International Transport Systems in Facilitating International Trade - Assignment Example

International Transport Systems in Facilitating International Trade Introduction Transportation industry forms the backbone of the trade and services sector. International transport systems have become fundamental elements supporting world economy. A worldwide efficient transport network promises that goods from all over the world are available in any country, and any country could supply products to another country by means of low cost services. Though global trade existed since times immemorial, it came to play an important role in the economy of nations about 600 years ago. The discovery of America by Christopher Columbus and the sea-route to India by Vasco Da Gama, and Ferdinand Magellan’s round the world expedition gave an important fillip to the international trade. The advent of sea-transport, thus, heralded a manifold increase in intercontinental trade. Similarly, today, the winds of globalization, sweeping across the world, are giving an exponential increase to the volumes of goods being traded internationally. The reductions in tariffs or creation of no-tariffs regime have also led to a surge in global trade volumes. Needless to say, that volume of tradable goods increases with an efficient transport network. International trade requirements, too, put pressure on the transportation systems for efficient, smooth, fast and bulk movements of commodities. Earlier, transport industry witnessed a boom in the 1980s, consequential to major deregulations initiatives in the sector. The complex nature of international transport requires a high level of command structure in handling flow and distribution of goods. Three components of international transportation that facilitate trade are: transport infrastructure, transportations services, and transactional environment. Transport infrastructures include terminals, vehicles, networks, and warehouses. Transportation services include activities like distribution, logistics, finance, insurance and marketing. Transactional environment is the legal, political, financial and cultural setting in which international transport systems operate. Other than such aspects as exchange rates, regulations, tariffs and quotas, it also includes consumer preferences (Rodrigue, 2009). Transportation industry is a diverse sector spanning across multiples modes and different forms of transport. Definition Transportation entails ferrying commodities, goods, and people from one location to another through air, sea, and land. Transportation is the science of ensuring that right product reaches the right place in the right quantity at the right time to satisfy the customer demand. It may also be defined as the process of managing all activities required to strategically move raw materials, parts, and finished goods from vendors, between enterprise facilities, and to customers. Logistics and transportation are interrelated and are, often, used interchangeably (Rodrigue, 2009) Importance All nations of the world, today, are economically interdependent, which makes it extremely important that goods be transported, from one country to another and one region to another, smoothly and speedily. Any nation, at a given point of time, can produce only limited variety and volume of goods. It is, therefore, dependent upon other nations for its supplies. The world trade has witnessed an exponential growth twice that of GDP, touching 50% of the global GDP, a twofold increase since 1950 (Al-Muhaisen, 2005) A phenomenal growth of trade and commerce that occurred toward the last decades of the past century is also evidenced by explosive growth in transport systems. Freight movement on ships has witnessed a 285% growth rate over a period of 40 years. The role of transport assumes critical importance as national boundaries and trade restrictions vanish in wake of the economic integration of the world. Explosion in global trade and commerce, due to globalization and liberalization, has brought international transport under increased focus. Globalization, itself, is defined as shaping up of international trade relations, production and distribution of commodities, across the world. In an increasingly globalized economy, companies require reliable and cost effective transport systems. The ultimate goal of businesses these days is to deliver greater value to the customer at a lower cost. The productive capacities and export competitiveness remains severely undermined and ineffective without access to super efficient global transport and logistics networks. A country’s productive capacities, and export competitiveness remains severely handicapped without connection to the global transport and logistics network (Al-Muhaisen, 2005). Even the viability or profitability of international trade is directly proportional to transportation costs. I International transport sector has achieved high level of globalization in terms of markets, technology, investments, and employment. It has also witnessed the most sweeping changes in wake of globalization. The sector, therefore, is a witness to both record growth and ever increasing competition. Along with this, the continuous penetration of fresh markets, there is an ever growing thrust on broadening and augmentation of services in the transportation industry. The volume of trade, its speed and efficiency, aided by efficient transport system, has increased manifold. Transportation makes it possible for relocation of labour intensive industry to low cost locations. International transport systems increase the flexibility of the multi-national companies in global positioning of their assets. International transport systems help in distribution of goods in different parts of the globe. International transport systems have significantly lowered the costs associated with the global trade. Wealth is generated through specialized manufacturing and trade activities. The trade surpluses, thus, generated are traded for other goods that are not available in the local market or are, too expensive to be produced locally. In a way, international transport helps decrease the overall production costs of the entire world. Modern transport systems, by timely delivery of goods and services, enhance quality and helps in gaining competitive advantage. For countries that earlier suffered due to limited accessibility, international transport networks have made it possible to carry out trade activities. Global transport networks make accessible, an enormous variety of goods at any given time to a large number of countries. Though international transport is not the cause of growth of international trade yet it can be argued that, without efficient transport network the globalization scenario would not have been quite the same as it is today. Thus, transportation is an enabling factor; a means, globalization would not have occurred without (Rodrigue, 2009). International transport has gained importance with the consumption being distantly located from production of goods in a globalized atmosphere. There is a marked increase in the global spending as consumers are able to more cost-effective locally produced goods. Efficient transport networks, in developing countries, also hold the promise of ensuring FDIs, so essential for the health of a growing economy. Investment into transport sector is closely related to the economic growth of a country. High investments in transport sector can both be cause and effect of a booming economy. Besides, other improvements in handling of cargo and freight, too have contributed to the development of the present day complex transport systems. Though transportation cannot also claim exclusive responsibility for the success of economic liberalization, yet its importance in globalization and growth of trade relations cannot be undermined. Multi-modal Transport System Half of the international trade is carried out over distances stretching more than 3000 Kms involving several modes (Rodrigue, 2009). The multimodal transport system is composed of modes, warehouses, and terminals situated across the globe. Even small manufacturers are connected into the global supply networks through their sourcing partners. In fact, the growth of multi-modal transport system was preceded by the growth of the concept of containerization in the mid-twentieth century. Containerization, which substantially increased the cargo handling capacity of the ships and the ports, has played an importance in the boom of international trade. Ever since the advent of containerization in the 1980s, it has been supporting the smooth trade flows. Companies changed their production methods to be able to use containers for export and capture the advantages of multi-modal transport. Sea, Air, and Road Transport The importance of maritime transportation is understandable as it handles 90% of the global trade volume by tonnage (Rodrigue, 2009). Large container ships work under global shipping alliances to transport goods manufactured in one part of the world to another. The maritime transport, working through a series of gateways, provides access to major production and transportation regions (Rodrigue, 2009). The importance of air borne transportation in international trade is underpinned by the following facts. The value of air transport and freight, consisting of just .2% of total tonnage compared with maritime transportation, consists of 15% of the goods traded, internationally by value. This makes it 70% more valuable than maritime transport and 30% more valuable than goods traded overland (Rodrigue,2009). Air shipping is fast and reliable, but expensive. Road and railways are important to international trade as they generally provide the first and the last mile of the global distribution. The cross border handling of through rail and road, marginal when compared to maritime transportation, is generally restricted to and fro movement of goods from the ports. A substantial share of cross border trade in NAFTA and EU countries is conducted through roads. Transport in Supply Chain Management In the current scenario, the supply chains have grown increasingly complex creating new challenges and opportunities for the transportation and logistics solution providers. Global economic scenario is increasingly getting characterized by integrated manufacturing, distribution, and retail of goods. Globalized trade seeks flexible transport and logistics infrastructure to support a global supply chain. Rise of communications, e-commerce, Internet and concepts like Just-in-time, and zero inventories have made the shippers to demand door-to-door deliveries rather than port-to-port supply system. The transport chain from origin to the final destination is considered ‘one whole’. Successful organizations treat their supply chains as ‘one whole’ in order to be able to compare alternatives realistically. Transportation has come under increased focus due to growing trend of global outsourcing of production, global sourcing and export of finished goods, to the conventional as well as, the emerging markets. The best companies no longer see transportation as an isolated budget line to be monitored, but accept it as a critical component of overall supply chain excellence. Such companies follow transportation best practices regardless of where an item originates. The more effective the transport, the more efficient and cost effective is the supply chain. The transport chain acts as the facilitators in the integration of the supply chains stretched across countries and continents. Ultimately, the customer gets the double benefit of greater value and lower costs for the goods and services. Information technology has facilitated complex business transactions and complex business operations. An efficient transport network thus changes the location of the economic activities. Companies that are able to successfully integrate transportation best practices with technology can gain competitive advantage in the globalized marketplace. Technology, especially, information technology, has emerged as important enabler of accuracy and accountability in managing complex business processes. The multi-national enterprises use integrated technology solutions to make the most of the market opportunities. Companies are making efforts to create automated systems to streamline logistics, control transportation costs and add value to a global supply network. In the process, the multinational enterprises are uncovering new ways to use transportation to gain a competitive edge, thus, increasing customer satisfaction and creating new revenue streams. Globalization, price rise, high customer expectations, and increased risks play a key strategic role in creating efficient supply chains. Transport management is a strategic tool that affects every aspect of a company’s value. Transport chains come in handy to service the flow across the transportation routes. Dismantling of Barriers However, despite an endless list of positive roles played by international transport in international trade, there is a lack of common global regime to overlook trade practices in every sector. Efforts have begun at various fora to dismantle the trade barriers standing in way of efficient and smooth transportation. Such initiatives are carried out either under bilateral trade agreements or at the international level through organizations like OECD and WTO. At the regional level, the transport restrictions are removed or eased through trade blocs like the NAFTA or the EU. As the national legislations on cross border terms do not suffice, it makes international cooperation for smooth flow of goods extremely necessary. Numerous factors as deregulation of freight industry in various parts of the world helped in the development of multi-modal system of transportation. Demand for quality services is directly proportional to demand for more competitive, cost effective, efficient and qualitatively better trade. Efficient multimodal transport has helped logistics and supply chain management to evolve as a strategic management tool (Al-Muhaisen, 2005). Spurred by globalization and a boom in trade and commerce, transport and logistics industry enjoyed a double digit growth in early part of the current decade. Liberalization and privatisation are further boosting this rapidly changing sector. As the transport companies constantly look forward to development of a durable business they enter into operating agreements with other companies for sharing resources and expenditures. Information technology helps in planning operations and rapid clearance of cargo. Internet aids in expeditious information exchange and helps in accurate flow of information. A globalized and liberalised regime for the transportation sector would benefit all the developing, and developed economies in an equal measure. According to Rodrigue, when each country is capable of producing only a limited variety of goods, shortages would be rampant and widespread. Downside Transportation costs at times can exceed the total manufacturing cost of the product. These costs coupled with complex supply chains breed increased risk factors. It was realized in the 1990s that the cost of growth in expenditure on international transport grew faster than international trade. It was noted that while exports increased by 75 percent real expenditure on international transport more than doubled. Globalization is also being negatively affected by high increases in the transportation costs. According to Rubin and Tal (2008), the cost of moving the goods, and not tariffs, are the biggest impediments in the way of global trade. The explosion in global costs has offset all the trade liberalisation efforts of the past three decades. An important factor in the steep rise of the fuel costs is the speed. As greater speed requires greater fuel, the cost of transport cost per unit of freight has almost doubled in the past fifteen years (Rubin and Tal, 2008). Transportation costs are also increased by the capacity issues and security concerns. The increased complexity of the supply chains and logistics create delays that add to the costs of the transportation. Conclusion The unprecedented growth in the world trade has been powered by rapid industrialization of economies like India and China (Rubin and Tal, 2009). The current trend is of shifting the manufacturing base to the developing countries, whereas the developed countries remain the high consumption areas. The gap between areas of production and areas of consumption is bridged only through sound transportation networks. Despite its importance, international transport sectors suffer from a variety of trade restrictions, and custom regimes, which serve to increase the transportation costs. Openness of transport sector is vital for the expansion of overall expansion of world trade. References Rodrigue, J-P, (2009) Transportation, globalization and international trade, Retrieved May 7th 2009, http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/ch5c2en.html Al-Muhaisen, S F (2005) Overview of trends in multi-modal transport Retrieved May 7th 2009, http://www.immta.org/uploads/OTMT.pdf Rubin, J and Tal, B (2009) Globalization’s new end game, Retrieved May 7th 2009, www.finance mba.com/HK%202009%20Globalisation's%20New%20End%20Game%... Read More