International Transport System in Maritime - Case Study Example

Topic: International Transport System in Maritime Lecturer: Presentation: This paper critically discusses how demand for transport has been affected by the globalization of services and manufacturing. It mainly highlights the increase in demand for transport as industries continue to become globalized. Manufacturers are exploring markets outside political boundaries with the assistance of regional markets and international organizations thereby increasing the demand for transport. Growth in maritime transport is demand driven and conforms to the law of demand. As more efficient techniques for transportation emerge, the more the prices of transportation decrease especially due to economies of scale. This aspect of the maritime transport industry has been discussed in the paper. Fragmentation of the production process is also highlighted as a major factor increasing the demand for transport. Introduction Globalization is the process through which production, trade, governance and many other aspects of life have continued to be standardized across the world. Globalization has also led to interconnections of countries through various air, sea, road and rail networks, which have facilitated easy movement of people and goods. Manufacturers and service providers have spread their operations globally. They have shifted production from the industrialized countries to take advantage of cheap labor and the unexploited raw materials for production in the less developed nations. The services industry also expanded to provide services in the developing countries. All these global shifts in production led to globalization of services and manufacturing, which on the other hand affected the demand for transport as traders supplied the industrial products and services to markets away from the industries, locally and abroad. This paper presents a critique of how demand for transport has been affected by the globalization of services and manufacturing. Demand for Transport Developments in the transport sector of many countries have been facilitated by industrialization. Transport is significant for delivery of raw materials to industries as well as distribution of the finished products. Manufacturers focus on good transportation services in a country as one of the factors that are necessary for location of an industry. Economies are therefore compelled to ensure that the transport sector allows effective transportation of products to markets, transportation of labor and raw materials. Multinational corporations operating across borders need effective international transport for effective delivery of services. There has been increased amount of cargo being traded between countries as economies maximize in the exportation of what they can produce best. Lee & Cullinane (2005) argue that as destinations for freight continue to increase, pressure on international transport systems is rising to accommodate the demand for delivery of industrial products. Technical improvements in transport are being made to enhance efficiency and also the capacity to transport large amounts of freight as well as passengers. The rising demand has led to improvements in containerization, which is a significant means of transportation of cargo globally. Without transportation, globalization could not have been successful. The service industry has also increased demand for transportation of people across the globe. Demand for air transport continues rising with increased tourism and has led to the establishment of many air routes. In 2007, global maritime transport recorded the highest receipts, with the industry growing in capacity by 14%, to 1.04 billion tones of dead weight. Many economies are investing in the service industry through effective management of natural resources that are major tourist attractions. This is accomplished through internal transport networks as well as international connections through vessel transport, which have led to significant developments in and harbors. Transport chains have advanced to accommodate international trade. Maritime shipping is used to transport 90% of the global freight, which has increased the demand for the international maritime transport system (Adolf & Liu, 2010). The land locked countries use the gateways of the countries that have ship harbors and then the cargo is transported through cargo trains and road transport. In essence, the demand for marine, railway and road transport continue to rise due to liberalization of trade. Globalization of manufacturing and services has increased the demand for transport especially since it plays a key role in the organization of the supply chains. Manufacturers need transport to be in a capacity to join together and also to harmonize flows all through the supply chains. Firms operating from different locations globally are increasingly engaging in efforts to maintain a strong coordination of their activities to enhance their capacity to satisfy customers both locally and internationally. They are usually focused on maximizing utility and minimizing costs of the products. Transportation allows this to be accomplished through delivering products and services at the right time along the supply chain (Chopra & Meindl, 2007). The demand for transport has also been increased by the increase in healthcare requirements and other social services for the workers in the industries. The employees need to travel to engage in social interactions, which are necessary to keep them satisfied. Due to globalization of manufacturing, industries outsource their employees from other countries, which increases demand for transport. On the other hand, the establishment of multinational companies requires good transport systems to enhance the movement of personnel for management purposes. Transport allows ease in harmonization of the organization’s operations between foreign subsidiaries and the head office There has been a reduction in the cost of transportation per unit of products due to the efficiency in the global transport system that has been facilitated by globalization of manufacturing. The transport industry conforms to the law of demand whereby the reduction in prices leads to a rise in demand. There is usually a particular price at which the manufacturers are usually willing to pay for exportation of products. The law of demand explains the demand relationship and states that, assuming all the other factors are constant, an increase in the price of commodities leads to a decrease in the quantity demanded. On the other hand, a reduction in prices will lead to increased demand of the commodity. In other words, there is a likelihood of manufacturers tending to find other alternatives in which they spend a smaller amount of money (Bardi et al. 2006). The relationship between price of transportation and quantity of products transported is represented in the figure below (fig. 1) Points X, Y and Z in on DD indicate the various quantities that the manufacturers will be willing to transport at prices P1, P2 and P3. In a real situation, an increase in the price of transportation will lead to a decrease in the quantities of products that the manufacturers will be willing to transport to the foreign markets. They usually prefer exporting less when the cost of transport increases and export more when there are opportunities that reduce transportation costs such as containerization. For example, advancements in containerization allow economies of scale in transportation. Since the industries are distributed all over the globe, a single ship can transport a large capacity of freight from different firms; hence the firms can share the transportation costs (Kumar, 2002). Such developments have motivated manufacturers to export their products. On the other hand, contemporary organizations operate through division of the production process in to stages, with different firms completing each stage for the purpose of value addition. Such strategies have led to high demand in transport, especially with the development of the “just-in –time” strategy. Multinational corporations have employed outsourcing strategies for transport to reduce the cost of transport. Transportation companies have therefore emerged to cater for the increasing demand from various firms (Frankel, 1999). For example, maritime transport is uneconomical for a firm due to the costs involved. The firms therefore use chartered transportation for their cargo. Firms offering such services are on the rise as the demand for transport increases. Contemporary organizations engage in research and development and this has made transport a key component for organizations’ success. Banking and insurance are some of the globalized industries that require regular travelling. Mentzer et al. (2001) observes that the emergence of ICT in the services industry has had a major impact on the transport industry whereby organizational restructuring is occurring to accommodate the new technology. In essence, organizations are turning to the global market place for improved services and customer satisfaction. The shift towards online business has led to increased demand for transport since consumers are able to make online purchases and expect the products to be delivered in any part of the globe. Transportation of products between countries has been made possible through the increased transport network and the fact that people are able to trace the route through which they can best receive the products purchased online. Regional markets such as COMESA and organizations such as NAFTA and WTO facilitate the various manufacturers in different countries to sell their products abroad. The demand for transportation continues to increase as products and services are exchanged in these markets as well as through the support of the international organizations. Governments have realized the significance of transport in economic growth, which has resulted in development of strong infrastructure for transport. With improved road and air transport networks, manufacturers are willing to engage in exportation of their products to global markets (Stopford, 1997). On the other hand, improvement in security during transportation encourages manufacturers to explore foreign markets for their products. Globalization of the service industry such as in education, legal, consultancy and leisure among others has led to a rise in demand for flexible, efficient and prompt transportation services across different countries. Such services are basically mobile and the providers need to travel to reach the consumers in a timely manner. This has led to rapid developments in the transport sector in many countries. In essence, customers in the service industry need timely services to ensure maximum utility for the products. Moreover, the spread of the service industry has led to increased demand for transportation of smaller freight and people (Cullinane & Talley, 2006). The spread of the manufacturing industries through globalization has increased the demand for maritime shipping whereby semi-processed products are transported from the source to a point where they are close to the final market. Crude oil is one of the products that are transported by ship to refineries that are close to the consumers. From the refineries, road and railway transport are used for the distribution of petroleum products to the consumers. The transport industry has become a worthwhile business for entrepreneurs as more industries outsource transportation services. Organizations are progressively more focused on the development of stronger and more effectual supply chains or transport systems that enhance competence in the global market. The demand for transport depends on the level of activity in the manufacturing and service industries (Cooper et al. 1998). For example, due to the interconnectedness of industries internationally as a result of globalization, the global economic crisis adversely affected the transport sector. Conclusion Globalization has caused significant developments in the transport sector especially due to the fact that manufacturers and service providers require good transport network for effective delivery of products and services to consumers. The demand for transport increases as manufacturers and service industries continue to spread globally since the need for transportation of human resources and raw materials for the industries have to be met. The manufacturers are also increasing the demand for transport due to the widely distributed production stages. Transport plays a significant role in the supply chains of organizations. The law of demand applies in the transport industry whereby as efficiency increases due to advanced methods such as containerization as well as the economies of scale due to bulk transportation, manufacturers are willing to transport more products. Regional markets and international organizations enhancing marketing for commodities across political borders have increased the demand for transport. The service industry requires flexible, prompt and effectual means of transport for service delivery to be accomplished and hence the growing demand for small scale freight transport. There is also a growing demand for maritime shipping as semi-processed products are transported for final processing close to the market. References Adolf, N. & Liu, J. 2010. “The Port and Maritime Industries in the Post-2008 World: Challenges and Opportunities”. Research in Transportation Economics, Vol. 27, 1, pp 1-60 Bardi, E.; Coyle, J. & Novack, R. 2006. Management of Transportation. 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