Globalization TRB 2008

Globalization: What It Means for Companies, Their Customers & Competitiveness
Transportation Research Board, January 2008 © Mary R. Brooks, 2008

Agenda
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Why did trade grow? Is globalization just about trade? How manufacturers and retailers responded. How transport companies responded. North America’s future competitiveness and what national, state and local governments can do…

© Mary R. Brooks, 2008

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Globalization TRB 2008

6 Conditions Necessary for Trade
1. 2. 3. 4. 5. 6.
Production gains (from economies of scale or innovative processes) must be greater than costs of trading, transport, and tariffs. Natural market barriers must not prevent trade. Products must meet the scrutiny of the final market. An effective market information transfer so the customer knows you are in the market. An effective financial system for funds transfer—to get paid. Political, legal climate does not prevent trading from occurring.

Trade liberalization of the last two decades has made it easier to trade.

World Trade Growth (million TEUs)
90 80 70
TEUs (millions)

60 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006

TransPacific Far East Europe TransAtlantic Other

The true growth trade is intra-Asia, but overall world trade growth and Transpacific growth have been greater than 10% p.a. since 2002.
Source: Drewry Consultants, courtesy of OOCL (Wen, TRB 06)

© Mary R. Brooks, 2008

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Globalization TRB 2008

What Drove This Growth?

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Deregulation in transportation in many countries led to a drop in unit costs and increased productivity of transport assets. Telecom costs declined on a global scale as the industry deregulated and resellers challenged the market dominance of the telecom monopolies. The advent of the Internet leveled the information gap between buyers and sellers of manufactured products, transportation and information services (advantage buyers). Standardardization of documents enabled Electronic Data Interchange and Electronic Funds Transfer Standardization of boxes made logistics and planning easier. Many consumers continue to buy based on price and a disposable attitude. They are more sophisticated about choices and sources.

In 2005, Germany’s Trade Passed the US!
Korea Hong Kong, China Belgium Canada Italy United Kingdom Netherlands France Japan China United States Germany 0.0 2.0 4.0 6.0 8.0 10.0

Note: WTO reports individual countries within the EU. Source: World Trade Organization (2007), International Trade Statistics 2006.

Share of World Merchandise Trade

© Mary R. Brooks, 2008

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Globalization TRB 2008

Is It just About Trade in Goods?
Indexed FDI Flows into NAFTA

18.00 16.00 14.00
1992 = 1.00

Canada Mexico United States OECD total

12.00 10.00 8.00 6.00 4.00 2.00 0.00 1992

1994

1996

1998 Year

2000

2002

2004

Source: OECD Factbook 2006: Economic, Environmental and Social Statistics

Outward FDI (The Location of Future Growth)

OECD Factbook 2006: Economic, Environmental and Social Statistics

© Mary R. Brooks, 2008

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Globalization TRB 2008

Test: What was the transport cost for…
A bottle of French wine to New York in 2001 11.5 cents/bottle A bottle of UK whiskey to New York in 2001 14 cents/bottle What do these two have in common? A $700. television from Europe to North America in 2005? $8.00 A $200. DVD player from Europe to North America in 2005? $1.30
Source: 2001 data: TACA. Submission to OECD. www.oecd.org. (2001). 2005 data from Port of Halifax magazine, Dec. 2005, page 9.

The Results
The development of global supply chains by multinationals. The pressure on the transportation network; ports and border crossings become the bottlenecks In the face of governments putting less money into infrastructure, the system has little built-in redundancy. The Good News: better asset utilization and transport reliability where there is surplus capacity The Bad News: deteriorating competitiveness, reliability issues and increased inventories where there is not. The Future? Continued outsourcing (prediction: South Asia and Eastern Europe) and offshoring (prediction: India). Why not Mexico?

© Mary R. Brooks, 2008

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Globalization TRB 2008

NAFTA’s Share of World Exports
20.0% 18.0% 16.0%
% of world Exports

14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year

NAFTA Canada Mexico US

Source: Merchandise Trade from World Trade Organization (2006) International Trade Statistics Trade Database

Without NAFTA, would it have been worse?

As quickly as liberalization forces erase the lines, they are drawn in again.

© Mary R. Brooks, 2008

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Globalization TRB 2008

Continental Deterioration: The Creation of Border Uncertainty (US Advance Electronic Notification)
Transport Mode Air/Courier Rail Vessel Truck Import Rule 4 hours prior to arrival or “wheels up” from nearby airports 4 hours prior to arrival at US port of entry 24 hours prior to loading at foreign port For FAST carriers: 30 minutes prior to arrival at US border For non-FAST carriers: 1 hour prior to arrival at US border Export Rule 2 hours prior to scheduled departure from US 4 hours prior to attachment of the engine to go international 4 hours prior to departure of the vessel 1 hour prior to arrival at the border

Cost of US Import Compliance on the Canadian Trucking Industry (DAMF)
Cost Impact Item Truck delay Driver compliance C-TPAT Compliance Computer systems Administration Less Border surcharges Net cost impact Annual Minimum (C$ millions) 231.0 3.4 5.0 2.5 14.0 -77.0 178.9 Annual Maximum (C$ millions) 433.0 6.8 10.0 5.0 28.0 -77.0 405.8

DAMF 05 Best Estimate: C$290 million per year, 4% of expenses.

© Mary R. Brooks, 2008

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Globalization TRB 2008

NAFTA’s Deteriorating Situation (Human Development Index)
2000 Report HDI Rank HDI Value GDP Index 2005 Report HDI Rank HDI Value GDP Index Canada 1 0.935 0.91 Canada 5 0.949 0.96 Mexico 55 0.784 0.73 Mexico 53 0.814 0.75 United States 3 0.929 0.95 United States 10 0.944 0.99

Note: The 2000 report is based on 1998 data and the 2005 report on 2003 data. Source: United Nations Human Development Report 2005 and 2000.

Trade Facilitation Can Be Improved
Documents for export (number) 4.8 3 6 6 3 2 Time for export (days) 10.5 7 17 9 5 5 Documents for import (number) 5.9 4 8 5 3 2 Time for import (days) 12.2 10 26 9 5 5

Region or Economy OECD Canada Mexico United States Denmark Hong Kong, China

Source: World Bank Doing Business Report http://www.doingbusiness.org/ExploreTopics/TradingAcrossBorders

© Mary R. Brooks, 2008

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Globalization TRB 2008

What Are Carriers Doing?

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Ocean: Bigger ships, investment in terminal operations or logistics services to control the supply chain All: Engaging in route risk mitigation All: Adopting voluntary security programs in the absence of demonstrated benefits (e.g. C-TPAT, FAST…) Trucking: Pushing for electronic documentation (e.g. ACE)

Impacts on Customers?
● ● ● ●

● ● ●

Each company has a a different experience and a different take. System reliability has become an unacceptable problem Increased inventories (offset JIT issues with more buffer stock) Route risk mitigation (transfer to Canadian or East Coast gateways from USWC ports) Tracking system and carrier performance Taking back in-house some outsourced 3PL services Watching with dismay as Asian and Eastern European country companies continue to take business away More conscious lobbying…

© Mary R. Brooks, 2008

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Globalization TRB 2008

Government Response to Globalization …

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US needs to find its vision of the future; Canada has developed its Gateways and Corridors strategy; Mexico is planning massive infrastructure investments. NAFTA needs a pooling of infrastructure to serve the continent Seamless borders; joint security Addressing the labour (shortages) and immigration issues Making sure industrial policy is – Less protectionist – While safeguarding innovation to maintain technology leadership – He who is best educated wins… – The “lion” will beat the “gazelle” (intellectual power without complacency and protectionism versus nimbleness)

Conclusions

Globalization is not new; it is here to stay because the world has become too economically integrated. If North Americans don’t get products to market efficiently and effectively, they will not be as competitive as another who can. Europe has Trans-European Networks system for identifying high priority corridors. Should NAFTA have a North American Transportation Infrastructure Council? The network needs to work, and it needs to be a bordercrossing network. It needs to link traders and consumers to the world. Two words: Stronger Together

© Mary R. Brooks, 2008

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Globalization TRB 2008

Questions?
Mary R. Brooks m.brooks@dal.ca

Thank you.

© Mary R. Brooks, 2008

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