Business Security and Globalization Issues in Transport Industry - Research Paper Example

?Business Security and Globalization Issues in Transport Industry In order to maintain a competitive position in the world trade market, transport industry needs to be given topmost priority. For restructuring of the global economy, transport and logistics play a major role and that is why governments of all countries should strive for a safe and efficient transport industry. The paper focuses on the situation in Canada and Mexico and the security issues the international organizations are facing there. Trucking industry in Canada The Canadian Trucking Alliance (CTA) is a coalition of regional trucking associations. The head office is in Ottawa and it represents 4,000 companies. CTA represents the trucking industry’s perspective on national and global policy, general and legal regulations that affect trucking. In Canada, 90% of items like food and consumer goods are carried by the trucking industry across the country. This industry reaches out to provide its services to almost every town, city and community of Canada. 70% of trading relation between Canada and US and 50% of trading relation between Canada and Mexico comprises of the trucking industry. In spite of the fact that few very large and public limited companies form the Canada Trucking industry, yet it is ruled by thousands of businesses of medium and small sizes and independent businesses which are operated by the owners. Most of such businesses are owned and run by Canadians. In 2000, trucking industry in Canada garnered freight revenue of $48 billion. Out of the 400,000 people employed by this industry, the number of drivers is over 260,000. (“Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”) Effects of US Security Initiatives The initiatives taken under the Smart Border Accord could challenge the ability of the Canadian carriers to participate in the trading relationship with US unless an appropriate balance in trade/security is maintained with the US. To influence the border policy decisions of US, Canada has to maintain a strong partnership with the Americans in the field of border and security efficiency. Substantial steps must be taken by both countries to tackle national security concerns as well as to ensure smooth flow of low risk commercial freight across the border. As long as border security is not addressed properly economies of both country and especially economy of Canada is bound to suffer. Investments should be made on infrastructure like tunnels and bridges to expand the crossing capacity in the Canada-US border. Both United States and Canadian governments should support the use of FAST cards as substitute of the Transportation Workers Identity Card developed in the US. (“Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”) Trucking industry in Mexico Commercial transport in Mexico is dominated by its trucking industry. Mexico’s truck fleet increased by 85% between the years 1989 and 1992 due to government’s deregulation of the industry. Till 1989, Canada’s truck fleet could run only on certain routes and could carry only certain types of cargo. This led to inefficiency within the industry. Since 1992, trucks can run over any road within the country and can carry all kinds of cargo except the dangerous and explosive ones. This has resulted in doubling the number of trucks in Mexico and due to intensified competition costs have also fallen drastically. (Nolan, 308) Canada and Mexico’s Trade with the United States Canada and the United States are the largest trading partners of each other. Canada exports 87% of its total exports to the United States every year and the United States sells 22% of its total exports to Canada. Every day over 37,000 trucks cross the border of Canada and the United States and Canada receives 50% of all automotive exports of US. Of total trade in Canada, trucks carry 70% with US and 50% with Mexico. Mexico is the sixth largest trading partner of Canada. However, long terms trade reports shows Mexico will have a growth in its export value to the US. While Mexico is the second largest export destination of the United States, it still receives only 14% of the total export value of the US. However, Mexico is rapidly growing export destination of the US. Since 1990, Mexico has the fastest rate of growth other than China as market of US exports. There is every possibility that Mexico will become the largest trading partner of US replacing Canada unless there is a fundamental shift of trade flows. It is seen that Canada’s internal economy is largely dependent on its export affiliation with the US given the fact that one third of Canada’s Gross Domestic Product (GDP) is dependent on its exports to the US. It is clear that Canada economy and its trucking industry will suffer if anything impacts the export value of Canada to the US or the ability of trucks to move across the border to the US. Canada has the best access to the US than any other foreign country. While this is the greatest economic advantage of Canada, at the same time this is also Canada’s greatest economic vulnerability. No other major industralised country in the world is so largely dependent on the trading association with the US like Canada. (“Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”) Canada-US border crossings have been facing a delay of two hours since the war started in Iraq and proclamation of orange alert in US. Even though the trucks are facing delay in crossing the border, none of them have been stopped. Due to this delay in movement of trucks, there has been the burden of additional costs in the Canada Trucking industry and also the manufacturers find it difficult to foresee production schedules. The environment is also badly affected when thousands of cars and trucks wait in queues to cross the Canada-US border. Although as part of the Smart Border Accord, Canada has agreed to provide funding to improve the infrastructure in the border crossings, this initiative has not progressed as quickly as necessary and so there is concern with the delay in finalising projects under the prevailing budget. (“Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”) Trade Agreements It was the Canada-US Trade Agreement (CUSTA) in 1988 that altered Canada-US trucking relationship. The CUSTA paved the way for easier access to international transport markets for Canadian and US transport companies. CUSTA lifted the restrictions of investments, thus paving the way for smoother investments by Canadian and American trucking companies in each other’s businesses. This led to consolidating of operations of trucking companies of both countries in a much desired competitive environment. North American Free Trade Agreement (NAFTA) which became effective from 1st January, 1993, was signed by Canada, US and Mexico in 1992 as trilateral agreement for freer trade. The goal of this agreement was to reduce tariffs, to establish a friendly relationship between the three countries by implementing a dispute reducing mechanism and to implement terms and conditions for a new trade and investment relationship between the three countries. NAFTA faced qualified success and over the 1990s the trade between the three countries increased in a significantly faster rate than the expansion in worldwide trade. The clause in NAFTA for reducing tariffs has been responsible for generating trade but there are also other factors. In 1990s, there was depreciation of Canada’s currency and also subsequent appreciation in following years. There was also the mid-1990s Peso crisis in Mexico. The third contributing factor that changed the trading relationships between Canada, US and Mexico was the restructuring of foreign direct investment. The NAFTA helped in extending the CUSTA to Mexico. The NAFTA negotiators wanted to repeat the success that CUSTA granted the Canadian and American trucking companies. In Mexico, NAFTA brought regulatory reforms and changes in investment provisions to bring Mexico in alignment with the trading relationship that already exists between Canada and US. NAFTA in theory had significant success in opening point-to-point traffic to trucking and rail carriers. It proposed timelines and milestones for market liberalisation. However, there were four issues that were not addressed in NAFTA and these were non-tariff barriers, access to cargo, ownership and investment regulations and investment screening. Many of these issues were dealt in another newly formed institution which was the Land Transportation Standards Subcommittee (LTSS). By 2000, LTSS concluded agreements regarding legal driving age, driver log books, applicable medical standards, language of jurisdiction and regulations governing hazardous materials transport. No progress reports were published by both Canada and US since 2002. As a result of this, equipment standards remain a significant non-tariff barrier for truckers. Carriers of both countries face more jurisdictions than are faced by other geographically dispersed companies. NAFTA was particularly successful in its earlier years. Although the NAFTA negotiators predicted a growth in trade from liberalisation, they did not consider the impact of this growth on the transport infrastructure at the border. No proper investments were made in border personnel and physical infrastructure and as a result this hampered the growth in trade volumes. NAFTA did not have any process of bi-national discussions on investments in border infrastructure and as a result each country was left to determine on new infrastructure which in turn resulted in jurisdictional debate. The biggest drawbacks the Canadian Trucking companies are facing today are shipment delays in Canada-US border and their economic cost. (OECD, 155-157) Air Transport in Canada and Mexico Canada’s civil aviation program is the safest and the most successful in the global aviation. Canada Air transport works in partnership both with national and international partners in an effort to maximise the maintenance of air safety and security records. It also strives to make air travel more environment-friendly. (“Air Transportation”) Aviation is an important part in the communication and transport sector in Mexico and in the last ten years this sector showed better result than the total economy of the country. To reach out to the global markets in a fast and efficient way, Mexico needs good air transport links. Air transport in Mexico is a crucial link to global business markets and also is greatly accessible by global tourists to visit the country. Tourism sector of Mexico is strongly related to the US economy. The sector faced a significant setback due to downturn in US economy between 2001 and 2003. Since 2002, there has been a continuous increase in the air traffic and the growing rate is faster than the rest of the country’s economy. (IATA, 1) The Effect of Globalisation on Airline markets The impact of globalization has been profound on the international air transport industry not only on the demand side but also on the supply side. International co-ordinations by policies of governments regarding safety, security and environment have affected the technological environment of air transport industry. The average cost of carriage can be reduced by business and network restructure to enhance the ability of airlines to effectively feed their transatlantic ways. The Open Skies Policy has stimulating impact on the demand side. By letting more valuable feed to the transatlantic services through intensified traffic at international airports, it increases the services provided to geographical market and also gives opportunity for economies to grow. When international trade grows, it leads to increase in demand for international air services. The changes in the air transport regulatory department also affect the demand structure. Growth in trade also increase demand of domestic transport including air services for distributions of additional imports. Globalisation by all means leads to increase in demand of movement of people and goods from one country to another. The commercial orientation of the modern air transport will increase the supply structure. Today, there is a reduction in the cost of infrastructure use and this can lead to fare reduction. Growth of international trade also results in higher global income which will increase the movement of international tourists and shipment of higher value goods. All these will enormously benefit the air transport industry. (Button, 9, 13, 14) Globalization causes increase in economic activity and this then leads to the increase in demand for domestic transport. In countries of smaller size in respect to land area, additional transport is provided by surface mode i.e. land transport. This can be advantageous for shorter distances, but adverse terrain can benefit the air transport industry. However, in larger countries, speed is more important for personnel and freight movements and in those countries air transport industries play a key role when globalisation takes over. In every country, globalisation increases the income and consumption levels. In larger countries, when income rises, people are inclined to spend more on personal enjoyments like vacations within the country. With trade-generated air movement within the country, the internal activity may not be closely related to worldwide movements either economically or institutionally, but it is nevertheless the result of globalisation. (Button, 15) Marine Transport Industry in Canada The Marine Transport industry has a huge effect on the economy of Canada. It plays an important role for both domestic and international trade. Ships carry 60% of the international trade of Canada and a large percentage of the country’s domestic trade. There has been a steady growth in this industry over the last few years and this fact can be concluded by studying the cargo flows through different ports of the country. The domestic shipping sector of Canada is mostly concentrated in the Great Lakes and St. Lawrence River. Marine industry is controlled by seven companies that are members of the Canadian Ship-owners Association (CSA) (Sen, 12, 20, 24). The objective of CSA is to maintain a long lasting economic and competitive atmosphere and environmentally viable Canadian marine transportation industry. The CSA keeps track of Canadian and U.S. governments’ actions in legal and regulatory fields, initiatives by various marine organisations of international stature, political movements and public policy relating to safety, navigation and the shipping ambiance of Canada. It also carries out proper communications and public relations campaigns (“Mandate”). Canadian Ferry industry is a very important sector for the transportation of passengers and vehicles. It is represented by the Canadian Ferry Operator’s Association and is one of the largest ferry operators in the world. (Sen, 24) Shipping Industry in Mexico The shipping industry of Mexico plays an important role in the global shipping industry. Growth of international trade is giving the transportation industry in Mexico a hard time of keeping up with the demands. Lazaro Cardenas is the only port that has the capability to receive large vessels in Mexico. This port is aiming to benefit from the clogged up West Coast US port by offering an alternate route for shipping to the Central US. For this, the port is striving to build proper infrastructure and is going into agreements with various shipping corporations and transportation companies to receive containers coming from Asia whose destination is US. The Port of Manzanillo is one of the busiest ports in the country and there are plans being made to expand it. The Mexican government along with domestic and international private sectors is planning to expand its shipping industry to earn considerable revenue through import duties, taxes and exports. This will benefit Mexico’s GDP. The growth of shipping industry in Mexico very likely will lead to fall of America’s shipping revenues. Mexico's shipping industry is now on par with both America and China and is therefore a great area for investing. (Tantry) Globalisation on Marine Transport Industry International trade plays a major role in the global economy and shipping industry carries 80% of world trade. The incessant growth of globalisation has increased the responsibility of the maritime management to attain better service quality and dexterity in supply chain. Trade through marine transport industry has grown since the World War II. During 1990 transport and communication slowly took a major shape, but now converted into a much wider concept of logistics and this has become an important factor for restructuring of the global economy. While global trends led to creating an international shipping environment for global participation, they also enhanced the cost difference between the major participating countries. In recent times there have been mergers and acquisitions in container shipping and this proves the extent of industralisation. These mergers especially as far as liner shipping is concerned also contribute to the quality service needed for survival in the global trading market. Transport is one of the basic requirements for globalisation and shipping industry is one of the important components of transport industry. Port efficiency and improvement in service quality of shipping has made it convenient to sell and buy raw materials and finished products all over the world. Containerisation has been deeply affected by globalisation. Production systems have become global as prompt delivery is important and containers play a key role in it. Logistics is the means by which trade is being organised and ports are being linked for global scope. Shipping lines have become most important participants in logistics chains. They are widening their maritime services all over the world. (Aksel and Akca, 1-3) Conclusion Both Canada and Mexico have a strong trading relationship with US. Although Canada is enjoying as being America’s largest trading partner, Mexico is not far behind and there is a huge possibility that Mexico will soon replace Canada to become the largest trading partner of US. NAFTA brought changes with attempts to level the trading relation of Mexico and Canada with the US. (“Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”). Since the transport industry plays a key role in international trade of a country, it needs to transform itself in all sectors which include air, water and land. It needs efficient people to handle sophisticated systems (Aksel and Akca, 6). Both domestic and international firms need to form alliance with the transportation service providers to maintain a smooth supply chain. References 1. Aksel, Ibrahim and Cihan Akca, “Effects of Globalisation on Maritime Industry;Mergers, Acquisitions”, 9th June, 2006, 1-3,6, 26th July, 2011 from: http://www.ibrahimaksel.com/yayinlar/maritime.pdf 2. “Submission on the Canada-United States of America Trade Relationship and the Canada-Mexico Trade Relationship”, parl.gc.ca, 9th April, 2003, 26th July, 2011 from: http://www.parl.gc.ca/Content/SEN/Committee/372/fore/witn/trucking-e.htm 3. Nolan, James L., Mexico Business: the portable encyclopedia for doing business with Mexico, World Trade Press, 1999 4. Organisation for Economic Co-operation and Development (OECD), Benefiting from Globalisation: Transport Sector Contribution and Policy Challenges, OECD Publishing, 2008 5. “Air Transportation”, tc.gc.ca, 26th July, 2011 from: http://www.tc.gc.ca/eng/air-menu.htm 6. IATA, “Economic Benefits from Air transport in Mexico”, October, 2007, 1, 26th July, 2011 from: http://www.iata.org/whatwedo/Documents/economics/air_transport_mexico.pdf 7. Button, Ken, “The Impacts of Globalisation on International Air Transport Activity”, 2008, 9,13-15, 26th July, 2011 from: http://www.oecd.org/dataoecd/51/53/41373470.pdf 8. Sen, Anindya, “Marine Industry Benefits Study:Economic Impact of the Canadian Marine Transportation Industry”, 30th September, 2004, 12,20,24, 26th July, 2011 from: http://www.acpa-ports.net/industry/pdfs/MIBS%20-%20Final%20Report.pdf 9. “Mandate”, shipowners.ca, 26th July, 2011 from: http://www.shipowners.ca/index.php? page=mandat 10. Tantry, Vik, “On Mexico Shipping Industry”, Ezine Articles, 26th July, 2011 from: http://ezinearticles.com/?On-Mexico-Shipping-Industry&id=5907427 Read More