BOK MATRIX

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Abstract

The paper analyzes the important aspects regarding how transportation impact the global

logistics in technology, materials research, alternative fuels and physical infrastructure which

produced a highly coordinated, efficient, secure and expedited network of ocean and airports,

regional and cross-country rail lines, interstate highways and byways. It assesses a positive

impact of transportation on global logistics. It is also widely acknowledged that transportation is

going to play a crucial role in the global logistics development in the future, especially in transit

related transportation. On the other hand, the growth of transportation, particularly in road

transportation, has had a significant impact on congestion, safety and pollution. Therefore, the

task of transportation decision makers is to find the key for sustainable transportation

development and reduction of a negative transportation impact to sustain the transportation

sector as the engine of global logistics. The paper analyses both the positive and negative

impacts of transportation on global logistics and evaluates the possible ways developing the

sustainable transportation system. Improvements in transportation have also led to environmental

protection and enhancements. The United States rail system is experiencing unprecedented

volume of international freight.

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Introduction

Defined, transportation is the movement of goods and people from one location to another. It

plays a vital role in the global logistics, which increases the production efficiency and links to

the global logistics system. There are many different modes of transportation, however, they are

divided into three basic types depending on over what surface they travel: land, water, and air.

Therefore, water is economical mode for transporting heavy loads like cargo. Moreover, it is an

effective method of transporting large quantities of the air. Water transportation is the process of

transport watercraft, such as a barge, boat, ship or sailboat over a body of water such as a sea,

ocean, lake, and canal.

One of the benefits is that cost of its construction -perishable goods over long distance, which

plays major role in international trade. Simultaneously, water transport is the safest mode which

provides convenience to the people without accidents. Sea transportation is usually used by

companies who ship a large amount of goods at once, with longer lead times. This mode of

transport is the longest, yet is ideal for bulk shipments such as coal and mineral. Road transport

is the most popular mode for everyone to use every day. The most important aspects of

transportation is its role in the global logistics. In order for us to run errands to the mall, grocery

store, and post office, there has to be something there we need. The job of moving those goods

and services around belongs to the role of transportation. Our logistics and way of life would

stop in its tracks, if we didn't have the energy needed to transport goods and services. Nearly all

businesses, professions, and industries require energy for transportation. Americans do not

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produce everything we use locally. We have our clothes sewn in Singapore. We get our winter

peaches from Chile. We get our cars from Korea. We get our wristwatches and some goods from

China.

The Global Logistic Benefits of Transportation Infrastructure Investment.

A large body of logistic research has shown that investments in transportation infrastructure

can have a substantial positive impact on the long-run performance of global logistics.

“Investments that create, maintain, or expand transportation networks are likely to promote

improved global logistics efficiency, higher productivity, and more rapid growth of logistics

activity” (Gramlich, 1993, pg. 4). Nonetheless, despite the potential for substantial long-run

logistics benefits from infrastructure investment, the United States has been underinvesting for

many years. Relative to the size of our economy, the United States is investing less in

infrastructure than many other nations (Peterson, 2011, pg.12). For example, “while the United

States is investing approximately two percent of GDP on infrastructure, China and Europe are

investing close to nine percent and five percent of GDP on infrastructure, respectively.” “The

American Society of Civil Engineers (ASCE) estimates that we face a $2.2 trillion need for

infrastructure investment over the next five years.” (Gramlich, 1993, pg. 6). In short, the U.S.

has not been investing adequately in infrastructure.

The benefits of investing in infrastructure are especially high when there are underutilized

resources in the supply chain and logistics. In addition to the long-run effects on logistics

growth and productivity, investments in infrastructure can have short-run benefits by supporting

employment in construction and in the production of materials. However, these short-run effects

can vary greatly depending on the country or the overall global logistics.

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“In 2008, the railway department has played a major force in stimulating domestic demands in

China, and has completed more than 330 billion yuan investment in infrastructure. In 2009,

China will completed 600 billion yuan investment in railway construction, which is almost the

double size of that in 2008. From 2010 to 2012, China invested more than 600 billion yuan

annually in railway infrastructure construction” (Jie, 2009, pg. 5). China, have benefited from

imports, improved competition, greater choice and lower prices. At the same time, they've

benefited from greater exports and from reaching new developing markets and the rich cultures

of people from around the world.

Jie, stated that “Since reform and opening up, the constructions of China's basic industries

and infrastructures have been significantly strengthened and their capacities of supporting global

logistics and social development have been greatly enhanced. Among them, the construction of

traffic transportation industry is the most prominent. It has developed so rapidly that the

integrated transportation network, which is constituted by railways, highways, civil aviation,

Inland River and pipeline transportation has extended in all directions and played more and more

important roles in promoting China's national logistic growth and social development.” (Jie,

2009, pg. 7) . A modern society can effectively function only having an effective transportation

and global logistics system. America also transport items out of the country. Our grain ends up

in ports all over the world, including Russia, China, Japan, the European Union, and among all

other countries. According to Peterson, who stated that “American transportation systems

continue to play an important role in logistics development at home, and participation in

international trade abroad. Transportation is at the heart of logistics. In order to make decisions

about the future of energy, the role of transportation must be considered. One certainty is that

transportation is more important than it has ever been.” (Peterson, 2011, pg.12).

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The transportation sector is at the heart of globalization either in business, in the lives of citizens

and in the global logistics. Transportation and passenger service strongly support trade and

logistics growth. Beyond that, there is hardly a global or challenge that does not have a

significant transport component, whether it is mass migrations, geopolitical conflict, natural

disasters, health threats or piracy. It is obvious that transportation systems need to be reliable and

sustainable to support logistic recovery. In this regard, many existing policies remain central in

order to invest where needed, improve efficiency, reduce environmental harm and increase

safety.

Transportation has a strong case in competing for stimulus funding and indeed has been a

major beneficiary in some countries. Therefore, larger and larger investments are spent annually

to maintain and improve the transportation system in the American to benefit passenger and

freight transportation (Gramlich, 1993, pg.15). Along with the internal market, the volume of

freight has significantly grown over past few decades and still keeps increasing all over the

world. At national level, high transportation costs distorts the distribution of labor resources in

regions, thus negatively effecting the development of competitive services and production.

Besides, an increase in transportation costs dwarfs even regional growth. In general, the

reduction of production costs has a direct impact on the increase of the real incomes of society,

therefore fostering the development of logistics.

Transportation Component on Global Logistics

Because of the intensive use of infrastructure, the transportation sector is an important

component of the global logistics and a common tool used for development. “The transportation

sector can assist the global logistics recovery by increasing its efficiency and there is much work

to be done to help the sector itself overcome the results of the downturn, as well as to optimize

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its contributions to economies and societies.” (Liu, 2008, pg. 8). Given the degree of mutual

reliance at the global level, improved international co-operation will be essential.

The scale of logistics activity is just as impressive as the speed of technological development,

and lower production costs and higher productivity have contributed to the creation of greater

wealth today than ever before. Without a doubt, transportation is an indispensable part of this

process. It provides important distribution for production, as well as essential personal mobility,

directly interconnecting businesses to worldwide markets. Transportation is a key element of

logistic growth and competitiveness. “Our freight system is the lifeblood of the American

logistics, moving goods quickly and efficiently to benefit both businesses and consumers across

the country," said Secretary LaHood.” (Peterson, 2011, pg. 18) .With the launch of the Freight

Policy Council, we have an opportunity to make not only our freight system, but all modes of

transportation, stronger and better connected.

This is even more so in a global logistics where logistics opportunities are increasingly

related to the mobility of people, goods and information. A relation between the quantity and

quality of transportation infrastructure and the level of logistic development is apparent. High

density transportation infrastructure and highly connected networks are commonly associated

with high levels of development. When transportation systems are efficient, they provide

logistics and social opportunities and benefits that result in positive multipliers effects such as

better accessibility to markets, employment and additional investments.

Trends of Transportation System Development

A specific purpose of transportation is to fulfill demand for mobility, since transportation can

only exists if it moves people and goods around. Otherwise, it has no purpose. This is because

transportation is the outcome of a derived demand. Distance and a core attribute of transportation

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can be represented in a variety of ways ranging from a straight line between two locations to

what can be called logistical distance; a complete set of tasks required to be done so that distance

can be overcome. “Consequently, any movement must consider its geographical setting which in

turn is linked to spatial flows and their patterns.”(Tolley and Turton 1995, pg.11). Urbanization,

multinational corporations, the globalization of trade and the international division of labor are

all forces shaping and taking an advantage of transportation at different, but often related scales.

According to Tolley and Turton, Freight volumes are expected to increase in Europe by another

60% by 2020 according to the Freight Analysis Framework, a comprehensive database and

policy analysis tool (European Energy and Transport 2008, pg.18).

Over the five years from 2009 to 2014, land, air and water transports had the fastest growing

turnover among nonfinancial servicing activities with the average growth rates of 4.2% or more

per annum over this period of time (Europe in Figures 2014, pg. 22). However, the key problems

of congestion, the quality of services (punctuality and connectivity), affordability and pollution

put at risk logistics development. Moreover, international trade is forecast to grow faster than

domestic trade. The way in which goods are moved has also evolved. Presently, businesses and

individuals demand more flexible and timely service increasing the importance of an efficient

and reliable freight transportation system. Another trend is the increasing use of intermodal

transportation to move freight. The rise in intermodal transportation emphasizes the importance

of infrastructure that connects different modes, especially at international gateways or where

modes converge at transfer points.

Consequently, not only is the condition and performance of each modal network important,

but also how different modes fit together to provide a continuous transportation system. The

growth in freight movement is placing enormous pressure on the already congested highway

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system all over Western Europe. No slowdown in freight transportation growth in coming few

years is in sight. Freight flows tend to turn into the transcontinental pattern as Far East, Middle

East Asian countries as well as Caucasus region have been intensively developing logistic

relations with European countries. Lithuania, crisscrossed by trans-European axis, also expects

stable growth in freight volumes. The implementation of intelligent transport systems (ITS) will

shape transportation systems in the future: ITS are seen as a precondition towards the sustainable

transportation system approach and an effective instrument needed to deal with growing freight

transportation flows and increased demand for seamless mobility.

Benefits of Transportation to Global Logistics

Investments into transportation infrastructure are aimed at additional transportation capacity,

increased reliability and a better quality of transportation services. This in turn leads to lower

transportation costs as well as to shorter transit times. Besides, better transportation infrastructure

is the core element for global logistics. “When transportation systems are deficient in terms of

capacity or reliability, they can have global logistics cost such as reduced or missed opportunities

and lower quality of life.” (Peterson, 2011, pg.23). At the aggregate level, efficient

transportation reduces cost in many global logistic sectors, while inefficient transportation

increases these costs. In addition, the impacts of transportation are not always intended and can

have unforeseen or unintended consequences. For instance, (Peterson, 2011, pg. 20) described

how congestion is often an unintended consequence in the provision of free or low cost transport

infrastructure to the users.

Transportation also carries a vital social and environmental load, which cannot be neglected.

Assessing the global logistic importance of transportation requires a categorization of the types

of impacts it conveys. These involve core (the physical characteristics of transportation),

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operational and geographical dimensions. “The most fundamental impacts of transportation

relate to the physical capacity to convey passengers and goods and the associated costs to

support this mobility.” (Peterson, 2011, pg. 25). This involves the setting of routes enabling new

or existing interactions between global logistic entities. Operational improvement in the time of

performance, notably in terms of reliability, as well as reduced loss or damage. This implies a

better utilization level of existing transportation assets benefiting its users as passengers and

freight are conveyed more rapidly and with less delays.

Geographical access to a wider market base where economies of scale in production,

distribution and consumption can be improved. Increases in productivity from the access to a

larger and more diverse base of inputs (raw materials, parts, energy or labor) and broader

markets for diverse outputs (intermediate and finished goods). Another important geographical

impacts concerns the influence of transportation on the location of activities. Europe have better

productivity and competitiveness which is the backbone of logistics growth (European Energy

and Transport 2008, pg. 19). Both types of direct and indirect benefits of transport are significant

to logistics. “If direct transportation benefits are easily evaluated and considered as the direct

outcomes of successful transportation policy, indirect benefits are not that easily assessed,

nevertheless, these are very important for the development of global logistics and different

sectors.” (Tolley, Turton, 1995, pg. 34).It is widely acknowledged that transportation plays a

crucial role in global logistic development. More specifically, it has been recognized that the

provision of a high quality of transportation system is a necessary precondition for the full

participation of remote communities in the benefits of national development: adequate, reliable

and economic. “Transportation is essential, although not in itself sufficient, for the social and

logistics advancement of rural areas in developing countries.” (Tolley, Turton, 1999, pg.12). The

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transportation sector is an important component of global logistics impacting on the development

and welfare of populations. When transportation systems are efficient, they provide smooth

logistics and social opportunities and benefit that impact transportation throughout global

logistics. When transportation systems are deficient, they can have an economic cost in terms of

reduced or missed opportunities.

The Geography of How Transportation Impact Global Logistics

Source: adapted from the European Conference of Ministers of Transport

Direct Transport

supply

Direct Transport

Demand

Indirect Microeconomic

Indirect Macroeconomic

Income from

transport operations

(fares and wages)

Access to wider

distribution markets

and niches

Improved

accessibility

Time and cost

savings

Productivity gains

Division of labor

Access to a wider

range of suppliers

and consumers

Economies of scale

Rent income

Lower price of

commodities

Higher supply of

commodities

Formation of

distribution networks

Attraction and

accumulation of

economic activities

Increased

competitiveness

Growth of

consumption

Fulfilling mobility

needs

There are a wide range of economic benefits conveyed by transportation and logistics

systems, some direct (income related) and some indirect (accessibility related). They are

impacting transportation supply and demand as well as at the microeconomic (sector-wise) and

macroeconomic (whole economy) levels. The matter remains about what is the extent of the

economic benefits for specific modes and locations (European Energy and Transport 2008, pg.

33).

Conclusion

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In conclusion, Investments in transportation infrastructure have substantial economic and

global logistics benefits, in both the short and the long run. Evidence of these benefits is clearly

visible in American, Europe, and China infrastructure projects. These investments, some of

which are described in this report, result in the following benefits for the country listed and our

nation’s transportation and logistics. This report has reviewed the global logistics rationale for

making immediate, substantial investments in transportation infrastructure. The benefits from

these investments has a growing number of manufacturers, both in the United States and around

the world. The relentless focus on using global logistics to reduce labor costs has blinded many

companies to global sourcing’s benefits.

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