routes

then these will not be avoided.

In the circular system vessels move in

one direction only, preferably in the

direction of greatest traffic volume. Of

course in reality different combinations

and mixes of frequencies will be used

(for example, where an imbalance exists

one in four vessels may ply in the

opposite direction where there are

lower traffic volumes).

Sometimes circular routings are referred to as liner routings as this is a pattern that was in the past,

and to an extent still is, adopted by many passenger liner vessels.

Figure 2.5 Traditional versus circular routings

LEARNING REVIEW

The chapter sought to introduce the concept of globalisation and the nature of international trade in the global economy, and in turn the interrelationship of both with logistics systems. Issues such as the role played by multinational companies and the impact of directional imbalances in freight markets were also explored. The global economy today is increasingly interconnected with logistics playing an essential lubricating role – just as oil lubricates a car engine (without oil the engine would quickly seize up), so too the global economy relies on efficient and effective logistics systems in order to function (just look for example at what happens when transport services are delayed or there is industrial action at a port or airport). As the data and trends outlined in this chapter have attempted to illustrate, the global

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