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3-12 Chapter 3 International Logistics Infrastructure

Chapter 3 International Logistics Infrastructure 3- 11

Chapter 3

International Logistics Infrastructure

lEARNING oBJECTIVES

At the end of this chapter, YOU SHOULD:

Understand the importance of the infrastructure of a country to an international logistician

Identify characteristics of international transportation infrastructure.

Identify characteristics of international communication infrastructure.

Identify characteristics of international utilities infrastructure.

Preview

Infrastructure varies throughout the world. Some countries have major infrastructural deficiencies, but other developed portions of the world enjoy state-of-the-art capabilities of conducting international trade. Even in the world’s technological leader, the United States, there are infrastructure bottlenecks because of increased transportation demand. Railroads in recent decades have had to increase clearances of bridges and tunnels in order to accommodate double-stack container trains. Ports have had to enlarge facilities for increased container traffic and huge increases in ships’ sizes. Highways are strained handling truck traffic. All in all, without adequate infrastructure, international commerce is hindered.

Chapter Outline

3-1 Definitions

I. Infrastructure

a. The basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communication.

b. A collective term for the subordinate parts of an undertaking; substructure, foundation.

c. The permanent installations forming a basis for military operations, as airfields, naval bases, training establishments, . . . etc.

II. In the field of logistics, the definition can be very broad:

a. Infrastructure is a collective term that refers to all of the elements in place (publicly or privately owned goods) to facilitate transportation, communication, and business exchanges.

b. It would therefore include not only transportation and communication elements, but also the existence and quality of public utilities, banking services and retail distribution channels.

c. To this list, it makes sense to add

i. The existence and quality of the Court system.

ii. The defense of intellectual property rights.

iii. The existence of standards.

3-2 Transportation Infrastructure

3-2-1 Port Infrastructure

I. Depth of water

a. Few ports have natural depth of 40 feet required for biggest ships.

b. As a result they must dredge that depth.

II. Cranes

a. Large ships prevent cranes from having adequate reach.

b. Crane modifications can be very expensive.

c. An alternative is to allow ships to be loaded from both sides.

III. Bridge clearance

IV. Port operations

a. Work rules can hamper operations.

b. Long Beach only operates eight hours per day.

c. Strikes, work stoppages can be a problem.

V. Warehousing space

a. If not available, probability of cargo exposed to elements is high.

b. Need for refrigerated storage areas.

VI. Connections with land-based transportation services

a. Adequate rail connections

b. Roads that are not clogged as they access ports

3-2-2 canals and waterways infrastructure

I. Canals and locks must be large enough.

II. Largest ships that can get through Suez Canal are called Suez-Max ships.

III. Largest ships that can get through Panama Canal are called Panamax ships.

IV. Ships too large for Panama Canal are called post-Panamax ships.

V. Logistically strategic waterways:

a. Bosporus Strait in Turkey

i. Only link between Black Sea and the oceans.

ii. Primary trade route for Russia and the world.

iii. Becoming congested and raising safety concerns for nearby Istanbul.

b. Suez Canal

i. Prevents requirement of sailing all the way around Africa

ii. Too shallow

iii. Costly tolls

c. Panama Canal

i. Prevents requirements of sailing all the way around South America.

ii. Slow—only one direction of operation at a time.

iii. Running at capacity with waits of 22 hours.

iv. Still important despite rail land bridges.

d. Saint Lawrence Seaway

i. Links Great Lakes to Atlantic Ocean.

ii. Narrow and few ships can pass through its locks.

iii. Ice closes it January to March.

iv. Shippers are forced to find alternatives and its business is down 45% from 20 years ago.

e. Other possibilities

i. A canal through Nicaragua, parallel to Panama Canal would be free of locks.

ii. Canal through the Malay Peninsula would bypass the Strait of Malacca and the Port of Singapore.

iii. War in the Balkans destroyed bridges on Danube River, blocking fresh water transit between Black Sea and Northern Europe.

iv. Fresh water transit between Mediterranean Sea and Northern Europe.

v. Canal between Rhone River and Rhine River.

3-2-3 Airport Infrastructure

I. Runways

a. Runway size determines types of aircraft an airport can serve.

i. Long enough runways mean that an aircraft can handle jumbo jets for long distance international operations.

ii. Many older major airports became landlocked by development and could not be expanded to handle bigger jets.

b. Number of runways determines airport capacities.

II. Hours of Operation

a. Airports close to city must limit operations due to noise constraints.

b. Cargo tends to fly mainly at night.

III. Warehouse Space

3-2-4 rail infrastructure

I. Eighteenth century development of railroads often followed military strategies.

a. Lines built for moving troops.

b. Varied gauges in Spain and Russia to slow down invaders.

II. China’s rail infrastructure has been unable to keep up with economic growth.

III. Europe and Japan’s railroads have focused more on high-speed passenger service than on freight.

IV. Multi-modal emphasis.

a. Factors contributing to renewal of merchandise traffic on railroads:

i. Increased road congestion.

ii. Concerns about pollution and noise.

iii. Development of multi-modal containers.

b. Modernization of rail infrastructure:

i. Shift from boxcars to piggyback cars carrying truck trailers and to container cars.

ii. Increasing of height clearances for tunnels and other obstructions to allow doublestacking of containers.

iii. U.S. de-emphasis on passenger trains has allowed development of freight railroading, including fast freight trains.

iv. In Europe, freight trains have lower priority than passenger trains and use aging equipment.

v. There are plans to modernize the trans-Siberian railroad for freight shipments from Asia (Vladivostok) to Europe by rail.

vi. There are plans for a trans-Asian railroad connecting Singapore and Seoul to Europe via Turkey.

vii. Increased U.S. rail modernization has resulted in Land Bridges, which allow Asia-Europe traffic to leave ships, be transported across North America and be reloaded onto ships at ocean on other side of continent.

1. Journey is faster and cheaper than by ocean.

2. Allows economies of scale by the use of post-Panamax ships on Atlantic and Pacific routes.

3-2-5 Road infrastructure

I. Paved roads do not always mean good roads.

II. Some paved roads are in bad shape.

III. Some cities have extensive road congestion.

IV. Cities in many countries do not have an easily determined street numbering or naming system.

V. High-speed limit access highways sometimes limit truck sizes and speeds and/or charge tolls.

VI. Civil Engineering Structures (Ouvrages d’Art)

a. Bridges, tunnels to overcome constraints of landscape.

b. Landscape constraints can have a major impact on international trade.

c. A critical ouvrages d’art that is out of service can seriously disrupt commercial operations.

3-2-6 Warehousing infrastructure

I. Since cargo must often wait instead of being moved it is important to have good warehousing infrastructure.

II. Warehousing must protect goods

a. From rain.

b. From sun.

c. From possible floods.

d. From unusual cold.

III. It is difficult to assess individual country’s public warehouses as there is no directory of conditions.

3-3 Communication Infrastructure

3-3-1 Mail services

I. Reliability of mail service differs among countries.

II. Safety of mail differs among countries.

III. Some companies are using arbitrage by shipping mail in bulk to country with lowest postal rates and then doing bulk mailings from that country.

3-3-2 telecommunications services

I. Demand for voice and data telecommunications service has been increasing.

II. In some countries the economy has grown but the communication infrastructure has not.

a. In those countries Leap Frogging has taken place in that people have bought cell phones to replace slow, outmoded traditional telephone service.

b. This is occurring in Czech Republic and China.

III. Transoceanic cables are vulnerable to being snagged by fishing nets and boat anchors.

IV. Satellite communications are vulnerable.

a. Capacity is eaten up by television broadcasting.

b. Single satellite failure can severely disrupt communications.

V. Internet is dependent upon operability of root servers.

3-3-3 Internet services

I. Despite commerce relying on fast internet access, only 8.6 percent of the world has a high-speed connection to the internet (Table 3-7).

3-4 Utilities Infrastructure

3-4-1 electricity

I. Some developing countries have economic growth that outpaces availability and reliability of electric power.

II. In sub-Sahara Africa there are scheduled power blackouts.

III. Utilities are frequently victims of theft as people bypass meters or, as in the case of Russia, steal electrical wires for scrap.

3-4-2 water and sewer

I. Cities sometimes lose water through leaky pipes and illegal siphoning.

II. Some cities have impure water which needs to be boiled before use.

III. Some cities have inadequate sewage systems.

IV. Striking sanitation workers can cause problems.

3-4-3 energy pipelines

I. Easily accessible oil and gas fields are near the end of their life expectancies.

II. Energy resources are increasingly being piped from further away.

a. Distance makes for difficult operation.

b. There can be many obstacles

i. Weather

ii. Natural barriers

iii. Political issues

iv. Environmental challenges

v. Bickering between oil companies and governments in countries where the pipelines are being built.

III. Infrastructure of world’s pipelines is growing.

3-5 Services Infrastructure

3-5-1 banking

I. International trade can only take place if there is access to competent international banks to process foreign-currency transactions and letters of credit.

II. International banks have created networks of branches to assist their customers.

3-5-2 Logistics support

I. International logisticians need freight forwarders, packing services, Customs brokers, etc.

3-6 Legal and Regulatory Infrastructure

3-6-1 Courts

I. An efficient court system allows for disputes to be resolved quickly and fairly.

II. The average duration for the resolution of a contract dispute is 510 days in an OECD country.

III. Inefficient court systems lead companies to use mediators and arbitrators.

3-6-2 Intellectual Property

I. Intellectual property is not always protected in developing countries:

a. There are more urgent problems

b. A large foreign company is not going to be favored over a small local business.

II. Intellectual property defense has come to the forefront of countries’ international agreements.

3-6-3 Standards

I. Unified standards of performance, design, and safety are useful to businesses.

II. The United States tends to be different from the rest of the world, with non-metric standards and standards that can vary from state to state.

Suggested Homework

1. Assign students to do a report on the infrastructure problems and opportunities in developing nations like China and India and in former Soviet satellites in Eastern Europe.

2. Assign students to do a report on the future of airport development. With terrorist-driven declines in air traffic will there be a need for new airports? Are existing airports adequate for current passenger and freight needs?

3. Assign students to do an evaluation of the infrastructure of a country of their choice, using the CIA’s website as well as others, in order to determine the state of the infrastructure of that country.

4. Assign students to list the difficulties that an international logistician would experience in mving goods from a country with a developed infrastructure (transportation, communication and utilities) to a country with a deficient infrastructure.

5. Assign students to do a report on the state of the infrastucture in the United States and the expected growth in commerce, both national and international, and the ability of the infrastructure to accommodate such growth.

Key terms

Infrastructure

A collective term that refers to all of the elements in place (publicly or privately owned goods) that facilitate transportation, communication, and business exchanges.

Panamax ship

A ship of the maximum size that can enter the locks of the Panama Canal.

post-Panamax ship

A ship whose size is too large to enter the locks of the Panama Canal.

air draft

The minimum amount of space between the water and the lowest part of bridges that a ship nees in order to enter a port.

berth

The location, in a port, where a ship is loaded and unloaded.

dredging

The removal of sediments or soil from the bottom of a water channel to increase its depth.

draft

The minimum depth of water that a ship needs in order to float.

list

A ship that leans to one side is said to list.

canal

A man-made waterway connecting two natural bodies of water.

runway

The strip of concrete in an airport from which airplanes take off and land.

land bridge

A term coined to describe the practice of shipping goods from Asia to Europe through the United States. By taking the containerized goods to a West Coast port, loading them onto trains, transporting them across the United States and loading them again on a ship from an East Coast port, shippers avoid the costs and delays of crossing the Panama Canal.

leap frogging

The idea that some countries will “skip” a particular technology to adopt the most recent one available. For example, several developing countries never had a reliable telephone infrastructure; however, rather than spend funds on creating an infrastructure based on land lines, they will build a cellular-based phone system, thereby “leap frogging” the older technology.

Possible Quiz Questions

1. Of the following, the best definition of logistics infrastructure would be that it consists of ___.

a. all of the elements in place to facilitate transportation, communication, and business exchanges

b. a country’s electrical supply and road network

c. the amount of computerization a country has

d. a developed banking system

ANS: A

Rationale: A country’s electrical supply and road network, the amount of computerization a country has, and a developed banking system are incomplete answers. Option “all of the elements in place to facilitate transportation, communication, and business exchanges” incorporates all aspects of logistics infrastructure.

REF: 3-1

2. Because some ports are becoming increasingly limited in their ability to handle ever-larger ships it is possible that ___.

a. ship sizes will become smaller

b. massive government programs will do what is necessary to upgrade the smaller ports

c. large ships will go to “hub” ports where “feeder” ships will traverse to and from the smaller ports

d. ocean shipping costs will rapidly decline

ANS: C

Rationale: Given the cost advantages of economies of scale, ship sizes will probably not become smaller; while ocean shipping costs may or may not decline, it will not be directly due to the obsolescence of some ports, and economically some ports cannot be successfully upgraded to handle the big ships. It is likely there will be a need to create large port hubs for large ships, while smaller ports would service “feeder” ships.

REF: 3-2-1

3. The busiest cargo airport in the world is ___.

a. London Heathrow

b. Denver International

c. Dallas-Fort Worth International

d. Hong Kong Chek Lap Kok

ANS: D

Rationale: The busiest passenger airport in the world is Atlanta, and the busiest cargo airport in the world is Hong Kong (vignette).

REF: 3-2-3

4. Factors contributing to the rise of U.S. freight railroads since about 1980 are ___.

a. road congestion, concerns about pollution and noise, and development of the multi-modal container

b. higher train speeds, development of more custom service by railroads, and concerns about terrorism

c. increased shipments of high-value goods like computers, unreliability of air freight, and the building of new railroads

d. All of the above

ANS: A

Rationale: Freight train speeds have not increased noticeably; most major railroads are not good at custom service, especially for small shippers; terrorism has not caused a shift of freight to rail; trains do not do well with high-value goods like computers; air freight is reliable, and there has been little new railroad construction. Railroad freight has grown due to road congestion, concerns about pollution and noise, and development of the multi-modal container.

REF: 3-2-4

5. In the European Union, the goal for mail delivery sent to a national address is ___.

a. two days

b. three days

c. D + 1

d. D + 2

ANS: C

Rationale: The goal is D + 1, or delivery on the day after the letter is mailed.

REF: 3-3-1

6. There are sometimes problems with electrical supply in ___.

a. Sub-Sahara Africa

b. Saudi Arabia

c. some parts of a developed country like the United States

d. All of the above

ANS: D

Rationale: All of these areas have had electrical supply problems, including California.

REF: 3-4-1

7. Regarding water availability in the infrastructure ___.

a. more than 95 percent of the world’s population has running water

b. many cities have old leaky pipes

c. it is not important to economic development

d. All of the above

ANS: B

Rationale: Water is critical to economic development, indeed, to supporting life. Less than 80 percent of the world population even lives within one kilometer of clean water. However, many cities do have old leaky pipes.

REF: 3-4-2

8. As ships move through the Panama Canal, the locks they traverse use an inordinate amount of fresh water, including water from the reserve at ___.

a. Lake Panama

b. Guillard Lake

c. The Panama River

d. Gatun Lake

ANS:D

Rationale: The answer is Gatun Lake.

REF: 3-2-2: The Panama Canal

9. As a defense measure to keep invading military troops from using their railroads, Spain and Russia ___.

a. built explosives into bridges and tunnels

b. made drive controls in locomotives opposite to what they were in the rest of Europe

c. developed widths between the rails (gauges) different from those of the rest of Europe

d. All of the above

ANS: C

Rationale: To prevent possible invaders from using their railroads, Spain and Russia developed railroad gauges that were incompatible with those in standard use in Europe.

REF: 3-2-4

10. Although there is no equivalent term in English, the French term ouvrages d’art has to do with ___.

a. civil engineering structures

b. art museums

c. art galleries

d. telecommunications

ANS: A

Rationale: Ouvrages d’art—or art structures—is a term used for civil engineering structures built and designed to eliminate the constraints of the landscape.

REF: 3-2-5

PowerPoint SLide list

· Definitions (4 slides)

· Transportation Infrastructure ( 20 slides, 14 photographs)

· Communication Infrastructure ( 7 slides, 2 photographs)

· Utilities Infrastructure ( 2 slides, 1 photograph)

· Service Infrastructure (4 slides)

· Legal Infrastructure (3 slides)

Additional REsources

Airwise: The Airport and Air Travel Guide, http:www.airwise.com/airports/index.html

World Factbook, Central Intelligence Agency, http://www.cia.gov/cia/publications/ factbook/index.html

The discussion example and question;

What is your position on the realities, as well as the pros and cons of bio-fuel replacements for oil?  Is the corn ethanol push really a scam? Why or why not? What about biodiesel? Hint: They are not the same.